2008 (12) TMI 237 - AT - Income Tax

Tribunal upholds assessee's appeal, supports AO's assessment under Income Tax Act

The Tribunal allowed the appeal filed by the assessee, condoning the delay in filing and upholding the assessment order passed by the Assessing Officer ... Erroneous And Prejudicial Order Issues Involved:1. Condonation of delay in filing the appeal.2. Validity of the assessment order under section 143(3) of the IT Act, 1961.3. Invocation of jurisdiction under section 263 by the CIT.4. Examination and verification of books of accounts, cash, and stock during the survey.5. Alleged failure of the AO to make necessary enquiries.6. Alleged inflation of purchases.Detailed Analysis:1. Condonation of Delay:The appeal was time-barred by 40 days. The assessee filed a condonation petition dated 1st July 2008. After hearing both sides and perusing the condonation petition, the Tribunal found a reasonable cause for the delay and condoned it, admitting the appeal for hearing.2. Validity of the Assessment Order under Section 143(3):The assessment was completed under section 143(3) on 21st February 2006, with a total income of Rs. 57,500 against the returned income of Rs. 10,005. The CIT observed that the AO examined the books of accounts found during a survey but did not discuss their nature or contents in the assessment order. The AO also did not mention the cash found or the cash balance in the books. The CIT believed that the AO failed to verify the genuineness of sales and stock, thus rendering the assessment order erroneous and prejudicial to the interest of the Revenue.3. Invocation of Jurisdiction under Section 263 by the CIT:The CIT invoked section 263, finding the assessment order erroneous and prejudicial to the interest of the Revenue. The CIT directed the AO to make a fresh assessment as per law. The assessee argued that the AO conducted a detailed verification and examination of the books of accounts, bank statements, and purchases, and that the AO's order was based on thorough scrutiny.4. Examination and Verification of Books of Accounts, Cash, and Stock During the Survey:The AO scrutinized and verified the books of accounts marked GC/1 to GC/10, bank statements, and purchases. The AO added Rs. 33,517 to the total income under section 40A(3) for cash payments exceeding Rs. 20,000. The AO also added Rs. 14,000 to the total income to arrive at a fair assessment, resulting in a total income of Rs. 57,522.5. Alleged Failure of the AO to Make Necessary Enquiries:The CIT alleged that the AO failed to consider the material discovered during the survey and did not make meaningful investigations. The assessee contended that the AO examined all information and materials collected during the survey and that the CIT's reliance on the show-cause notice was unfounded. The assessee cited several judicial decisions supporting the view that the AO's method of assessment was permissible and not erroneous.6. Alleged Inflation of Purchases:The CIT pointed out an alleged inflation of purchases by Rs. 31,692. The assessee clarified that certain purchases amounting to Rs. 35,175 were omitted by mistake, and a purchase return of Rs. 3,483 was also omitted. The AO obtained direct confirmations from the parties, concluding that there was no overstatement of purchases.Conclusion:The Tribunal found merit in the assessee's submissions, noting that the AO had duly scrutinized and verified the books of accounts, cash, and stock. The Tribunal held that the CIT's invocation of section 263 was unfounded as the AO had conducted proper enquiries. The Tribunal quashed the CIT's order and upheld the assessment order passed by the AO under section 143(3).Result:The appeal filed by the assessee was allowed.