2023 (5) TMI 1092 - AT - Income Tax

Revision u/s 263 - As per CIT AO without making enquiry allowed the expenses which are not allowable in nature as a business expenditure - HELD THAT - No evidence or material coming from assessee to substantiate that the AO has made any enquiry with respect to the twin-expenses noted by PCIT. No query having been raised by AO with respect to impugned twin-expenses claimed by assessee. AR is not able to demonstrate as to how the AO has enquired or verified the impugned claim of expenses made by assessee. No hesitation in observing that the present case perfectly fits in Explanation 2 to section 263, as re-produced earlier, according to which an order passed by the AO is deemed to be erroneous if (a) the order is passed without making inquiries or verification which should have been made; or (b) the order is passed allowing any relief without inquiring into the claim. Being so, we uphold the impugned revision-order Decided against assessee.

Summary

Issues involved:
The issues involved in the judgment are the revision-order passed by the Principal Commissioner of Income Tax under section 263 of the Income-tax Act, 1961, challenging the assessment-order passed by the Assessing Officer, and the subsequent appeal filed by the assessee against the revision-order.

Issue 1: Revision-order under section 263:
The Principal Commissioner of Income Tax set aside the assessment-order passed by the Assessing Officer, as it was deemed erroneous and prejudicial to the interest of revenue due to the failure to examine certain expenses incurred by the assessee. The revision-order directed the Assessing Officer to reframe the assessment de novo.

The assessee contended that the revision-order was unjustified, as the Assessing Officer had examined the expenses claimed and allowed them based on the audited financial statements and reports of statutory and tax audits. The assessee argued that the expenses in question were not necessarily disallowable and that the revision-order was not in accordance with section 263.

The Departmental Representative argued that the Assessing Officer had not conducted any active inquiry or verification regarding the claimed expenses, making the assessment-order erroneous as per Explanation 2 to section 263. The Departmental Representative supported the revision-order.

The Tribunal found no evidence to substantiate that the Assessing Officer had made any inquiry into the expenses in question. Despite the documents provided by the assessee, including a questionnaire from the Assessing Officer, there was no indication of active inquiry. Therefore, the Tribunal upheld the revision-order, as the case fell within the purview of Explanation 2 to section 263.

Issue 2: Ground No. 2 - Not pressed:
The assessee submitted that Ground No. 2 raised in the appeal memo was inadvertently included and had no relevance to the present appeal. Therefore, the assessee did not press this ground, and no adjudication was required from the Tribunal.

In conclusion, the Tribunal dismissed the appeal of the assessee, upholding the revision-order passed by the Principal Commissioner of Income Tax under section 263. The Tribunal found that the Assessing Officer had not conducted necessary inquiries or verifications regarding the expenses claimed by the assessee, rendering the assessment-order erroneous and prejudicial to the interest of revenue. The Tribunal declined to interfere in the matter, leading to the dismissal of the appeal.