2019 (12) TMI 660 - AT - Income Tax

Tribunal quashes CIT's order, rules for assessee under section 263.

The Tribunal quashed the CIT's order under section 263, ruling in favor of the assessee. It held that the AO's assessment was not erroneous or prejudicial ... Revision u/s 263 - Assessment proceedings u/s 143(3) - HELD THAT:- Books of accounts, voucher Bank statement invoice and purchase bills are ready available for your inspection. In view of the above, we hold that the assessment order was framed under section 143(3) of the Act after due verification by the AO. Accordingly, we are of the view that the order of the AO cannot be held as erroneous insofar prejudicial to the interest of Revenue on account of non-verification of the facts as stated above. See MALABAR INDUSTRIAL CO. LTD. VERSUS COMMISSIONER OF INCOME-TAX [2000 (2) TMI 10 - SUPREME COURT] - We quash the order passed by the Ld. PCIT under section 263 of the Act. Hence the ground of appeal of the assessee is allowed. Issues Involved:1. Whether the order passed by the AO under section 143(3) of the Income Tax Act was erroneous and prejudicial to the interest of revenue.2. Verification of sundry creditors and the corresponding liabilities shown by the assessee.3. Classification of expenses related to the development agreement as revenue expenditure instead of capital expenditure.Detailed Analysis:1. Erroneous and Prejudicial to the Interest of Revenue:The primary issue raised by the assessee is that the learned CIT erred in holding the order passed by the AO under section 143(3) of the Act as erroneous and prejudicial to the interest of revenue. The CIT observed that the AO did not carry out proper verification or application of mind regarding the sundry creditors and the expenses claimed by the assessee. The CIT issued a notice under section 263 of the Act, proposing that the assessment order was erroneous and prejudicial to the interest of revenue. The CIT held that the assessment was framed without proper enquiry and verification of facts, setting aside the AO's order and directing a fresh assessment.2. Verification of Sundry Creditors:The CIT noted that the assessee had shown outstanding sundry creditors amounting to Rs. 437.50 lakhs, including two creditors, Shri Amit Rajnikant Joshi and Shri Sureshbhai Thakkar, with balances of Rs. 1.90 crores and Rs. 1.95 crores respectively. One creditor did not respond to the AO's notice, and the other confirmed receipt of only Rs. 15 lakhs. The AO accepted these creditors as genuine without further verification, which the CIT found erroneous. The assessee, in response, provided documents supporting the genuineness of the creditors, including development agreements, PAN, driving licenses, and voter identity cards. The assessee argued that non-response to the notice cannot be the sole criterion for holding the creditors as non-genuine.3. Classification of Expenses:The CIT observed that the assessee claimed an expense of Rs. 4.20 crores in the year under consideration, related to a development agreement dated 28 March 2014. The CIT argued that these expenses should have been capitalized as work in progress or closing stock, instead of being claimed as revenue expenditure. The assessee contended that the cost for acquiring development rights was treated as stock in trade and debited to the profit and loss account, as the assessee deals in land development.Tribunal's Findings:The Tribunal noted that the AO had carried out necessary verification during the assessment proceedings, as evident from the notices issued under section 142(1) of the Act and the assessee's responses. The Tribunal referred to the guidance note issued by the Institute of Chartered Accountants of India, supporting the assessee's method of recognizing revenue and expenses. The Tribunal held that the AO's order was not erroneous or prejudicial to the interest of revenue, as the necessary verification was conducted.Legal Precedents:The Tribunal cited the judgment of the Hon'ble Supreme Court in Malabar Industrial Co Ltd Vs. CIT, which held that an order is erroneous if it is contrary to law and prejudicial to the revenue. The Tribunal also referred to the judgment of the Hon'ble Bombay High Court in CIT vs. Nirav Modi, which stated that revisional power under section 263 can be exercised only when no inquiry is conducted by the AO. Additionally, the Tribunal cited the Hon'ble Gujarat High Court's judgment in CIT vs. R. K. Construction Company, which held that a different view by the Commissioner in revisional proceedings is not permissible if the AO's view is sustainable in law.Conclusion:The Tribunal quashed the order passed by the CIT under section 263 of the Act, allowing the appeal of the assessee. The Tribunal concluded that the AO's assessment order was framed after due verification and was not erroneous or prejudicial to the interest of revenue. The appeal of the assessee was allowed, and the order pronounced in the Court on 18/10/2019 at Ahmedabad.