2018 (12) TMI 568 - AT - Income Tax

Tribunal Upholds Assessing Officer's Order, Rejects Jurisdiction Assumption

M/s Motiwala And Sons Versus The Pr. C.I. T-17, New Delhi

The Tribunal held that the assessment order under Section 143(3) was neither erroneous nor prejudicial to the interest of the Revenue. It found that the ... Revision u/s 263 - erroneous order prejudicial to the interests of the revenue - Held that:- No hesitation to hold that AO during the course of assessment proceedings made detail and specific enquiries in relation to stock and after making detailed enquiries, accepted reconciliation in the variation in the value of stock. Therefore, it cannot be said that the AO did not make any enquiry while framing the assessment order. CIT has grossly erred in observing that the Assessing Officer should have made a complete enquiry for the amount of excess stock at ₹ 9,95,72,922/- called for documentary evidence for purchase of gold and diamond and verified the genuineness. As mentioned elsewhere, the assessee had filed complete documentary evidences of purchase of gold and diamond and the Assessing Officer has verified the same. Even the alleged excess stock has been explained completely by filing a reconciliation statement. Therefore, it is incorrect to say that neither proper enquiries were made nor any investigation was made by the AO. As explained hereinabove, we are of the considered opinion that the assessment order framed u/s 143(3) of the Act is neither erroneous nor prejudicial to the interest of the Revenue and the PCIT has erroneously assumed jurisdiction u/s 263 of the Act. We, accordingly, set aside the order framed u/s 263 of the Act and restore that of the Assessing Officer framed u/s 143(3) of the Act. - Decided in favour of assessee. Issues Involved:1. Validity of the order framed under Section 263 of the Income-tax Act, 1961.2. Whether the assessment order under Section 143(3) was erroneous and prejudicial to the interest of the Revenue.Detailed Analysis:1. Validity of the Order Framed under Section 263 of the Income-tax Act, 1961:The assessee challenged the validity of the order framed under Section 263 of the Income-tax Act, 1961, dated 27.03.2018, pertaining to the assessment year 2013-14. The primary grievance was that the Principal Commissioner of Income Tax (PCIT) wrongly assumed jurisdiction under Section 263 of the Act.2. Whether the Assessment Order under Section 143(3) was Erroneous and Prejudicial to the Interest of the Revenue:The facts of the case reveal that a survey operation under Section 133A of the Act was conducted at the assessee's premises. The return for the year was selected for scrutiny assessment, and the returned income of Rs. 6.34 crores was accepted by the Assessing Officer (AO) vide order dated 30.03.2016 framed under Section 143(3) of the Act.The PCIT issued a show-cause notice to the assessee, asserting that the assessment framed under Section 143(3) was erroneous and prejudicial to the interest of the Revenue. The PCIT's belief was based on the discrepancy between the stock value of gold and diamond jewelry as per the books (Rs. 17,52,77,030) and the value determined by the approved valuer (Rs. 33,48,49,952) during the survey, resulting in an excess/unaccounted stock of Rs. 15,95,72,922. The assessee had disclosed only Rs. 6 crores, and the PCIT contended that the AO did not adequately investigate the remaining amount of Rs. 9,95,72,922.The Tribunal examined the case records and documentary evidence. It was noted that the AO had issued a detailed notice dated 01.02.2016, requesting explanations for the discrepancy in stock valuation and the method adopted for stock valuation. The assessee provided a comprehensive reply explaining the difference due to the market value taken by the valuer versus the cost or market value (whichever is less) adopted by the assessee.Further, the AO issued another notice dated 19.02.2016, seeking additional information, including purchase bills and a reconciliation statement for the stock difference. The assessee submitted detailed responses, including a reconciliation statement and documentary evidence of purchases.The Tribunal referred to judicial precedents, including the Hon'ble Supreme Court's decision in Malabar Industrial Co. Ltd., which established that the Commissioner must satisfy twin conditions for exercising powers under Section 263: the order must be erroneous and prejudicial to the interest of the Revenue. The Tribunal also cited the Hon'ble Gujarat High Court's decision in Nirma Chemical Works and the Bombay High Court's decision in CIT Vs. Gabriel India Ltd, emphasizing that an AO's order cannot be deemed erroneous simply because it lacks detailed discussion if the AO had conducted adequate inquiries.The Tribunal concluded that the AO had made detailed and specific inquiries regarding the stock valuation and accepted the reconciliation provided by the assessee. Therefore, it could not be said that the AO did not make any inquiry while framing the assessment order. The PCIT's observation that the AO should have conducted a complete inquiry for the excess stock was incorrect, as the assessee had filed complete documentary evidence and the AO had verified the same.The Tribunal also referred to the Delhi High Court's decision in D.G. Housing Project Ltd, which clarified that the CIT must establish that the AO's order is erroneous and prejudicial to the interest of the Revenue before invoking Section 263. The Tribunal found that the PCIT had erroneously assumed jurisdiction under Section 263 without establishing that the AO's order was unsustainable in law.Conclusion:Considering the judicial precedents and the facts of the case, the Tribunal held that the assessment order framed under Section 143(3) was neither erroneous nor prejudicial to the interest of the Revenue. Consequently, the Tribunal set aside the order framed under Section 263 and restored the AO's order under Section 143(3). The appeal of the assessee was allowed.