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2016 (9) TMI 998 - ITAT VISAKHAPATNAM

2016 (9) TMI 998 - ITAT VISAKHAPATNAM - TMI - Revision u/s 263 - correctness of building maintenance expenditure, interest and finance charges, pre-paid expenses, sales commission, re-payment of loans, advance against purchase of raw materials and payments made to specified persons u/s 40A(2)(b) - Held that:- Unless the order passed by the A.O.is erroneous and prejudicial to the interest of the revenue, the CIT cannot assume jurisdiction to revise the assessment order, this is because the twin c .....

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lained that it had filed all the details before the A.O. on the issues on which CIT wants further verification. It is the general presumption of law that, the A.O. has considered all the details before completion of assessment and the CIT cannot presume that the enquiries conducted by the A.O. is insufficient and also the A.O. has not applied his mind, unless CIT proves that the assessment order passed by the A.O. is erroneous. Therefore, we are of the view that the assessment order passed by th .....

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263 of the Income Tax Act, 1961 (hereinafter called as 'the Act') for the assessment year 2009-10. 2. The brief facts of the case are that the assessee is a Limited Company engaged in the business of manufacture of automobile spare parts, filed return of income for the assessment year 2009-10 on 29.9.2009 declaring total income of ₹ 73,61,980/-. The assessment for the year has been completed u/s 143(3) of the Act, on 29.11.2011 and determined total income of ₹ 83,54,560/-. 3 .....

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t of the revenue in terms of section 263 of the Act. The CIT, in said show cause notice, observed that the A.O. has not verified the issues mentioned in the show cause notice at the time of completion of assessment. The CIT, further, observed that the A.O. has completed assessment without examining issues, such as Excise duty payments, expenditure incurred under the head building maintenance , interest and finance charges, pre-paid expenses and others, details of sales commission, advances again .....

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With these observations, issued a show cause notice and asked to explain why the assessment order passed u/s 143(3) of the Act, dated 29.11.2011 shall not be revised under the provisions of section 263 of the Act. 4. In response to show cause notice, the assessee submitted that the order passed by the A.O. u/s 143(3) of the Act, dated 29.11.2011 is not erroneous, in so far as it is prejudicial to the interest of the revenue, as the A.O. has examined all the issues pointed out in the show cause n .....

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ses and others. The assessee further submitted that the A.O. has sought every details in respect of advances paid against purchase of raw materials, bank reconciliation statements, payment made to specified persons u/s 40A(2)(b) of the Act, details of sales commission, repayment of loans, purchase of raw materials and analysis of consumption of raw materials and also observations made by the tax auditors in annexure in form no.3CD to tax audit reports. The assessee has filed its reply dated 2.9. .....

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t and explained the issue pointed out by the A.O. It was further submitted that the assessee has filed ledger account copies of building maintenance and also other expenses along with advances paid against purchase of raw materials, payments made to specified persons and repayment of loans and furnished necessary evidences before the A.O. The A.O. after considering the details furnished by the assessee accepted explanations of the assessee and completed the assessment, therefore, the assessment .....

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er, observed that the A.O. has completed assessment by making few adhoc disallowance of expenditure without examining the specific points referred to in the show cause notice with regard to payment of excise duty, building maintenance, interest and finance charges, pre-paid expenses, sales commission, payment made to specified persons u/s 40A(2)(b) of the Act and also failed to examine the advances paid against purchase of raw materials. The CIT, further, observed that on perusal of the document .....

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ns of the tax auditors in annexure to form no.3CD. The CIT, further, observed that the assessee has claimed sales commission of ₹ 1,14,48,688/-, however, the information with regard to sales commission is available to the extent of ₹ 30,10,874/-. The A.O. has failed to gather the required information with regard to payment of sales commission with necessary evidences. It was further observed that as pointed out by the tax auditors in the tax audit report annexure to form no.3CD, ther .....

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erroneous in so far as it is prejudicial to the interest of the revenue. With these observations, set aside the order passed by the A.O. u/s 143(3) of the Act dated 29.11.2011 and directed the A.O. to pass consequential order in the lines discussed herein above within the time allowed after giving an opportunity of being heard to the assessee. Aggrieved with the CIT order, the assessee is in appeal before us. 6. The Ld. A.R. for the assessee submitted that the assessment order passed by the A.O. .....

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d out by the CIT, at the time of assessment by way of specific questionnaire on various occasions. The assessee has submitted all the details before the A.O., on various occasions which was considered by the A.O. before completion of assessment. Therefore, the CIT was not correct in coming to the conclusion that the assessment order passed by the A.O. is erroneous in so far as it is prejudicial to the interest of the revenue. The Ld. A.R. further submitted that the CIT cannot take up revision on .....

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see has submitted all the issues before the CIT and explained with necessary evidences as to how the assessment order passed by the A.O. is not erroneous in so far as it is prejudicial to the interest of the revenue. The CIT, even after considering the details filed by the assessee which was already in the assessment records, simply disowned the evidences filed by the assessee and revised the assessment order by holding that the assessment order passed by the A.O. is lack of enquiry and also the .....

