The Tax Publishers2021 TaxPub(DT) 0459 (Kol-Trib)

INCOME TAX ACT, 1961

Section 263

When VAT was not routed through Profit and Loss Account, the assessee could not have claimed that amount as a deduction and when VAT was not claimed as a deduction while computing the income, the question of disallowing the same under section 43B would not arise. Accordingly, the CIT was not justified in holding that the assessment order was erroneous and prejudicial to the interest of Revenue on the ground that there was violation of provisions of section 43B in the instant case, which was not considered by the AO.

Revision under section 263 - Erroneous and prejudicial order - No error in assessment order -

Assessee-HUF filed its return of income. Its case was selected for scrutiny for the reason that the assessee had shown low net profit or loss from large gross receipts. Subsequently, assessment was completed under section 143(3). Later, CIT revised the assessment under section 263. He alleged that the auditor certified certain amount towards VAT liability, which tantamount to violation of provisions of section 43B and the same should have been disallowed by the auditor himself from the calculation of net profit of business of assessee. Further, the Trading and Profit and Loss Account of the assessee did not show any VAT input or output entries. Thus, it was clear that the VAT input and output entries were included in total purchases and total sales shown in the Trading and Profit and Loss Account of the audit report. Therefore, the assessment order was erroneous and prejudicial to the interest of Revenue. Assessee submitted that the VAT was not routed through the Profit and Loss Account and hence, provisions of section 43B would not apply. Held: It was found that the tax auditor in the report issued under section 44AB, clearly stated that the indirect tax was not routed through the Profit and Loss Account. The said fact was stated by the assessee before the CIT in its reply to the show cause notice issued under section 263 and also evidences in support of the same were furnished. Thus, it was the duty of the CIT to at least verify, prima facie, as to whether the input and output entries had been routed through the Profit and Loss Account or not, as certified by the tax auditor. Without doing so, he could not have come to the conclusion that there was an error in the assessment order passed by the AO and that error was prejudicial to the interest of Revenue. When VAT was not routed through the Profit and Loss Account, the assessee could not have claimed that amount as a deduction and when VAT was not claimed as a deduction while computing the income, the question of disallowing the same under section 43B would not arise. Therefore, the CIT was not right in not examining the issue before coming to the conclusion that there was an error in the assessment order, which was prejudicial to the interest of Revenue. Hence, the order passed under section 263 was bad in law and accordingly, the same was set aside.

REFERRED :

FAVOUR : In assessee's favour

A.Y. : 2014-15



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