2012 (3) TMI 413 - AT - Income Tax

Revision u/s 263 - Held that - It is settled proposition of law, if the Assessing Officer has not applied his mind as no enquiry was conducted, then the order of the Assessing Officer is erroneous so far as prejudicial to the interest of revenue. The CIT has raised three specific issues for invoking provisions of sec. 263 and one of the issues is regarding overlooking material fact so far as the issue no.1 of the impugned order is concerned. Hence, when the Assessing Officer completely overlooked a significant fact having direct bearing on the issue, then it renders the assessment order as erroneous and gives powers to the CIT to invoke provisions of sec. 263. Where there is complete lack of enquiry and the circumstances demands an extensive enquiry at the level of the Assessing Officer, then the CIT is justified in directing the Assessing Officer to decided the issue denovo.- Decided against revenue

Summary

Issues:
1. Whether the order passed by the Assessing Officer under section 143(3) was erroneous and prejudicial to the interest of revenue.
2. Whether the Assessing Officer conducted a proper inquiry into the claims of the assessee.
3. Whether the Assessing Officer correctly allowed deductions and provisions under relevant sections of the Income Tax Act.

Analysis:

Issue 1:
The appeal was against the order passed under section 263 of the Income Tax Act by the CIT for the Assessment Year 2005-06. The CIT found the assessment order erroneous and prejudicial to the revenue due to various reasons, including rejection of claims by the Assessing Officer regarding appreciation of securities and failure to examine provisions under section 36(1)(viia). The CIT set aside the assessment order and directed a re-assessment.

Issue 2:
The assessee contested the CIT's decision, arguing that the Assessing Officer had considered all relevant facts during the assessment proceedings. The assessee maintained that the decision to recognize income on bad or doubtful debts was in accordance with RBI guidelines and Rule 6EA, and the Assessing Officer's acceptance of this decision was not erroneous. The assessee also highlighted the Finance Act provisions regarding interest on sticky loans and emphasized the need for the CIT to conduct a proper inquiry before passing the order under section 263.

Issue 3:
The Assessing Officer's failure to conduct an inquiry into crucial issues raised by the CIT was a key point of contention. The Tribunal noted that lack of inquiry rendered the assessment order erroneous and prejudicial to revenue. The Tribunal emphasized the need for the Assessing Officer to verify the correctness of the assessee's classification of sticky advances and conduct a detailed examination to determine compliance with Rule 6EA. The Tribunal dismissed the appeal, citing the necessity for extensive inquiry at the Assessing Officer's level in cases of complete lack of inquiry.

In conclusion, the Tribunal upheld the CIT's decision to set aside the assessment order and emphasized the importance of proper inquiry by the Assessing Officer to avoid errors prejudicial to revenue. The appeal filed by the assessee was dismissed, highlighting the significance of thorough examination and compliance with relevant provisions of the Income Tax Act.