2023 (4) TMI 621 - AT - Income Tax

Revision u/s 263 by CIT - satisfaction of the ld. PCIT that order of AO is erroneous in so far as it is prejudicial to the interests of the revenue - HELD THAT - Show cause issued by the ld. PCIT is total replication of the letter of the ITO. From, the above, we find that it is more of the satisfaction of the ITO that the Assessment Order is erroneous in so far as it is prejudicial to the interest of revenue than the satisfaction of the ld. PCIT. The common portion has been highlighted which could only lead to an inevitable conclusion that there was an absolute lack of application of mind by the ld. PCIT while issuing the show cause, as the show cause clearly proves that the consideration of the ld. PCIT is solely derived from the letter of the ITO and bereft of independent application of mind by the ld. PCIT which makes the order passed u/s 263 void ab initio. Appeal of the assessee is allowed.

Summary

Issues involved:
The appeal against the order of the ld. PCIT, Faridabad dated 23.03.2022.

Issue 1: Jurisdiction of PCIT u/s 263
The assessee contended that the order passed by the learned Pr. Commissioner of Income Tax (CIT) u/s 263 was bad in law and facts. The grounds raised included the absence of twin conditions for assuming jurisdiction u/s 263, and the contention that the issues raised were already before the A.O. The appellant argued that the proceeding under Section 263 cannot be used to substitute the opinion of the A.O. The Pr. CIT was criticized for invoking Explanation 2 to section 263(1) without satisfying the prescribed conditions. The Pr. CIT was also faulted for setting aside the matter to the A.O. without giving a finding on the error and prejudice caused to the revenue by the assessment order.

Issue 2: Assessment of Income
The assessee, engaged in finance and hire purchase business, filed a return declaring income of Rs.2,06,380/-. The AO disallowed expenses and determined the total income at Rs.2,76,380. The PCIT initiated proceedings u/s 263, citing the erroneous acceptance of share application money without verifying the depositors' identity and creditworthiness. The PCIT found inadequacies in the details provided by the assessee regarding the share capital, depositors, and their creditworthiness. The assessment order was set aside for fresh assessment after proper verification and allowing the assessee to explain its case.

Separate Judgement:
The show cause issued by the PCIT was found to be a replication of the ITO's letter, indicating a lack of independent application of mind by the PCIT. This lack of due consideration rendered the order passed u/s 263 void ab initio. Consequently, the appeal of the assessee was allowed.