Case Law Details
Satara Cattle Feed Industries (P) Ltd. v ACIT
ITAT, Pune
ITA No. 617/PN/2008
Assessment Year: 2003-2004
Decided on: 31 May 2011
Order
G.S. Pannu, AM:
This appeal by the assessee is directed against the revisional order of the Commissioner of Income tax-III, Pune (in short “the Commissioner”) dated 28.3.2008 passed under section 263 of the Income tax Act, 1961 (in short “the Act”), setting aside the order dated 21.10.2005 passed by the Assessing Officer under section 143(3) of the Act, pertaining to the assessment year 2003-04.
2. In this appeal by the assessee, challenge is made to the order passed by the Commissioner under section 263 of the Act on the ground that he was not justified in invoking the provisions of section 263 of the Act as the assessment framed by the Assessing Officer was neither erroneous nor prejudicial to the interests of the Revenue. The facts, in brief, are that in the instant case, a scrutiny assessment for the assessment year 2003-04 was made by the Assessing Officer under section 143(3) of the Act, vide order dated 21.10.2005, determining the taxable income at Rs.6,74,500/-.
Subsequently, the Commissioner examined the assessment records and noticed few error and omissions in the order made by the Assessing Officer. He noticed that prior to the making of the assessment, a survey under section 133A of the Act was carried out in the assessee’s business premises on 15.5.2002, during the course of which excess stock of Rs. 18,44,760/- was found. At the time of survey, the assessee had stated that it would be admitting the excess stock as its additional income in the return to be filed for the assessment year under consideration. However, in the return of income filed subsequently the assessee admitted total income of Rs. 5,84,220/- only. It was noticed that the income was thus returned on a lower level even while crediting excess stock of Rs. 18,44,760/- to the Trading account mainly because the assessee showed substantially lower gross profit in the post survey period as compared the gross profit in the pre- survey period. According to the Commissioner, the assessee also claimed disproportionately higher expenses in respect of several items than that claimed for the preceding assessment year. According to the Commissioner, while the predecessor Assessing Officer, who started the assessment proceedings had raised several queries in the matter of alleged decline in the gross profit margin during the post survey period, the successor Assessing Officer, who eventually made the assessment, did not carry the earlier inquiries to their conclusion and accepted the assessee’s explanation on the issue of gross profit without making any use of the workings made by the predecessor, which were also available on records and which gave clear indication that in fact at the time of survey excess stock had been short-quantified. Further, the successor Assessing Officer accepted the assessee’s submission that the returned income was low because of increase in expenses without calling for and examining the required facts and evidences in support of such increase. Another error noticed by the Commissioner was that in the return of income filed, the assessee had brought forward and set off unabsorbed depreciation of Rs. 8,56,147/- against the profit shown in the Profit and Loss account, which according to the Commissioner was erroneous since the profit as per Profit and Loss account included the additional income of Rs. 18,44,760/-which, being the additional income declared with reference to the excess stock, was not in the nature of income from business; and, therefore, the set off was not admissible. The Assessing Officer did not rectify the above error while making the assessment.
3. After examining the records which indicated the aforesaid errors and omission on the part of the Assessing Officer, the Commissioner came to a conclusion that the assessment order dated 21.10.2005 passed by the Assessing Officer was erroneous in so far as it was prejudicial to the interests of Revenue.
4. Before the Commissioner, it was contended on behalf of the assessee that each and every aspect of the assessment vis-à-vis survey action was examined by the Assessing Officer and that a different inference cannot be drawn merely because the Assessing Officer did not discuss these aspects in the assessment order. Reliance was placed on the decision of Hon’ble Delhi High Court in the case of CIT v Eicher Ltd 294 ITR 310 (Del) wherein it was observed that in an assessment order only such points are discussed on which the assessee’s explanations are rejected and additions/dis allowances are made. It was also stated that there was no merit in the objection raised in notice under section 263 relating to the set off of unabsorbed depreciation of Rs. 8,56,147/- against the profit of the year which included the additional income declared at the time of the survey inasmuch as in a number of judgments it has been held that such unexplained investment is in the nature of income from business. Reliance was placed on the decision of Pune Bench in ITA No 443/PN/04 etc. dated 29.7.2005. Further it was stated that admission made in a statement recorded during the course of survey has no evidentiary value and thus cannot be made the basis for making an addition, as held by the Hon’ble Madras High Court in the case of CIT v S Khader Khan and Sons 214 CTR 589 (Mad).
