2022 (4) TMI 384 - AT - Income Tax

Revision u/s 263 by CIT - unaccounted sales/purchases - assessee's case had earlier been reopened on the same issue u/s. 148 - as per CIT AO had failed to examine the dispute between the assessee and NESL and had also not examined the issue on merits so as to logically conclude the re-assessment - HELD THAT - From the assessment order passed u/s. 147/143 (3) in the office note AO has mentioned that a letter u/s. 133(6) of the Act had been issued on 20.12.2018 which was duly served through email to NSEL, Mumbai calling information i.e. copy of trading account along with copy of the letter in which the assessee allegedly admitted to pay the outstanding liability - subsequent reminders are also issued to the NSEL but no compliance had been made by the NSEL. It is also stated in the office note that, therefore, in the absence of any evidence regarding this information, no adverse inference was called for and the Assessing officer noted that, further, if any information will be received, subsequently, suitable action u/s. 148/263 of the Act may be considered. Thus, at the time of completion of re-assessment proceedings on 29.12.2018 (undisputedly, the reassessment was getting time barred on 31.12.2018), the Assessing officer, after duly considering the explanation offered by the assessee and the documents furnished in this regard, arrived at one of the possible views which could be taken in the present case. It is our considered opinion that the Assessing officer, after duly calling for required information and after duly considering the explanations and evidences before him, reached a conclusion which was a possible view to be taken by him and he cannot be faulted for not having waited for a response from NSEL which was not forthcoming even after two reminders. AO took a view which was legally plausible and possible at that point of time. Subsequent information could be a basis for initiating new re-assessment proceedings but not the basis for a revisionary proceedings u/s. 263 of the Act. Therefore, the exercise of revisional jurisdiction by the Ld. PCIT is without any justification. As far as the alternate plea of the assessee challenging the re-assessment proceedings is concerned, we are not inclined to go into the same as we have already held the proceedings u/s. 263 of the Act to be bad in law. Accordingly, we set aside the order passed u/s. 263 of the Act and allow the appeal of the assessee.

Issues Involved:
1. Validity of the order passed under section 263 of the Income Tax Act, 1961.
2. Whether the assessment order was erroneous and prejudicial to the interest of revenue.
3. Adequacy of inquiries conducted by the Assessing Officer.
4. Jurisdiction of the Principal Commissioner of Income Tax (PCIT) to invoke section 263.
5. Procedural fairness and sufficiency of opportunity provided to the appellant.
6. Validity of initiation of proceedings under section 147 of the Act.

Detailed Analysis:

1. Validity of the Order Passed Under Section 263 of the Income Tax Act, 1961:
The appeal was preferred by the assessee against the order passed under section 263 of the Income Tax Act, 1961, by the Principal Commissioner of Income Tax (PCIT), Rohtak. The PCIT had concluded that the assessment order was erroneous and prejudicial to the interest of revenue due to the lack of proper verification and inquiry into the alleged out-of-books sale of goods amounting to ?10.75 crores.

2. Whether the Assessment Order was Erroneous and Prejudicial to the Interest of Revenue:
The PCIT's order was based on the premise that the Assessing Officer (AO) had failed to verify the out-of-books sales of goods amounting to ?10.75 crores. The PCIT directed the AO to make proper verification and inquire into the information received from the National Spot Exchange Limited (NSEL) and to conduct detailed inquiries on the issue.

3. Adequacy of Inquiries Conducted by the Assessing Officer:
The assessee argued that the AO had made proper inquiries during the assessment proceedings. The AO had issued a notice under section 133(6) to NSEL and had also issued subsequent reminders. However, no response was received from NSEL. The AO had examined the books of account, bills, and vouchers produced by the assessee and had accepted the assessed loss. The office note forming part of the assessment order indicated that the AO had made inquiries and had taken a possible view based on the information available at that time.

4. Jurisdiction of the Principal Commissioner of Income Tax (PCIT) to Invoke Section 263:
The assessee contended that the PCIT had assumed jurisdiction under section 263 based on surmises, conjecture, and suspicion. The PCIT had not conducted any independent inquiry or verification before passing the order. The assessee relied on judicial precedents, including the judgment of the Hon'ble Delhi High Court in the case of CIT Vs. Sunbeam Auto Ltd., which held that if there was an inquiry, even if inadequate, it would not give occasion to the Commissioner to pass an order under section 263 merely because the Commissioner had a different opinion.

5. Procedural Fairness and Sufficiency of Opportunity Provided to the Appellant:
The assessee argued that the PCIT had framed the impugned order without granting sufficient opportunity to the appellant. The PCIT had also relied on material not referred to in the show cause notice, which was against the principles of natural justice.

6. Validity of Initiation of Proceedings Under Section 147 of the Act:
The assessee raised an alternative plea challenging the initiation of proceedings under section 147 of the Act. The assessee argued that the notice under section 148 had been issued mechanically without application of mind and without any tangible, relevant, or credible material to form a reason to believe that income had escaped assessment. However, the Tribunal did not delve into this issue as it had already held the proceedings under section 263 to be bad in law.

Conclusion:
The Tribunal concluded that the AO had made proper inquiries and had taken a possible view based on the information available at that time. The PCIT had not conducted any independent inquiry or verification before passing the order under section 263. The exercise of revisional jurisdiction by the PCIT was without any justification. The order passed under section 263 was set aside, and the appeal of the assessee was allowed.

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