2018 (1) TMI 1354 - HC - Income Tax

Revision u/s 263 - adequacy of inquiries or verification done by the AO - Held that - In our considered opinion, it is well settled legal proposition that while considering Section 263, twin conditions are to be fulfilled which in the present case has not been fulfilled. - Hence, we are in complete agreement with the view taken by the Tribunal. - Decided against the revenue.

Issues Involved:
1. Legality of the Principal CIT's order under Section 263 of the I.T. Act.
2. Whether the Tribunal was correct in setting aside the Principal CIT's order.
3. Examination of the twin conditions under Section 263.
4. Analysis of precedents and legal principles related to Section 263.

Detailed Analysis:

1. Legality of the Principal CIT's order under Section 263 of the I.T. Act:
The Principal CIT invoked Section 263, claiming the Assessing Officer (AO) passed the order without making necessary inquiries or verification. The Tribunal, however, found that the AO had examined the details and accepted the business profit declared by the assessee. The Tribunal noted that the land sold was a business asset (stock in trade) and duly appeared in the financial statements and return of income filed by the assessee. The Tribunal concluded that the Principal CIT could not replace the AO's view as the law does not permit such an action.

2. Whether the Tribunal was correct in setting aside the Principal CIT's order:
The Tribunal observed that the AO had considered the financial statements and submissions made by the assessee during the assessment proceedings. The Tribunal held that the Principal CIT's order was unjustified as the AO had adopted a permissible view. The Tribunal also agreed with the assessee's argument that the order passed by the AO should satisfy the twin conditions prescribed in Section 263, which were not met in this case.

3. Examination of the twin conditions under Section 263:
The Tribunal emphasized that for an order to be revised under Section 263, it must be both erroneous and prejudicial to the interest of revenue. The Tribunal referred to the Supreme Court's decision in CIT v. Max India Ltd., which held that every loss of revenue cannot be said to be prejudicial to the interests of revenue. The Tribunal found that there was no loss to revenue in this case, and the AO's order was not prejudicial to the revenue's interest.

4. Analysis of precedents and legal principles related to Section 263:
The Tribunal relied on various judicial precedents, including:
- CIT v. Max India Ltd. (Supreme Court): Clarified that the phrase "prejudicial to the interests of revenue" must be read in conjunction with "erroneous" and that two views were possible on the word "profits" at the relevant time.
- Malabar Industrial Co. Ltd. v. CIT (Supreme Court): Held that every loss of revenue does not imply the order is prejudicial to revenue interests.
- CIT v. Nahar Exports Ltd. (Punjab and Haryana High Court): Emphasized that the position of law at the time of the Commissioner's order should be considered, and two views were possible on the issue.

The Tribunal concluded that the Principal CIT's order did not meet the twin conditions of being erroneous and prejudicial to the revenue's interest. As a result, the Tribunal set aside the revision order passed by the Principal CIT and restored the AO's assessment order.

Conclusion:
The High Court agreed with the Tribunal's view, holding that the twin conditions under Section 263 were not fulfilled. The issue was answered in favor of the assessee and against the department, leading to the dismissal of the appeal.

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