2019 (11) TMI 866 - AT - Income Tax

Tribunal quashes IT Commissioner's order under Section 263, allowing Assessing Officer's gross profit estimation.

Sri Purna Chandra Biswal Versus Principal CIT, Cuttack

The Tribunal quashed the Principal Commissioner of Income Tax's order under Section 263, holding that the Assessing Officer's estimation of gross profit ... Revision u/s 263 - chargeability of unexplained cash credit in the form of “sundry creditors for raw material and expenses”, to income tax as the income in addition to the returned income of the assessee for assessment year concerned u/s.68 or 41(1) - HELD THAT:- It cannot be said that the view taken by the A.O. is not one of the possible views. The Pr.CIT may be of the view that some more disallowance/addition would have been justified, however, that by itself will not make the assessment to be erroneous and prejudicial to the interest of the Revenue. The course adopted by the A.O. is certainly one of the possible views. It is now settled law that if, while making the assessment, once the AO has completed the assessment rejecting the books of accounts of the assessee and estimating the gross profit of the assessee, again directing the AO to accept the returned income, which otherwise to accept the books of accounts of the assessee invoking powers conferred u/s.263 of the Act, amounts to change of opinion and, therefore, the Pr.CIT is not permitted to substitute his own view about the computation of income in place of the income assessed by the A.O., unless the order of the A.O. is patently unsustainable in law. Our view is supported by the decision of Hon’ble Delhi High Court in the case of CIT Vs. International Travel House Limited, [2010 (9) TMI 347 - DELHI HIGH COURT] as held that the Pr. CIT does not have unfettered power to initiate proceeding by revision, re-examining the matter and directing fresh enquiry on his own whim for change or having a different view - Commissioner has been conferred with a quasi-judicial power and the same is hedged with limitations and, therefore, it has to be exercised within the parameters of the provision. When the Commissioner is himself not able to form an opinion, he cannot direct another inquiry by the Assessing Officer under section 263 of the Act. In the instant case, the Pr.CIT himself is not sure as to whether the addition can be made u/s.68 or u/s.41(1). Accordingly, we hold that the Pr. C.I.T. was not justified in setting aside the assessment order to the A.O. for passing fresh assessment order after making further inquiries/verifying the matters afresh - Decided in favour of assessee. Issues Involved:1. Treatment of Sundry Accounts Written Off.2. Addition of Sundry Creditors.3. Sundry Creditors from an Erstwhile Partnership Firm.4. Applicability of Section 68 in the Absence of Books of Accounts.Detailed Analysis:Issue 1: Treatment of Sundry Accounts Written Off- The Principal Commissioner of Income Tax (Pr. CIT) considered Rs. 16,164 of sundry accounts written off as separate income, which the assessee contested, arguing it originated from works contract income.- The Tribunal dismissed this ground as not pressed by the assessee.Issue 2: Addition of Sundry Creditors- The Pr. CIT proposed adding Rs. 2,69,16,055 as sundry creditors, questioning the detailed list provided by the assessee.- The Tribunal noted that the assessee had provided a detailed list of sundry creditors, which related to earlier assessment years. The Assessing Officer (AO) had already completed the assessment by estimating the profit under Section 145(3) of the Income Tax Act due to the absence of books of accounts.- The Tribunal found that the AO had ample rights for verification but did not utilize them adequately. The Pr. CIT's direction to reassess and verify these creditors was seen as substituting his opinion over the AO's, which was not permissible.- The Tribunal referred to the case of M/s Gulf Steel & Minerals, where it was held that once gross profit is estimated, no further addition on creditors can be made.Issue 3: Sundry Creditors from an Erstwhile Partnership Firm- The assessee argued that sundry creditors amounting to Rs. 89,31,810 were taken over from an erstwhile partnership firm and related to earlier assessment years, with no new liability incurred during the current year.- The Tribunal observed that the AO had already considered these details and estimated the profit, making the Pr. CIT's recommendation for further verification redundant and unsustainable.Issue 4: Applicability of Section 68 in the Absence of Books of Accounts- The Pr. CIT cited the case of Commissioner of Income Tax v. Devi Prasad Vishwanath, asserting that additions under Sections 68, 69, 69A, 69B are possible even when income is estimated under Section 144 due to rejection of books under Section 145(3).- The Tribunal disagreed, noting that the facts of the cited case differed from the present case, where there was a complete absence of books of accounts. For Section 68 to apply, the presence of books of accounts is required.- The Tribunal emphasized that the AO had already rejected the books of accounts and estimated the gross profit, making any further direction to accept the books and reassess as per Pr. CIT's instructions an act of changing opinion, which is not allowed.Conclusion:- The Tribunal quashed the Pr. CIT's order under Section 263, holding that the AO's estimation of gross profit was a permissible view and that the Pr. CIT's directions amounted to an impermissible change of opinion.- The appeal was partly allowed, with the Tribunal setting aside the Pr. CIT's directions for fresh assessment.Order Pronouncement:- The order was pronounced in the open court on 15/11/2019.