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TMI Blog2016 (5) TMI 1186X X X X Extracts X X X X X X X X Extracts X X X X ..... he found that the assessment order passed by the AO under section 143(3) has suffered from the following errors. a) The assessee has debited a sum of Rs. 3,99,778/- to the P&L account under the head "computer stationery expenses". This claim is found to include purchase of spare parts worth Rs. 2,03,000/-from M/s. Hindusthan Sales Corporation as on 31- 3-2008. However, the schedule of fixed assets forming part of the balance sheet revealed no addition on account of computer purchase. Aforesaid purchase was also not reflected in the stock-in-trade. The A.O. is found to have neither made any enquiry nor called for any explanation from the assessee regarding such huge purchase of spare-parts on the last day of the F.Y. Further the reasonableness of the expenditure appears to have not been examined by the A.O. (b) The assessee has claimed a sum of Rs. 1,57,325/- under the head "forms and circulars expenses". This claim is found to include purchase to the tune of Rs. 1,08,825/- in the month of March,2008 alone. It is noticed that A.O. did not make any enquiry about the business expediency of the consumption of such a bulk quantity of forms and circulars in the last month of the F.Y. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... explanation was offered by the assessee in writing before the ld. CIT. "The learned A.O. had passed a scrutiny assessment order u/s 143(3) of I.T.Act,1961. All the details of expenses along with supporting evidences were submitted to him during the course of the assessment. He has examined the books of accounts, bills, vouchers etc. under different heads of expenses and passed the order after making additions to the totai income. Additional income tax raised from scrutiny assessment order was duly deposited by the assessee on time. The photocopy of the said challan is enclosed herewith for your kind reference. In this connection I would like to furnish as under :- It is humbly submitted that notice u/s 263 of the Income Tax act, 1961 may be issued only if both the following conditions are satisfied: The order passed by the AO is erroneous and The order is prejudicial to the interest of the Revenue. In the case of Malabar Industrial Company Ltd. Vs. CIT(2000) 159 CTR(SC) 1: (2000) 243 ITR 83(SC), the Hon'ble apex Court has observed that a bare reading of s. 263(1) makes it clear that the prerequisite conditions to exercise revisionary jurisdiction by the CIT, suo motu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entary evidence being present. Ad hoc additions have been made by the AO and tax on the same has been borne by the assessee. Therefore, there should not be any reason for the order to be prejudicial to the interest of the revenue. Without prejudice to the above, it is further submitted that the assessee is a LIC Commission Agent and earns LIC commission against sale of new LIC policies under different policy plans. Under the current scenario, it is very difficult to sell LIC policies. Returns against investment made in LIC policy are much lower than any other investment plan. Hence, no one becomes interested in taking any new LIC policy. Thus either a push sale is required or any incentives/gifts etc. need to be given against sale of new LIC policies. In such a competitive market, the assessee has shown a net profit of 20% of the total commission receipts. It is very difficult to earn this income after debiting various expenditures incurred regularly. Further, the assessee had incurred various expenditures under different heads of expenses to carry on the said LIC commission business. He has to maintain an office with optimum staff to carry on the day to day regular business. A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions. Calendars, Personal Diaries and other free gifts are distributed on New Years to various policyholders to maintain a cordial relationship with them. Flower Bouquets along with greetings and gifts are sent to esteemed and valued policyholders on special occasions such as Birthdays, Anniversaries, etc. Gold Chains and pendants are gifted to some of the key policyholders to promote new policies and plans to them. It is a kind of incentive which is given against new LIC policies. It is very difficult to sell new LIC policies without any incentive schemes to the new policyholders. It is very much necessary for every agent to offer all these gifts to increase their business. 5. Salary and Bonus :- Salary and Bonus payments are made to various regular staffs in the office. LIC office has provided a server machine in the assessee's office to collect the premium of the policyholders either by cash or cheque and issue independent receipts on behalf of LIC office to the policyholders. Permanent staffs are required to run a premium collection centre at the assessee's office. A set of separate staffs are employed to collect the policy premium cheques from the policy-holders' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry expenditure it is clearly noticed that a part thereof constitutes a capital expenditure, but the entire claim has been shown by the assessee as revenue expenditure. In respect of the business promotion expenses it is noticed that a significant part thereof constitutes personal expenditure in the form of jewellery purchase etc. In relation to the other heads of expenses it is seen that the claims increased abruptly in the last month of the F.Y. The rationale behind such increase is apparently not comprehensible. In respect of the forms and circulars expenses and printing and stationery expenditure it is clearly discerned that the A.O. failed to enquire about the disproportionate increase in the consumption of these materials by the assessee in a single month of the F.Y. This abnormal increase in the expenses in a particular month appears to have not surprised the A.O. who was supposed to be mentally alert enough to suspect this kind of claims made by the assessee. The A.O. should have got apprehensive about the genuineness and the reasonableness of the conspicuously inflated expenditure claim. Omission/failure on the part of the AO. to conduct the necessary enquiries to unearth/u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the ld. CIT in the notice issued under section 263. He contended that the absence of such discussion as well as any other evidence brought on record by the assessee to show that the enquiries as warranted in the facts and circumstances of the case were made by the AO clearly shows that it was a case of lack of enquiry by the AO which fully justified the revision by the ld. CIT under section 263 of the assessment made by the AO. 7. We have considered the rival submissions and perused the relevant material on record. As rightly pointed out by the ld. DR, a perusal of order passed by the AO under section 143(3) clearly shows that there is no discussion whatsoever on the various issues pointed out by the ld. CIT in the notice issued under section 263. The ld. Counsel for the assessee also has not been able to bring anything on record to show that the enquiries as warranted in the facts and circumstances of the case were actually made by the AO during the course of assessment proceedings. The mere fact that the errors on the part of the AO in not conducting enquiries in respect of relevant issues while completing the assessment were pointed out by the ld. CIT on the basis of details an ..... X X X X Extracts X X X X X X X X Extracts X X X X
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