2022 (8) TMI 1048 - AT - Income Tax

Revision u/s 263 - Revision based on Audit Objection - Allegation of non independent application of mind by CIT - Whether there is no specific finding in the order that the order of assessment is erroneous insofar as it is prejudicial to the interests of revenue in respect of any of the issues raised? - HELD THAT - As exercise of Revisionary Powers in the facts of the present case cannot be upheld. The Revisionary Powers in the facts of the present case have been exercised mechanically and in undue haste without even caring to address the reply made available by the assessee on the IT Portal. The fact that patently on the face of the record it is an order passed in undue haste is further tainted by the fact that no effort was made by the ld. PCIT to give the assessee an effective hearing. The fixing of the hearing in the peculiar facts and circumstances of the present case where the Show Cause Notice dated 23.02.2022 issued thereafter fixing the hearing on 04.03.2020 patently was a rhetoric, meaningless exercise. Admittedly, reasonable time was not made available to the assessee to put in an effective hearing. Onerous responsibility to provide an effective and fair hearing was treated like a meaningless exercise of merely ticking the box. It is unfortunate that no effort was made to even address the written reply of the assessee received on the IT Portal. The exercise of Revisionary powers cannot be allowed to be exercised whimsically or arbitrarily. In the facts of the present case, ld. PCIT was conscious of the fact as to why the specific case was selected for scrutiny under CASS. The ld. PCIT also had the benefit of queries raised by the AO and the replies of the assessee. The fact that there was a shrinkage loss higher than the estimate, was also a fact available on record. In the facts of the present case the 263 action was triggered by the higher percentage loss as flagged by the Audit Objection is a fact on record. The fact that the issues were enquired into by the AO in the facts of the present case or that on the audit objections, the AO required the assessee to offer its explanation, the fact remains that the higher percentage or shrinkage loss is based on estimated percentages in regard to evaporation etc. and the occasions for higher spillage or transportation loss were also estimated percentages were facts considered by the AO are arguments which we have considered. We also find that the ld. PCIT did not even care to look into the reply of the assessee before the passing of the order. The prayer of the ld. CIT-DR at this stage that the matter may be remanded back, we find in the peculiar facts of the present case cannot be accepted. The fact that the twin conditions of error in the order and said error which can be said to be prejudicial to the interests of the Revenue, we find have not been met. The fact remains that the order has been passed in undue haste without caring to address even the reply of the assessee. Argument canvassed on behalf of the assessee that merely because there is an Audit Objection, the exercise of powers u/s 263 is invalid, we hold cannot be accepted. What we understand from the aforesaid decision and various other decisions cited on this proposition is that a mechanical exercise of revisionary powers u/s 263 by the Revisionary Authority by merely citing the Audit Objection cannot be said to be a valid exercise of Revisionary Powers. PCIT is require to give an independent finding considering the record. The error in the order of the AO, that too such an error which is prejudicial to the interests of the Revenue, has to be pointed out by the Revisionary Authority in the order. The onerous power cannot be exercised mechanically and arbitrarily. The sagacious arguments of the ld. CIT-DR to this extent, we find are well founded. Accordingly, considering the peculiar facts and circumstances of the case for the reasons given herein above, we find that the impugned order on facts deserves to be quashed. Appeal of assessee allowed.

Issues Involved:
1. Jurisdiction of the Principal Commissioner of Income Tax (Pr. CIT) under Section 263 of the Income Tax Act, 1961.
2. Validity of the assessment order being erroneous and prejudicial to the interests of the Revenue.
3. Examination of the claim for shrinkage on petrol and diesel by the Assessing Officer (AO).
4. Adequacy of the opportunity provided to the assessee for hearing.

Issue-wise Detailed Analysis:

1. Jurisdiction of the Principal Commissioner of Income Tax (Pr. CIT) under Section 263 of the Income Tax Act, 1961:
The assessee challenged the jurisdiction of the Pr. CIT in initiating proceedings under Section 263 of the Act, arguing that the assessment order was neither erroneous nor prejudicial to the interests of the Revenue. The Tribunal noted that the Revisionary Powers were exercised mechanically and in undue haste, without addressing the reply made available by the assessee on the IT Portal. The Tribunal emphasized that the Revisionary powers cannot be exercised whimsically or arbitrarily and must be based on an independent finding considering the record.

2. Validity of the assessment order being erroneous and prejudicial to the interests of the Revenue:
The Tribunal examined whether the assessment order was erroneous and prejudicial to the interests of the Revenue. It was noted that the AO had conducted detailed inquiries and considered all supporting documents before passing the assessment order. The Tribunal found that the Pr. CIT failed to point out any specific error in the order passed by the AO that was prejudicial to the interests of the Revenue. The Tribunal held that merely citing an Audit Objection and setting out facts that a different view is possible does not warrant the exercise of Revisionary powers under Section 263.

3. Examination of the claim for shrinkage on petrol and diesel by the Assessing Officer (AO):
The assessee argued that the AO had duly considered the claim for shrinkage on petrol and diesel, and the Pr. CIT's order was merely a substitution of opinion on the same set of facts. The Tribunal noted that the AO had raised specific queries regarding the shrinkage and had accepted the explanations provided by the assessee. The Tribunal found that the Pr. CIT's action of revising the order based on the same information already examined by the AO was not justified.

4. Adequacy of the opportunity provided to the assessee for hearing:
The Tribunal observed that the Show Cause Notice was received by the assessee on the afternoon of 04.03.2020, with the hearing fixed for the morning of the same day. This did not provide the assessee with a reasonable opportunity to participate in the hearing. The Tribunal held that the lack of adequate time for the assessee to respond demonstrated a lack of intention to provide an effective opportunity for hearing. The Tribunal emphasized that the exercise of Revisionary powers must ensure a meaningful and effective opportunity of being heard.

Conclusion:
The Tribunal quashed the order passed by the Pr. CIT under Section 263, holding that the exercise of Revisionary powers was mechanical, arbitrary, and without due consideration of the facts and the assessee's reply. The Tribunal emphasized that the Revisionary powers must be exercised with due care, addressing the twin conditions of error in the order and such error being prejudicial to the interests of the Revenue. The appeal of the assessee was allowed.

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