In a recent judgment, ITAT held that the word ‘erroneous’ in section 263 includes the failure to make an inquiry when circumstances would make such an enquiry prudent. Also order passed without applying the principles of natural justice or without application of mind are fall in the same category.
Case Details:
I.T.A. No. 2639/DEL/2015 A.Y. : 2010-11
M/s Mahawar Iron Stores (P) Ltd. vs. DCIT
Date of Order/Judgment: 11/04/2016
Brief Facts of the Case:
The appellant assessee was engaged in the business of trading of iron and steel.The assessee filed its e-return which was selected for scrutiny through CASS. Books of accounts and vouchers were produced and examined on test check basis by the Assessing Officer (AO). The AO accepted the income declared by the assessee and completed the assessment u/s.143(3).
Later, CIT while examining the assessment order, found that Assessing Officer had not examined/not drawn conclusions which naturally arose from the facts and circumstances of the case, particularly the following:
(a) Brokerage expenses
(b) Perceived differences between the purchase and sales
(c) Difference in the bank balance figures
(d) Loans raised
(e) Unsecured Loans squared up during the year.
(f) Applicability of the provisions of Section 40A(2)(b) to purchases and payment of salary
Accordingly exercise of the revisionary powers u/s. 263 CIT issued the Notice. After examination of the reply of the assessee and documentary evidences, CIT passed order u/s. 263 holding the assessment order passed by the AO to be erroneous as well as prejudicial to the interest of revenue, setting aside the assessment to the file of the AO to examine de novo after giving the assessee a reasonable opportunity of being heard.
Excerpts from ITAT Judgment:
We find that the AO has not even made any attempt to make any enquiry before accepting the claim of the assessee and accepted the claim in a hurry manner without applying mind. From the records, it reveals that the AO has not even appropriately appreciated the evidence on record either failed to examine or if examined, did not arrive at the correct logical conclusion on some issues. Therefore, the assessment framed by the AO prima facie appeared prejudicial to the interests of revenue and thus, a notice u/s. 263 of I.T. Act, 1961 has rightly been issued…..
Apropos Issue relating to Brokerage expenses of Rs. 50,85,988/- is concerned, we find from the assessment record that on this issue the case was selected for scrutiny to verify the admissible of the said expenses, but no enquiry appeared to have been made as to the purpose and basic of payment of brokerage, its connection with the business and whether the payment commensurate to the benefit derived by the Company…..
we find that VAT return and purchase and sales registers in order to reconcile the figure of sales and purchases as disclosed in the P&L A/c are yet to be reconciled…..
….we find that in a Bank reconciliation statement various cheques issued by the assessee but not presented in bank as well as cheques received but not encashed by the assessee, these entries requires verification from the bank account of the assessee in various banks, however, AO has not made any attempt to verify/examine the same. ….
….at the time of the assessment the AO was duty bound to call for such details and examine them. We also find that in the case of M/s Malabar Industries, the Hon’ble Apex Court has held that incorrect assumption of facts or incorrect application of law will satisfy the requirement of the order being erroneous….
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