2017 (8) TMI 318 - AT - Income Tax

Revision u/s 263 - inadequate or no inquiry by AO - difference in income as per ITR and 26AS - creditworthiness and genuineness of consultancy charges paid - Held that - A perusal of the order passed by the Commissioner of Income-tax indicated that the assessment order passed by the Assessing Officer was cancelled on the ground that the Assessing Officer has not made proper enquiry and verification in respect of the issue as discussed above. This, in our considered opinion, cannot be sufficient ground for cancelling the assessment. While making the assessment order, it is the satisfaction of the Assessing Officer who made the enquiry and it should be the touchstone of assessment order passed by him. No cogent material or evidence was brought to our knowledge by the learned Departmental representative which may prove that the view taken by the Assessing Officer in the case of the assessee was unsustainable in law. Therefore, we are of the view that the order passed by the Commissioner of Income-tax is illegal and without jurisdiction. If the order passed by the Commissioner of Income-tax is sustained then this will permit the illegality to continue and the subsequent action is carried out on the illegal order is also illegal per se. If there is some inquiry by the Assessing Officer in the original proceedings, even if inadequate, that cannot clothe the Commissioner with jurisdiction under section 263 merely because he can form another opinion. At the most the case of the assessee can be regarded to be the lack of inquiry in accordance with Commissioner of Income-tax if he has different opinion how to proceed with the assessment of the assessee.See CIT v. Vodafone Essar South Ltd. 2012 (12) TMI 70 - DELHI HIGH COURT - Decided in favour of assessee.

Issues Involved:

1. Legality and propriety of the order passed by the Principal Commissioner of Income-tax (PCIT) under section 263(1) of the Income-tax Act, 1961.
2. Adequacy of opportunity of being heard provided to the assessee.
3. Justification for initiating proceedings under section 263.
4. Assessment order's alleged erroneous and prejudicial nature to the interests of the Revenue.
5. Cancellation of the assessment order by the PCIT.
6. Direction by the PCIT to the Assessing Officer (AO) to conduct necessary enquiries instead of conducting them himself.

Issue-wise Detailed Analysis:

1. Legality and Propriety of the Order Passed by the PCIT:

The appellant contended that the PCIT erred in law and facts by passing an illegal and improper order against the principles of natural justice. The Tribunal examined the provisions of section 263, which allows the Commissioner to revise an assessment order if it is erroneous and prejudicial to the interests of the Revenue. The Tribunal emphasized that both conditions must be satisfied for invoking section 263. An order can be deemed erroneous if there is an incorrect assumption of facts or incorrect application of law by the AO. However, if the AO has taken one of the possible views after due enquiry, the order cannot be deemed erroneous.

2. Adequacy of Opportunity of Being Heard:

The appellant argued that the PCIT passed the order without giving adequate opportunity of being heard and without considering the submissions made. The Tribunal noted that the PCIT issued a show-cause notice and considered the assessee's reply before passing the order. The Tribunal found that the principles of natural justice were followed as the assessee was given an opportunity to present its case.

3. Justification for Initiating Proceedings Under Section 263:

The appellant challenged the initiation of proceedings under section 263. The Tribunal observed that the PCIT has the administrative power to call for and examine records without needing to show any reason. The Tribunal found that the PCIT was justified in initiating proceedings as part of his duty to ensure that the AO's order was not erroneous and prejudicial to the interests of the Revenue.

4. Assessment Order's Alleged Erroneous and Prejudicial Nature:

The PCIT considered the assessment order erroneous and prejudicial due to two main issues: (i) a discrepancy in the total turnover reported by the assessee and as per Form 26AS, and (ii) the payment of consultancy charges. The Tribunal noted that the AO had issued notices and received detailed replies from the assessee regarding these issues. The AO had made enquiries and was satisfied with the explanations provided by the assessee. The Tribunal held that the AO's order was not erroneous as it was based on a possible view taken after due enquiry.

5. Cancellation of the Assessment Order by the PCIT:

The PCIT cancelled the assessment order on the grounds of inadequate enquiry. The Tribunal emphasized that inadequacy of enquiry does not justify revision under section 263 if the AO has made some enquiry and taken a possible view. The Tribunal found that the AO had made adequate enquiries and the PCIT's order was not justified.

6. Direction by the PCIT to the AO to Conduct Necessary Enquiries:

The appellant argued that the PCIT should have conducted the necessary enquiries himself instead of directing the AO. The Tribunal noted that the PCIT has the power to direct the AO to conduct further enquiries if deemed necessary. However, in this case, the Tribunal found that the AO had already made adequate enquiries, and there was no need for further direction from the PCIT.

Conclusion:

The Tribunal concluded that the PCIT was not correct in exercising jurisdiction under section 263 and cancelling the assessment. The AO had made adequate enquiries, and the order passed by him was not erroneous or prejudicial to the interests of the Revenue. The Tribunal quashed the order passed under section 263 and allowed the appeal of the assessee.

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