2019 (3) TMI 1963 - AT - Income Tax

Revision u/s 263 - addition u/s 69 in respect of land purchased from Pingle family - HELD THAT - In the present case, it cannot be said that no enquiry was carried out by the AO, at the most it is a case of inadequate enquiry. Even in that case, the provisions of section 263 cannot be invoked. The Explanation 2(1) to Section 263 inserted by the Finance Act 2015 w.e.f. 01-04-2015 would not change the matrix of case as the amendment would not apply retrospectively. Thus, in the facts of the case, impugned order is set aside and the appeal of assessee is allowed.

Summary

Issues:
- Revision under section 263 of the Income-tax Act, 1961 based on lack of enquiry by the Assessing Officer.
- Invocation of section 263 due to Internal Audit objection.
- Application of the twin conditions for assuming revisional jurisdiction under section 263.
- The impact of the Explanation 2(1) to Section 263 inserted by the Finance Act 2015.

Analysis:
1. Revision under section 263 based on lack of enquiry: The appeal was directed against the order of the Principal Commissioner of Income Tax under section 263 of the Income-tax Act, 1961. The issue stemmed from a land transaction between the assessee and a family, which had been previously litigated before the Tribunal. The Tribunal had directed the Assessing Officer to conduct further enquiries and provide the assessee with an opportunity to cross-examine the seller. Subsequently, the Assessing Officer passed an assessment order accepting the returned income, which led to the revision under section 263 by the Principal Commissioner.

2. Invocation of section 263 due to Internal Audit objection: The revision proceedings under section 263 were initiated based on an objection raised by the Internal Audit Department. The Assessing Officer initially defended the assessment order against the objection but later sought approval to submit a proposal under section 263 as a precautionary measure to protect the interest of Revenue. The contention was that the invocation of section 263 based solely on the internal audit report was not sustainable.

3. Application of twin conditions for assuming revisional jurisdiction under section 263: The judgment emphasized that the intent of section 263 was not to substitute the opinion of the Assessing Officer but to protect the interest of Revenue where the order was erroneous and prejudicial to Revenue. It was established that where the Assessing Officer had conducted an enquiry and taken a possible view, the provisions of section 263 could not be invoked by the Principal Commissioner to substitute his view. The judgment cited the decision of the Hon’ble Bombay High Court to support this interpretation.

4. Impact of Explanation 2(1) to Section 263: The judgment clarified that the insertion of Explanation 2(1) to Section 263 by the Finance Act 2015 did not change the case's dynamics as the amendment would not apply retrospectively. It was concluded that in the present case, where there was at most inadequate enquiry by the Assessing Officer, the provisions of section 263 could not be invoked. Consequently, the impugned order was set aside, and the appeal of the assessee was allowed.

In conclusion, the judgment highlighted the importance of conducting thorough enquiries by the Assessing Officer and ensuring that the twin conditions for assuming revisional jurisdiction under section 263 were met. It also underscored the limitations on the Principal Commissioner's power to revise an order when the Assessing Officer had applied his mind and taken a possible view on the matter.