2024 (3) TMI 1345 - AT - Income Tax

Revision u/s 263 by CIT - corpus donations were not enquired of by the AO - HELD THAT - On the alibi that the Assessing Authority does not seem to have made enquiries the jurisdiction for Revision cannot be assumed by the Ld. CIT(E). The Authority to revise would be available to the Ld. CIT(E) only if he is able to locate a de finite error in the order arising out of the Authority omitting to make the requisite enquiry. The first observation of the Ld. CIT(E) is that the corpus donations have not been verified by the AO and that he has failed to make the requisite enquiries in that behalf during assessment. That is not quite so in this case. For the purpose of making enquiries the AO had indeed, during the course of the assessment proceedings, issued specific notices to the assessee to explain and to prove the corpus donations. Those solicitations of the AO and the answers thereto provided by the assessee. The opinion of the CIT(E) that corpus donations were not enquired of by the AO and so they remained unverified is palpably wrong. No mistake of any nature has been identified by the Ld. CIT(E) on this issue in his entire order. CIT(E) has detailed what according to him should be the method for verification of corpus donations but as pointed out above the AO's discretion and judgment cannot be vetoed by the Ld. CIT(E) without citing a mistake in the action of the AO. As to the unsecured loans specific query was raised by the AO. After examining of the material and evidence as provided by the Assessee, the AO came to the conclusion that Rs. 2 lacs of loans remained unexplained. CIT(E) in his order does not point out any error or defect in the assessment order so far as it concerns unsecured loans. The Ld. CIT(E) only allege s lack of enquiry. That impression of the CIT(E) was insufficient to invoke proceedings u/s. 263 of the Act. The said proceedings would get ignited only when there is an error in the order of assessment. Since, the order has been passed by the AO after conducting due enquiries, we hold that the CIT(E), Chandigarh erred in passing order u/s 263 - Decided in favour of assessee.

Summary

Issues:
1. Appeal against order under section 263 of the Income Tax Act, 1961.
2. Validity of assessment order conducted under section 143(3) of the Act.
3. Allegations of misreporting of income and initiation of penalty proceedings.
4. Invocation of Explanation 2 to Section 263 by the CIT (Exemptions).
5. Assessment order's compliance with relevant facts and legal positions.
6. Requirement of proper inquiries by the Assessing Officer.
7. Examination of corpus donations and unsecured loans.
8. Error identification by the Commissioner under Section 263.
9. Application of law in revising assessment orders.
10. Delhi High Court's stance on the Commissioner's authority in Section 263 cases.

Analysis:
The judgment concerns an appeal against an order under section 263 of the Income Tax Act, 1961, where the assessee challenged the decision of the ld. CIT (Exemptions), Chandigarh. The assessee, an educational society, operated two colleges and filed a return of income declaring nil income, subsequently assessed at Rs. 2 lacs under section 143(3) of the Act. The Assessing Officer taxed the income under section 115BBE and initiated penalty proceedings for alleged misreporting of income. The ld. CIT (Exemptions) called for records and issued a notice under section 263, questioning the assessment. The assessee appealed to the Tribunal, arguing that the assessment was conducted after due inquiries and deliberations.

The ld. CIT (Exemptions) invoked Explanation 2 to Section 263, alleging the AO's failure to inquire into creditworthiness and citing the order as erroneous under the Act. The Commissioner highlighted the importance of relevant facts in assessment orders and referred to precedents emphasizing the Assessing Officer's duty to investigate. The Tribunal heard arguments from both parties and reviewed the material on record.

Regarding the examination of corpus donations and unsecured loans, the Tribunal found that the AO had solicited explanations from the assessee, which were duly provided. The ld. CIT (Exemptions) alleged lack of verification but failed to identify any mistakes in the AO's actions. The Tribunal emphasized that the ld. CIT (Exemptions) must pinpoint errors in the assessment order to invoke Section 263.

Citing a Delhi High Court case, the Tribunal clarified the Commissioner's role in Section 263 cases, emphasizing the need for the Commissioner to identify errors and make findings on merits. Ultimately, the Tribunal held that the ld. CIT (Exemptions) erred in passing the order under Section 263, as the Assessing Officer had conducted proper inquiries. Consequently, the appeal of the assessee was allowed, and the original order was set aside.

In conclusion, the judgment delves into the intricacies of assessment orders, the necessity of thorough inquiries, and the Commissioner's authority under Section 263, providing a detailed analysis of the legal aspects involved in revising assessment orders.