2024 (1) TMI 1259 - AT - Income Tax

Revision u/s 263 - unexplained expenditure u/s 69C - lack of enquiry on the part of AO - AO s order termed as erroneous as well as prejudicial to the interest of the revenue - assessee has made credit cards payment but assessee has not shown any income from business and profession, as evident from the ITR filed by the assessee for the year under consideration - HELD THAT - We note that during the assessment stage, the AO asked the assessee to furnish the details and documents which are placed in paper book. In response, the assessee submitted its reply which is placed at paper book, as stated above. Thus, all the documents, details and the explanations required by the AO were submitted by the assessee. Just because the AO does not bring these documents and details in his assessment order does not mean that assessing officer has not conducted proper enquiry during the assessment stage. In fact, AO has applied his mind. Assessee is right in his submission that one has to keep in mind the distinction between lack of inquiry and inadequate inquiry . If there was any inquiry, even inadequate, that would not by itself, give occasion to the Commissioner to pass orders under section 263 of the Act, merely because he has different opinion in the matter. If an Income-Tax Officer acting in accordance with law makes a certain assessment, the same cannot be branded as erroneous by the Commissioner simply because, according to him, the order should have been written more elaborately. Therefore, in the assessee s case, it cannot be said that it is a case of lack of inquiry . Thus we note that the AO enquired during assessment proceedings and the assessee had filed details before him. So we find that the AO s action cannot be termed erroneous . Since not only enquiry was carried out by the AO on the issue under consideration and based on the evidence gathered he has taken a plausible view, which at any rate cannot be called as an unsustainable view. Hon ble Supreme Court in the case of Malabar Industries 2000 (2) TMI 10 - SUPREME COURT held that this phrase i.e. prejudicial to the interest of the revenue has to be read in conjunction with an erroneous order passed by the Assessing Officer. Their Lordship held that it has to be remembered that every loss of revenue as a consequence of an order of Assessing Officer cannot be treated as prejudicial to the interest of the revenue. When AO adopted one of the courses permissible in law and it has resulted in loss to the revenue, or where two views are possible and the AO has taken one view with which the CIT does not agree, it cannot be treated as an erroneous order prejudicial to the interest of the revenue unless the view taken by the Assessing Officer is unsustainable in law . Therefore, we are of the considered opinion that AO s order cannot be termed as erroneous as well as prejudicial to the interest of the revenue - Decided in favour of assessee.

Summary

Issues Involved:
1. Initiation of proceedings under Section 263 of the Income Tax Act, 1961.
2. Assumption of jurisdiction under Section 263 of the Income Tax Act, 1961.
3. Violation of principles of natural justice.
4. Allegation of the order being a "change in opinion".
5. Verification of expenditure of Rs.26,32,250/-.
6. Validity of the entire proceedings under Section 263.
7. Setting aside of the assessment order without pointing out errors.

Summary:

1. Initiation of Proceedings under Section 263:
The assessee contested the initiation of proceedings under Section 263 by the Principal Commissioner of Income Tax (PCIT), arguing that the initiation was erroneous and without proper grounds.

2. Assumption of Jurisdiction under Section 263:
The assessee claimed that the PCIT erred in assuming jurisdiction under Section 263, asserting that the assessment order under Section 143(3) was neither erroneous nor prejudicial to the interests of the revenue.

3. Violation of Principles of Natural Justice:
The assessee argued that the principles of natural justice were violated as the grounds for initiating action under Section 263 were not mentioned in the show cause notice, rendering the order void ab-initio.

4. Allegation of "Change in Opinion":
The assessee contended that the order under Section 263 was merely a "change in opinion" and that the original assessment order did not represent an erroneous order.

5. Verification of Expenditure of Rs.26,32,250/-:
The PCIT noted that the assessee made credit card payments amounting to Rs.26,32,250/- without explaining the source, which should have been treated as unexplained expenditure under Section 69C. The assessee argued that these payments were for business purposes and that the income was accounted for under Section 44AD.

6. Validity of Entire Proceedings under Section 263:
The assessee claimed that the entire proceedings were invalid as due inquiry was made during the original assessment, and the PCIT's action was unreasonable and uncalled for.

7. Setting Aside of Assessment Order:
The PCIT set aside the assessment order, directing the Assessing Officer (AO) to pass a fresh order after considering the issues discussed. The assessee appealed, arguing that the AO had conducted sufficient inquiry and the order was not erroneous or prejudicial to the revenue.

Tribunal's Findings:
The Tribunal examined the documents and submissions, noting that the AO had indeed conducted inquiries and obtained explanations from the assessee regarding the credit card payments. The Tribunal highlighted the distinction between "lack of inquiry" and "inadequate inquiry," stating that even if the inquiry was inadequate, it would not justify the PCIT's revision under Section 263.

The Tribunal referred to the Supreme Court's decision in Malabar Industries Ltd. vs. CIT, emphasizing that for an order to be revised under Section 263, it must be both erroneous and prejudicial to the interests of the revenue. The Tribunal concluded that the AO had taken a plausible view based on the evidence, and the PCIT's differing opinion did not render the original order erroneous or prejudicial.

Conclusion:
The Tribunal quashed the PCIT's order dated 21.03.2023, allowing the assessee's appeal and ruling that the original assessment order was neither erroneous nor prejudicial to the interests of the revenue. The appeal filed by the assessee was allowed and the order was pronounced on 22/01/2024 in the open court.