Gopal Sharma v. Asstt. CIT - Taxpublishers.in

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The Tax Publishers2015 TaxPub(DT) 4474 (Kol-Trib) : (2016) 068 (II) ITCL 0281div class=Section1> Gopal Sharma v. ACIT INCOME TAX ACT, 1961 --Revision under section 263--Erroneous and prejudicial orderLack of enquiry--The assessee was engaged in trading of ball bearing as well as sale and purchase of ball bearing on commission basis from foreign parties. In the relevant assessment year 2009-10, assessment was framed under section 143(3). Subsequently, the CIT issued show-cause notice under section 263. The assessee replied to show cause notice vide letter but CIT was not convinced with the reply of the assessee and revision under section 263 was carried out for the assessment framed under section 143(3) being erroneous and prejudicial to the interest of revenue and directed the AO to make fresh investigation on the above two issues and passed a fresh assessment order as per the provisions of the Act. *Held:* From the observations made by CIT in his revision order in para 5, which were very general in nature and seemed to be more of academic in nature, hence, the same could not be adjudicated. However, the CIT had raised the issues, i.e., the issue of understatement of closing stock as well as commission only on the basis of his opinion that proper enquiry was not made by AO during the course of assessment proceedings. But, the facts, as narrated, spoke otherwise. In view of the factual situation and legal position, the CIT himself was not sure, whether the order of the AO was erroneous or prejudicial to the interest of revenue so as to invoke the provision of section 263 of the Act. Under section 263 assessment order cannot be set aside for making roving inquiries without pointing out any error in the order. The power of revision is not meant to be exercised for the purpose of directing the AO to hold another investigation, particularly when the order of the AO is found neither erroneous nor prejudicial to the interest of the revenue. In the present case, the AO had verified the details of expenses after calling the details from the assessee and assessee had also supplied bills and vouchers of these expenses. In the present case the AO had made enquiries and the assessee replied to the enquiries, the order passed by the AO in the present case could not be said to be either erroneous or prejudicial to the interest of revenue. Accordingly, the revision order passed under section 263 by CIT was quashed. In respect to the first issue of understatement of stock, the assessee has valued the stock at cost on the basis of cost price, or market price whichever is less. The assessee has maintained complete stock records in its computer system item wise containing full details of opening stock, purchases made, sales made and closing stock giving quantity, quality, rate and value. Once these facts are very much available before the AO during the course of assessment proceeding and even before CIT during the revision proceeding, but CIT has failed to verify the factum of closing stock that there is no difference while valuing closing stock and no average can be taken when the exact facts are before him. It is found from the records of the case, which were available before AO during the original assessment proceedings as well as before CIT in the revision proceedings and even now in the assessee's paper book that assessee has enclosed the item wise details of closing stock valuing the closing stock at Rs.9,74,66,752. The assessee has also filed stock summary, i.e., total for an amount of Rs. 8,96,39,563 and spare parts at Rs.78,27,188, the total comes to Rs.9,74,66,752. The assessee filed the details as filed with bank, i.e., stock statement for hypothecation and the value is exactly identical, i.e., Rs.974.67 lacs. Even the quantity is also matching. It means that the stock statement submitted to bank and stock as per stock register is exactly matching in term of quality and quantity and rate. Once this is the position, how the CIT can propose a possible understatement and can give a finding that “likewise the assessing officer accepted the closing stock declared by the assessee without calling any detail of making the required verification thereofâ€. In view of the above facts on this issue, there was no reason for revising the assessment completed after making due inquiry. It was also argued by assessee that complete details of closing stock, i.e., stock statement as submitted to the bank and stock as per books of account were submitted before the AO. During the course of hearing the Counsel for the assessee drew attention to statement of particulars furnished before the AO under section 44AB in the Audit report. [Para 10] In respect to the second issue of commission, the assessee has received net commission of Rs. 2,23,40,638 and the break-up of the same is given in para 8 and for the sake of clarity the same is being reproduced. [Para 11] In addition to the commission the assessee has also debited commission in the P&L Account at Rs. 1,76,14,211 under the head 'administrative and selling expenses' and thus, the total commission paid was Rs. 6,94,43,342. As per the details filed in respect to statement of TDS deducted by the assessee under section 194H the assessee has paid total commission at Rs. 6,44,17,568. The assessee has claimed credit for TDS at Rs.63,661, which was deducted from the commission and interest incomes. The AO has carried out verification of commission paid by issuing notices under section 133(6) to 17 parties, who admitted to have received the commission from the assessee in its communication in response to notices under section 133(6) of the Act. The assessee covered almost 80% of commission paid at Rs. 5,53,54,513 out of the total commission paid at Rs.6,94,43,342. The assessee has also explained the nature of services rendered by these parties to whom commission is paid during the course of assessment proceedings and even during revision proceedings under section 263. The AO has also verified the sundry creditors on account of commission payable outstanding as on 31-3-2009, which was paid in the subsequent financial year 2009-10 relevant to assessment year 2010-11 and the details were also filed before CIT during revision proceedings and even now before Tribunal in its paper book. The simple reason for carrying out revision proceedings under section 263 of the Act by CIT was that, 'Mere confirmation of transaction by a third party does not amount to verification. It is noted that notice under section 133(6) was issued vide letter dated 17-8-2011 and reply in almost all cases was filed within the time specified in the notice. The case was concluded on the next nearing without making any further verification. It is further noted that all the persons to whom notice were issued are located in Kolkata and replies in all the cases were filed by hand. It is further noted that out of total commission expenditure claimed of Rs. 6,94,43,342, an amount of Rs.5,86,27,756 is shown to be payable as on 31-3-2009.” [Para 12] From the observations made by CIT in his revision order in para 5, which are very general in nature and seems to be more of academic in nature, hence, Tribunal cannot adjudicate on the same. However, the CIT has raised the issues, i.e., the issue of understatement of closing stock as well as commission only on the basis of his opinion that proper enquiry is not made by AO during the course of assessment proceedings. But, the facts, as narrated , speak above otherwise. In view of the factual situation and legal position, the CIT himself was not sure, whether the order of the assessing officer is erroneous or prejudicial to the interest of revenue so as to invoke the provision of section 263 of the Act. Tribunal is of the view that under section 263 of the Act assessment order cannot be set aside for making roving inquiries without pointing out any error in the order. The power of revision is not meant to be exercised for the purpose of directing the AO to hold another investigation, particularly when the order of the AO is found. In the present case before us, the AO has verified the details of expenses after calling the details from the assessee and assessee has also supplied bills and vouchers of these expenses. In the present case, the AO has made enquiries and the assessee replied to the enquiries, the order passed by the AO in the present case cannot be said to be either erroneous or prejudicial to the interest of revenue. Accordingly, quash the revision order passed under section 263 of the Act by CIT is quashed. [Para 14] SUBSCRIBE FOR FULL CONTENT

