2023 (4) TMI 1308 - HC - Income Tax

Revision u/s 263 - proceedings initiated based on a proposal received by the assessing officer - Inadeqaute or no enquiry done by AO - HELD THAT - We find that the assessing officer has specifically recorded in the assessment order u/s 143(3) that during the course of assessment proceedings, the assessee was asked to explain the books of accounts, bills and vouchers and the authorised representative of the assessee filed the relevant documents in detail with many explanations which were examined by the assessing officer and verified with the books of accounts and the heard copies of the ITR and audited accounts and thereafter, the assessment was completed. From the notice issued u/s 142(1) it is seen that as many as 21 particulars/documents were called upon to be produced by the assessee of which the document/observations in item No. 20-21 are relevant for the purpose of this case, they being (i) large increase in investment in unlisted equities during the year and (ii) low income in comparison to very high investment. It is seen that first issue on which the information was called for by the assessing officer has not been taken as a ground by the PCIT while assuming jurisdiction u/s 263. Thus it has to be seen as to whether assessee had furnished the requisite information with regard to the second issue namely low income in comparison to very high investments. The assessee had placed before the assessing officer many submissions in which the detail explanation has been given with regard to the said issue apart from placing reliance on various decisions of the Hon ble Supreme Court as well as the High Courts. Apart from that, a separate reply had also been given dealing with all the twenty-one issues. Thus it cannot be said that assessing officer did not conduct any enquiry in the matter with regard to the issue on which the PCIT had exercised jurisdiction under 263 of the Act. It may be true that a proposal had been received by the PCIT from the assessing officer. However, solely based on the proposal, action could not have been initiated u/s 263 as the statute mandates that PCIT should enquire and be satisfied that the case warrants exercise of its jurisdiction u/s 263 . Such satisfaction should be manifest in the show-cause notice which is issued u/s 263 of the Act. We find in the instant case the word used by the PCIT is prima facie . Thus based on prima facie view the PCIT accepted the proposal of the assessing officer and initiated action u/s 263 of the Act. The decisions of the Hon ble Courts on the point clearly holds that the satisfaction of the PCIT is essential. Though the Tribunal has knowledge of those facts as also the order sheet maintained by the assessing officer which records that on 19.09.2017 the authorised representative of the assessee had appeared and produced the books of accounts, bills vouchers etc and they were test checked and the case was discussed with the authorised representative of the assessee. If that be so, it could not have been stated that there was any lack of enquiry on the part of the assessing officer. Tribunal also admits that a paper book containing 124 pages of documents were also placed. Thus it is a case where the assessing officer had raised specific query and the case was discussed with the authorised representative of the assessee and thereafter decision has been taken. Thus in absence of any satisfaction recorded by the PCIT that the order of assessment was both erroneous and prejudicial to the interest of revenue, the Tribunal ought to have granted relief to the assessee and faltered the PCIT for having exercised its jurisdiction. Assessee appeal allowed.

Summary

Issues involved:
The judgment involves the following Issues:
1. Whether the Tribunal was justified in not quashing the order passed under Section 263 by the PCIT-2, Kolkata based on a proposal from the A.O.
2. Whether the Tribunal was justified in upholding the order passed under section 263 of the PCIT-2, Kolkata when the A.O. had passed the assessment order after due verification/enquiry.
3. Whether the order passed by the Tribunal is considered perverse.

Issue 1:
The main issue for consideration was whether the Principal Commissioner of Income Tax-2, Kolkata was justified in exercising power under Section 263 of the Income Tax Act. The Court observed that the power under Section 263 cannot be invoked unless the assessment order is both erroneous and prejudicial to the interest of revenue. The assessing officer had conducted a thorough examination during the assessment proceedings, including verifying documents, books of accounts, and explanations provided by the assessee. The Court found that the PCIT did not have sufficient grounds to exercise jurisdiction under Section 263, as the assessing officer had conducted a detailed enquiry into the relevant issues raised.

Issue 2:
The Court further analyzed that the assessing officer had specifically addressed the issues raised during the assessment proceedings, such as the increase in investment in unlisted equities and low income in comparison to high investment. The assessee had provided detailed explanations and submissions, along with references to legal precedents. The Court noted that the PCIT had initiated action solely based on a proposal from the assessing officer, without conducting a thorough enquiry to establish the necessity of invoking Section 263. The Court emphasized that the satisfaction of the PCIT is crucial before exercising jurisdiction under Section 263, and in this case, the PCIT had not adequately demonstrated such satisfaction. The Court referred to previous decisions to support its conclusion that the PCIT's action was not justified.

Issue 3:
In conclusion, the Court allowed the appeal filed by the assessee, setting aside the orders passed by the Tribunal and the PCIT. The assessment order was restored, and the substantial questions of law were answered in favor of the appellant/assessee. The Court found that the PCIT had not met the necessary conditions to exercise jurisdiction under Section 263, leading to the decision in favor of the appellant.