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2025 (2) TMI 764 - AT - Income TaxRevision u/s 263 - Whether the assessment order under section 143(3) was erroneous and prejudicial to the interests of the revenue? - HELD THAT - What is relevant for clause (a) of Explanation 2 to section 263 of the Act is whether the AO has passed the order after carrying our enquiries or verification which a reasonable and prudent officer would have carried out or not. It does not authorize or give unfettered powers to the Ld Pr. CIT to revise each and every order if in his opinion the same has been passed without making enquiries or verification which should have been made. This would inevitably mean that every order of the lower authority would thus become susceptible to section 263 of the Act and in turn will cause serious unintended hardship to the tax payer concerned for no fault on his part. Apparently this is not intended by the Explanation. Howsoever wide the scope of Explanation 2(a) may be its limits are implicit in it. It is only in a very gross case of inadequacy in inquiry or where inquiry required on the basis of record available before the AO was not conducted the revisionary power so conferred can be exercised to invalidate the action of AO. AO in the present case has not accepted the submissions of the assessee on various issues summarily but has duly scrutinize the whole issue of excess stock as apparent from various queries made during the assessment proceedings. He passed after making due enquiries after due application of mind. Twin conditions are not satisfied for invoking the jurisdiction under section 263. Here in our view it cannot be held that the assessing officer did not carry out enquiry or verification which should have been done. Thus CIT was not justified and not correct in law in holding that the impugned assessment order was erroneous. Accordingly we find merit in the contentions of the assessee that the revision order passed by ld. PCIT for the year under consideration is beyond the scope of section 263 of the Act and hence not valid. Accordingly we set aside the revision order passed by him. Assessee appeal allowed.
ISSUES PRESENTED and CONSIDERED
The primary issues considered in this judgment were:
ISSUE-WISE DETAILED ANALYSIS 1. Jurisdiction and Justification of Section 263 Order Legal Framework and Precedents: Section 263 empowers the PCIT to revise an assessment order if it is erroneous and prejudicial to the revenue's interest. The explanation to section 263, introduced by the Finance Act, 2015, clarifies that an order can be deemed erroneous if it lacks necessary inquiries or verifications. Court's Interpretation and Reasoning: The Tribunal noted that for section 263 to be invoked, the PCIT must demonstrate that the view taken by the Assessing Officer (AO) is unsustainable in law. The Tribunal emphasized that section 263 does not authorize the PCIT to revise orders merely for a fuller inquiry if the AO has already conducted a reasonable inquiry. Conclusions: The Tribunal concluded that the PCIT's invocation of section 263 was not justified as the AO had conducted adequate inquiries. 2. Erroneous and Prejudicial Assessment Order Relevant Legal Framework: An assessment order is considered erroneous if it is based on incorrect facts or law, and prejudicial if it negatively impacts the revenue. Key Evidence and Findings: The Tribunal found that the AO had issued detailed questionnaires and show cause notices, and the assessee had provided comprehensive responses, including stock valuation and reconciliation. Application of Law to Facts: The Tribunal observed that the AO had thoroughly examined the valuation of diamonds and the stock discrepancies noted during the survey. The AO's determination was based on the submissions and evidence provided by the assessee. Conclusions: The Tribunal held that the assessment order was neither erroneous nor prejudicial to the revenue, as the AO had conducted a detailed examination of the issues. 3. Valuation and Quantification of Diamonds Legal Framework: The valuation of inventory, including diamonds, must reflect accurate market rates and align with survey findings. Key Evidence and Findings: The Tribunal noted that the discrepancy was in the valuation rates, not the stock quantity. The assessee had voluntarily offered an additional amount based on the valuation difference, which was reflected in the closing stock. Treatment of Competing Arguments: The Tribunal considered the PCIT's argument that the valuation was inconsistent with survey findings. However, it found that the AO had already addressed this issue during the assessment. Conclusions: The Tribunal determined that the valuation and quantification of diamonds were adequately considered by the AO, negating the need for revision under section 263. 4. Invocation of Section 154 with Section 263 Legal Framework: Section 154 allows rectification of mistakes apparent from the record, while section 263 deals with revising erroneous orders. Key Evidence and Findings: The Tribunal found that the PCIT's invocation of section 154 was based on a technical glitch that prevented the assessee's submissions from being considered. Conclusions: The Tribunal ruled that the PCIT's action to set aside the assessment order for de novo consideration was unwarranted, as the AO had already addressed the relevant issues. SIGNIFICANT HOLDINGS The Tribunal's significant holdings included:
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