2022 (5) TMI 935 - AT - Income Tax

Revision u/s 263 by CIT - validity of assumption of revisionary jurisdiction alleging on twofold grounds namely; non-satisfaction of necessary twin conditions and non-applicability of provisions for the reasoned order of assessment - HELD THAT - Upon careful consideration of factual matrix as enumerated in the proceeding paragraphs, the adjudication calls to examination of multiple issues which were brought on record by Ld. PCIT such as verification of interest expense on borrowed capital / loans vis- -vis interest free loans advances advanced to person other than debtors, verification of interest payment without deducting tax at source and allowability of related expense connected therewith, verification of taxation interest on refund, verification of sale of plots consequent capital gain, verification of claim of interest expense, verification of brought forward losses for there being set-off etc. In the absence of any reply from the appellant even after according several opportunities, the Ld. PCIT concluded the proceedings on the basis of available records and ultimately directed the Ld. AO to decide the issues raised on merits. However during the course of hearing, the Ld. AO taken us through the submission made during the course of original proceedings, to the extent establishing on records the submission were made and verified, however in the light of non-speaking assessment order touching only interest on refund issues, there was nothing on record that, to showcase the due inquiries into the other issues were made by the Ld. AO and after due application of mind the assessment was culminated. Indeed, the order of assessment is cryptic which ended before it started and in this context it mindful to judgement rendered in the light of re-opening of assessment in the case of ITO Vs M/s Techspan India Pvt Ltd 2018 (4) TMI 1376 - SUPREME COURT Before the Ld. PCIT there was same tangible material in the form of assessment records, verification of which revealed the absence of necessary and adequate inquiries into the issues of limited scrutiny which remained unattended by the Ld. AO and hence the action of Ld. PCIT also find force by negative application of decision rendered in the case of CIT Vs Gabriel India Ltd 1993 (4) TMI 55 - BOMBAY HIGH COURT We are of the considered view that, the action of Ld. PCIT is perfectly sustainable in law, to the effect holding the order of assessment as erroneous prejudicial to the interest of revenue in the absence of necessary inquiries into issues, ergo we find no infirmity with the direction of 263 revisionary order, thus the grounds raised by assessee are dismissed.

Summary

Issues Involved:
1. Validity of the assumption of revisionary jurisdiction under Section 263 of the Income Tax Act.
2. Examination of whether the Assessing Officer (AO) conducted due verification during the original assessment.
3. Satisfaction of twin conditions for invoking Section 263, i.e., the order being erroneous and prejudicial to the interests of the revenue.
4. Specific issues raised by the Principal Commissioner of Income Tax (PCIT) during the revisionary proceedings.

Issue-wise Detailed Analysis:

1. Validity of the Assumption of Revisionary Jurisdiction under Section 263:
The primary grievance of the assessee revolves around the validity of the assumption of revisionary jurisdiction by the PCIT. The assessee argued that the PCIT erred in passing the order under Section 263 on points already verified by the AO during the limited scrutiny assessment under Section 143(3). The assessee contended that the necessary twin conditions for invoking Section 263, i.e., the order being erroneous and prejudicial to the interests of the revenue, were not satisfied.

2. Examination of Whether the Assessing Officer (AO) Conducted Due Verification During the Original Assessment:
The assessee filed the return of income for AY 2015-16, which was subjected to limited scrutiny under CASS. The AO made a solitary addition of ?88,640 and completed the assessment under Section 143(3). The PCIT noted that the AO did not adequately verify the issues of limited scrutiny, such as interest expenses, cash deposits, and capital account transactions. The PCIT found that the AO's assessment was cryptic and did not address these issues, leading to the conclusion that the AO did not conduct due verification.

3. Satisfaction of Twin Conditions for Invoking Section 263:
The Tribunal noted that for the PCIT to assume revisionary jurisdiction under Section 263, the order of the AO must be both erroneous and prejudicial to the interests of the revenue. The Tribunal emphasized that an incorrect assumption of facts, incorrect application of law, or passing an order without application of mind could render the order erroneous. The term "prejudicial to the interests of the revenue" was understood in its ordinary meaning, indicating a broad scope. The Tribunal found that the AO's order was indeed erroneous and prejudicial to the interests of the revenue due to the lack of necessary inquiries and verification.

4. Specific Issues Raised by the Principal Commissioner of Income Tax (PCIT) During the Revisionary Proceedings:
The PCIT identified several issues that remained unverified during the original assessment:
- Verification of interest expenses on borrowed capital vis-à-vis interest-free loans and advances.
- Verification of interest payments without deducting tax at source (TDS) and the allowability of related expenses.
- Verification of taxation of interest on refund.
- Verification of the sale of plots and consequent capital gain.
- Verification of the claim of interest expense.
- Verification of brought forward losses for set-off.

The PCIT issued multiple notices, but the assessee failed to make any substantial submissions. Consequently, the PCIT concluded that the assessment order was erroneous and prejudicial to the revenue and directed the AO to decide the issues on merits after giving the assessee an opportunity to be heard.

Conclusion:
The Tribunal upheld the PCIT's action, finding that the AO's assessment order was indeed erroneous and prejudicial to the interests of the revenue due to the lack of necessary inquiries. The Tribunal dismissed the assessee's appeal, confirming that the PCIT's direction to the AO to decide the issues on merits was valid and sustainable in law.

Order Pronounced:
The appeal of the assessee was dismissed in terms of the observations made, with the order pronounced in open court on April 20, 2022.