2014 (6) TMI 75 - AT - Income Tax

Power of revision u/s 263 of the Act - Prejudicial to the interest of revenue Proper enquiry made by AO Reply with documentary evidences furnished by assessee Held that - An order can be revised only and only if twin conditions of error in the order and prejudice caused to the Revenue co-exist - the CIT does not have unfettered and unchequred discretion to revise an order - The CIT is required to exercise revisional power within the bounds of the law and has to satisfy the need of fairness in administrative action and fair play with due respect to the principle of audi alteram partem as envisaged in the Constitution of India as well as in section 263 - an order can be treated as erroneous if it was passed in utter ignorance or in violation of any law, or passed without taking into consideration all the relevant facts or by taking into consideration irrelevant facts - The prejudice that is contemplated u/s 263 is the prejudice to the Income Tax administration as a whole. Section 263 cannot be invoked to correct each and every type of mistake or error committed by the Assessing Officer and it is only when an order is erroneous, that the section will be attracted - Every loss of revenue cannot be treated as prejudicial to the interest of the revenue and if the AO has adopted one of the courses permissible under law or where two views are possible and the AO has taken one view under with which the CIT does not agree, it cannot be treated as an erroneous order, unless the view taken by the AO is unsustainable under the law thus, there is no error in the order which can be said to be prejudicial to the interest of the revenue Decided in favour of Assessee.

Summary

Issues:
Appeal against order of CIT-I, Jodhpur u/s 263 of the Income-tax Act, 1961 for A.Y 2009-10.

Analysis:
1. The assessee filed its Return of Income for A.Y. 2009-10, which was assessed u/s 143(3) of the Act, resulting in a total income determination different from the filed return. The CIT noticed interest-free advances given by the assessee and questioned the lack of interest charged on these advances. The CIT invoked section 36(1)(iii) of the Act, stating that if borrowed funds were not utilized for business purposes, no interest is allowable. The CIT also highlighted the lack of examination by the A.O. on manufacturing expenses and job charges claimed by the assessee. The CIT issued notice u/s 263, deeming the A.O.'s order as erroneous and prejudicial to revenue, setting it aside for fresh assessment.

2. The assessee challenged the CIT's decision, arguing that the A.O. had conducted thorough inquiries and applied his mind before passing the original assessment order. The assessee contended that the CIT's intervention was unwarranted as the A.O. had already addressed the issues raised. The assessee provided detailed responses and evidence to the CIT's queries, which the CIT allegedly failed to appreciate. The assessee asserted that the CIT's actions were unjustified and went against natural justice principles.

3. The Tribunal examined the legal framework under section 263, emphasizing that the CIT's revisionary powers are limited to correcting orders that are both erroneous and prejudicial to revenue. The Tribunal outlined key principles, stating that incorrect assumptions of facts or law, orders passed without due application of mind, and unsustainable views taken by the A.O. could render an order erroneous. The Tribunal concluded that, based on the facts presented, there was no error in the A.O.'s order prejudicial to revenue. Consequently, the Tribunal set aside the CIT's order and reinstated that of the A.O.

In conclusion, the Tribunal allowed the appeal of the assessee, finding no error in the original assessment order that warranted revision under section 263. The Tribunal's decision was pronounced on 13th May, 2014.