IMPORTANT POINT
The main legal point established in the judgment is the requirement for the assessing officer to conduct due enquiry and complete the scrutiny assessment, and the need for the Commissioner of Income Tax to provide specific findings when exercising powers under Section 263 of the Income Tax Act.

JUDGMENT :

T.S. Sivagnanam, J.

1. This appeal filed by the revenue under Section 260A of the Income Tax Act, 1961 (the Act) is directed against the order dated December 12, 2014 passed by the Income Tax Appellate Tribunal “B” Bench, Kolkata in ITA No. 416/Kol/2014 for the assessment year 2009-2010. The appeal was admitted on 15.10.2015 on the following substantial questions of law :-

(a) Whether on the facts and in the circumstances of the case, the Learned Income Tax Appellate Tribunal, “B” Bench erred in law in quashing the order under Section 263 of the Income Tax Act, 1961 passed by the Commissioner of Income Tax, Kolkata-XII?

(b) Whether on the facts and in the circumstances of the case the Learned Income Tax Appellate Tribunal, “B” Bench erred in law in holding that the Commissioner of Income Tax could not establish order under Section 143(3) as erroneous and prejudicial to the interest of the revenue in spite of the fact that the Commissioner of Income Tax has pointed out in his order that the assessing officer did not conduct proper enquiries on issues of valuation of closing stock and commission payment?

(c) Whether the impugned order bad, arbitrary, illegal, perverse and the same is nothing but a total non-application of mind of the Income Tax Appellate Tribunal, Kolkata and the same is liable to be set aside and/or quashed?

2. We have heard Mr. Soumen Bhattacharyee, learned Standing Counsel appearing for the appellant and Mr. S.M. Surana, learned Senior Advocate assisted by Mr. Bhaskar Sengupta, learned advocates appearing for the respondent.

3. The scrutiny assessment for the year under consideration was completed by order dated 23.09.2011 determining the total income of the assessee at Rs. 3,19,86,520/-. The Commissioner of Income Tax, Kolkata – XII (CIT) invoked his powers under Section 263 of the Act alleging that the assessing officer has completed the assessment in hasty manner and has accepted the return of income without making necessary enquiry and verification and therefore the order is prejudicial to the interest of the revenue. Accordingly, a show cause notice was issued to the assessee to answer the issues namely:-

(i) Under statement in closing stock

(ii) Secured loan

(iii) Commission

4. The assessee submitted their reply however, the CIT rejected the contention raised by the assessee and affirmed the proposal in the show cause notice and directed the assessing officer to make necessary investigation on the three issues pointed out and pass orders in accordance with law. Aggrieved by such order, the assessee preferred appeal before the tribunal. The tribunal allowed the appeal and challenging the said order this appeal has been preferred by the revenue. The substantial questions of law on which the appeal was admitted is though three in number all pertain to the correctness of exercise of powers by the CIT under Section 263 of the Act. With regard to the alleged allegation of understatement of closing stock, the assessee has submitted that they had valued the stock at cost on First-in First-out basis or the market price whichever is less that they have duly maintained complete stock record in their computer system item wise which contains full details of opening stock, purchases made, sales made and closing stock giving quantity, rate and value. Further the assessee stated that the computer system automatically computes the value of closing stock on FIFO basis and there is no change and/or possibility of any understatement in valuation of the closing stock. The assessee had furnished item wise details of the closing stock for the entire amount and also furnished the entire stock records pertaining to 12 items selected on random basis and sought to establish that the valuation of closing stock has been done at cost on FIFO basis and there is no understatement in the valuation of the closing stock.

5. Further the assessee produced the closing stock valuation details of all the items having value of Rs. 5,00,000/-o