2022 (4) TMI 282 - AT - Income Tax

Tribunal directs reassessment for fair hearing in appeal against CIT's order.

The Tribunal dismissed the appeal against the CIT's order under section 263 for the assessment year 2009-2010. The Tribunal directed the Assessing Officer ... Revisionary power under section 263 - Limitation and effect of communication of order - Doctrine of merger in revision proceedings - Ad hoc/estimated disallowance and implied rejection of books of account - Obligation to consider written reply to show cause notice - Remand for reassessment with direction to examine evidenceLimitation and effect of communication of order - Doctrine of merger in revision proceedings - Grounds challenging the validity of the revisionary order on limitation and merger were previously adjudicated and are not to be re opened. - HELD THAT: - The Tribunal observed that Grounds Nos. 1 to 3 of the assessee, which challenged the section 263 order as time barred and raised related communication/contention, had already been adjudicated by the Tribunal in the form of the assessee's additional ground and were dismissed by its earlier order. For the doctrine of merger, the CIT relied on Explanation (c) to section 261(1) to show that matters not considered in the first appeal remained open to revision; the Tribunal accepted that the issues raised in the show cause were not the subject matter of the earlier appeal and hence the doctrine of merger did not preclude revision. Consequently, those grounds need not be re adjudicated in the recalled proceeding. [Paras 8]Grounds 1-3 already adjudicated earlier and are not to be re adjudicated; doctrine of merger does not bar revision in respect of matters not decided in appeal.Ad hoc/estimated disallowance and implied rejection of books of account - An ad hoc 10% disallowance of expenses by the Assessing Officer did not amount to rejection of the assessee's books of account and did not preclude further enquiry or additions on the same basis. - HELD THAT: - The Tribunal examined the assessment order and found that the AO had made a 10% disallowance because the assessee failed to produce bills and vouchers; this was an estimation of particular claims and not a formal rejection of the books of account. Reliance placed by the assessee on authorities holding that estimation implies rejection was held not applicable on the facts, since the AO had not rejected the accounts. Accordingly, the contention that no further addition could be made on the basis of the same accounts was rejected. [Paras 13]The AO's ad hoc disallowance did not amount to rejection of books of account; the contention that no further addition could be made is dismissed.Obligation to consider written reply to show cause notice - Revisionary power under section 263 - The Commissioner did give consideration to the assessee's written reply to the show cause notice under section 263 and reasonably concluded that the explanations were not specific; the challenge that the reply was not judicially considered is unsustainable. - HELD THAT: - On reading the revision order, the Tribunal found that the CIT had noted the assessee's submissions and specifically observed that the assessee had not furnished specific explanations addressing the issues raised in the show cause. The Tribunal therefore concluded that the legal contention that the reply was not considered and that the section 263 order was void ab initio was without merit. [Paras 14]The CIT did consider the assessee's reply and lawfully set aside the assessment for further examination; the plea of non consideration is dismissed.Remand for reassessment with direction to examine evidence - The matter was set aside and restored to the file of the Assessing Officer for reassessment, with a direction to consider the assessee's explanations and documentary evidence and to afford opportunity of hearing. - HELD THAT: - In the interest of justice the Tribunal directed that on reassessment pursuant to the section 263 order the AO shall examine, verify and enquire into the issues raised in the show cause notice and take into account the explanations and relevant documentary evidence; the CIT(A) was also to consider these matters in any ensuing first appeal. The direction was made to ensure that the assessee is afforded a fair opportunity during reassessment and appellate proceedings. [Paras 15]Assessment restored to the AO for reassessment with directions to consider the assessee's contentions and evidence and to afford opportunity of hearing.Final Conclusion: The appeal is dismissed; the Tribunal upheld the Commissioner's exercise of revisionary power under section 263 on the recorded facts, rejected the contention that the AO's ad hoc disallowance amounted to rejection of books, found that the assessee's written reply was considered, and directed reassessment by the AO with a mandate to examine the explanations and documentary evidence and to afford hearing. Issues:- Appeal against order of CIT under section 263 for assessment year 2009-2010.- Recalling of appeal for fresh consideration.- Grounds raised by the assessee.- Additional ground of appeal.- Allegations by CIT regarding liabilities and sales tax.- CIT's decision to set aside assessment order.- Adjudication of grounds by the Tribunal.- Disallowance of expenses and rejection of accounts.- Non-consideration of reply to notice under section 263.- Two possible views on an issue.- AO's estimation of expenses and rejection of books of account.Detailed Analysis:The appeal was filed against the CIT's order under section 263 for the assessment year 2009-2010. The Tribunal initially decided the appeal on 10.5.2018 but later recalled it for fresh consideration on 4.2.2022. The assessee raised various grounds challenging the legality and basis of the CIT's order. An additional ground was also raised regarding the communication of the order under section 263 being a condition precedent. The CIT alleged discrepancies in the liabilities and sales tax deductions, leading to the initiation of proceedings under section 263.The CIT set aside the assessment order and directed the AO to re-examine the issues raised in the show cause notice issued under section 263. The Tribunal adjudicated the grounds raised by the assessee, dismissing certain grounds as they had already been addressed in the previous order. The issue of estimation of expenses and rejection of accounts was discussed, with the CIT arguing that the AO had not rejected the books of account but had made ad hoc disallowances due to lack of supporting documentation.The Tribunal observed that the AO had not rejected the books of account but had made disallowances based on insufficient documentation. The Tribunal also noted that the CIT had considered the submissions of the assessee and found no specific explanation regarding the issues raised in the show cause notice under section 263. The Tribunal dismissed the contentions related to non-consideration of the reply to the notice. The Tribunal directed the AO to consider all contentions, explanations, and evidence during reassessment proceedings and first appellate proceedings, providing the assessee with a fair hearing.In conclusion, the appeal of the assessee was dismissed, and the Tribunal directed the AO to consider all relevant aspects during reassessment, ensuring a fair opportunity for the assessee to present their case.