TaxTMI 
TaxTMI 
2012 (6) TMI 543
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....elation to the order passed under section 263 of the Income Tax Act by the Commissioner of Income Tax. 4. The brief facts of the case are that the return of income furnished by the assessee for the year under consideration was picked up for scrutiny and assessment in the case was completed under section 144A read with section 143(3) of the Act. As the assessee had failed to produce books of account, the income from business both from own trucks and hired trucks was estimated in the hands of the assessee, as is clear from the order of the assessment passed by the Assessing Officer on 11.12.2007. The Commissioner of Income Tax from the perusal of the assessment record noted that the assessee had claimed certain expenses on which tax at source was not deducted. The tax audit report annexed to the return of income confirmed that the assessee had not deducted tax at source out of payment made on account of freight charges, loading & unloading and hiring charges. The Commissioner of Income Tax was of the view that the provisions of section 40a(ia) of the Act were attracted. Further the assessee had given a loan of Rs.4,77,500/- to M/s Lucky Road Carriers on which no interest income wa....
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....3 of the Act was issued on 19.2.2010. The return of income was filed in response to notice under section 148 on 21.10.2009. The fate of proceedings under section 148 was not known. The learned A.R. for the assessee further pointed out that the show cause notice issued under section 263 of the Act and other proceedings initiated against the assessee under sections 148 and 154 of the Act were based on audit objection and there is no independent application of mind by the Commissioner of Income Tax. The learned A.R. for the assessee further pointed out that the audit objection cannot be said to be part of record as held by various High Courts. 6. Reliance was placed by the learned A.R. for the assessee on the following decisions: i) CIT Vs. Sohana Woollen Mills [296 ITR 238 (P&H)] ii) B & A Plantation & Industries Ltd. & Another [290 ITR 395 (Gua)] iii) Jeewan Lal (1929) Ltd. Vs. Addl.CIT & Others [108 ITR 407 (Cal)] iv) Dwarka Dass & Co. Vs. ITO [16 TTJ 304 (Cal)] v) CIT Vs. Sat Pal Aggarwal [293 ITR 90 (P&H)] 7. The learned A.R. for the assessee pointed out that pursuant to the audit objection raised by the audit party, first the Assessing Officer issued notice ....
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....s and perused the record. The assessee had furnished the return of income on 20.10.2005 declaring total income at Rs.3,98,625/- from the business income and Rs.5,68,931/- under the head "income from other sources". The case of the assessee was taken up for scrutiny. During the course of assessment proceedings, the assessee was asked to furnish complete books of account and vouchers. Despite several opportunities provided to the assessee, no books of account were produced during the course of assessment proceedings. The assessee was thereafter show caused as to why the assessment be not completed in view of the provisions of section 144 of the Act. The Assessing Officer invoking the provisions of section 144(1)(b) of the Act completed the assessment in turn estimating the income of the assessee from trucks in accordance with the provisions of section 44 AE of the Act. The assessee was carrying on the business of transportation by using his own trucks and also trucks hired by him. The income of self owned trucks was computed as per the provisions of section 44AE of the Act and the receipts were proportionately reduced to work out the income from hired trucks. The assessee had debited....
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....essee is not acceptable as his submissions are not supported with books of a/cs which he neither produced during the course of assessment proceedings before the AO nor during the course of proceeding u/s 263. As already stated above the assessee has made payments on a/c of freight charges, loading and unloading charges and higher charges but has not deducted tax at source while making these payments. This fact also stand confirmed from Col.27 of the t ax audit report annexed to the return filed by the assessee. Therefore, the above expenses required to be disallowed under section 40(ia) of Income Tax Act, 1961. Here it may be mentioned that only an addition of Rs.3.20 lacs has been made by the AO whereas the unverified expenses under the three heads alone are to the tune of Rs.2.45 crores. Considering that Books of A/cs have not been produced by the assessee despite repeated opportunities and due to non-verification of these expenses even on test basis, it would be very fare & just if only 10% of these expenses are disallowed (i.e. 90% allowed). The 10% disallowance would mean an addition of 24.5 lacs even if only three claims of expenditure are considered whereas there are many....