5. After considering the varied submissions of the assessee, the Commissioner ultimately held, on the basis of the facts available on record, the Assessing Officer made the assessment for the impugned assessment year without properly considering the facts and evidences available on record and without carrying on such further examination as were warranted and merely on the basis of an uncorroborated general submission made by the assessee. The Commissioner accordingly held that the assessment order dated 21.0.2005 passed by the Assessing Officer was erroneous insofar as it was prejudicial to the interests of Revenue. He accordingly set aside the assessment with a direction to the Assessing Officer to redo the same afresh after specifically calling for all the relevant facts and evidences relating to excess stock, after quantifying the excess stock correctly after examining on the basis of facts and evidences the correctness of the gross profit margin shown by the assessee for the entire previous year in general and or the post survey period in particular, and after carefully examining the correctness or otherwise of the returned income. Aggrieved, the assessee is in appeal before us.
6. Before us, the learned Counsel for the appellant has vehemently pointed out that the Commissioner was not justified in invoking the provisions of section 263 of the Act in this case, as the assessment order passed by the Assessing Officer was neither erroneous nor prejudicial to the interests of Revenue. It has been pointed out that the assessee did not retract from its declaration regarding the difference in stock found at the time of survey and that the same was duly credited in the Profit and loss account. Merely because the returned income was lower than the declaration made for difference of stock during the survey cannot be a ground to hold that the assessment order accepting such position was erroneous in the eyes of aw. It has been pointed out that the returned income has been computed after taking into consideration the difference in stock declared during the survey and that even during the course of assessment proceedings, the reduction in profit after considering the survey declaration was a subject matter of examination by the Assessing Officer. The reasons for such a reduction were also called for and submitted by the assessee and since no addition on this count has been made, there is a presumption that the explanations of the assessee were duly accepted by the Assessing Officer. Thus, the Assessing Officer had duly applied his mind on the issue and since the explanation of the assessee was accepted, it did not warrant any further discussion in the assessment order. In this regard, reference was made to the judgment of the Hon’ble Delhi High Court in the case of CIT v Eicher Ltd 294 ITR 310 (Del) for the proposition that merely because the issues have been accepted by the Assessing Officer as no discussion is found in the assessment order, would not show non-application of mind as only such points are taken note of in the assessment order where the assessee’s explanation is rejected and addition made. It was, therefore, submitted that the Commissioner is wrong in inferring that the assessment has been made without proper application of mind. The learned Counsel also referred to the judgment of the Hon’ble Punjab and Haryana High Court in the case of CIT v Deepak Mittal 37 DTR 7 (P and H) and submitted that in cases where a survey action under section 133A has been carried out and assessment made on the basis of the survey material, there is no justification for invoking of jurisdiction by the Commissioner under section 263 of the Act.
7. On the other hand, the learned Departmental Representative, appearing for the Revenue, has defended the action of the Commissioner. It has been vehemently pointed out that the Assessing Officer accepted the explanation of the assessee without proper enquiry and therefore, the Commissioner was justified in holding that the assessment order was erroneous and prejudicial to the interests of Revenue within the meaning of section 263 of the Act. Our attention has been drawn to the detailed discussion made by the Commissioner in the impugned order to which we have already referred to in paras 2 to 5 of our order and the same is not being repeated for the sake of brevity. In sum and substance, the learned Departmental Representative has defended the action of the Commissioner and referred to the following pronouncements in support of the case of the Revenue:
(i) M/s Chokkaiyan Karthikeyan and Co. v. ACIT.
(ii) M/s M. G. Motors v. ITO
(iii) F. L. Smidth Ltd. v. ACIT
8. We have carefully considered the rival submissions and perused the orders of the authorities below. In this case, the assessee is engaged in the for the assessment year 2003-04 declaring an income of Rs.5,84,220/-. A survey action under section 133A of the Act was carried out at the business premises of the assessee on 15.5.2002 during which excess stock of Rs.18,44,760/- and excess cash of Rs. 1,90,740/- was detected, which was agreed to be declared as an additional income by the assessee over and above his regular income. The assessee duly showed excess stock of Rs.18,44,760/- separately in the Profit and Loss account and the excess cash of Rs.1,90,740/- was also shown separately under the head other income in the Profit and Loss account enclosed with the return of income. The said return was subject to a scrutiny assessment under section 143(3) of the Act whereby the total income was determined at Rs.6,74,500/- after making certain additions out of travelling expenses, office expenses, interest etc. Subsequently, the Commissioner has held such an assessment order to be erroneous and prejudicial to the interests of Revenue within the meaning of section 263 of the Act and, has set aside the same with directions to the Assessing Officer to re-do the assessment afresh in particular “after carefully examining the correctness or otherwise of the returned income”. The primary reason which has weighed with the Commissioner to set aside the assessment and direct the Assessing Officer to make fresh assessment is the fact that inspite of crediting additional income on account of excess stock of Rs.18,44,760/- to the Profit and Loss account, the income finally returned by the assessee was Rs.5,84,220/- only. In para 4.1 of the impugned order, the Commissioner has recorded that while making the assessment, the Assessing Officer did not examine the reasons for the assessee having returned such low income, which was far less than even the additional income declared at the time of survey. In sum and substance the thrust of the invoking of section 263 of the Act by the Commissioner is that the assessee has declared income in the return even lower than the additional income that was agreed during the survey to be declared over and above the regular income. According to the Commissioner, the Assessing Officer has failed to apply his mind or further examination of the facts and evidences available on record, and therefore, action under section 263 of the Act was warranted.
