TaxTMI 
TaxTMI 
2016 (2) TMI 1317
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....ssed on dated 18.01.2013. was without making proper enquiries. Such finding and the assumption of jurisdiction, both are contrary to the provisions of law and facts on record. Hence, the proceedings initiated u/s 263 of the Act and the impugned order dated 27.03.2015 kindly be quashed. (3) The ld. Pr. CIT-I, Jodhpur erred in law as well as on the fact of the case in setting aside the assessment order dated 18.01.2013, with reference to all the following issues, merely on suspicion, surmise & conjectures, and in wrongly alleging lack of proper enquiry and non-application of mind by the AO which is nothing but a pretence. The subjected assessment order is neither erroneous nor prejudicial to the interest of the Revenue nor it has been shown so: (i) Alleged excess consumption of color and chemicals (ii) Outstanding liabilities in the accounts of Sundry Creditors (iii) Valuation of stock and sales made (iv) Excessive claim made on account of payment of interest, water and electricity expenses (v) Regarding non-compliance of TDS provisions by the assssee as also by the third parties. The impugned order therefore, lacks valid jurisdiction u/s 263 of the Act and hence, the i....
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....by the deductor. The AO should have intimated the concerned AO of the deductors who would have disallowed the claim of job work charges as per section 40(a)(ia) of the Act . (vi) The assessee has got done job work from outside parties on subcontract basis and paid job charges of Rs. 41 lacs. No details have been obtained by the AO as to whether any TDS on job work charges was done or not for the purposes of working out the disallowances under section 40(a)(ia) of the Act. 3.2 The Pr. CIT-I, Jodhpur, vide his order u/s 263 dated 27.03.2015 after considering the submissions of the assessee stated that the submissions of the authorized representative for dropping of proceedings initiated u/s 263 are not found tenable for the following reasons: (1) The Assessing Officer has not examined as for the purpose of earning of job charges of Rs. 836.99 lacs the use of color and chemicals has gone upto the extent of Rs. 50.12% of job receipts as that of 44.80% in the immediate last financial year. The excess claim of use of color and chemicals in terms of money works out to Rs. 45,28,115/-. The Assessing Officer ought to have examined considering the nature of business of job and the use o....
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....ngly set aside assessment order for the A.Y. 2011-12 for detail examination of use of colour and chemicals along with other aspects as discussed above and to decide on merit afresh after giving an opportunity of being heard to the assessee. 3.2 In response, the ld. AR submitted before the Bench that there was due and proper application of mind by AO. It was submitted that the subjected assessment was completed u/s 143(3) after making various enquiries and due investigation. The ld. AR Shri M.C. Mehta appeared before the AO on various occasions and various details as desired by the AO, were filed through letters dated 15.01.2013, 11.11.2013 and 08.01.013, the AO raised detailed queries (viz. through letter/SCN dated 2.01.2013 arising from the discussion through query letter/s and also as noted in the order sheets entries. The ld. AR submitted various replies on different dates, as submitted herein below issue wise. The ld. AR attended time to time, produced books of account, copies of account sundry debtors & creditors, wages registers, purchase, job charges bills and expenses vouchers and filed various other details as required and also those even though not required, and were du....
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....d order however, none of the cases apply on the facts of this case and are completely distinguishable. In K.A. Ramaswamy Chettiar vs. CIT( (Mad.) again there was no enquiry at all made whereas in this case rather an in-depth enquiry, was made by the AO. Similar is the situation with other decisions cited viz. Colorcraft v. ITO, CIT vs, Deepak Kumar Gupta and Auto Products Mtrs Ltd vs. ITO. Ld AR further submitted that impugned order was not prejudicial to the Revenue. The facts of the present case clearly reveal that no prejudice at all was caused to the revenue for the following reasons: (i) The ld. CIT never appreciated that the assessee had already made a surrender of a huge amount of Rs. 65,04,000/- on account of color and chemicals, Grey Stock and Cash. It is not the case of the ld. CIT also that the assessee did not honor the surrender so made by declaring the same in the return of income. It is not his case that finding of the survey team or the survey record shows that some more addition over and above what was surrendered was called for/warranted. (ii) No separate addition/disallowance if accounts rejected: In this case, the accounts were impliedly rejected u/s 145, whe....
