2021 (12) TMI 935 - AT - Income Tax

Tribunal Upholds Assessing Officer's Estimation of Gross Profit on Unaccounted Sales

M/s. Doddanna Traders Versus Principal CIT (Central) Bangalore & Deputy Commissioner of Income-tax Central Circle Mysuru

M/s. Doddanna Traders Versus Principal CIT (Central) Bangalore & Deputy Commissioner of Income-tax Central Circle Mysuru - TMI Issues Involved:1. Validity of the revision of the order passed by the Principal Commissioner of Income Tax (PCIT) under section 263 of the Income-tax Act, 1961.2. Whether the Assessing Officer's (AO) estimation of gross profit on unaccounted sales was erroneous and prejudicial to the interests of revenue.Detailed Analysis:1. Validity of the Revision of the Order Passed by PCIT under Section 263 of the Income-tax Act, 1961:The assessee, a partnership firm engaged in trading Arecanut, challenged the revision orders passed by the PCIT for assessment years 2013-14 to 2015-16. The AO had completed the assessments under section 143(3) read with section 153C of the Act, making additions based on 'Profit on unaccounted sales' derived from incriminating materials found during a search operation. The PCIT reviewed the assessment records and concluded that the AO had not adequately verified the sources of unaccounted purchases and had erroneously estimated the gross profit at 0.7%.The assessee argued that the gross profit on unaccounted turnover was admitted and accepted by both the ADIT (Inv) and the AO. The seized materials did not indicate unaccounted purchases, and the sale proceeds were used for payments towards unaccounted purchases. The PCIT, however, did not accept these contentions and directed a de-novo assessment considering all entries in the seized documents. The assessee contended that the AO's view was plausible and not erroneous or prejudicial to the revenue.2. Whether the AO's Estimation of Gross Profit on Unaccounted Sales was Erroneous and Prejudicial to the Interests of Revenue:The legal principles governing revision proceedings under section 263 were examined, referencing judgments from the Hon'ble Supreme Court and Bombay High Court. The Supreme Court in Malabar Industrial Co. Ltd. v. CIT clarified that section 263 can only be invoked if the order is erroneous and prejudicial to the interests of revenue. An order is considered erroneous if it involves an incorrect assumption of fact or application of law, violates natural justice principles, or lacks application of mind.The Bombay High Court in CIT v. Gabriel India Ltd. emphasized that the PCIT's consideration must be based on the record's materials, and the power cannot be exercised for fishing and roving enquiries. The AO's decision, if plausible and based on a conscious evaluation of facts, cannot be termed erroneous merely because the PCIT holds a different view.In this case, the AO had discussed the unaccounted sales in detail and adopted the gross profit rate from the books of account for estimating income from unaccounted sales. The PCIT believed the AO should have computed gross profit based on seized materials' entries, which only detailed cash receipts and payments without mentioning purchases/sales. The AO's inference that the receipts represented unaccounted sales was accepted by the assessee. The AO's estimation of profit from unaccounted sales, considering no unaccounted purchases were indicated, was a plausible view.The Tribunal concluded that the AO's view was one of the possible views and not erroneous or prejudicial to the revenue. The PCIT's different view on income estimation did not justify invoking section 263. Therefore, the revision orders by the PCIT were set aside, and the assessee's appeals were allowed.Conclusion:The Tribunal found that the AO had taken a plausible view in estimating the gross profit on unaccounted sales, and the PCIT's initiation of revision proceedings was not justified. The assessment orders were neither erroneous nor prejudicial to the interests of revenue. Consequently, the revision orders passed by the PCIT for the assessment years 2013-14 to 2015-16 were set aside, and the assessee's appeals were allowed.