2022 (8) TMI 1496 - AT - Income Tax

Validity of Revision u/s 263 - order of the AO is to be established to be erroneous in so far as it is prejudicial to the interest of the Revenue before initiating revision proceedings - HELD THAT - Provision of section 263 cannot be invoked to correct each and every type of mistake or error committed by the AO; it is only when an order is erroneous as also prejudicial to Revenue's interest, that the provision will be attracted. An incorrect assumption of the fact or an incorrect application of law will satisfy the requirement of the order being erroneous. The phrase 'prejudicial to the interest of the Revenue has to be read in conjunction with an erroneous order passed by the AO. Every loss of revenue as a consequence of the order of the AO cannot be treated as prejudicial to the interest of the Revenue. It is pertinent to mention that if the AO has adopted one of the two or more courses permissible in law and it has resulted in loss of revenue, or where two views are possible and AO has taken one view with which the Pr. CIT does not agree, it cannot be treated as an erroneous order and it is prejudicial to the interest of the Revenue, unless the view taken by the AO is totally unsustainable in law. In this process even the AO has no power to revie his own order taking the route of proceeding under section 263 of the Act. In this regard, we draw strength from the decision of the Hon'ble Supreme Court in the case of Malabar Industrial Co. Ltd. 2000 (2) TMI 10 - SUPREME COURT The facts are not disputed that the assessee has submitted the books of accounts and documents related there upon and has been verified by the AO. AO has recorded his satisfaction in the assessment order that he has verified the books of account and other records produced before him and the same is verified in the light of the reasons for selection of the case under CASS. This itself shows that the AO has applied his mind on the reasons and has verified the records produced before him by the assessee and the assessee has filed a detailed submission in this proceeding that the AO has verified each and every aspect of the issue on hand and looking the facts of the case on hand the exercise of the power under section 263 via AO is nothing but a change of opinion which is not permitted in the eyes of the law. Assessee appeal allowed.

Summary

Issues Involved:
1. Legality of the revision proceedings under Section 263 of the Income Tax Act, 1961.
2. Examination of the cash deposits during the demonetization period.
3. Jurisdictional propriety of the Principal Commissioner of Income Tax (Pr. CIT) in invoking Section 263 based on the proposal of the Assessing Officer (AO).

Issue-wise Detailed Analysis:

1. Legality of the Revision Proceedings under Section 263:
The assessee contested the legality of the order passed by the Pr. CIT under Section 263, arguing that the power to revise can be invoked in cases of lack of enquiry, not inadequate enquiry. The Pr. CIT held that the AO failed to thoroughly enquire about the 'cash deposited in bank' during the demonetization period. The assessee argued that all aspects related to the cash deposited during the year, including the demonetization period, were enquired by the AO during the assessment proceedings and Section 131 proceedings. The Tribunal agreed with the assessee, noting that the AO had conducted a detailed examination of the cash deposits, and any further enquiry would not render the order erroneous and prejudicial to the interests of the Revenue.

2. Examination of the Cash Deposits During the Demonetization Period:
The assessee submitted that the AO had thoroughly examined the cash deposits during the demonetization period. The AO had issued notices under Sections 143(2) and 142(1), requiring the assessee to provide detailed information and produce books of accounts, which were duly examined. The Tribunal noted that the AO had verified the books of accounts and other records and recorded satisfaction in the assessment order. Thus, the Tribunal concluded that the AO had applied his mind to the issue, and the Pr. CIT's invocation of Section 263 was not justified.

3. Jurisdictional Propriety of the Pr. CIT in Invoking Section 263 Based on the Proposal of the AO:
The assessee raised an additional ground, arguing that the Pr. CIT invoked revision proceedings under Section 263 based on a proposal from the AO, without applying her independent mind. The Tribunal observed that Section 263 requires the Pr. CIT to independently call for and examine the records. The Tribunal cited various judicial precedents, including the Supreme Court's decision in Malabar Industrial Co. Ltd. v. CIT, which held that the Pr. CIT must independently form an opinion that the order passed by the AO is erroneous and prejudicial to the interests of the Revenue. The Tribunal concluded that the Pr. CIT's action based on the AO's proposal was not in accordance with the law, and hence, the revision proceedings were invalid.

Conclusion:
The Tribunal allowed the appeal of the assessee, quashing the order passed by the Pr. CIT under Section 263. The Tribunal held that the AO had conducted a thorough examination of the cash deposits during the demonetization period, and the Pr. CIT's invocation of Section 263 based on the AO's proposal was not justified. The Tribunal emphasized that the Pr. CIT must independently apply her mind and form an opinion before invoking Section 263. The appeal was allowed on the technical ground of jurisdictional deficit, and other grounds raised by the assessee were not adjudicated upon.