AO assessm't order set aside by CIT(A) on ground of under assessm't upheld, HC .

Facts in Brief:

1. The Commissioner on verification of the books of account of the assessee, was of view that there was a difference in declaration of stock by the assessee during survey and the stock available in books.

2. Accordingly, he held that the assessment order passed by the Assessing Officer was erroneous and there was under assessment of income.

3. Therefore, he restored the matter to the Assessing Officer for passing fresh order and directed to verify the stock register, books of account.

On appeal, ITAT held as under:

4. In the instant case it is found that the course adopted by the Assessing Officer of not resorting to or attempting estimate, after first accepting the books as correct and complete, is the mandate of law. Thus the course adopted by the Assessing Officer was fully justified in the facts and circumstances of the case. In fact the Assessing Officer would have been in error, if he had resorted to estimate, while the books were found correct. Thus the view adopted by the Assessing Officer was the only view sustainable in law.

5. In view of this, the order passed by the Assessing Officer was not erroneous or prejudicial to the interest of revenue in any way. Accordingly, the Commissioner had no jurisdiction to take action under section 263 (of Income Tax Act, 1961). The appeal of the assessee is accordingly allowed.

RELEVANT PARAS OF JUDGMENT ARE AS UNDER:

6. The Assessing Officer has discussed the inquiry carried and it has also mentioned in the assessment order. The Assessing Officer has made an inquiry and assessee has replied all queries raised by the Assessing Officer.

7. The assessee has maintained correct and complete account which was accepted by the Assessing Officer also the physical stock was taken by the Assessing Officer. During the survey proceeding the Assessing Officer has benefit of knowledge of actual quantity of stock from both the books as well as physically. Hence, the assessment under section, 143 was completed accepting the books result. Accordingly, there was no scope for Assessing Officer to do the conclusion of closing stock on estimated basis by extrapolated at a fixed GP of 10% for all the month. Hence no fault can be found with the Assessing Officer's order for not having restored to estimate and order under section 143 (of Income Tax Act, 1961) cannot be termed as erroneous.

8. The Assessing Officer has given clear findings in his assessment order that the assessee has produced books of account consisting of cash book, ledger etc. which were test checked. The information/evidence regarding the various cash credits introduced by the assessee as well as the details of expenditure debited in profit and loss account furnished by the assessee have been examined. The Assessing Officer did not reject the books of account of the assessee but made addition merely by relying on the Departmental valuation report which only gives the estimated cost of construction and not the actual cost of construction incurred by the assessee. In absence of rejection of books of account, the Assessing Officer is not authorised to reject the cost of construction shown by the assessee in his books of account. Therefore, in the absence of rejection of books of account by the Assessing Officer, the appeal of the assessee is to be allowed and the addition made by the Assessing Officer on the basis of departmental valuation report is to be deleted. 

Case Reference-K.N. Ramchandra Naidu v. Commissioner of Income-tax, Panaji

IN THE ITAT PANAJI BENCH