2013 (9) TMI 1121 - AT - Income Tax

Revision u/s 263 - Held that - Order passed under section 263 of the Act by the CIT on 21.3.2011 for Assessment Year 2006-07, is without proper assumption of jurisdiction as it does satisfy the twin requisite conditions of the order revised being both erroneous and prejudicial to the interests of revenue. In this view of the matter, we hold that the very initiation of proceedings, made without proper appreciation of the facts on record, is bad in law as it is not in accordance with the conditions specified in section 263 of the Act and therefore cancel the impugned order under section 263

Issues Involved:
1. Validity of the order under section 263 of the Income Tax Act, 1961.
2. Examination of the valuation of closing work-in-progress.
3. Jurisdiction and application of mind by the Commissioner of Income Tax (CIT) in invoking section 263.
4. The impact of the order under section 263 on the subsequent assessment order under section 143(3) read with section 263.

Detailed Analysis:

1. Validity of the Order under Section 263:
The primary issue was whether the CIT-I, Bangalore was justified in invoking section 263 of the Income Tax Act, 1961, to revise the assessment order for the Assessment Year 2006-07. The CIT found the original assessment order erroneous and prejudicial to the interests of revenue due to the alleged improper valuation of closing work-in-progress by the Assessing Officer (AO).

2. Examination of the Valuation of Closing Work-in-Progress:
The CIT proposed that the AO had accepted the assessee's valuation of closing work-in-progress at Rs. 1,09,29,625 without proper examination, leading to an under-assessment of income by Rs. 1,92,35,419. The CIT directed the AO to reassess the income, considering the development charges proportionately.

3. Jurisdiction and Application of Mind by the CIT:
The Tribunal examined whether the CIT had appropriately invoked section 263. The assessee contended that the AO had indeed scrutinized the valuation of work-in-progress during the original assessment proceedings, as evidenced by the detailed submissions and explanations provided by the assessee. The Tribunal noted that the AO had issued detailed questionnaires and received comprehensive responses from the assessee, indicating that the AO had applied his mind to the matter.

The Tribunal also considered the fact that the AO had accepted the same valuation of work-in-progress in the subsequent assessment year (2007-08), which further supported the assessee's claim that the AO had examined and accepted the valuation after due consideration.

4. Impact of the Order under Section 263 on the Subsequent Assessment Order:
The Tribunal found that the CIT's order under section 263 was based on an incorrect assumption that the AO had not applied his mind to the valuation of work-in-progress. The Tribunal held that the CIT's direction for a fresh assessment amounted to making fishing and roving enquiries, which is not permissible under section 263. The Tribunal emphasized that an assessment order cannot be set aside for further enquiry unless it is shown to be erroneous and prejudicial to the interests of revenue.

Given that the Tribunal found the CIT's order under section 263 to be without proper jurisdiction and not in accordance with law, the subsequent assessment order under section 143(3) read with section 263, and the order of the CIT(Appeals) upholding it, were rendered infructuous.

Conclusion:
The Tribunal allowed the assessee's appeals, canceling the CIT's order under section 263 and the subsequent assessment order under section 143(3) read with section 263. The Tribunal held that the original assessment order was neither erroneous nor prejudicial to the interests of revenue, as the AO had duly examined the valuation of closing work-in-progress.

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