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I-T - If AO makes complete enquiry for variation in stock value, it is not a fit case for invocation of revisionary powers u/s 263: ITAT

 

By TIOL News Service

NEW DELHI, JAN 15, 2019: THE ISSUE IS - Whether if AO makes complete enquiry for variation in stock value then it is not a fit case for invocation of revisionary powers u/s 263. YES IS THE VERDICT.

Facts of the case

A survey operation u/s 133A of the Act was carried out at the premises of the assessee. Accordingly, return for the year was selected for scrutiny assessment. The AO passed assessment order u/s 143(3) of the act. The AO was convinced with the returned income of the assessee and accepted the same. Later on invoking the provisions of section 263 of the Act, the PCIT issued a show cause notice to the assessee, as the PCIT was of the firm belief that the assessment framed was erroneous and prejudicial to the interest of the Revenue. According to CIT there was variation in the value of stock and assessee did not make proper enquiry for same. The CIT set aside the assessment order. Aggrieved assessee filed appeal before the Tribunal.

Tribunal held that,

++ it is a settled position of law that the powers u/s 263 of the Act can be exercised by the Commissioner on satisfaction of twin conditions, namely, (i) the assessment order should be erroneous and prejudicial to the interest of the Revenue. By erroneous, is meant contrary to law. The AO during the course of assessment proceedings made detail and specific enquiries in relation to stock and after making detailed enquiries, accepted reconciliation in the variation in the value of stock. Therefore, it cannot be said that the AO did not make any enquiry while framing the assessment order. The PCIT has grossly erred in observing that the Assessing Officer should have made a complete enquiry for the amount of excess stock at Rs. 9,95,72,922/- called for documentary evidence for purchase of gold and diamond and verified the genuineness. As the assessee had filed complete documentary evidences of purchase of gold and diamond and the Assessing Officer has verified the same. Even the alleged excess stock has been explained completely by filing a reconciliation statement. Therefore, it is incorrect to say that neither proper enquiries were made nor any investigation was made by the Assessing Officer;

++ Supreme Court in the case of Malabar Industrial Co. observed that "the phrase "prejudicial to the interest of the Revenue" has to be read as conjunction with an erroneous order passed by the Assessing Officer. Every loss of revenue as a consequence of an order of Assessing Officer cannot be treated as prejudicial to the interests of the revenue, for example, when an Income-tax Officer adopted one of the courses permissible in law and it has resulted in loss of revenue; or where two views are possible and the Income-tax Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the revenue unless the view taken by the Income-tax Officer is unsustainable in law." It was noted that the assessment order framed u/s 143(3) of the Act is neither erroneous nor prejudicial to the interest of the Revenue and the PCIT has erroneously assumed jurisdiction u/s 263 of the Act. In the result, the appeal of the assessee is allowed.

(See 2019-TIOL-137-ITAT-DEL)


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