2013 (8) TMI 738 - AT - Income Tax

Revision - Jurisdiction of CIT u/s 263 - According to CIT, A.O. was duty bound u/s.68 of the Act to do the enquiry of the information received from the FTD before passing it s orders, and that in fact was also in substance the directions by the FTD vide its order dated 04.02.2011, and which he did not clearly do, passing the order the very next day. His order was, therefore, erroneous and prejudicial to the interest of the Revenue. - Held that - A.O. was himself of the considered view that further enquiry is required, having sought materials for the same, though was unable to, in the exigencies of the case, verify and examine the same. In fact, the hon ble court itself clarifies therein that the CIT could establish that the facts on record or the inference drawn from the facts on record per se justify and mandate further enquiry or investigation by the A.O., which had not been conducted by him - Mandate of s. 68 of the Act remaining unsatisfied. As per the decision in CIT vs. Sunbeam Auto Ltd. 2009 (9) TMI 633 - Delhi High Court wherein it has been clarified that the argument of lack of enquiry or inadequate enquiry cannot be employed where the A.O. has taken one of the possible views, showing his application of mind on the issue - The argument as regards inadequate enquiry predicates on non-application of mind, so that where, therefore, proper application of mind is reflected, the argument of lack of enquiry would not hold. The enquiry, or its absence, even as explained earlier, is purely a matter of fact, so that the decision turns once again on facts - There has been a valid assumption of jurisdiction u/s.263 in the instant case Appeal allowed Decided in favor of Assessee.

Issues Involved:
1. Validity of the invocation of section 263 of the Income Tax Act by the Commissioner of Income Tax (CIT).
2. Adequacy of the enquiry conducted by the Assessing Officer (A.O.) regarding the investment in right shares by Mauritius-based entities.
3. The role and directions of the Dispute Resolution Panel (DRP) in the assessment process.
4. The relevance and examination of information received from the Foreign Tax Division (FTD) by the A.O. and CIT.
5. Compliance with the principles of natural justice and procedural fairness.

Detailed Analysis:

1. Validity of the Invocation of Section 263 of the Income Tax Act by the CIT:
The primary issue before the tribunal was the validity of the invocation of section 263 by the CIT. The tribunal referred to the apex court's decision in Malabar Industrial Co. Ltd. vs. CIT, which outlines a four-way test for the valid assumption of revisionary jurisdiction under section 263. The tribunal concluded that the instant case fell under the fourth category, i.e., without application of mind. The tribunal emphasized that not conducting proper enquiry, as warranted by the facts and circumstances, would make an order per se erroneous and prejudicial to the interest of the Revenue. The tribunal upheld the CIT's invocation of section 263, stating that the A.O. had not conducted proper enquiry into the investment by Mauritius-based entities.

2. Adequacy of the Enquiry Conducted by the A.O.:
The tribunal examined whether the A.O. had conducted due enquiry regarding the investment in right shares by Mauritius-based entities. The tribunal noted that the A.O. had sought further details from the FTD, indicating that he did not consider the available material sufficient to form an opinion. The tribunal found that the A.O.'s enquiry was at an interim stage and that he had not formed a definitive opinion on the matter. The tribunal concluded that there was no proper enquiry by the A.O., as evidenced by his 'office note' and the subsequent actions taken.

3. Role and Directions of the DRP in the Assessment Process:
The tribunal addressed the contention that the A.O. was bound by the directions of the DRP and, therefore, could not make further adjustments or changes. The tribunal clarified that the DRP's directions were not inconsistent with the law and were only clarificatory in nature. The tribunal noted that the DRP had not issued any specific directions regarding the information received from the FTD, and the A.O. was justified in finalizing the assessment without further enquiry. The tribunal held that the CIT's invocation of section 263 was justified as the relevant materials had not been considered by either the DRP or the A.O.

4. Relevance and Examination of Information Received from the FTD:
The tribunal examined the relevance and examination of the information received from the FTD by the A.O. and CIT. The tribunal found that the CIT had issued a finding of lack of enquiry based on the examination of the record. The tribunal emphasized that the A.O. was duty-bound under the Act to verify the genuineness of the credit transactions and that the information from the FTD was relevant for this purpose. The tribunal concluded that the CIT's action was justified as the A.O. had not conducted proper enquiry into the information received from the FTD.

5. Compliance with the Principles of Natural Justice and Procedural Fairness:
The tribunal addressed the contention that the CIT had not provided the assessee with an opportunity to explain its case before drawing an adverse inference. The tribunal noted that the CIT had stated that the relevant materials would be provided to the assessee during the assessment proceedings before the A.O. The tribunal held that the non-furnishing of the bank statements to the assessee did not violate the principles of natural justice, as the A.O. would provide a fair opportunity of hearing to the assessee during the assessment proceedings.

Decision:
The tribunal upheld the CIT's invocation of section 263, finding that there was a valid assumption of jurisdiction and that the directions issued by the CIT were consistent with his findings. The tribunal dismissed the appeal of the assessee, stating that no interference with the CIT's order was called for. The order was pronounced in the open court on August 16, 2013.

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