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d 29.11.2011 is erroneous in so far as it is prejudicial to the interest of the revenue. The CIT, revised the assessment order for the reason that the A.O. has completed the assessment without examining the various issues which caused prejudice to the interest of the revenue. The CIT, further, was of the opinion that the A.O. has completed the assessment by making few adhoc disallowances without examining the core issues, such as bank reconciliation statement, excise duty payment details with re .....

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ent made to specified persons with reference to provisions of section 40A(2)(b) of the Act. The A.O. not only failed to examine the issues, but also failed to apply his mind on various issues, which rendered the assessment order erroneous in so far as it is prejudicial to the interest of the revenue. 8. It is the contention of the assessee that the A.O. has examined the issues pointed out by the CIT in the show cause notice. The assessee further contended that all the issues pointed out by the C .....

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that it has furnished excise returns before the A.O. and also explained the analysis of consumption of raw materials with necessary quantitative details. It is further submitted that it has furnished bank reconciliation statement and also explained the difference between balances shown in the books of accounts to the balance appeared in the bank statement. It is further submitted that the other issues pointed out by the CIT i.e. correctness of building maintenance expenditure, interest and finan .....

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w cause notice at the time of completion of assessment by way of specific questionnaire. We further observed that the A.O. has issued various questionnaires on 5 occasions which was duly answered by the assessee by filing necessary details. On verification of the details filed by the assessee, we find that the assessee has furnished details of bank reconciliation statement, purchase of raw materials, reconciliation of consumption of raw materials, excise duty payments and other issues pointed ou .....

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led by the assessee, we find that the assessee has listed out the issues pointed out by the CIT in the show cause notice in a tabular form. On further verification of the details filed by the assessee, we noticed that the assessee has submitted all the details with regard to each and every issues raised by the CIT in the show cause notice and explained before the A.O. The A.O. after satisfied with the explanations furnished by the assessee completed the assessment by making certain adhoc disallo .....

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ssues before completion of assessment. 10. The CIT has power to revise the assessment order u/s 263 of the Act, but to invoke the provisions of section 263 of the Act, the twin conditions must be satisfied, i.e.(1) the order of the A.O. is erroneous (2) further it must be prejudicial to the interest of the revenue. Unless both the conditions are satisfied, the CIT cannot assume jurisdiction u/s 263 of the Act. It is not necessary that every order which is erroneous must be prejudicial to the int .....

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n perusal of the facts available on record, we find that the A.O. has conducted detailed enquiry and also examined all the issues pointed out by the CIT in this show cause notice. The assessee has explained each and every issue pointed out by the CIT with necessary evidences. The CIT, cannot assume jurisdiction to revise assessment order, once, assessee explained that it had filed all the details before the A.O. on the issues on which CIT wants further verification. It is the general presumption .....

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pertinent to discuss the case law relied upon by the assessee. The assessee relied upon the decision of coordinate bench of Visakhapatnam Tribunal, in the case of Nu Tech Engineers Vs. CIT in ITA No.570/Vizag/2013 dated 10.6.2016. The coordinate bench of this Tribunal, under similar circumstances held that once the A.O. examined the issues on which the CIT wants further verification, the CIT cannot assume jurisdiction on the same issues which was already examined by the A.O. at the time of asses .....

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on of assessment. The assesses filed a paper book which contains the details furnished before the A.O. at the time of assessment. On perusal of the paper book filed by the assessee, ITAT find that the A.O. has issued a detailed questionnaire in respect of net profit and also TDS in respect of rent and hire charges. The A.O. after satisfied with the explanations furnished by the assessee has accepted the income returned. Therefore, ITAT are of the view that once the issues which are subject matte .....

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ecision of Hon ble High Court of Delhi, in the case of CIT Vs. Sunbeam Auto Ltd. (2011) 332 ITR 167. The Hon ble High Court of Delhi, under similar circumstances held that once the A.O. has examined a particular issue which is the subject matter of revision u/s 263 of the Act, the CIT cannot assume jurisdiction u/s 263 of the Act by holding that the order passed by the A.O. is lack of enquiry and also the A.O. has not applied his mind before completion of assessment. The relevant portion of the .....

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issue. The AD in the assessing order is not required to give detailed reason in respect of each and every item of deduction, etc. Therefore, one has to see from the record as to whether there was application of mind before allowing the expenditure in question as revenue expenditure. The counsel for the assessee is right in his submission that one has to keep in mind the distinction between 'lack of inquiry" and "inadequate inquiry". If there was any inquiry, even inadequate t .....

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he exercise of examining as to whether the expenditure incurred by the assessee in the replacement of dyes and tools is to be treated as revenue expenditure or not. It appears that since the AD was satisfied with the aforesaid explanation, he accepted the same. The CIT in his impugned order even accepts this. Thus, even the CIT conceded the position that the AD made the inquiries, elicited replies and thereafter passed the assessment order. The grievance of the CIT was that the AD should have ma .....

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ases the CIT is bound to express final view. But, the least that was expected was to record a finding that order sought to be revised was erroneous and prejudicial to the interest of the Revenue. No basis for this is disclosed. In sum and substance, accounting practice of the assessee is questioned. However, that basis of the order vanishes in thin air when this very accounting practice, followed for number of years, had the approval of the IT authorities. Interestingly, even for future assessme .....

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