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2016 (6) TMI 940 - ITAT DELHI

2016 (6) TMI 940 - ITAT DELHI - TMI - Revision u/s 263 - low profit shown - Held that:- Assessing Officer carried out the enquiries and investigation on the relevant aspect of the matter, which is clear from the order sheet entries, query raised and submission of the assessee filed in the course of assessment proceeding and thus the assessment order cannot be termed as erroneous or prejudicial to the interest of Revenue on the issue of low net profit shown by the assessee. We, therefore, set asi .....

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Officer in proceedings consequent to 263 proceedings, and amount of the rent paid to single person was below ₹ 1,20,000/- and, therefore, not liable for TDS. Therefore, the findings of the learned CIT on the issue was without proper appreciation of the facts available on record. - Decided in favour of assessee - ITA No. 3414/Del/2013 - Dated:- 22-6-2016 - Sh. H. S. Sidhu, Judicial Member And Sh. O. P. Kant, Accountant Member For the Appellant : Ms. Rashmi Chopra & Sh. Ruchesh Sinha, A .....

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tual and legal grounds including the following a. The assessment order dated 22.12.2010 passed by the Ld.Assessing Officer was neither erroneous nor prejudicial to the interest of revenue. b. The Ld. Assessing Officer had passed the order dated 22.12.2010 u/s 143 (3) after proper inquiry and after proper application of mind. c. The Ld. CIT had no jurisdiction to invoke the provisions of section 263 of the Income Tax Act, 1961 under the facts and circumstances of the case. d. The various observat .....

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er income aggregating ₹ 19,37,55,643/- and arriving at and making an addition of ₹ 80,46,447/- to the income of the appellant. In view of the material on record, the rejection of the books of accounts u/s 145(3) of the Income Tax Act ,1961, estimate of net profit @5% of the turnover and receipts and addition of ₹ 80,46,447/- to the income of the appellant are most arbitrary, without any basis whatsoever and uncalled for in the facts and circumstances of the case. 3. That withou .....

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ves to be deleted. 4. That the observations and finding of the Ld. CIT in para 8 of her order u/s 263 as regards point (b) regarding applicability of provisions of section 40(a)(ia) of the IT Act , 1961 on gross rent of ₹ 5,55,400/-, as per details of rent paid filed before the Assessing Officer and also the ld. CIT in the proceedings u/s 263 no payment having exceeded ₹ 1,20,000/-, the finding of the CIT that the issue was not looked into or examined by the AO is erroneous and uncal .....

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ip firm, during the relevant year was a distributor of M/s Haldiram Manufacturing Co. Private Limited for the state of Uttaranchal as well as engaged in normal trading activity of different food items. Original assessment in the case was completed under section 143(3) of the Act on 22/12/2010 on total income of ₹ 16,41,336/- after making addition of ₹ 10 lakh on lump sum basis towards disallowance against travelling, labour expenses, freight expenses etc. over and above the income de .....

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tion; (ii) Applicability of the TDS on the rent payment of ₹ 5,55,400/- was not verified by the Assessing Officer; (iii) The expenses incurred by the assessee and lower profit rate was not examined by the Assessing Officer. 3. As regard to first point of 263 proceedings, the learned CIT observed that the assessee had shown a very small amount of net profit of ₹ 6,41,335/-on the turnover of the 18.76 crore. According to ld. CIT, the Assessing Officer did not make an enquiry as how the .....

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her. She, therefore, rejected the books of accounts under section 145(3) of the Act and applying net profit rate of 5% on the total turnover including the other income computed the net profit of the assessee at ₹ 96,87,782/- and after reducing the returned income of ₹ 6,41,335/-, the amount of addition was determined at ₹ 90,46,447/-. As regard to applicability of TDS provisions on rent of ₹ 5,55,400/-, she directed the Assessing Officer to examine the issue for disallowa .....

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assessment records available at pages 225 to 226 of the assessee s paper book. She also referred to page 24 and 25 of the assessee s paper book which contained a copy of detailed query letter issued alongwith notice under section 142(1) of the Act by the Assessing Officer in the course of scrutiny proceedings. Further, she also submitted that the proceedings under 263 of the Act were initiated in the case of Sh. Sunil Arora for assessment year 2008-09, who is relative of the partners of the fir .....

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rejected the books of accounts of the assessee in view of the observations in the tax audit report. She further submitted that no enquiries were conducted by the Assessing Officer to examine the low profit rate of the assessee. In support of her contention, she relied on the judgments of the Hon ble Delhi High Court in the case of Gee Vee Enterprises Vs. Additional Commissioner of Income Tax (1975) 99 ITR 375 (Delhi) and Duggal & Co. Vs. Commissioner of Income Tax (1996) 220 ITR 456 (Delhi) .....

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l on record. We find that ratios of the various judicial decisions on the issue in dispute including the decisions cited by the ld. CIT (DR) have been summarized by the Tribunal in the case of Sunil Arora (supra) and the relevant part of the decision is reproduced as under: 4. We have heard the rival submissions and perused the relevant material on record. We want to clarify that the mandate of section 263 is attracted only when the assessment order is found to be erroneous and prejudicial to th .....

