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2021 (10) TMI 349 - AT - Income Tax


Issues Involved:
1. Legitimacy of the CIT's exercise of jurisdiction under Section 263 of the I.T. Act.
2. Adequacy of the Assessing Officer's (AO) verification of expenses and other financial details during the original assessment.
3. Validity of the CIT's claim that the AO's order was erroneous and prejudicial to the interest of the Revenue.

Detailed Analysis:

1. Legitimacy of the CIT's exercise of jurisdiction under Section 263 of the I.T. Act:
The assessee argued that the CIT can only exercise jurisdiction under Section 263 if the AO's order is both erroneous and prejudicial to the interest of the Revenue. Citing precedents like H.H. Maharaja Raja Pawar Dewas vs. CIT and Malabar Industrial Co. Ltd. vs. CIT, the assessee contended that the CIT lacked the authority to revise the AO’s order since it did not meet both conditions. The Tribunal agreed, noting that the AO had conducted a thorough assessment and that the CIT’s grounds for revision did not demonstrate how the AO’s order was erroneous and prejudicial to the Revenue.

2. Adequacy of the AO's verification of expenses and other financial details during the original assessment:
The assessee provided detailed responses to the AO’s queries during the original assessment, including explanations and documentation for expenses, rent, license fees, and capital contributions. The Tribunal found that the AO had indeed raised pertinent questions and received satisfactory replies from the assessee. The AO’s decision to accept these explanations was deemed a plausible view, thus not erroneous. The Tribunal emphasized that the AO had applied his mind and made informed decisions based on the information provided.

3. Validity of the CIT's claim that the AO's order was erroneous and prejudicial to the interest of the Revenue:
The CIT argued that the AO did not conduct sufficient verification of the expenses and capital contributions, leading to an erroneous and prejudicial order. However, the Tribunal found that the AO had made adequate inquiries and that the explanations provided by the assessee were reasonable. The Tribunal cited several case laws, including CIT vs. Krishna Capbox (P.) Ltd. and DIT vs. Jyoti Foundation, to support the view that the AO’s order should not be declared erroneous merely because the CIT believed more inquiries were necessary. The Tribunal concluded that the CIT’s order to revise the AO’s assessment was not justified.

Conclusion:
The Tribunal ruled in favor of the assessee, canceling the CIT’s order under Section 263. The Tribunal held that the AO’s original assessment was neither erroneous nor prejudicial to the interest of the Revenue, as the AO had conducted a thorough inquiry and made informed decisions based on the evidence provided. The appeal filed by the assessee was allowed, and the CIT's directive for a de novo assessment was overturned.

 

 

 

 

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