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....d order has to be quashed. The LD AR further submitted that on merits, issue- wise submissions are as under: (i) Excess color & chemicals used by 5.41% - Firstly, the ld. CIT has objected that the increase in consumption by 5.41% this year as compared to the last year was not examined by the AO. The actual consumption stood this year at 49.63% as compared to 44.07% last year. Thus the actual difference in the consumption of the two years, stood at 4.92% only and not 5.41% as wrongly assumed by the CIT. This is clearly for the reason that the ld. CIT considered the ratio of purchases to turn over as against the ratio of actual consumption of the turnover which is the correct legal and factual position. The ld. CIT himself thus, erred in proceeding on wrong facts and figure on drawing adverse inference there from. Further, he did not provide any basis/evidence of 25-30% of job receipts towards use of colour and chemicals though alleged. Further even again out of 49.63% of the colors and chemicals consumed this year, there was an increase of consumption by 3% this year by the assessee because of the reduction in the job outsourcing this year as aforesaid. This year the assessee out....
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....ther consumption/was not fit to be re-used for dying and accordingly had to be thrown out. This was not the situation in the preceding year hence, also there was an increase. There apart, there has also been increase in buying cost being purchase rates of the color & chemicals which is also evident from the price list of the color & chemicals purchased this year vis-a-vis of last year and comparative verification was also done by the AO in the original assessment proceedings itself, when the complete books of account and other records, including such invoices of current year and copies of a/c of persons from whom purchases were made and through letter dated 11.01.2013 were placed before him. In any case, the fact is not denied that GP was much better than the preceding year and this cost being a part of direct cost, directly affect the cost of production and ultimately the assessee's GP. The AO was therefore, satisfied on this aspect and no enquiry at all was required. Another aspect is that the particular AO, having been remained in Pali for almost more than two years, it has to be admitted that he must be having the complete ins & outs and knowledge of the technicalities of th....
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.... take cares of the tasks signed by various entities. All these parties, which the ld. CIT referred in his order, are those parties with which this assessee has been continuously dealing with last more than ten years & even in the later years and all the noted outstanding, have been cleared in the subsequent years. Notably the assessment of these supplier parties have also been selected for scrutiny and were completed u/s 143(3). In the past and later years both, wherein, the sales made to the assessee have never been doubted and the balances shown by the respective parties have also been accepted. Further this is not the phenomena with the assessee only but it is a general practice and this much of the outstanding quite usually remains with other traders as well, year after years. There apart, also there is general practice of not demanding any outstanding payment before the expiry of three months period. A chart at PB 240 shall make it clear that the assessee as also those supplier parties, were in the habit of maintaining outstanding balance to the extent ranging between Rs. 2.50 lacs to 16.07 lacs and there was nothing abnormal in this year. Some of the parties mainly Nageshw....
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....the assessee of interest or of job charges ete, have not made TDS and also the present AO has not intimated to the concerned AO of the such persons making payment to make disallowance u/s 40()(ia). At the outset, the assumption of jurisdiction u/s 263 based on such an allegation is absolutely misconception of law in as much as the prejudice to the revenue and any error in the subjected assessment order has always to be seen and examined by the CIT only w.r.t. the assessment proceedings of the assessee only and not w.r.t. the affairs of the third parties. Because of such a failure, the CIT also did not allege that the income assessed by the present officer stood under assessed or remained untaxed in any manner whatsoever. Therefore, this part of the order has to be quashed on this legal and factual ground. Still thereafter, the assessee to clear the doubts in the mind of the ld. CIT, during the course of the revision proceedings, filed copies of the ledger account of all such persons who made payments with reasoning mentioned at the end of each confirmation as to why they did not make TDS. These facts were well explained before the ld. CIT(A) few specimen copies are enclosed showi....