The Tax Publishers2015 TaxPub(DT) 4474 (Kol-Trib) : (2016) 068 (II) ITCL 0281div class=Section1>

Gopal Sharma v. ACIT

INCOME TAX ACT, 1961

--Revision under section 263--Erroneous and prejudicial orderLack of enquiry--The assessee was engaged in trading of ball bearing as well as sale and purchase of ball bearing on commission basis from foreign parties. In the relevant assessment year 2009-10, assessment was framed under section 143(3). Subsequently, the CIT issued show-cause notice under section 263. The assessee replied to show cause notice vide letter but CIT was not convinced with the reply of the assessee and revision under section 263 was carried out for the assessment framed under section 143(3) being erroneous and prejudicial to the interest of revenue and directed the AO to make fresh investigation on the above two issues and passed a fresh assessment order as per the provisions of the Act. Held: From the observations made by CIT in his revision order in para 5, which were very general in nature and seemed to be more of academic in nature, hence, the same could not be adjudicated. However, the CIT had raised the issues, i.e., the issue of understatement of closing stock as well as commission only on the basis of his opinion that proper enquiry was not made by AO during the course of assessment proceedings. But, the facts, as narrated, spoke otherwise. In view of the factual situation and legal position, the CIT himself was not sure, whether the order of the AO was erroneous or prejudicial to the interest of revenue so as to invoke the provision of section 263 of the Act. Under section 263 assessment order cannot be set aside for making roving inquiries without pointing out any error in the order. The power of revision is not meant to be exercised for the purpose of directing the AO to hold another investigation, particularly when the order of the AO is found neither erroneous nor prejudicial to the interest of the revenue. In the present case, the AO had verified the details of expenses after calling the details from the assessee and assessee had also supplied bills and vouchers of these expenses. In the present case the AO had made enquiries and the assessee replied to the enquiries, the order passed by the AO in the present case could not be said to be either erroneous or prejudicial to the interest of revenue. Accordingly, the revision order passed under section 263 by CIT was quashed.

