In I.T.A. No.: 161/KOL/2022- ITAT - ITAT (Kolkata) holds that there was no valid justification for Principal Commissioner of Income Tax to exercise jurisdiction under Section 263 of Income Tax Act, as the case did not involve unexplained expenditure but was merely a sales reversal entry
Members Rajpal Yadav (Vice President) & Manish Borad (Accountant) [24-04-2023]

Read Order: Chotanagpur Petroleum Agency v. Pr. CIT, Kolkata

LE Correspondent

Kolkata, May 20, 2023: The Kolkata Bench of the Income Tax Appellate Tribunal has ruled that there was no valid justification for the Principal Commissioner of Income Tax (Pr. CIT) to exercise jurisdiction under section 263 of the Income Tax Act for initiating revisionary proceedings, as the case did not involve unexplained expenditure but was merely a sales reversal entry.

Factual matrix of the case was that Chotanagpur Petroleum Agency (assessee) was a partnership firm engaged in selling of lubricants and engine oils. The assessee submitted that the alleged unexplained expenditure of Rs. 67,85,064/- was incorrect. They contended that the amount was received from customers to whom credit sale was made, and even if it was considered as unexplained expenditure, the equivalent amount should be deducted from sales, resulting in no impact on the net income of the assessee. However, the Pr. CIT was not satisfied with the assessee's submissions. The Pr. CIT deemed the order of the Assessing Officer (AO) as erroneous and prejudicial to the interests of the Revenue. Consequently, the Pr. CIT directed the AO to issue a fresh assessment order in the matter.

Upon reviewing the transactions, the bench of Rajpal Yadav (Vice President) and Manish Borad (Accountant) observed that the assessee had a practice of recording credit sales in the cash sales register, even if the amount was not received at the time. The outstanding amount would be shown in the name of truck owners with their truck numbers. Once the payment was received, it would be credited to the daily cash sales customer accounts. Though the policy adopted by the assessee was not at par with the settled accounting policies, the Tribunal considered it to be a sales reversal, based on the flow of transactions.

The Tribunal held that, “no prejudice is caused to the Revenue due to this accounting system consistently followed by the assessee and since the order of ld. AO is not erroneous as complete examination of details has been carried out through issuance of notice u/s 142(1) of the Act to which proper compliance has been made by the assessee filing requisite details and thus, the assessment proceedings u/s 143(3) of the Act has been carried out after making proper enquiry, proper application of mind and taking a plausible view in accordance with law.”