2024 (1) TMI 371 - HC - Income Tax

Revision u/s 263 - Lack of enquiry or inadequate enquiry - as per CIT AO had failed to obtain necessary records like income tax return, balance-sheet and bank statements etc. of M/s DLF Commercial Projects Corporation with whom the respondent/assessee had entered into development agreement and had received advances - HELD THAT - It not to be a case of complete absence of enquiry. As reflected from para 2 of the said Assessment Order, in compliance with the statutory notices, the respondent/assessee had electronically submitted the details and replies and subsequently, at request of the respondent/assessee, manual scrutiny assessment on account of technical difficulties faced by the respondent/assessee was carried out with necessary approvals and hearings were held on various dates during which the documents and replies submitted by the respondent/assessee were duly considered. As reflected from records produced before the Tribunal, AO had sent notice u/s 142(1) along with a detailed questionnaire comprising 38 questions to which replies were submitted by the respondent/assessee and the AO duly applied mind to the same before passing the Assessment Order. That having been done, it could not be labelled as a case of lack of enquiry and consequently, invocation of Section 263 of the Act was not justified in the light of judicial precedents quoted above. According to records, prior to passing the order under Section 263 of the Act, the PCIT had issued show-cause notice dated 15.02.2021, which was duly served on the respondent/assessee. As mentioned in the order under Section 263 of the Act, on behalf of the respondent/assessee, not just written submissions in response to the show-cause notice were filed but even a chartered accountant and an advocate on behalf of the respondent/assessee attended hearings. But in the order under Section 263 of the Act, the PCIT did not even whisper about the contents of reply to show-cause notice, what to say of holding any enquiry. In the name of dealing with the reply to show-cause notice, the PCIT simply observed that on behalf of the respondent/assessee, legal issue of assumption of jurisdiction under Section 263 of the Act was raised. But even on that aspect, the PCIT did not record any discussion in the order under Section 263 of the Act. In the order under Section 263 of the Act, the PCIT also did not record the reasons for arriving at the conclusion that the Assessment Order was erroneous and prejudicial to the interest of revenue, what to say of basing the said discussion on some minimal enquiry. Therefore, we have no hesitation to hold that the order u/s 263 of the Act was not sustainable in the eyes of law. Decided in favour of assessee.

Summary

Issues involved:
The issues involved in the judgment are the validity of invoking Section 263 of the Income Tax Act, regarding the Assessment Order for the Assessment Year 2016-17, and the sustainability of the order passed by the Principal Commissioner Income Tax (PCIT) in relation to the respondent/assessee's income tax return.

Validity of Invoking Section 263 of the Act:
The Revenue challenged the order of the Income Tax Appellate Tribunal, which allowed the respondent/assessee's appeal against the PCIT's cancellation of the Assessment Order. The PCIT had directed the Assessing Officer to pass a fresh Assessment Order, resulting in increased taxable income for the respondent/assessee. The Tribunal held that the PCIT's assumption of jurisdiction under Section 263 was not in accordance with law, as the Assessing Officer had completed the assessment after necessary inquiries and application of mind.

Legal Position Pertaining to Section 263 of the Act:
The judgment referred to various legal precedents to establish the criteria for invoking Section 263. It highlighted that the order of the Assessing Officer must be both erroneous and prejudicial to the interests of revenue for the PCIT to revise it under Section 263. The court emphasized that the PCIT must conduct a minimal inquiry before concluding that the order is erroneous and prejudicial. It was also noted that lack of proper reasoning and justification in the order under Section 263 renders it unsustainable in the eyes of the law.

Sustainability of the Order under Section 263:
The court found that the Assessment Order was not a case of lack of inquiry, as the Assessing Officer had considered submissions, conducted hearings, and sent detailed questionnaires to the respondent/assessee. The PCIT's failure to address the respondent/assessee's submissions in response to the show-cause notice and the absence of reasons for deeming the Assessment Order erroneous led the court to conclude that the order under Section 263 was not sustainable. Consequently, the appeal was dismissed, as no substantial question of law was found for consideration.