1995 (3) TMI 153 - AT - Income Tax

Summary

Issues Involved:

1. Validity of the CIT's action u/s 263 based on audit objections.
2. Whether the Assessing Officer (AO) made proper enquiries before the assessment.
3. If two views are possible, whether the AO's view can be considered erroneous and prejudicial to the revenue.

Summary:

1. Validity of the CIT's action u/s 263 based on audit objections:

The CIT initiated action u/s 263 based on an internal audit objection, claiming that the AO's assessment was erroneous and prejudicial to the revenue. The assessee argued that the CIT acted solely on the audit objection without applying his mind. The Tribunal held that while the CIT can rely on audit objections, he must apply his mind independently before taking action. It was found that the CIT had indeed applied his mind, and thus, the objection raised by the assessee was rejected.

2. Whether the Assessing Officer (AO) made proper enquiries before the assessment:

The Tribunal examined the records and found that the AO had made proper enquiries regarding the taxability of the receipts. The assessee had provided detailed explanations and documentation about the nature of payments and the applicability of the Double Taxation Avoidance Agreement (DTAA) between India and Germany. The AO considered these submissions and concluded that the receipts were not taxable as fees for technical services. The Tribunal found the AO's enquiries to be adequate and rejected the CIT's finding that the AO failed to make proper investigations.

3. If two views are possible, whether the AO's view can be considered erroneous and prejudicial to the revenue:

The Tribunal noted that the AO's view was supported by the Andhra Pradesh High Court and various Tribunal decisions, making it a possible view. It was emphasized that if two views are possible, the one favorable to the assessee should be adopted. The Tribunal rejected the argument that the AO must always decide in favor of the revenue if two views are possible. The Tribunal concluded that the AO's view was not erroneous merely because the CIT had a different opinion. The Tribunal reiterated the principle that for the CIT to invoke u/s 263, the AO's order must be both erroneous and prejudicial to the revenue, and both conditions must co-exist. Since the AO's view was a possible and reasonable one, the CIT's order u/s 263 was canceled, and the original assessment order was restored.

Conclusion:

The Tribunal allowed the appeal of the assessee, canceling the CIT's order u/s 263 and restoring the original assessment order made by the AO u/s 143(3).