9. In this connection, it is a well settled proposition with regard to scope of section 263 of the Act that the twin conditions, namely, the order being ‘erroneous’ and ‘prejudicial to the interests of Revenue’ are required to be satisfied cumulatively. In other words, before invoking section 263 of the Act, the Commissioner has to be satisfied that the order of the Assessing Officer sought to be revised is erroneous as well as prejudicial to the interests of Revenue. The Hon’ble Supreme Court in the case of Malabar Industrial Co. v. CIT 243 ITR 83 has explained rationale of the expression ‘prejudicial to the interests of Revenue’. The Hon’ble Apex Court explained that if due to an erroneous order of the Assessing Officer, the Revenue is loosing tax lawfully payable by a person, it would certainly be prejudicial to the interests of Revenue. In other words, as per the Hon’ble Supreme court, the order of the Assessing Officer must suffer from an incorrect assumption of fact or incorrect application of law so as to be considered as erroneous apart from meeting the requirements of the expression ‘prejudicial to the interests of Revenue’, in order to qualify for invoking of section 263 by the Commissioner.
10. In the light of the above discussion, we may now examine the manner in which the Assessing Officer has dealt with the issue pointed out by the Commissioner in the impugned order. In para 9 of the assessment order, the Assessing Officer has noted that though the assessee has shown excess stock of Rs.18,44,760/- and excess cash of Rs.1,90,740/- as additional income by crediting in the Profit and Loss account, the income finally returned was lower. He has also referred to “the discussion and the written submissions” made by the assessee before him regarding the short-fall in income returned after considering the declaration of additional income during survey, in comparison to the profits declared in the preceding year. Further the Assessing Officer has referred to the reasons for the shortfall in the profit as being on account of increase in some of the business expenses which have been enumerated in the assessment order, namely:
1) Cost of man power (wages),
2) Transport charges (hike in petrol and diesel prices),
3) Diesel and Oil and Grease (hike in petroleum products),
4) Interest (due to increase in working capital and loans),
5) Depreciation (due to additions in assets)
It is quite clear that after noticing such submissions and the reasons for the shortfall, the Assessing Officer has not made any adverse comments, meaning thereby that such reasons have been found to be satisfactory for the short-fall in profits. Quite clearly no addition on this count has been made to the returned income. In the background of such a discussion available in the assessment order, prima facie it is not possible to concur with the observation of the Commissioner that the Assessing Officer has not applied his mind to the fact that the assessee has returned a final income lower than the additional income declared during the survey on account of excess stock. In fact, noticing of the reasons for the short-fall in profit itself clearly demonstrates awareness of the Assessing Officer on this aspect and in the absence of any adverse comments, it shows that the reasons have been accepted. The Commissioner has further pointed out that the Assessing Officer merely accepted the reasons advanced without further examination. In this context, the Commissioner has also referred to a detailed working as regards the correctness of the excess stock itself and such workings are claimed to be available on record, as worked out by the predecessor Assessing Officer. In our considered opinion, even the workings referred to by the Commissioner are only estimates and, in any case, there is no material or evidence found by the Commissioner to say that the reasons which have been accepted by the Assessing Officer for evaluating the short-fall in profit are incorrect or the same are extraneous or false. There is no case made out by the Commissioner that the explanation furnished by the assessee, namely, increase in business expenses and consequential short-fall in profits are devoid of any factual support. Therefore, it is a case where the Commissioner has intended to substitute his own view in place of that of the Assessing Officer without pointing out as to how the action of the Assessing Officer is erroneous in law or on facts. Therefore, under these circumstances, in our view, the condition of the assessment order being erroneous in law or on facts as mandated in section 263 of the Act is not fulfilled in the present case. In our view, the Commissioner erred in invoking his jurisdiction under section 263 and setting aside the impugned assessment order passed by the Assessing Officer. We accordingly quash the order passed by the Commissioner under section 263 of the Act and restore that of the Assessing Officer. The assessee succeeds in its appeal.
11. In the result, the appeal of the assessee is allowed.