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r, non-examination of the trivial or insignificant issues cannot lead to making an assessment order erroneous. Making due investigation but thereafter taking a patently erroneous view, also makes an assessment order erroneous. A line of distinction should be drawn between patently erroneous view accepting one of the possible views. Only the former makes an assessment order erroneous and not the later. In other words, if there is a debatable issue and the AO has taken one of the possible and lega .....

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be lead to the passing of an erroneous assessment order. If material on record suggests that the AO did embark upon the investigation and got satisfied and further there is nothing to prompt further investigation, then the assessment order cannot be characterized as erroneous simply because there is no discussion in the assessment order on such aspects. If a view is taken that non-discussion of an issue in the assessment order on which the AO is satisfied, means the absence of application of mi .....

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that the circumstances required the AO to conduct further inquiry on such issues. 7. After summarizing the ratios of the judicial decision on the issue in dispute, the Tribunal in the above case has discussed whether any enquiry was conducted by the Assessing Officer or not and after considering the material on record, the Tribunal in the above case held as under: 5. Coming to the facts of the instant case, we find the first objection of the Id. CIT about non-production of books of account, etc. .....

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arious expenses including discounts, commission, etc. On 17.8.2010, the assessee appeared and filed part reply. Again on 20.10.2010, the assessee s representative appeared and filed part reply. On 25.10.2010, the assessee s representative appeared and filed part reply. At this stage, the assessee was called upon to produce the books of account on the next date of hearing, namely, 9.11.2010. The order sheet entry of 9.11.2010 divulges that the assessee s counsel appeared and produced books of acc .....

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oks of account are, therefore, not tenable. It is apparent that initially, the Id. CIT held that books of account were not produced before the AO, and later on he went on to reject such books of account. Further, we are unable to find any rationale of the Id. CIT in applying a net profit rate of 5% on total turnover for computing income of ₹ 65.84 lac from business operations. This is again an application of the ad hoc net profit rate, unsubstantiated with any cogent reason. 6. The Id. AR .....

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owing deduction for such expenses, is rendered erroneous and prejudicial to the interest of the Revenue. 7. It is vivid from the assessment order itself that some of the expenses claimed as deduction were on the basis of self-made vouchers. The Id. AR contended that these were petty payments on account of freight, carriage, etc. made to rickshawalaas etc., for which there could have been no external evidence. We find that the AO, on appreciation of entire material available before him, made an a .....

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may be a debatable issue as to what amount of expenses should be disallowed. The AO may consider a particular amount as reasonably disallowable, while the CIT may consider another amount. Going by any standard, it is a debatable issue as to the reasonableness of the amount disallowable and as such, the CIT cannot substitute his opinion of the disallowable amount with that of the AO in exercising power u/s 263 of the Act. 8. As the AO did carry out investigation on all the relevant aspects of the .....

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rora (supra). We even find that the wordings of the order under section 263 of the Act in the instant case are almost identical to the wordings in the case of Sh. Sunil Arora. In the case in hand also the first objections of the Ld. CIT was that no query was made by the Assessing Officer in respect of low profit results of the assessee and no books of accounts were produced by the assessee. On perusal of the copy of order sheet entries of the Assessing Officer, which are available on page 225 to .....

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s of commission receivable, documentary proof for the expenses claimed on wages, salary, staff welfare and labour charges, justification for expenses claimed on conveyance and travelling, freight charges along with other details. Again on 12/11/2010 certain queries were raised. The order sheet entries dated 30/11/2010 divulges that representative of the assessee appeared and produce books of account, which were checked on test check basis and specific observation was made that most of the vouche .....

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Officer also has examined the various expenses particularly travelling, labour and freight expenses and after taking into consideration the explanation of the assessee dated 10/12/ 2010, which is available at pages 220 to 221 of the paper book, the Assessing Officer accepted the lump-sum disallowance of ₹ 10 lakh and completed the assessment. Thus, in our view, the observations of the learned CIT about non-production of books of accounts and non-examination of low profit and other expense .....

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e also don t find any justification in the case in hand for applying the net profit rate of 5% on the total turnover including other income, without substantiated with any cogent reason. The Assessing Officer has observed that some of the vouchers of expenses were self-made and the ld. AR contended that those were small payments on account of freight, carriage etc. paid to rickshawalas etc. for which there could have been no external evidence. We find that the Assessing Officer after considering .....

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e issue becomes debatable as to the reasonability of the amounts disallowed, but that cannot become the ground for substitution of her opinion of the disallowable amount with that of the AO exercising power under 263 of the Act. 9. In our considered opinion, the Assessing Officer carried out the enquiries and investigation on the relevant aspect of the matter, which is clear from the order sheet entries, query raised and submission of the assessee filed in the course of assessment proceeding and .....

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