2004 (2) TMI 270 - AT - Income Tax

Jurisdiction u/s 263 of the IT Act - Erroneous and prejudicial assessment order - HELD THAT - The Tribunal, Calcutta Bench 'B' in the case of Progressive Services Ltd. vs. ITO 1991 (5) TMI 104 - ITAT CALCUTTA-B held that when the AO has made enquiries regarding share subscription money and also called for confirmation and test checked, and the interest income had been shown by the assessee-company as per accounting system followed regularly, the CIT was not justified in taking action u/s 263 on both counts. In the instant case we have seen that it is not a case of no enquiry, but a case of no proper enquiry, which is a matter of subjectivity. It is not the CIT to decide that upto what extent enquiry is to be made, but in fact, it is the AO to decide the matter and to draw inferences. Once the AO has drawn inference after making enquiry, the CIT does not have any jurisdiction u/s 263 to cancel the assessment order. Endless enquiry is not possible and the enquiry has to be closed at some stage. It is for the AO to decide to end the enquiry. The CIT cannot transgress the jurisdiction u/s 263 by mentioning that no proper enquiry was made. Hence, we cancel the order passed by CIT u/s 263 of the IT Act. In the result, the appeal of the assessee is allowed.

Summary

Issues Involved:
1. Jurisdiction u/s 263 of the IT Act.
2. Erroneous and prejudicial assessment order.
3. Validity of the order passed u/s 263.
4. Adequacy of enquiries conducted by the AO.

Summary:

1. Jurisdiction u/s 263 of the IT Act:
The assessee appealed against the order passed by CIT-I, Agra, u/s 263 of the IT Act for the assessment year 1998-99. The primary contention was that the CIT erred in assuming jurisdiction u/s 263, arguing that the assessment order was neither erroneous nor prejudicial to the interest of Revenue.

2. Erroneous and prejudicial assessment order:
The CIT noted that the assessment was completed hastily without proper enquiries, particularly regarding the admission fees charged by the assessee. The CIT argued that the AO ignored the survey report available since 15th Nov 1999, which indicated discrepancies in the declared income.

3. Validity of the order passed u/s 263:
The assessee contended that the assessment was lawfully completed after relevant enquiries, and the order u/s 263 was not in accordance with the law. The CIT's order was challenged on the grounds that it was based on material relevant to a different assessment year (2000-2001) and not the impugned year (1998-99).

4. Adequacy of enquiries conducted by the AO:
The Tribunal observed that the AO had conducted detailed enquiries, including requiring the assessee to produce books of account, registers, and other documents. The AO had also made specific enquiries about the students and fees received. The Tribunal emphasized that the term "proper enquiries" is subjective and it is the AO's discretion to decide the extent of enquiries. The Tribunal cited precedents where it was held that the CIT cannot substitute his opinion for that of the AO if the AO had made reasonable enquiries and drawn conclusions based on them.

Conclusion:
The Tribunal concluded that the AO had made adequate enquiries and the CIT's order u/s 263 was based on subjective interpretation of "proper enquiries." Therefore, the Tribunal cancelled the order passed by the CIT u/s 263 and allowed the appeal of the assessee.