2024 (10) TMI 90 - HC - Income Tax

Revision u/s 263 - AO passed an order u/s 145 (3) in absence of the assessee rejecting his books of accounts - revenue submits that the Joint Commissioner while passing order u/s 144A of the Act ought not to have directed the AO to pass order in terms laid down by him and the AO ought to have examined the entire case independently - HELD THAT - The Commissioner of Income Tax while exercising powers u/s 263 of the Act i.e. suo moto jurisdiction would be entitled to look into the order of the AO provided he reaches to the conclusion that the same is erroneous to the extent that it is prejudice to the interest of the revenue. As observed in MALABAR INDUSTRIAL CO. LTD. 2000 (2) TMI 10 - SUPREME COURT every loss of revenue as a consequence of the order of the AO cannot be treated as prejudice to the interest of the revenue. Thus, if two views are possible to reach to a conclusion and an assessment, merely because the Commissioner does not agree with the view adopted by the AO, cannot be a ground to hold the order as erroneous. The error has to be found from the provisions of law and the order can be set aside only when the view taken by the AO is unsustainable in law. ITAT in appeal while relying on the aforesaid judgment reached to the conclusion that the view taken by the AO cannot be said to be erroneous. We also find that the additions have been made based on the provisions of law by the AO and, therefore, do not find any reason for interfering with the well reasoned order of the ITAT which is based on facts. More so, no substantial question of law can be said to be required to be examined by this Court.

Summary

Issues:
1. Validity of the order passed by the Assessing Officer under Section 145(3) of the Income Tax Act, 1961.
2. Jurisdiction of the Joint Commissioner under Section 144A of the Act.
3. Exercise of powers under Section 263 of the Act by the Commissioner of Income Tax.
4. Interpretation of the conditions necessary for interference under Section 263 of the Act.
5. Assessment of the order of the Assessing Officer by the Income Tax Appellate Tribunal (ITAT).

Analysis:

Issue 1: Validity of the order passed by the Assessing Officer under Section 145(3) of the Income Tax Act, 1961.
The Assessing Officer initially passed an order under Section 145(3) of the Act rejecting the books of accounts in absence of the assessee. However, upon remand by the Joint Commissioner under Section 144A, the Assessing Officer re-examined the case, considering all records and made additions to the income. The High Court found that the Assessing Officer had conducted a diligent enquiry and applied his mind in passing the assessment order, thereby upholding the validity of the order.

Issue 2: Jurisdiction of the Joint Commissioner under Section 144A of the Act.
The appellant argued that the Joint Commissioner should not have directed the Assessing Officer to pass the order in terms laid down by him under Section 144A. However, the High Court noted that the Assessing Officer had examined the case independently upon remand, considering the records and books of accounts. The Joint Commissioner's role was to ensure a proper examination of the case, and the High Court found no fault in the exercise of jurisdiction by the Joint Commissioner.

Issue 3: Exercise of powers under Section 263 of the Act by the Commissioner of Income Tax.
The Commissioner of Income Tax set aside the Assessing Officer's order under Section 263 of the Act, finding it erroneous and prejudicial to the revenue. The High Court observed that for interference under Section 263, the order must be both erroneous and prejudicial to the revenue. It emphasized that mere disagreement with the Assessing Officer's view is not sufficient, and the error must be unsustainable in law. The High Court analyzed the conditions necessary for the Commissioner to exercise jurisdiction under Section 263.

Issue 4: Interpretation of the conditions necessary for interference under Section 263 of the Act.
The High Court reiterated that to invoke Section 263, both conditions of the order being erroneous and prejudicial to revenue must be satisfied. It clarified that not every loss of revenue constitutes prejudice, and the error must stem from a legal standpoint. The High Court emphasized the need for a sustainable legal basis for setting aside an order under Section 263.

Issue 5: Assessment of the order of the Assessing Officer by the Income Tax Appellate Tribunal (ITAT).
The ITAT set aside the Commissioner's order under Section 263, upholding the Assessing Officer's findings. The High Court concurred with the ITAT's decision, noting that the additions were made based on legal provisions and facts. It found no reason to interfere with the well-reasoned order of the ITAT, as no substantial question of law arose, and there were no factual errors. The High Court upheld the ITAT's decision based on the facts and legal interpretations presented.