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2019 (4) TMI 285 - AT - Income TaxRevision u/s 263 by CIT - Pr. CIT noted that proposal was received u/s 263 from the Assessing Officer for review of the assessment - HELD THAT - The findings of fact recorded by the Learned Pr. CIT have not been rebutted by the Learned Counsel for the Assessee through any evidence or material on record. The Order Sheet of the Assessing Officer clearly supports the finding of Pr. CIT that Assessing Officer did not enquire into any of the matter in issue at assessment stage. It would, therefore, clearly show that Assessing Officer passed the assessment order, without making any enquiry for verification with regard to low profit, huge expenses and sundry creditors, which he should have made at assessment stage. Since, it is an admitted case of sharp fall in gross profit and net profit as compared to earlier year and that the case was selected for limited scrutiny on four items including unsecured loans, expenses and low net profit, therefore, it was the duty of the Assessing Officer to have examined the issues in detail before accepting the explanation of assessee. However, in the present case, the Assessing Officer did nothing in the matter and without enquiry or verification of the facts, accepted the returned income. Thus, there was no application of mind while passing assessment order. Therefore, Explanation-2 to Section 263 of the Income Tax Act, 1961, would be clearly attracted in the case of the assessee. We may also note that there is no bar u/s 263, if a reference is made by the AO to the Pr. CIT to invoke jurisdiction u/s 263. Pr. CIT may get information from any source, but, before proceeding under section 263, the Pr. CIT shall have to satisfy the conditions of Section 263 of the Income Tax Act before invoking jurisdiction. In the present case, as noted above, the Learned Pr. CIT has satisfied all the conditions of section 263 before taking action against the assessee under section 263. Pr. CIT was justified in invoking jurisdiction under section 263 - Decided against assessee.
Issues Involved:
1. Validity of the assessment order under section 143(3) of the Income Tax Act, 1961. 2. Application of section 263 of the Income Tax Act by the Principal Commissioner of Income Tax (Pr. CIT). 3. Examination of low net profit or loss and other related financial details. 4. Procedural aspects and requirements for scrutiny assessment. 5. Jurisdiction and powers of the Pr. CIT under section 263. Detailed Analysis: 1. Validity of the Assessment Order under Section 143(3): The original return of income was filed by the assessee, and the case was selected for limited scrutiny under CASS for specific reasons, including unsecured loans, other expenses, low net profit or loss, and loss from currency fluctuation. The Assessing Officer (AO) issued notices under sections 143(2) and 142(1) but did not call for comprehensive details or books of accounts. The AO accepted the return of income and passed the assessment order without making necessary inquiries or verifications, which was later deemed erroneous and prejudicial to the interests of revenue by the Pr. CIT. 2. Application of Section 263 by the Pr. CIT: The Pr. CIT received a proposal under section 263 from the AO for reviewing the assessment. Upon examination, the Pr. CIT found the assessment order erroneous and prejudicial to the interests of revenue. The Pr. CIT issued a show cause notice to the assessee, and after considering the assessment record and the assessee's explanation, set aside the assessment order. The Pr. CIT directed the AO to re-examine the issues and make necessary inquiries before passing a fresh order. 3. Examination of Low Net Profit or Loss and Other Financial Details: The Pr. CIT noted several deficiencies in the AO's assessment, including the failure to examine the genuineness of expenses such as purchases, packing material expenses, processing and freezing charges, and the addition to sundry creditors and advances from customers. The AO did not investigate the significant fall in gross profit (GP) and net profit (NP) rates, which indicated potential suppression of income. The Pr. CIT highlighted the necessity of examining these details to ensure the accuracy and completeness of the assessment. 4. Procedural Aspects and Requirements for Scrutiny Assessment: The assessee argued that the case was selected for limited scrutiny and that any conversion to full scrutiny should have been done through proceedings under section 148. However, the Pr. CIT found that the AO did not conduct the required inquiries even within the scope of limited scrutiny. The AO failed to call for books of accounts or issue specific notices related to the items under scrutiny, leading to an incomplete and erroneous assessment. 5. Jurisdiction and Powers of the Pr. CIT under Section 263: Section 263 empowers the Pr. CIT to revise any order passed by the AO if it is found to be erroneous and prejudicial to the interests of revenue. Explanation-2 to Section 263 clarifies that an order is deemed erroneous if it is passed without making necessary inquiries or verifications. The Pr. CIT's satisfaction of these conditions was evident from the detailed examination and findings. The Pr. CIT's action was supported by various judicial precedents, including decisions from the Hon'ble Supreme Court and High Courts, which upheld the necessity of thorough inquiries and verifications in the assessment process. Conclusion: The ITAT upheld the Pr. CIT's order, finding that the AO's assessment was indeed erroneous and prejudicial to the interests of revenue due to the lack of necessary inquiries and verifications. The appeal and stay application filed by the assessee were dismissed, reaffirming the Pr. CIT's jurisdiction and the procedural correctness of invoking section 263 in this case.
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