2016 (5) TMI 1027 - AT - Income Tax

Revision u/s 263 - assessee providing accommodation entries - Held that - The first reason was that the AO could not verify the genuineness of the assessee in accordance with the query raised from the office of income tax- Delhi. The query was raised that the assessee might be engaged in providing accommodation entries to M/s Skyline engineering contracts India private Limited. So it was required by Delhi income tax office to verify genuineness of assessee s business by making field enquiries but it was not made by the AO. In our view this cannot be the reason to make an opinion that the order passed by the AO is erroneous and prejudicial to the interests of the revenue. This is because section 263 requires the Commissioner of income tax to consider the order erroneous after examining the records of the proceedings. Here in this case no record of the assessee has been called and examined for holding the order erroneous, therefore we disagree with the view of the ld. CIT. Assessee has claimed sales promotion expenses and repair & maintenance expenses without proper enquiry and examination of the records - Held that - It is settled law that the commissioner of income tax can exercise his jurisdiction u/s 263 of the Act only in cases where no enquiry is made by the Assessing Officer. In the instant case, it is admitted by the Income Tax Department that the Assessing Officer had made some enquiries though according to them it was not a proper enquiry. In view of the above we find no reason to hold the order of the AO erroneous and prejudicial to the interest of the Revenue. Non disclosure of sale of property - Held that - As from the provision of the section 263 of the Act we find that the CIT is bound to make necessary enquiry before arriving at the conclusion that order is erroneous and prejudicial to the interest of Revenue. In the instant case the CIT should have enquired from the office of sub registrar jitaran, Rajasthan to ascertain whether there was any transaction of sale of the property. In our view the CIT held the order of AO erroneous and prejudicial to the interest of revenue without making necessary enquiry. Accordingly we are inclined to reverse the order of the CIT passed under section 263 of the Act. - Decided in favour of assessee

Summary

Issues Involved:
1. Initiation of proceedings under Section 263 of the Income Tax Act.
2. Assessment order under Section 143(3) deemed erroneous and prejudicial to the interest of revenue.
3. Reliance on the decision of Rampyari Devi Saraogi vs. CIT.
4. Reliance on irrelevant and extraneous circumstances.
5. Detailed inquiry by the AO under Section 133(6).
6. Mechanical passing of order under Section 263 without proper application of mind.

Issue-wise Detailed Analysis:

1. Initiation of proceedings under Section 263 of the Income Tax Act:
The Commissioner of Income Tax (CIT) initiated proceedings under Section 263 of the Income Tax Act, citing that the assessment order passed by the Assessing Officer (AO) was erroneous and prejudicial to the interest of revenue. The CIT identified several points where the AO allegedly failed to make necessary inquiries, including verifying the genuineness of the assessee’s business and examining various expenses and transactions.

2. Assessment order under Section 143(3) deemed erroneous and prejudicial to the interest of revenue:
The CIT found that the AO did not conduct proper inquiries as required, including failing to verify the genuineness of the assessee's business, not investigating sales promotion expenses, repair and maintenance expenses, and not verifying the sale of property amounting to Rs. 3 crores. The CIT relied on the Supreme Court decision in Malabar Industrial Co. Ltd. v. CIT, which allows the CIT to pass an order under Section 263 if the AO's order is erroneous and prejudicial to the revenue.

3. Reliance on the decision of Rampyari Devi Saraogi vs. CIT:
The CIT referenced the Supreme Court case of Rampyari Devi Saraogi vs. CIT to justify the initiation of proceedings under Section 263. The CIT argued that the AO accepted entries in the statement of accounts without making any inquiries, thus making the assessment order erroneous and prejudicial to the interest of revenue.

4. Reliance on irrelevant and extraneous circumstances:
The assessee argued that the CIT relied on irrelevant and extraneous circumstances to initiate proceedings under Section 263. The assessee contended that the AO conducted a detailed inquiry, including issuing notices under Section 133(6) and verifying responses before framing the assessment order.

5. Detailed inquiry by the AO under Section 133(6):
The assessee maintained that the AO conducted a thorough inquiry, including issuing notices under Section 133(6) and verifying responses. The assessee argued that the assessment was completed after a detailed examination of all relevant materials, and therefore, the CIT's initiation of proceedings under Section 263 was unwarranted.

6. Mechanical passing of order under Section 263 without proper application of mind:
The assessee claimed that the CIT passed the order under Section 263 mechanically without proper application of mind. The CIT disregarded the assessee's submissions and failed to make necessary inquiries before concluding that the AO's order was erroneous and prejudicial to the interest of revenue.

Conclusion:
The Tribunal examined the provisions of Section 263 and found that the CIT failed to make necessary inquiries before concluding that the AO's order was erroneous and prejudicial to the interest of revenue. The Tribunal cited the case of Principal Commissioner of Income Tax vs. M/s Ashok Handloom Factory Pvt. Ltd., where it was held that the CIT can exercise jurisdiction under Section 263 only in cases where no inquiry is made by the AO. The Tribunal also referenced the case of Commissioner Of Income-Tax vs Gabriel India Ltd., where it was held that further inquiry can be directed by the CIT only after concluding that the AO's order was erroneous and prejudicial to the interest of revenue. Consequently, the Tribunal set aside the CIT's order under Section 263, allowing the assessee's appeal.