2024 (12) TMI 643 - AT - Income Tax

Revision u/s 263 - disallowance u/s 40A (3) and addition on account of unexplained cash credit u/s 68 - HELD THAT - Merely non mentioning the annexure and not asking the details merely itself does not hold the order prejudicial or erroneous. This could have been held so if the ld. PCIT by placing on record the relevant material based on which she is making the statement, without doing so the assessment order otherwise only not refer those annexure does not hold liable to be revision as per provision of section 263 of the Act. When the assessee in his submission has dealt with the jurisdiction aspect that has been not been dealt by the revenue in her order not at the time of hearing of the appeal we do not find any reason that the order of the ld. AO is erroneous or prejudicial to the interest of the revenue. The provision of section 263 as given in the law and the explanation 2 to that has not been invoked by the ld. PCIT to substantiate her view We also take note of the fact nowhere in the order she invoked the explanation (2) of provision of section 263 of the Act thereby she was not sure as to whether the order falls any of the criteria given vide explanation 2 of the provision of section 263 of the Act. Thus, we do not agree with the view of the ld. PCIT that without establishing that how the order is erroneous or prejudicial the law does not permit such action.

Summary

Issues Involved:

1. Invocation of Section 263 of the Income Tax Act.
2. Alleged failure of the Assessing Officer (AO) to verify certain annexures.
3. Jurisdiction and applicability of the Principal Commissioner of Income Tax (PCIT) in revising the assessment order.
4. Adequacy of inquiry conducted by the AO.
5. Legal standards for determining an order as erroneous and prejudicial to the interest of the revenue.

Issue-wise Detailed Analysis:

1. Invocation of Section 263 of the Income Tax Act:

The primary issue is whether the PCIT was justified in invoking Section 263 of the Income Tax Act, which allows for revision of an order if it is considered erroneous and prejudicial to the interests of the revenue. The assessee challenged the invocation on the grounds that the PCIT's order was based on assumptions and lacked concrete evidence of error or prejudice to revenue. The PCIT argued that the AO failed to verify certain transactions detailed in Annexures 3 and 23, which were not examined during the assessment for the financial year 2016-17.

2. Alleged Failure of the AO to Verify Certain Annexures:

The PCIT noted that the AO did not verify transactions in Annexures 3 and 23, which pertained to the financial year 2016-17. The PCIT contended that this oversight rendered the assessment order erroneous and prejudicial to the revenue. However, the assessee argued that the AO had conducted a detailed inquiry and that the annexures were not available during the assessment proceedings for the relevant year. The tribunal found that the AO had indeed conducted inquiries and that the annexures were considered in the subsequent assessment year (2018-19), thereby questioning the PCIT's basis for invoking Section 263.

3. Jurisdiction and Applicability of the PCIT in Revising the Assessment Order:

The tribunal examined whether the PCIT had the jurisdiction to revise the assessment order under Section 263. It was argued that the PCIT's action was based on surmises and conjectures without demonstrating specific errors or prejudice to the revenue. The tribunal emphasized that for Section 263 to be invoked, the order must be both erroneous and prejudicial to the revenue, a standard that was not met in this case according to the tribunal's findings.

4. Adequacy of Inquiry Conducted by the AO:

The tribunal considered whether the AO's inquiry was adequate. The assessee maintained that the AO had made all necessary inquiries and that the absence of specific mention of Annexures 3 and 23 did not constitute a lack of inquiry. The tribunal found that the AO had applied his mind to the available documents and that any alleged inadequacy did not justify the revision of the assessment order under Section 263.

5. Legal Standards for Determining an Order as Erroneous and Prejudicial:

The tribunal reiterated the legal standards for an order to be deemed erroneous and prejudicial to the revenue. It referenced judicial precedents, stating that an order cannot be revised merely because the PCIT disagrees with the AO's conclusions. The tribunal highlighted that the AO's decision must be unsustainable in law for Section 263 to apply, which was not demonstrated in this case.

Conclusion:

The tribunal concluded that the PCIT's invocation of Section 263 was not justified as the AO's order was neither erroneous nor prejudicial to the revenue. The tribunal quashed the PCIT's order, allowing the appeal in favor of the assessee. The decision underscored the necessity for the PCIT to establish both error and prejudice to invoke Section 263, which was not sufficiently demonstrated in this instance.