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2025 (2) TMI 972 - AT - Income TaxRevision u/s 263 - as per CIT AO has not made any enquiry about the payments made towards supply of machinery by one of the employees - HELD THAT - Although the specific information was received by the AO however the AO has not made any enquiry about the information so received. Further the tripartite MoU is only a notarized one and not a registered document. Since the Assessing Officer has not made any enquiry with respect to the above transaction especially the role of M/s. Aarti Enterprises in sharing money with the owner of machinery Dr. M.S. Hiremath who is the specialist doctor with the assessee therefore the order passed by the Assessing Officer in our opinion has become erroneous and prejudicial to the interest of Revenue. The argument of the assessee that it will not make any difference since the assessee is enjoying the benefit of sections 12AA and 10(23C)(via) and therefore the same is not prejudicial to the interest of the Revenue cannot be accepted at this point especially when specific information was received by the Assessing Officer. Whether it will have any impact or not is a subsequent matter only when the same is examined and there is due application of mind. Detailed reasoning given by the Ld. CIT(Exemption) for invoking the jurisdiction u/s 263 acceptable. Appeal filed by the assessee is dismissed.
ISSUES PRESENTED and CONSIDERED
The core legal issues considered in this judgment are:
ISSUE-WISE DETAILED ANALYSIS 1. Erroneous and Prejudicial Order under Section 263 Relevant Legal Framework and Precedents: Section 263 of the Income Tax Act allows the Commissioner to revise an order passed by the AO if it is deemed erroneous and prejudicial to the interests of the Revenue. The legal framework requires that both conditions-erroneous and prejudicial-must be satisfied. Precedents such as the Supreme Court's decision in Malabar Industrial Co. Ltd. vs. CIT emphasize the necessity of these twin conditions. Court's Interpretation and Reasoning: The Tribunal found that the AO failed to make necessary inquiries regarding the payment made to Dr. M.S. Hiremath through M/s Aarti Enterprises. The absence of inquiry rendered the AO's order erroneous. The Tribunal highlighted that the AO's lack of investigation into the specific information provided regarding the tripartite MoU and payment trail was a significant oversight. Key Evidence and Findings: The Tribunal noted that the AO had received specific information from another AO about the payment arrangement involving Dr. M.S. Hiremath and M/s Aarti Enterprises but did not pursue any inquiry or verification. Application of Law to Facts: The Tribunal applied the principles of Section 263, noting that the AO's failure to investigate the transaction made the order prejudicial to the Revenue's interests. The Tribunal dismissed the argument that the order was not prejudicial due to the assessee's exemptions under Sections 12AA and 10(23C)(via), emphasizing the need for due inquiry. Treatment of Competing Arguments: The Tribunal rejected the assessee's reliance on the Malabar Industrial Co. Ltd. case, distinguishing it on the grounds that the AO's order was both erroneous and prejudicial due to the lack of inquiry. Conclusions: The Tribunal upheld the CIT(Exemption)'s invocation of Section 263, affirming that the AO's order was erroneous and prejudicial to the Revenue. 2. Admissibility of Payment as Application of Income Relevant Legal Framework and Precedents: The admissibility of payments as application of income is governed by the Income Tax Act, which requires that such payments be for the objects of the trust. The Tribunal referenced the necessity for proper inquiry into the nature and purpose of the payment. Court's Interpretation and Reasoning: The Tribunal noted that the payment to Dr. M.S. Hiremath through M/s Aarti Enterprises raised questions about its admissibility as an application of income, given the lack of clarity on the transaction's purpose and the routing of funds. Key Evidence and Findings: The Tribunal emphasized the need for the AO to investigate the role of M/s Aarti Enterprises and the rationale behind the payment arrangement, which was not substantiated by the assessee. Application of Law to Facts: The Tribunal found that the AO's failure to inquire into the payment's purpose and the involvement of M/s Aarti Enterprises rendered the order erroneous. Treatment of Competing Arguments: The assessee's argument that the payment was justified and not prejudicial to the Revenue was dismissed due to the lack of inquiry and verification by the AO. Conclusions: The Tribunal concluded that the payment's admissibility as an application of income required further investigation, justifying the CIT(Exemption)'s order to set aside the AO's assessment. SIGNIFICANT HOLDINGS Core Principles Established: The Tribunal reinforced the principle that an AO's order can be revised under Section 263 if it is both erroneous and prejudicial to the Revenue. The necessity for proper inquiry and verification by the AO was emphasized as a fundamental requirement. Final Determinations on Each Issue: The Tribunal upheld the CIT(Exemption)'s order under Section 263, directing the AO to reframe the assessment after conducting the necessary inquiries and verifications, thereby dismissing the appeal filed by the assessee. Verbatim Quotes of Crucial Legal Reasoning: The Tribunal quoted, "The Assessing Officer is both an investigator and an adjudicator. If the Assessing Officer fails to conduct the said investigation, he commits an error and the word 'erroneous' includes failure to make the enquiry."
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