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....nd prejudicial to the interest of the Revenue. Non-application of mind by the Assessing Officer is one such cause where the order can be said to be erroneous and if the same is resulted in loss to Revenue, such order is prejudicial to the interest of Revenue. Where the Assessing Officer after going through the records available before him had adjudicated the issue and computed the income in the hands of the assessee by applying certain percentage in the absence of books of account and the directions of Commissioner of Income Tax to substitute the percentage determining the income in the hands of the assessee amounts to substitution of the opinion of Assessing Officer. The order of the assessment in the present case cannot be said to be erroneous merely because in the opinion of the Commissioner of Income Tax the percentage adopted by the Assessing Officer was on the lower side and consequently the income assessed in the hands of the assessee by applying such lower rate of profit was determined at a lesser figure. Such exercise of power by the Commissioner of Income Tax under section 263 of the Act is unjustified and against the settled principles of law on the issue. 15. We find....
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.... contained in section 263 of the Act. Therefore, the impugned order is set-aside and the appeal of the assessee is allowed." 16. Further we find that the objection raised by the Commissioner of Income Tax in the show cause notice issued under section 263 of the Act was in relation to non-deduction of tax at source out of certain payments made by the assessee and the invoking of provisions of section 40a(ia) of the Act. However, in the ultimate analysis, the Commissioner of Income Tax has directed the Assessing Officer to recompute the income in the hands of the assessee by applying suitable net profit rate. Such direction of the Commissioner of Income Tax in exercise of power under section 263 of the Act is not warranted and the same are set aside. The second direction of the Commissioner of Income Tax under section 263 of the Act for initiation of penalty proceedings is unwarranted as the Assessing Officer in the order passed under section 144 r.w.s.143(3) of the Act had already initiated penalty proceedings under various provisions of the Act for non-maintenance of books of account, non-appearance during the assessment proceedings and also for concealment of particulars of inc....
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.... assessee to the audit objection raised in the present case and the main contention of the assessee was that there was no independent application of mind by the Commissioner of Income Tax. Second plea of the assessee in this regard was that the audit objections were not "record" for invoking jurisdiction under section 263 of the Act. The Commissioner of Income Tax while exercising his jurisdiction under section 263 of the Act is empowered to call for and examine the record of any proceedings under the Act and where he thinks that the order passed by the Assessing Officer was both erroneous and prejudicial to the interest of Revenue, he may after giving an opportunity of hearing to the assessee and after making enquiries, pass such orders, which deem necessary in the circumstances of the case. In the present set of facts and circumstances, the Commissioner of Income Tax has issued the show cause notice under section 263 of the Act on account of the audit objection raised in the present case. 20. We find that similar issue of exercise of revisionary powers by the Commissioner of Income Tax on the basis of audit objections arose before the Hon'ble Punjab & Haryana High Court in CIT....
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....ctation of another authority. The relevant observations made by a three-judge Bench of the Supreme Court, in the case of Sirpur Paper Mill Ltd. [1970] 77 ITR 6, read as follows (page 7): "In exercise of the power the Commissioner must bring to bear and unbiased mind, consider impartially the objections raised by the aggrieved party, and decide the dispute according to procedure consistent with the principles of natural justice ; he cannot permit his judgment to be influenced by matters not disclosed to the assessee, nor by dictation of another authority." 22. Similar view has been taken by the Calcutta High Court in Jeewan Lal (1929) Ltd. Vs. Addl.CIT & Others (supra) that notice issued by the Commissioner of Income Tax at the suggestion of the Audit Department without applying his mind could not be sustained in law. 23. In the back drop of the above said settled legal precedents, we find that the Commissioner of Income Tax in the present case had also initiated the proceedings under section 263 of the Act on the basis of the audit objections. Show cause notice was issued in the present case for non-deduction of tax at source, out of certain expenses incurred by the assess....