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....o the scrutiny assessment under section 143(3) of the Act. The AO in his order passed under section 143(3) of the Act has stated that survey has been conducted where the assessee has surrendered the amount of Rs. 65,04,000 which has been offered to tax in the return of income. The AO is thus ceased of the survey proceedings and related records and having considered the same, has completed the proceedings under section 143(3) of the Act. Further, the AO has issued notice under section 143(2) on 21.09.2012, detailed questionnaire was issued on 2.01.2013, and subsequently through the order sheet entries, various queries/clarifications/documents were sought and assessee's submissions were examined. Further, the assessee has produced books of accounts, cash book etc. Given these undisputed facts as apparent from the assessment order, it clearly emerges that the assessee has undergone through two detail proceedings - survey proceedings under section 133A and thereafter assessment proceedings under section 143(3) of the Act where its books of accounts were examined not just once but twice by the Revenue authorities and accepted after considering the surrendered amount except for certain a....
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.... results this year in as much as the GP declared this year was at 6.80% as against 4.98% last year. The issue of alleged excess consumption of color and chemicals w.r.t. turnover of 5.41% which correctly should be 1.92% only is covered by the increase of 1.82% in the GP rate this year. Pertinently, the very surrendered income also included the surrender made on account of the excessive consumption of color and chemicals and cash. The AO clearly discussed the reasonableness of the GP rate in para 2 & 5 of the subject assessment order. In the instant case, it is noted that the AO seems satisfied with the assessee's declared profit by giving his finding in the body of the assessment order where he states that "the trading and manufacturing account of the assessee shows higher GP and therefore, no interference made on this issue." As per ld CIT, the AO should have examined the increase in consumption of colour and chemicals vis-à-vis last year. The consumption of colour and chemicals which forms part of the trading result and such trading results having been compared vis-à-vis last year and found satisfactory by the AO, this effectively means that the AO has made the nece....
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....ted into excess consumption in as much as the residual color & Chemicals which were lying in the vessels, after the working of first five days, was not thereafter fit for further consumption/was not fit to be re-used for dying and accordingly had to be thrown out. This was not the situation in the preceding year hence, also there was an increase in consumption during the year. That apart, there has also been an increase in buying cost being purchase rates of the color & chemicals which is also evident from the price list of the color & chemicals purchased this year vis-a-vis of last year. It was finally submitted that the AO having been stationed at Pali for more than two years is expected to have complete knowledge of the technicalities of the particular trade with which the assessee is concerned in as much as there are more than 1300 processing & trading units working in Pali itself. Given such knowledge of trade and practice, where AO has passed an order even though not an elaborate order, it cannot be said that the AO did not apply his mind on the issues at hand. As we have discussed earlier, the issue of consumption of colour and chemicals has been examined by the survey team ....
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....nventory as on 31st March 2011 and selling price of gray cloth processed which has been sold for Rs. 29,36,554/-. From the perusal of the computation of income (PB 143), it is noted that in addition to profit as per profit and loss account, the assessee has offered an amount of Rs. 65,04,000 which is the amount surrendered during the course of survey. The said amount includes an amount of Rs. 51,59,935 towards stock of gray cloth. Given this undisputed facts where the assessee has offered the whole of the purchase stock to tax and which has been accepted by the AO, we are unable to understand the prejudice which has been caused to the Revenue in this regard. In any case, the purchase and resultant sale of gray stock and profit arising therefrom has been factored in the Gross profit which has been examined by the AO. Accordingly, on this account, it cannot be said that AO's order under section 143(3) call for intervention of ld CIT under section 263 of the Act. Next issue is regarding cash payment and related disallowances under sec. 40A(3), it was submitted by ld AR that admittedly, the assessee made payments below Rs. 20,000/- to the small persons engaged in the work of washing e....