2022 (2) TMI 375 - AT - Income Tax

Tribunal upholds assessee's gross profit rate estimation, overturns revision orders for assessment years 2013-16.

M/s Sree Shivalingeshwara arecanut Traders Versus The Principal Commissioner of Income-tax [Central], Bengaluru, The Dy. Commissioner of Income-tax, Central Circle, Mysuru.

The Tribunal held that the Assessing Officer's adoption of the gross profit rate declared by the assessee for estimating income from unaccounted sales was ... Revision u/s 263 by CIT - Unaccounted turnover - AO completed the assessment of all these 3 years u/s 143(3) r.w.s. 153A of the Act, consequent to the search operations conducted in the hands of the assessee - HELD THAT:- It is nobody’s case that the cash payment represents unaccounted purchases as presumed by Ld PCIT. In that case, the AO could not have computed gross profit on the basis of entries noted in the seized materials. Under these set of facts, one of the courses of action available with the AO is to estimate profit from the unaccounted sales. Since the assessee could not have sold materials without purchasing them, only profit element may be assessed. Thus, the AO has estimated the income and assessed the same in the hands of the assessee in all the three years. Thus, we notice that the AO has adopted one of the possible views in this matter. As held by Hon’ble Supreme Court in the case of Malabar Industrial Company [2000 (2) TMI 10 - SUPREME COURT] if the AO has taken one of the possible views, then the same would not make the assessment order prejudicial to the interests of revenue. PCIT has held the assessment orders to be erroneous for the reason that the AO should have estimated income from unaccounted sales at a higher figure. Thus it is case where Ld PCIT is having a different view on the manner of estimation of income from unaccounted sales. As held in the case of Gabriel India Ltd (supra), the view so entertained by Ld PCIT would not give him power u/s 263 of the Act to initiate revision proceedings, since the view of the AO cannot be termed as erroneous. The impugned assessment orders cannot be termed as erroneous and prejudicial to the interests of revenue. Accordingly, Ld PCIT was not justified in invoking revision proceedings in all the three years under consideration. Accordingly we set aside the revision orders passed by Ld PCIT in all the three years under consideration. - Decided in favour of assessee. Issues Involved:1. Validity of the revision orders passed by the Principal Commissioner of Income Tax (PCIT) under section 263 of the Income-tax Act, 1961.2. Adequacy of the Assessing Officer’s (AO) enquiry and verification regarding unaccounted purchases and sales.3. Appropriateness of the gross profit rate adopted by the AO for unaccounted sales.Issue-wise Detailed Analysis:1. Validity of the Revision Orders under Section 263:The assessee challenged the revision orders passed by the PCIT for the assessment years 2013-14 to 2015-16. The PCIT initiated revision proceedings under section 263 of the Income-tax Act, 1961, on the grounds that the AO's assessment orders were erroneous and prejudicial to the interests of the revenue. The PCIT argued that the AO should have ascertained the profit by considering both unaccounted purchases and sales noted in the seized materials. The PCIT believed that the AO made additions without proper enquiry or verification regarding the source of unaccounted purchases.2. Adequacy of AO’s Enquiry and Verification:The AO completed the assessments under section 143(3) read with section 153A, following search operations on the assessee. The AO added “Profit on unaccounted sales” based on incriminating materials found during the search, which included papers noting receipts and payments. The assessee explained that these transactions represented both accounted and unaccounted sales proceeds. The AO accepted the gross profit rate declared in the books of accounts for unaccounted sales, which the assessee had offered as additional income. The PCIT, however, contended that the AO should have verified the source of unaccounted purchases and not just relied on the gross profit rate for unaccounted sales.3. Appropriateness of Gross Profit Rate Adopted by AO:The AO adopted the gross profit rate declared in the books of accounts for estimating income from unaccounted sales. The PCIT argued that the AO should have computed the gross profit based on entries in the seized materials, which allegedly included unaccounted purchases. The assessee contended that the seized materials did not include any payment towards unaccounted purchases and that the sale proceeds were used to make payments for unaccounted purchases. The assessee also pointed out that the AO, in the consequential order to give effect to the PCIT’s revision order, could not identify details of unaccounted purchases from the seized materials and proceeded to estimate income from unaccounted sales at 50% of the sales value.Legal Principles and Judgments Referenced:The Tribunal referred to the principles laid down by the Hon’ble Supreme Court in 'Malabar Industrial Co. Ltd. v. CIT' and the Hon’ble Bombay High Court in 'CIT vs. Gabriel India Ltd.' The Tribunal reiterated that for an order to be revised under section 263, it must be both erroneous and prejudicial to the interests of the revenue. An order is considered erroneous if it is not in accordance with law, and prejudicial to the interests of the revenue if it results in a loss of tax lawfully payable. The Tribunal emphasized that if the AO has taken one of the possible views, the same cannot be termed erroneous merely because the PCIT holds a different view.Conclusion:The Tribunal concluded that the AO had taken a conscious decision to adopt the gross profit rate declared by the assessee in its books of accounts for estimating income from unaccounted sales. The Tribunal noted that the AO had made necessary enquiries and that the PCIT’s view was merely a different opinion on the manner of estimation. Therefore, the Tribunal held that the assessment orders could not be termed erroneous and prejudicial to the interests of the revenue. Consequently, the Tribunal set aside the revision orders passed by the PCIT for all three years under consideration.Result:All three appeals filed by the assessee were allowed, and the revision orders passed by the PCIT were set aside.