2021 (2) TMI 32 - AT - Income Tax

Revision u/s 263 - differences between the balance sheet filed by the assessee after auditors reports vis- -vis the balance sheet prepared by the special auditor - HELD THAT - During the course of hearing, we have put to the ld.counsel for the assessee that any of the authority had an occasion to conclusively deal with the incompleteness of its accounts even in 2012-13 and 2013-14, because in those years, the assessee has already settled the issue under Kar Vivad Samadhan Scheme. In the present year, impact percolating to this year has not been assessed by the AO. This act of non-adjudication of the issue at the end of the AO brand his order as erroneous which has caused prejudice to the Revenue. AO has expressed his desire to get the accounts audited by the special auditor in this year also. But, all of a sudden he dropped his idea without assigning any reason. This aspect has also been looked into by the ld.Commissioner while assessing the fact, whether the assessment order is erroneous or not. When a conclusion had been reached on an appreciation of number of facts established by evidence, whether that was sound or not must be determined not by considering the weight to be attached to each single fact in isolation but by assessing the cumulative effect of all the facts in their setting as a whole. We have to appreciate the impugned order of the ld.Commissioner by looking into the facts and circumstances and not in a mechanical way that these very details were considered by the AO, therefore, the ld.CIT is precluded to look into this aspect while exercising power under section 263 of the Income Tax Act, 1961. As observed earlier, the ld.AO has not conducted an inquiry which was required after taking into consideration the discrepancies in the accounts, and therefore the ld.Commissioner has rightly taken cognizance under section 263 and set aside the assessment for conducting fresh inquiry and for passing of fresh assessment order. We do not find any merit in this appeal. Appeal of the assessee is dismissed.

Summary

Issues Involved:
1. Legality of the Principal Commissioner of Income Tax's (CIT) invocation of Section 263 of the Income Tax Act, 1961.
2. Whether the assessment order passed by the Assessing Officer (AO) was erroneous and prejudicial to the interest of the Revenue.
3. Adequacy of the AO's inquiry and application of mind during the assessment.

Issue-wise Detailed Analysis:

1. Legality of the Principal Commissioner of Income Tax's (CIT) Invocation of Section 263 of the Income Tax Act, 1961:
The core issue revolves around whether the CIT was justified in invoking Section 263 of the Income Tax Act, 1961. The assessee contended that the CIT erred in taking cognizance under Section 263 and setting aside the assessment order for fresh framing. The CIT issued a show cause notice under Section 263, citing discrepancies in the audited balance sheets for the assessment years 2013-14 and 2014-15, which indicated that the books of account did not reflect a true and fair state of affairs. The CIT concluded that the assessment order was erroneous and prejudicial to the interest of the Revenue, thus necessitating a fresh assessment.

2. Whether the Assessment Order Passed by the Assessing Officer (AO) was Erroneous and Prejudicial to the Interest of the Revenue:
The CIT noted significant discrepancies between the balance sheets audited under Section 142(2A) and Section 44AB of the Act. For instance, the share capital as on 31/03/2013 was certified at ?181,58,80,000/- under Section 142(2A) but was declared at ?159,66,40,000/- under Section 44AB. The CIT argued that such discrepancies rendered the assessment order erroneous and prejudicial to the interest of the Revenue. The assessee's counsel argued that the AO had made inquiries and taken a view based on available documents, which should preclude the CIT from invoking Section 263. However, the CIT found that the AO had not adequately addressed these discrepancies, thereby justifying the invocation of Section 263.

3. Adequacy of the AO's Inquiry and Application of Mind During the Assessment:
The AO issued a show cause notice on 20/12/2017, highlighting discrepancies in the balance sheets and suggesting a special audit under Section 142(2A). However, the AO passed the assessment order on 30/12/2017 without recording any findings or conducting a thorough inquiry into the discrepancies. The CIT observed that the AO's abrupt discontinuation of the special audit process without any recorded reason constituted an error. The AO's failure to investigate the discrepancies and assess their impact on the current assessment year rendered the assessment order erroneous and prejudicial to the Revenue. The Tribunal noted that the AO's actions were superficial and lacked the necessary depth of inquiry, thereby supporting the CIT's decision to set aside the assessment order.

Conclusion:
The Tribunal upheld the CIT's invocation of Section 263, agreeing that the AO's assessment order was erroneous and prejudicial to the interest of the Revenue due to inadequate inquiry and failure to address significant discrepancies in the audited balance sheets. The appeal of the assessee was dismissed, and the assessment order was set aside for fresh inquiry and reassessment.