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2018 (6) TMI 1817 - AT - Income TaxRevision u/s 263 by CIT - declaration which was in the nature of unexplained nature was erroneously claimed by the assessee in addition to WIP and allowed by AO wrongly - as per CIT declaration made against WIP ould have been treated as unexplained expenditure u/s 69C and needed to be reduced from closing WIP - HELD THAT - In the present case we find that in the assessment order AO has noted about the survey conducted on 02.02.2012, the statement of assessee was recorded on oath incurring of cash expenses. He has further noted that the details about the sources of business expenses and other expenses were called for by the assessee and the admission of additional income was also examined by him. He also noted that in the revised return, the additional income admitted was included by the assessee. We find that AO has examined the issue and after application of mind has passed the order. Before us no material has been placed by the Revenue to demonstrate that the view taken by the AO while passing the order u/s 143(3) of the Act was unsustainable in law. In the present case, Ld.PCIT was not justified in invoking the provisions of Sec.263 - We, therefore, set aside the order of Ld.PCIT, whereby he has set aside the assessment order passed by the AO u/s 143(3) of the Act. Thus, the grounds of the assessee are allowed.
Issues:
1. Jurisdiction of invoking Section 263 of the Income Tax Act, 1961. Analysis: The appeal was filed by the assessee against the order of the Principal Commissioner of Income Tax (PCIT) for the assessment year 2011-12. The PCIT found the order passed by the Assessing Officer (AO) under Section 143(3) of the Act to be erroneous and prejudicial to the interest of Revenue. The PCIT raised two main reasons for this decision. Firstly, the PCIT noted discrepancies in the treatment of additional income declared by the assessee in the Working in Progress (WIP) account, which was disallowed in a subsequent assessment year. Secondly, the PCIT questioned interest-free loans advanced by the assessee to its partners without proper inquiry into the nexus of borrowed funds and their utilization. The assessee objected to the initiation of proceedings under Section 263, arguing that the conditions for invoking the section were not met. The assessee contended that if the AO's order is either not erroneous but prejudicial to revenue or erroneous but not prejudicial, Section 263 cannot be applied. The assessee also argued that when two views are possible, and the AO's view is sustainable in law, the PCIT cannot revise the order. The PCIT, however, set aside the AO's order and directed a fresh assessment. Upon hearing both parties, the tribunal analyzed the provisions of Section 263 and the precedents set by the Supreme Court. It was established that for the PCIT to exercise revisionary powers, two conditions must be met: the order must be erroneous, and this error must be prejudicial to Revenue. The tribunal found that the AO had examined the issues thoroughly, applied his mind, and passed the order after due consideration. Citing the principle that Section 263 cannot be used to substitute the Commissioner's judgment for that of the AO, the tribunal concluded that the PCIT was not justified in invoking Section 263 in this case. Consequently, the tribunal set aside the PCIT's order and allowed the assessee's appeal. In conclusion, the tribunal held that the PCIT's decision to invoke Section 263 was unjustified, as the AO's order was not erroneous and did not prejudice the Revenue. The tribunal emphasized the importance of upholding the AO's quasi-judicial powers and ensuring that revisionary actions are based on substantial legal grounds.
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