2009 (2) TMI 245 - AT - Income Tax

Revision by Commissioner u/s 263 - CIT failed to record a finding as to how the order of the AO is erroneous and Prejudicial Order - HELD THAT - The Tribunal in the case of Mrs. Khatiza S. Oomerbhoy vs. ITO 2006 (2) TMI 201 - ITAT BOMBAY-H analyzed in detail various authoritative pronouncements including the decision of Hon'ble Supreme Court in the case of Malabar Industrial Co. Ltd. vs. CIT 2000 (2) TMI 10 - SUPREME COURT as well as in the case of Gabriel India Ltd. 1993 (4) TMI 55 - BOMBAY HIGH COURT and has propounded the fundamental principle to Judge the action of CIT taken u/s. 263. In the light of above proposition, if we examine the facts of the present case, the assessee has submitted the details as called for by AO. The ld CIT has not pointed out any specific defect in those details. The assessee has submitted the construction account in the paper book and has produced from where funds have been procured. The ld CIT without pointing out any discrepancy in these facts and circumstances put the assessee in the second round of litigation. Similar are the facts with regard to the other issues. The CIT was of the opinion that instead of disallowing sum from telephone expenses etc. it should have been something more. These are not the issues which are required to be rectified in a proceeding u/s. 263. The assessee has debited sum towards mobile phone expenses and telephone expenses. Out of these expenses, AO disallowed the sum. Because there is no straitjacket formula to measure the personal user of such facility. The element of guesswork in quantifying the disallowance would always be there. AO has taken one of the possible views, it is not completely illegal. The ld CIT did not record a finding as to how the order of the AO is erroneous. Thus, we allow the appeal of the assessee and quash the order passed u/s. 263.

Summary

Issues:
Appeal against order passed under section 263 of the IT Act, 1961.

Analysis:
The case involves an appeal before the Appellate Tribunal ITAT DELHI-H against the order of the Commissioner of Income Tax (CIT) passed under section 263 of the IT Act, 1961. The Assessing Officer (AO) had issued notices under sections 143(2) and 142(1) of the Act, conducted assessments, and determined the total taxable income of the assessee. The CIT, however, found certain discrepancies and issued a show-cause notice, directing the AO to make a fresh assessment order. The assessee contended that the AO had examined the issues in detail, submitted relevant documents, and complied with the requirements. The CIT's order was challenged on the grounds that the AO had applied his mind, made inquiries, and arrived at a conclusion based on the facts presented.

The Tribunal analyzed various authoritative pronouncements and established principles to judge the CIT's action under section 263. It was emphasized that the CIT must be satisfied that the AO's order is both erroneous and prejudicial to the Revenue's interests. Merely because the CIT disagrees with the AO's decision does not make it erroneous unless it is unsustainable under the law. The Tribunal highlighted that if the AO has examined the accounts, made inquiries, and determined the income, the CIT cannot substitute his estimate of income. The CIT must have material on record to exercise jurisdiction under section 263.

Upon examining the facts of the case, the Tribunal found that the AO had called for information from the assessee, who had provided details as requested. The CIT had not identified any specific defects in the information submitted by the assessee. The Tribunal noted that the AO had accepted the accounts after due consideration and that the CIT's concerns did not warrant a revision under section 263. The Tribunal concluded that the AO had applied his mind to the issues at hand, and the CIT's objections did not establish the AO's order as erroneous. Consequently, the Tribunal allowed the appeal of the assessee and quashed the order passed under section 263 of the Act.

In conclusion, the Tribunal's decision highlighted the importance of the AO's application of mind, inquiry process, and consideration of facts in making assessments. It underscored that the CIT's revisionary powers under section 263 should be exercised judiciously, requiring satisfaction of both error and prejudice to the Revenue. The Tribunal's detailed analysis and adherence to legal principles resulted in allowing the appeal and setting aside the CIT's order.