2024 (11) TMI 1261 - AT - Income Tax

Validity of Revision u/s 263 by CIT - reasons for selection of the case for scrutiny through CASS was not examined and order is passed in prima facie view, without making enquiries and verification which should have been made - PCIT has raised 11 issues which required verification, which the AO has failed to carry out HELD THAT - AO has issued several notices to the assessee on various dates on all the issues and assessee has submitted relevant information as called for. Based on the submissions made by the assessee, the AO completed the assessment and taken one of the possible views in all the issues for which assessment was initiated. However, ld. PCIT has reviewed the assessment order and according to ld. PCIT, the verification carried out by the AO is not justified and he should have properly verified. Accordingly, he has invoked the Explanation 2 to section 263 of the Act. It is also brought to our notice that as regards issue no.7, no doubt raised by ld. PCIT, however in order giving effect to the revision order, AO has not made any addition after due verification. As relying on Clix Finance India (P.) Ltd. 2024 (3) TMI 157 - DELHI HIGH COURT we are inclined to observe that the AO has duly verified various issues raised by the ld. PCIT and he has taken one of the possible views. Now ld. PCIT has invoked Explanation 2 to section 263 of the Act with a view that AO has passed the order without making an enquiry or verification, is not justified as per various documents submitted before us. Thus, we are inclined to set aside the order passed u/s 263 - Assessee appeal allowed.

Summary

Issues Involved:

1. Whether the Principal Commissioner of Income Tax (PCIT) erred in invoking Section 263 of the Income Tax Act, 1961, to revise the assessment order.
2. Whether the assessment order was erroneous and prejudicial to the interests of the Revenue.
3. Whether the Assessing Officer (AO) conducted adequate inquiries and verification during the original assessment proceedings.

Detailed Analysis:

1. Invocation of Section 263 by PCIT:

The appeal was filed by the assessee against the order of the Principal Commissioner of Income Tax (PCIT), who invoked Section 263 of the Income Tax Act, 1961. The PCIT believed the assessment order passed under Section 143(3) was erroneous and prejudicial to the interests of the Revenue. The PCIT identified several issues, including an increase in sundry creditors, discrepancies in foreign remittances, and large business losses set off against other heads of income, among others. The PCIT issued a notice under Section 263, providing the assessee an opportunity to explain why the order should not be revised. The assessee contended that the issues were examined during the original assessment proceedings and provided responses to the AO's queries. However, the PCIT concluded that the AO failed to make necessary inquiries and verification, thus invoking Explanation 2 to Section 263 and directing a fresh assessment.

2. Erroneous and Prejudicial Assessment Order:

The PCIT's order highlighted several discrepancies in the assessment order, such as the non-verification of sundry creditors' genuineness, foreign remittance reporting, and income set-off claims. The PCIT argued that these issues were not properly examined, rendering the order erroneous and prejudicial to the Revenue. The assessee, however, provided evidence that these issues were addressed during the assessment proceedings, with detailed responses submitted to the AO. The assessee argued that the PCIT's observations were mere opinions and did not establish that the assessment was prejudicial to the Revenue. The tribunal referenced judicial precedents, emphasizing that mere inadequacy of inquiry does not justify revision under Section 263 unless there is a complete lack of inquiry.

3. Adequacy of AO's Inquiries and Verification:

The tribunal examined whether the AO conducted adequate inquiries during the original assessment. The assessee presented a chart detailing the notices issued by the AO and the corresponding responses, indicating that the issues raised by the PCIT were indeed addressed. The tribunal noted that the AO had taken one of the possible views based on the information provided by the assessee. The tribunal cited decisions from higher courts, stating that if an AO has made inquiries, even if deemed inadequate, it does not automatically justify revision under Section 263 unless the AO's view is unsustainable in law. The tribunal found that the AO had applied his mind to the issues, and the PCIT's invocation of Section 263 was not justified.

Conclusion:

The tribunal concluded that the AO had conducted necessary inquiries and verification during the original assessment proceedings. The PCIT's order under Section 263 was set aside, as the tribunal found that the AO had taken a possible view based on the information available, and the revision was not warranted. The appeal filed by the assessee was allowed, and the tribunal emphasized that mere differences in opinion do not justify the exercise of revisional powers under Section 263.