2017 (12) TMI 1858 - AT - Income Tax

Revision u/s 263 - difference between lack of enquiries and inadequate enquiries - HELD THAT - Deeming fiction has been created in section 263 of the Act by the amendment made by Finance Act, 2015 w.e.f. 01.06.15 wherein it has been mentioned that where the Commissioner is of the opinion that the AO had passed the order without making enquiries or verifications which should have been made or a relief has been allowed without enquiring into the claim or that the same is not in accordance with any order or direction or instruction issued by CBDT, that shall be deemed to be erroneous in so far as its prejudicial to the interest of Revenue. The said deeming provisions, in our view, are not applicable for the assessment year under consideration. We find that the Hon ble Supreme court and various other High Courts including our Jurisdictional High Court have been almost unanimous in holding that before enhancing or annulling or modifying or cancelling the assessment while exercising his powers under section 263 of the Act, the Commissioner must record a finding of fact or of law that the order of the AO is erroneous and is also prejudicial to the interest of Revenue as discussed above. In the case in hand, this prerequisite condition has not been satisfied as the Commissioner after calling for the explanation from the assessee has failed to make necessary exercise in examining or cause to examine the explanation/details submitted by the assessee for the justification of its claim and even without any further enquiry, directed the AO to make additions of the entire deposits into the income of the assessee. Hence, in the light of the various case laws as analyzed above, the order of the Commissioner exercising jurisdiction u/s 263 of the Act cannot be held to be sustainable in law. Appeal of the assessee is hereby allowed.

Summary

Issues:
- Challenge against order passed by Principal Commissioner of Income Tax (Central) under section 263 of the Income-tax Act, 1961.
- Examination of issues raised by Principal Commissioner of Income Tax.
- Application of mind by Assessing officer on each issue.
- Jurisdiction of Principal Commissioner of Income Tax under section 263.
- Compliance with necessary enquiries by Assessing officer.
- Interpretation of deeming provisions under section 263 of the Act.
- Requirement of reasons for exercising powers under section 263.
- Necessity of recording findings by the Commissioner.
- Legal standards for enhancing, annulling, modifying, or cancelling assessments under section 263.

Analysis:

The appellant challenged the order passed by the Principal Commissioner of Income Tax (Central) under section 263 of the Income-tax Act, 1961, questioning both the order itself and the assumption of revision jurisdiction by the Principal Commissioner. The appellant argued that the Assessing officer had duly examined and verified each issue raised by the Principal Commissioner, and the order was not erroneous or prejudicial to the interest of Revenue. The appellant contended that lack of enquiries did not render the order erroneous, citing various case laws to support this argument.

The Principal Commissioner, despite issuing a detailed show cause notice to the assessee, failed to consider the detailed reply provided by the assessee regarding each issue. The Principal Commissioner independently examined each issue without acknowledging that the Assessing officer had applied his mind to each issue and taken a possible view. The Tribunal found that the deeming provisions under section 263 were not applicable for the relevant assessment year and emphasized the importance of Assessing officer's enquiries and application of mind.

The Tribunal highlighted the legal standards for exercising powers under section 263, emphasizing the necessity for the Commissioner to record findings of fact or law that the Assessing officer's order was erroneous and prejudicial to the interest of Revenue. The Tribunal concluded that the Principal Commissioner had failed to satisfy this prerequisite condition, as necessary exercise in examining the explanation/details submitted by the assessee was not conducted before directing additions to the income. Consequently, the Tribunal set aside the order of the Principal Commissioner, ruling in favor of the appellant based on the legal principles discussed in various case laws.

In summary, the Tribunal's detailed analysis focused on the procedural and substantive aspects of the Principal Commissioner's order under section 263, emphasizing the importance of compliance with legal standards, examination of issues, and recording of findings to justify modifications to assessments.