1997 (6) TMI 44 - AT - Income Tax

Assessment order upheld by ITAT; CIT's decision overturned

PLASTIC CONCERN. Versus ASSISTANT COMMISSIONER OF INCOME TAX.

The ITAT held that the AO's assessment order was not erroneous or prejudicial to the Revenue. The CIT's decision to set aside the AO's order based on ... - Issues Involved:1. Whether the AO's assessment order was erroneous and prejudicial to the interests of the Revenue.2. Whether the CIT could set aside the AO's assessment order based on incomplete enquiries and extend the limitation period for further investigations.Summary:Issue 1: Whether the AO's assessment order was erroneous and prejudicial to the interests of the Revenue.The appeal concerns a revisional order passed by the CIT u/s 263 of the IT Act, 1961. The AO had verified the correctness of the statement made in the 'Note' annexed to the assessee's return, which involved the purchase of plastic powder for processing on a job basis. The AO issued notices u/s 133(6) to RSI Ltd. and ESTC India Ltd., who confirmed supplying the plastic powder for processing and not as a sale. The AO then issued a show-cause notice to the assessee, who promptly provided the requested information. The AO, satisfied with the information, completed the assessment without making any addition.The CIT, however, issued a notice u/s 263, directing the assessee to show cause why the assessment order should not be treated as erroneous and prejudicial to the interests of the Revenue, arguing that the AO failed to make further investigations. The CIT set aside the AO's order, directing further enquiries into the transactions.The ITAT held that the AO had made reasonable enquiries and that the information gathered matched the assessee's 'Note' in the balance sheet. The AO's assessment was based on the available material, and there was no contradiction between the assessee's version and the suppliers' statements. The CIT's opinion that further enquiries might bring additional information did not justify invoking u/s 263. The ITAT concluded that the AO's order was not erroneous or prejudicial to the Revenue.Issue 2: Whether the CIT could set aside the AO's assessment order based on incomplete enquiries and extend the limitation period for further investigations.The ITAT noted that the AO had two years to make proper enquiries but started the process just before the expiration of the limitation period. The AO, in a confidential note, mentioned that further enquiries could be made after the assessment, with the CIT's approval. The ITAT found this practice of completing assessments at the last minute and relying on u/s 263 to extend the limitation period inappropriate.The ITAT emphasized that the CIT's jurisdiction u/s 263 is not unchartered and cannot be used to extend the limitation period for completing assessments. The CIT's action of setting aside the AO's order to allow further time for enquiries was seen as circumventing the law. The ITAT held that the CIT's order was not justified and quashed it, allowing the assessee's appeal.In conclusion, the ITAT ruled that the AO's order was neither erroneous nor prejudicial to the interests of the Revenue and that the CIT could not use u/s 263 to extend the time for further investigations. The assessee's appeal was allowed, and the CIT's order was quashed.