2023 (1) TMI 857 - AT - Income Tax

Revision u/s 263 by CIT - Addition u/s 68 - as per CIT creditworthiness of unsecured loan not proved AND certain expenditure which were not examined during the assessment proceedings - HELD THAT - A.O. had made enquiry by issuing questionnaires u/s 142(1) which has been replied by the assessee vide letter dated 07/03/2014. Therefore, in our opinion, the finding of the CIT(A) that the Assessing Officer did not examine the facts of the case and thus, the assessment order passed by the A.O. is erroneous and prejudicial to the interest of the Revenue is erroneous and contrary to the facts. It is not in dispute that the case was transferred on 29/03/3014 to the A.O. who has passed the assessment order on 30/03/2014 and the A.O. had only one day time to pass the assessment order since the case was getting time barred on 31/03/2014. The said facts cannot be ground for the PCIT to excise power conferred u/s 263 of the Act. In the present case, the assessment proceedings admittedly started on 28/08/2012 and it went on till 18/03/2014 for a period of 16 months and the A.O. has issued questionnaires, which have been answered by the assessee. The main ground for entertaining u/s 263 is that, the Assessing Officer who passed the assessment order did not make any enquiry who received the file on 29/03/2014 and passed the order on the very next day. The assessment proceedings are a continuous one and we find that the A.O. had made enquiries vide letter dated 07/03/2014 and based on the reply given by the assessee the A.O. who has passed order has satisfied himself by accepting the return income of the assessee. We are of the opinion that the Ld.CIT (A) has committed an error in exercising power u/s 263. Assessee appeal allowed.

Summary

Issues:
Challenge to order u/s 263 of the Income Tax Act - legality and application of mind, lack of identification of issues, vagueness, and lack of opportunity for explanation.

Analysis:

1. The appeal was filed against the order dated 22/03/2016 by the Principal Commissioner of Income Tax-1, Bhopal for Assessment Year 2011-12. The grounds of appeal included contentions regarding the legality and application of mind in the order passed under section 263 of the Income Tax Act. The appellant argued that the order directing the assessee to reframe the assessment lacked clarity and proper consideration. Additionally, it was contended that the order was passed without identifying specific issues and without providing adequate opportunity for the assessee to explain, thus challenging the legality of the revision order.

2. The Principal Commissioner of Income Tax (PCIT) found the assessment order dated 30/03/2014 to be erroneous and prejudicial to the interest of the Revenue. The PCIT identified various grounds for this determination, including the failure to verify the creditworthiness of a loan from a sister concern, unexamined creditors in the balance sheet, unverified expenses, and unexamined advances from customers. The PCIT issued a notice on 16/02/2016, and after considering the written submission by the assessee, concluded that the assessment order lacked proper enquiry and examination of facts by the Assessing Officer (AO), resulting in prejudice to the revenue.

3. The assessee contended that the AO had conducted a detailed examination of the material on record, made necessary inquiries, and arrived at a just conclusion in accepting the return income. However, the PCIT's invocation of section 263 was deemed arbitrary and illegal by the appellant. On the other hand, the Departmental Representative argued that the assessment order was hasty and lacked sufficient verification, justifying the PCIT's intervention under section 263.

4. Upon thorough examination, the Tribunal found that the AO had indeed conducted proper enquiries by issuing questionnaires under section 142(1) of the Act, to which the assessee had responded with relevant details. The Tribunal disagreed with the PCIT's assertion that the AO had not examined the facts of the case, as evidenced by the responses provided by the assessee during the assessment proceedings.

5. The Tribunal noted that the AO had limited time to pass the assessment order due to impending time constraints, but this fact alone could not justify the PCIT's exercise of power under section 263. The assessment proceedings had spanned over a significant period, during which the AO had sought and received necessary information from the assessee. Therefore, the Tribunal concluded that the PCIT's decision to cancel the assessment order and direct a reassessment was erroneous, leading to the allowance of the assessee's appeal.

6. Consequently, the Tribunal allowed the appeal filed by the assessee, finding that the PCIT had erred in exercising power under section 263 of the Income Tax Act. The order pronounced on 19th January 2023 favored the assessee, setting aside the PCIT's decision and upholding the original assessment order for the Assessment Year 2011-12.