2012 (12) TMI 404 - AT - Income Tax

Legitimacy of assessment order u/s 263 Whether assessment u/s 263 can be called valid, when order passed was not based on finding mention in SCN issued u/s 263 CIT proposing to cancel the assessment order passed u/s.143(3) being erroneous Held that - As the content given in the SCN have neither been confronted to the assessee nor any enquiry or examination has been done by the CIT himself to reach to the conclusion drawn by him in the impugned order. There is no finding as to how the AO s order is erroneous in this regard and that whether the AO has failed to examine this issue. On the contrary as per the query letter issued by the AO and reply submitted by the assessee, it seems that all expenses have been looked into and verified by the AO. Thus on this point also the order of the AO cannot be held to be erroneous so far it is prejudicial to the interest of the Revenue. Thus without going into the merits of the issue raised, prima facie, we are of the opinion that the impugned order passed u/s.263 by the CIT is unsustainable in law as the same has been passed without giving any proper opportunity to the assessee which is in violation of principles of natural justice. Appeal decides in favour of assessee

Summary

Issues:
1. Assessment order passed u/s.263 cancelling the assessment order u/s.143(3) for the Assessment Year 2003-04.
2. Discrepancy in income disclosure and expenses claimed by the assessee.

Analysis:
1. The appellant, a joint venture, subcontracted a project to M/s. Gammon India Limited, providing technical services for a fee. The A.O. accepted the returned loss filed by the assessee, completing the assessment u/s.143(3) on 31.03.2006. However, a notice u/s.154 was issued regarding TDS claims, which the assessee responded to. Subsequently, a show cause notice u/s.263 was issued proposing to cancel the assessment order due to discrepancies in income disclosure. The Ld. CIT pointed out issues of undisclosed income and disallowed expenses, leading to the appeal challenging the Ld. CIT's findings.

2. The Ld. CIT's order under section 263 raised concerns about the income disclosure and expenses debited by the assessee. The Ld. CIT alleged that the assessee suppressed income and claimed non-allowable expenses. However, the appellant argued that the Ld. CIT's findings differed from the show cause notice, creating inconsistencies. The Ld. CIT's conclusions lacked proper confrontation with the assessee and failed to conduct necessary inquiries, violating principles of natural justice. The order was deemed unsustainable in law due to the absence of proper opportunity granted to the assessee, leading to the cancellation of the order u/s.263.

In conclusion, the appellate tribunal allowed the appeal, canceling the impugned order u/s.263. The judgment emphasized the importance of adhering to principles of natural justice and ensuring proper confrontation of issues raised in show cause notices. The discrepancies between the notice and the Ld. CIT's findings highlighted the need for thorough examination and adherence to procedural fairness in tax assessment matters.