2017 (2) TMI 1395 - AT - Income Tax

Revision u/s 263 - Order erroneous or prejudicial to revenue - Held that - The view so taken by the Assessing Officer without making the requisite inquiries or examining the claim of the assessee will per se be an erroneous view and hence will be amenable to revisional jurisdiction under Section 263. Second reason is that it is not taking of any view that will take the matter under the scope of Section 263. The view taken by the Assessing Officer should not be a mere view in vacuum but a judicial view. It is difficult to comprehend as to how the Assessing Officer can be attributed to have adopted a permissible course of law or taken a view where two or more views are possible when the order passed by him does not speak in that behalf. We cannot assume, in order to provide legitimacy to the assessment order, that the AO has adopted a permissible course of law or taken a possible view where his order does not say so. The submissions made by the learned Counsel, if accepted, would require us to form, substitute and read our view in the order of the AO when the AO himself has not taken a view. It could have been a different position if the AO had adopted or taken a view after analysing the facts and deciding the matter in the light of the applicable law. However, in the case before us, the Assessing Officer has not at all examined as to whether only one view was possible or two or more views were possible and hence, the question of his adopting or choosing one view in preference to the other does not arise. The provisions of Section 263 would lose significance if they were to be interpreted in a manner that prevented the Commissioner from revising the erroneous order passed by the Assessing Officer, which was prejudicial to the interest of the revenue. In fact, such a course would be counter-productive as it would have the effect of promoting arbitrariness in the decisions of the Assessing Officers and thus destroy the very fabric of sound tax discipline. If erroneous orders, which are prejudicial to the interest of the revenue, are allowed to stand, the consequences would be disastrous in that the honest tax payers would be required to pay more than others to compensate for the loss caused by such erroneous orders. Thus we are of the view that the orders passed on an incorrect assumption of facts or incorrect application of law or without applying the principles of natural justice or without application of mind or without making requisite inquiries will satisfy the requirement of the order being erroneous and prejudicial to the interest of the revenue within the meaning of Section 263. Accordingly we do not find any infirmity in the order of CIT and we confirm the same. - decided against assessee.

Summary

Issues Involved:
1. Whether the Commissioner of Income-tax (CIT) was justified in invoking the provisions of Section 263 of the Income-tax Act.
2. Whether the Assessing Officer (AO) failed to conduct necessary inquiries and apply his mind during the assessment proceedings.

Issue-wise Detailed Analysis:

1. Justification of CIT's Invocation of Section 263:
The CIT invoked Section 263 of the Income-tax Act, which allows for revision of an assessment order if it is found to be erroneous and prejudicial to the interests of the revenue. The CIT observed that the AO did not examine the employee costs in detail during the assessment proceedings. Specifically, the CIT noted an abnormal increase in personal expenses from ?32.04 crores to ?44.88 crores, while the turnover increased by only ?9.71 crores. This discrepancy indicated that the AO failed to apply his mind and conduct a proper inquiry, making the assessment order erroneous and prejudicial to the revenue's interests. The CIT set aside the assessment order and directed the AO to re-examine the issue and pass a fresh order after providing due opportunity to the assessee.

2. Failure of AO to Conduct Necessary Inquiries:
The assessee argued that the CIT could not make a roving inquiry and that the AO, being a quasi-judicial authority, had already taken a possible view after examining the facts. However, the CIT found that the AO had not scrutinized the significant increase in employee costs relative to the turnover. The Tribunal noted that the AO's order was devoid of any discussion or analysis regarding the increase in personal expenses. The Tribunal emphasized that an assessment order becomes erroneous if it is based on an incorrect assumption of facts or law, or if it lacks proper inquiry and verification. The AO's failure to investigate the abnormal increase in expenses rendered the order erroneous and prejudicial to the revenue.

The Tribunal referenced several legal precedents, including the Supreme Court's decision in Malabar Industrial Co. Ltd. (243 ITR 82 (SC)), which held that an order is erroneous if it is passed without proper inquiry or application of mind. The Tribunal concluded that the AO's order was a non-speaking order and lacked objective consideration of the claim made by the assessee. Therefore, the CIT was justified in exercising his revisional jurisdiction under Section 263.

Conclusion:
The Tribunal upheld the CIT's order, confirming that the AO's failure to conduct necessary inquiries and apply his mind during the assessment proceedings made the assessment order erroneous and prejudicial to the revenue's interests. The appeal of the assessee was dismissed. The Tribunal emphasized the importance of the AO's duty to protect both the interests of the assessee and the revenue by conducting thorough inquiries and making informed decisions.