2003 (5) TMI 215 - AT - Income Tax

Summary

Issues Involved:
1. Validity of the CIT's order u/s 263 of the IT Act, 1961.
2. Whether the AO made sufficient enquiries regarding the commission payments to M/s Nova Corporation Ltd.
3. Whether the CIT can assume jurisdiction u/s 263 when proceedings u/s 148 have already been initiated.

Summary:

Issue 1: Validity of the CIT's order u/s 263 of the IT Act, 1961
The appeal was filed by the assessee against the order of CIT, Delhi-VII, passed u/s 263 for the assessment year 1993-94. The CIT issued a show-cause notice pointing out that a sum of Rs. 1,14,90,200 paid to M/s Nova Corporation Ltd. as service charges was wrongly allowed by the AO. The CIT concluded that the AO failed to investigate whether M/s Nova Corporation Ltd. actually rendered any services for procuring orders, thus making the assessment order erroneous and prejudicial to the interest of the Revenue.

Issue 2: Whether the AO made sufficient enquiries regarding the commission payments to M/s Nova Corporation Ltd.
The assessee argued that the AO had allowed the commission payments based on detailed information and evidence provided during the assessment proceedings. The assessee had submitted full details of the commission payments, including debit notes and confirmations from the recipients. The CIT, however, believed that the AO did not make sufficient enquiries to establish a direct linkage between the services rendered by M/s Nova Corporation Ltd. and the orders procured.

Issue 3: Whether the CIT can assume jurisdiction u/s 263 when proceedings u/s 148 have already been initiated
The assessee contended that since the AO had already initiated proceedings u/s 148, the jurisdiction assumed by the CIT u/s 263 on a similar issue was bad in law. The CIT dismissed this argument, stating that the AO failed to make proper enquiries and investigations. However, the Tribunal found that the AO had already reopened the proceedings on the ground of commission payments and issued a notice u/s 148, making the CIT's action u/s 263 unjustified.

Tribunal's Conclusion:
The Tribunal quashed the CIT's order u/s 263, stating that the AO had made necessary enquiries during the assessment proceedings, and the information regarding the commission payments was duly furnished and considered. The Tribunal emphasized that the CIT cannot assume revisional jurisdiction merely because he disagrees with the AO's conclusions. The Tribunal also noted that the CIT's action was based on subjective grounds without valid basis and that the AO had already reopened the proceedings u/s 148, making the CIT's order u/s 263 without jurisdiction. The appeal of the assessee was allowed.