2016 (3) TMI 1378 - AT - Income Tax

Tribunal restores original assessment order, quashes CIT directive. AO's inquiry deemed proper, addition deleted.

The Tribunal set aside the order under section 263, quashed the CIT's directive, and restored the original assessment order. The addition of Rs. ... Revision u/s 263 - Low profit shown in the period subsequent to the survey - CIT enhanced the income - HELD THAT:- The Hon'ble Gujarat High Court in the case of CIT Vs. Amit Corporation [2012 (6) TMI 593 - GUJARAT HIGH COURT] held that where the Assessing Officer after detailed verification of record and making enquiries had framed assessment, the Commissioner of Income Tax cannot revise under section 263 The enhancement of income by the CIT is wholly unjustified because it is not pointed out in the impugned order as to what is the basis for enhancing the income and what more material was found during the course of survey against the assessee over and above the surrendered income of ₹ 1.05 crores, which would also show that the CIT has disbelieved the entire survey proceedings conducted against the assessee. AO took possible view on examination of record with which the CIT did not agree, it cannot be treated that assessment order was erroneous and prejudicial to the interests of the Revenue. AO examined the details at assessment stage after calling for details from the assessee through questionnaire time to time. AO verified all the facts at assessment stage and completed the assessment in accordance with law after applying his mind. Mere fall in GP/NP is no ground to make addition against the assessee. Even if the books of account are rejected, it is not always necessary to make addition against the assessee. Therefore, the assessment order could not be treated as erroneous in-so-far as it is prejudicial to the interests of the Revenue - Decided in favour of assessee. Issues Involved:1. Validity of the order under section 263 of the Income Tax Act, 1961.2. Addition of Rs. 1,48,74,860/- by enhancing the gross profit rate.Detailed Analysis:1. Validity of the Order under Section 263 of the Income Tax Act, 1961:The appeal was directed against the order of the Commissioner of Income Tax (CIT) under section 263 of the Income Tax Act, 1961, which deemed the assessment order as erroneous and prejudicial to the interests of the Revenue. The CIT issued a show cause notice under section 263, highlighting that the Assessing Officer (AO) failed to make inquiries regarding the fall in the gross profit (GP) rate from 4.19% to 1.82% and the discrepancies found during a survey under section 133A.The assessee contended that complete stock records were maintained and submitted during the assessment proceedings, and the fall in GP was due to legitimate expenses, including depreciation and statutory deductions under section 40(b). The CIT, however, rejected this explanation, asserting that the assessee manipulated accounts post-survey to show a lower GP and that no stock register was maintained, as admitted during the survey.The Tribunal found that the AO had indeed examined the records, issued a detailed questionnaire, and received comprehensive responses from the assessee, including stock records and GP/NP charts. The Tribunal noted that the CIT did not provide any basis for disallowing the expenses claimed in the Profit & Loss Account, which was a significant factor for the fall in GP. The Tribunal emphasized that a mere decline in profit compared to previous years does not justify an addition or revision under section 263, citing various judicial precedents.2. Addition of Rs. 1,48,74,860/- by Enhancing the Gross Profit Rate:The CIT directed the AO to apply the GP rate of 4.19% from the preceding year and enhanced the income by Rs. 1,48,74,860/-. The assessee argued that the GP should be based on actual facts and circumstances, and the CIT's enhancement was arbitrary, especially given the expenses and statutory deductions that were not disputed.The Tribunal held that the CIT's enhancement was unjustified as it lacked a factual basis and did not consider the expenses claimed by the assessee. The Tribunal reiterated that the AO had conducted a proper inquiry, and the assessment order was not erroneous or prejudicial to the interests of the Revenue. The Tribunal also referred to judicial precedents, emphasizing that an order cannot be revised merely because the CIT disagrees with the AO's view if the AO's view is a plausible one.Conclusion:The Tribunal set aside the order under section 263, quashed the CIT's directive, and restored the original assessment order. The addition of Rs. 1,48,74,860/- was deleted, and the appeal of the assessee was allowed. The Tribunal concluded that the AO had applied his mind and conducted a proper inquiry, and the mere fall in GP/NP rates did not warrant an addition or revision under section 263.