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2023 (12) TMI 807 - AT - Income TaxRevision u/s 263 - as per CIT assessment order has been passed by AO without making inquiries or verification with respect to the donation to political party claimed as deduction u/s 80GG - HELD THAT - An inquiry made by the AO considered inadequate by the Commissioner of Income Tax, cannot make the order of the AO erroneous. In our view, the order can be erroneous if the AO fails to apply the law rightly on the facts of the case. As far as adequacy of inquiry is considered, there is no law which provides the extent of inquiries to be made by the AO. It is AO's prerogative to make inquiry to the extent he feels proper. CIT by invoking revisionary powers u/s 263 of the Act cannot impose his own understanding of the extent of inquiry. There were number of judgments by various Hon ble High Courts in this regard. Delhi High Court in the case of CIT Vs. Sunbeam Auto 2009 (9) TMI 633 - DELHI HIGH COURT made a distinction between lack of inquiry and inadequate inquiry. The Hon ble court held that where the AO has made inquiry prior to the completion of assessment, the same cannot be set aside u/s 263 of the Act on the ground of inadequate inquiry. The Hon ble Supreme Court in recent case of Shree Gayatri Associates 2019 (6) TMI 888 - SC ORDER held that where Pr. CIT passed a revised order after making addition to assessee's income u/s 69A in respect of on-money receipts, however, said order was set aside by Tribunal holding that AO had made detailed enquiries in respect of such on-money receipts and said view was also confirmed by High Court, SLP filed against decision of High Court was liable to be dismissed. The facts of this case were that pursuant to search proceedings, assessee filed its return declaring certain unaccounted income. AO completed assessment by making addition of said amount to assessee's income. The Principal Commissioner passed a revised order under section 263 of the Act on ground that AO had failed to carry out proper inquiries with respect to assessee's on money receipt. In appeal, the Tribunal took a view that Assessing Officer had carried out detailed inquiries which included assessee's on-money transactions and Tribunal, thus, set aside the revised order passed by Commissioner. Revealed it is not the case that the AO has not made any enquiry. Indeed the Pr. CIT initiated proceedings u/s 263 on the ground that the AO has not made enquiries or verification which should have been made in respect of donation to the political party. It is not the case of the Pr. CIT that the Ld. AO did not apply his mind to the issue on hand or he had omitted to make enquiries altogether. In the instant set of facts, the AO had made enquiries and after consideration of material placed on record accepted the genuineness of the claim of the assessee. As also important to note that the learned PCIT referred the search proceeding carried out at the premises of the political party where it was discovered that said party involved in donation scam. We note that the search proceeding was carried out as on 2nd February 2021 whereas the assessment order in case of the assessee was passed as before the search proceeding. Therefore, in the given facts it was not possible for the AO to consider the finding of search. The fact of the party being involved in any scam was not before the AO. Hence, the formed his opinion based on the material available before him which in our considered opinion cannot be said as erroneous insofar prejudicial to the interest of the revenue. We hold that there is no error in the assessment framed by the AO under section 143(3) causing prejudice to the interest of revenue. Appeal filed by the assessee is allowed.
Issues Involved:
1. Whether the assessment order under section 143(3) of the Income Tax Act was erroneous and prejudicial to the interests of the revenue. Summary: Issue: Erroneous and Prejudicial Assessment Order The assessee claimed significant deductions under Chapter VI-A of the Income Tax Act for the Assessment Year 2018-2019, including a Rs. 25 lakh donation to "Rastriya Samajwadi Party" under section 80GG. The AO accepted these claims after scrutiny and verification of the supporting documents. However, the learned Principal Commissioner of Income Tax (PCIT) found that the AO failed to properly verify the source of the Rs. 25 lakh donation, especially considering a subsequent search revealing the political party's involvement in a donation scam. The PCIT invoked section 263 of the Act, deeming the AO's order as erroneous and prejudicial to the interests of the revenue, and directed a fresh assessment. Arguments by the Assessee: The assessee contended that the AO had conducted a thorough inquiry, verified all relevant documents, and thus the assessment order could not be considered erroneous. The assessee provided a detailed paper book and argued that the AO's acceptance of the deduction claim was based on adequate inquiry and documentation. Tribunal's Analysis: The Tribunal examined the principles regarding the adequacy of inquiry by the AO and the scope of revisionary powers under section 263. It referenced multiple judicial precedents, including decisions by the Delhi High Court, Bombay High Court, and the Supreme Court, which distinguish between "lack of inquiry" and "inadequate inquiry." The Tribunal emphasized that an order cannot be deemed erroneous merely because the PCIT believes further inquiry was needed. Key Judicial Precedents: - Delhi High Court (CIT Vs. Sunbeam Auto): Highlighted the distinction between lack and inadequacy of inquiry. - Bombay High Court (Gabriel India Ltd.): Stressed that the Commissioner's revisionary powers should not be used for fishing and roving inquiries. - Supreme Court (Shree Gayatri Associates and Canara Bank Securities Ltd.): Affirmed that an AO's plausible view and adequate inquiry should not be overruled by the PCIT's subjective opinion. Conclusion: The Tribunal found that the AO had made adequate inquiries and applied his mind to the facts before accepting the deduction claims. The subsequent discovery of the political party's involvement in a scam could not retroactively render the AO's order erroneous, as the search occurred after the assessment was completed. Therefore, the Tribunal quashed the PCIT's revisionary order under section 263, allowing the assessee's appeal. Order: The appeal filed by the assessee is allowed, and the Tribunal's decision was pronounced on 30/11/2023 at Ahmedabad.
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