In respect to the first issue of understatement of stock, the assessee has valued the stock at cost on the basis of cost price, or market price whichever is less. The assessee has maintained complete stock records in its computer system item wise containing full details of opening stock, purchases made, sales made and closing stock giving quantity, quality, rate and value. Once these facts are very much available before the AO during the course of assessment proceeding and even before CIT during the revision proceeding, but CIT has failed to verify the factum of closing stock that there is no difference while valuing closing stock and no average can be taken when the exact facts are before him. It is found from the records of the case, which were available before AO during the original assessment proceedings as well as before CIT in the revision proceedings and even now in the assessee's paper book that assessee has enclosed the item wise details of closing stock valuing the closing stock at Rs.9,74,66,752. The assessee has also filed stock summary, i.e., total for an amount of Rs. 8,96,39,563 and spare parts at Rs.78,27,188, the total comes to Rs.9,74,66,752. The assessee filed the details as filed with bank, i.e., stock statement for hypothecation and the value is exactly identical, i.e., Rs.974.67 lacs. Even the quantity is also matching. It means that the stock statement submitted to bank and stock as per stock register is exactly matching in term of quality and quantity and rate. Once this is the position, how the CIT can propose a possible understatement and can give a finding that “likewise the assessing officer accepted the closing stock declared by the assessee without calling any detail of making the required verification thereofâ€. In view of the above facts on this issue, there was no reason for revising the assessment completed after making due inquiry. It was also argued by assessee that complete details of closing stock, i.e., stock statement as submitted to the bank and stock as per books of account were submitted before the AO. During the course of hearing the Counsel for the assessee drew attention to statement of particulars furnished before the AO under section 44AB in the Audit report. [Para 10] In respect to the second issue of commission, the assessee has received net commission of Rs. 2,23,40,638 and the break-up of the same is given in para 8 and for the sake of clarity the same is being reproduced. [Para 11] In addition to the commission the assessee has also debited commission in the P&L Account at Rs. 1,76,14,211 under the head 'administrative and selling expenses' and thus, the total commission paid was Rs. 6,94,43,342. As per the details filed in respect to statement of TDS deducted by the assessee under section 194H the assessee has paid total commission at Rs. 6,44,17,568. The assessee has claimed credit for TDS at Rs.63,661, which was deducted from the commission and interest incomes. The AO has carried out verification of commission paid by issuing notices under section 133(6) to 17 parties, who admitted to have received the commission from the assessee in its communication in response to notices under section 133(6) of the Act. The assessee covered almost 80% of commission paid at Rs. 5,53,54,513 out of the total commission paid at Rs.6,94,43,342. The assessee has also explained the nature of services rendered by these parties to whom commission is paid during the course of assessment proceedings and even during revision proceedings under section 263. The AO has also verified the sundry creditors on account of commission payable outstanding as on 31-3-2009, which was paid in the subsequent financial year 2009-10 relevant to assessment year 2010-11 and the details were also filed before CIT during revision proceedings and even now before Tribunal in its paper book. The simple reason for carrying out revision proceedings under section 263 of the Act by CIT was that, 'Mere confirmation of transaction by a third party does not amount to verification. It is noted that notice under section 133(6) was issued vide letter dated 17-8-2011 and reply in almost all cases was filed within the time specified in the notice. The case was concluded on the next nearing without making any further verification. It is further noted that all the persons to whom notice were issued are located in Kolkata and replies in all the cases were filed by hand. It is further noted that out of total commission expenditure claimed of Rs. 6,94,43,342, an amount of Rs.5,86,27,756 is shown to be payable as on 31-3-2009.” [Para 12] From the observations made by CIT in his revision order in para 5, which are very general in nature and seems to be more of academic in nature, hence, Tribunal cannot adjudicate on the same. However, the CIT has raised the issues, i.e., the issue of understatement of closing stock as well as commission only on the basis of his opinion that proper enquiry is not made by AO during the course of assessment proceedings. But, the facts, as narrated , speak above otherwise. In view of the factual situation and legal position, the CIT himself was not sure, whether the order of the assessing officer is erroneous or prejudicial to the interest of revenue so as to invoke the provision of section 263 of the Act. Tribunal is of the view that under section 263 of the Act assessment order cannot be set aside for making roving inquiries without pointing out any error in the order. The power of revision is not meant to be exercised for the purpose of directing the AO to hold another investigation, particularly when the order of the AO is found. In the present case before us, the AO has verified the details of expenses after calling the details from the assessee and assessee has also supplied bills and vouchers of these expenses. In the present case, the AO has made enquiries and the assessee replied to the enquiries, the order passed by the AO in the present case cannot be said to be either erroneous or prejudicial to the interest of revenue. Accordingly, quash the revision order passed under section 263 of the Act by CIT is quashed. [Para 14]