2023 (9) TMI 608 - AT - Income Tax

Revision u/s 263 - case was selected for complete scrutiny and A.O. allowed the claim of depreciation for addition to different block of assets without verification - HELD THAT - PCIT was found to be primafacie satisfied with the submission of the assessee supported with evidence, documents and bills but was keen have it further verified. Ld PCID was of the opinion that the order of Ld AO was erroneous since certain issues which should have been looked into by the Ld AO were not examined by him during the original assessment proceedings u/s 143(3), however the two conditions which were mandatory to be established could not be satisfied by bringing on any finding or recording that could establish that the order of the AO was erroneous as well as prejudicial to the interest of the revenue. Under such circumstances the order of Ld PCIT has been found to be failed on the test as laid down by Hon ble Apex court while assuming jurisdiction u/s 263 in the case of Malabar Industrial Company Ltd 2000 (2) TMI 10 - SUPREME COURT We therefore respectfully following the binding principle of law as laid down by Hon ble SC in the Malabar Industrial Company Ltd.(supra) are inclined to hold that the order of Ld PCIT was lacking in complying with the twin compulsory conditions as mandated u/s 263, consequently the same is bad in law and liable to be quashed and we direct to do so. Appeal of the assessee is allowed.

Summary

Issues involved:
The issues involved in the judgment are the validity of the order passed by the Ld. Principal Commissioner of Income Tax under section 263 of the Income Tax Act 1961, the correctness of the assessment order passed by the assessing officer under section 143(3), and the satisfaction of the conditions required under section 263 for invoking the provisions of revision by the Principal Commissioner.

Validity of the order under section 263:
The appellant contended that the order of the Principal Commissioner of Income Tax was arbitrary, bad in law, and facts. The appellant argued that the assessing officer had accepted the total income as per the return, and the Principal Commissioner's decision to set aside the assessment order for further verification was unwarranted. The appellant emphasized that all particulars and evidences were filed during the section 263 proceedings, satisfying the queries raised. The appellant also highlighted that the Principal Commissioner did not specifically demonstrate how the assessment order was erroneous and prejudicial to the revenue's interest, despite recording satisfaction that no adverse inference was drawn. The appellant relied on relevant case laws to support their arguments.

Correctness of assessment order under section 143(3):
The appellant submitted that the assessing officer had verified the contentions and evidence provided by the assessee, and no adverse inference was drawn. However, the Principal Commissioner set aside the assessment order for further verification, indicating a perceived adverse inference. The appellant argued that this finding of the Principal Commissioner led to the satisfaction that the assessing officer's order was erroneous and prejudicial to the revenue, as required under section 263. The appellant contended that the Principal Commissioner's decision to send the matter back to the assessing officer was arbitrary, bad in law, and facts. The appellant referred to the judgment in Malabar Industrial Company Ltd. Vs. CIT to emphasize the conditions necessary for invoking section 263.

Satisfaction of conditions under section 263:
The Commissioner Income Tax Department supported the Principal Commissioner's order under section 263. However, the Tribunal found that while the assessing officer's issues were responded to by the assessee, the Principal Commissioner's satisfaction that the order was erroneous and prejudicial to revenue was not adequately established. The Tribunal noted that the Principal Commissioner was satisfied with the submissions and evidence provided by the assessee but could not conclusively prove that the assessing officer's order was both erroneous and prejudicial to revenue. Therefore, the Tribunal held that the Principal Commissioner's order did not meet the mandatory conditions required under section 263 and was liable to be quashed.