2019 (12) TMI 1625 - AT - Income Tax

Tribunal rules in favor of assessee, quashing Income Tax Commissioner's order under section 263.

M/s. S.N. Tradelink Pvt. Ltd. Versus Principal Commissioner of Income-Tax- 2, Surat

The Tribunal quashed the Principal Commissioner of Income Tax's order under section 263, ruling in favor of the assessee. It held that the Assessing ... Revision u/s 263 - As per CIT AO failed to examine the liabilities and accounting of TCS method - whether the AO has made enquiries about issue under consideration? - HELD THAT:- Merely just because the view taken by the AO was not found acceptable does not mean that the AO has failed to make requisite enquiries. If the answer is affirmative then second question arises whether the acceptance of the claim by the AO was a plausible view or on the facts of the finding on the facts that the said finding of the AO can be termed as sustainable in law. We find that vide questionnaire, the assessee regarding current liabilities and details of TCS were asked for. The assessee had furnished his reply, which is placed found placed in Paper Book Pages as referred above. The assessee has explained that the TCS is being accounted separately and no deduction of the same has been claimed in the Profit & Loss Account. Therefore, it the method of accounting, which does not mean that income has escaped assessment or order being erroneous, because if TCS are considered as part of sale then corresponding debit of TCS was to be claimed in the Profit & Loss Account. There is no revenue loss. In view of these facts and circumstances, we find that the AO has made due enquiries and had taken a plausible view, hence, same, cannot be disturbed by Pr.CIT in the name of verification. Since the AO has made during enquiry and examined the issues, hence, invocation of Expln 2 of section 263 is not justified as same is applicable where the AO had not made enquiry and applied his mind which should have been done in the opinion of Pr.CIT. However, the Pr. CIT has not done any enquiry and not suggested what enquiries were to be carried out, therefore, Explanation 2 of section 263 is not applicable. Appeal of the assessee stands allowed. Issues Involved:1. Whether the Principal Commissioner of Income Tax (Pr.CIT) was justified in invoking section 263 of the Income Tax Act, 1961, deeming the assessment order passed under section 143(3) as erroneous and prejudicial to the interest of the Revenue.2. Whether the Assessing Officer (AO) conducted adequate inquiries and verification during the original assessment proceedings.Issue-wise Detailed Analysis:1. Justification for Invoking Section 263 by Pr.CIT:The Pr.CIT invoked section 263 to revise the assessment order, arguing that the original assessment order was erroneous and prejudicial to the interest of the Revenue. The Pr.CIT identified discrepancies in the opening balance of liabilities and the treatment of TCS (Tax Collected at Source) in the assessee's financial statements. Specifically, the Pr.CIT noted a difference of Rs. 14,78,098 in the opening balance of liabilities, which should have been disallowed under section 41(1) of the Act. Additionally, the Pr.CIT contended that the assessee incorrectly reduced Rs. 55,67,517, being the TCS amount collected from buyers, which should have been disallowed.The Pr.CIT issued a show-cause notice, and despite the assessee's explanations regarding regrouping of liabilities and separate accounting of TCS, the Pr.CIT found the need for detailed verification. Consequently, the Pr.CIT concluded that the AO's order was erroneous and prejudicial to the interest of the Revenue due to a lack of proper inquiries and verification, thus invoking clause (a) & (b) of Explanation 2 of section 263.2. Adequacy of Inquiries and Verification by AO:The assessee argued that the AO had duly verified and applied his mind to the issues during the original assessment proceedings, thus the order was neither erroneous nor prejudicial to the interest of the Revenue. The assessee provided detailed responses to the show-cause notice and referred to various documents, including the balance sheet, notes on accounts, and schedules, to substantiate the regrouping and recasting of liabilities. The assessee also explained the accounting method for TCS, asserting that no deduction was claimed in the Profit & Loss Account, and hence, there was no question of disallowance.The Tribunal examined whether the AO had made adequate inquiries and found that the AO had indeed conducted inquiries and obtained explanations from the assessee regarding the liabilities and TCS accounting method. The Tribunal emphasized that lack of inquiry makes an AO's order erroneous, but inadequate inquiry does not. The Tribunal cited several judicial precedents, including the Supreme Court's rulings in Malabar Industrial Co. Ltd. v. CIT and CIT v. Max India Ltd., which clarified that an order cannot be deemed erroneous if the AO has taken a plausible view based on evidence.The Tribunal concluded that the AO had made due inquiries and taken a plausible view. The Pr.CIT did not specify what further inquiries or verification should have been conducted by the AO. Therefore, the invocation of section 263 was not justified as the twin conditions of the AO's order being erroneous and prejudicial to the interest of the Revenue were not satisfied.Conclusion:The Tribunal quashed the Pr.CIT's order under section 263, allowing the appeal of the assessee. The Tribunal held that the AO had conducted adequate inquiries and verification, and the Pr.CIT's invocation of section 263 was not warranted as the conditions for revisionary jurisdiction were not met. The assessment order passed by the AO was found to be neither erroneous nor prejudicial to the interest of the Revenue.