2025 (4) TMI 743 - AT - Income Tax

Revision u/s 263 by CIT - high closing stock payment to land owners and source of advance - Allowability of business promotion expenses travelling and conveyance and new papers and periodicals - HELD THAT - As original assessment order dated 09/07/2019 the impugned order and the legal provisions in this regard and we are of the opinion that in the present case all necessary enquiries were made by the AO not only as mentioned in the assessment order during this year but in earlier years also. Thus the setting aside of the assessment order dated 09/07/2019 by the PCIT Dhanbad amounts to revisit of the same issues which is not permissible as has been decided in plethora of cases including the Hon ble Apex Court. Thus the order passed under Section 263 of the Act by the ld. PCIT is hereby cancelled.

Summary

ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment are:

1. Whether the order passed under Section 263 of the Income Tax Act, 1961 by the Principal Commissioner of Income Tax (PCIT) was justified, given the claim that the original assessment was conducted without adequate inquiry.

2. Whether the Assessing Officer's (AO) original assessment order was erroneous and prejudicial to the interest of the revenue, justifying the invocation of Section 263 by the PCIT.

3. Whether the PCIT was correct in setting aside the original assessment order and directing a fresh assessment based on alleged inadequacies in the original inquiry.

ISSUE-WISE DETAILED ANALYSIS

1. Justification of the Order under Section 263

- Relevant Legal Framework and Precedents: Section 263 of the Income Tax Act allows the PCIT to revise any order passed by the AO if it is deemed erroneous and prejudicial to the interests of the revenue. The provision requires that the order must be both erroneous and prejudicial to the revenue.

- Court's Interpretation and Reasoning: The Tribunal examined whether the AO conducted adequate inquiries during the original assessment. The Tribunal found that the AO had indeed made detailed inquiries, as evidenced by the scrutiny of documents and the examination of the assessee's submissions.

- Key Evidence and Findings: The AO had scrutinized various documents, including audit reports, bank statements, and details of projects. The AO also considered the high closing stock and the reasons for its valuation, which were consistent with previous assessments.

- Application of Law to Facts: The Tribunal applied the legal standard from Section 263 and concluded that the original assessment was not erroneous, as the AO had conducted a thorough inquiry. The Tribunal noted that the PCIT's order seemed to revisit issues already addressed by the AO.

- Treatment of Competing Arguments: The appellant argued that the AO had made necessary inquiries and that the PCIT's order was unjustified. The PCIT contended that the AO failed to verify certain major expenses and payments. The Tribunal sided with the appellant, emphasizing the comprehensive nature of the AO's inquiries.

- Conclusions: The Tribunal concluded that the order under Section 263 was unjustified, as the original assessment was neither erroneous nor prejudicial to the revenue.

2. Erroneous and Prejudicial to Revenue

- Relevant Legal Framework and Precedents: For an order to be revised under Section 263, it must be both erroneous and prejudicial to the revenue. Precedents establish that mere inadequacy of inquiry does not justify revision unless it leads to an erroneous order.

- Court's Interpretation and Reasoning: The Tribunal found that the AO had conducted sufficient inquiries into the high closing stock and other financial aspects. The Tribunal noted that the PCIT did not provide substantial evidence that the AO's order was erroneous or that it adversely affected the revenue.

- Key Evidence and Findings: The Tribunal highlighted the AO's detailed examination of the assessee's financial records and the rationale provided for the high closing stock, which was consistent with market conditions.

- Application of Law to Facts: The Tribunal applied the criteria for an erroneous and prejudicial order and determined that the AO's order did not meet these criteria. The inquiries conducted were deemed adequate, and the conclusions reached by the AO were reasonable.

- Treatment of Competing Arguments: The PCIT's argument centered on the alleged lack of inquiry into certain financial aspects. The Tribunal found these arguments insufficient to establish that the AO's order was erroneous.

- Conclusions: The Tribunal concluded that the original assessment was not erroneous and prejudicial to the revenue, thus invalidating the PCIT's order under Section 263.

3. Direction for Fresh Assessment

- Relevant Legal Framework and Precedents: Section 263 allows the PCIT to direct a fresh assessment if the original order is found to be erroneous and prejudicial to the revenue.

- Court's Interpretation and Reasoning: The Tribunal found that the PCIT's direction for a fresh assessment was unwarranted, as the original assessment was conducted with due diligence and thorough inquiry.

- Key Evidence and Findings: The Tribunal noted that the AO had already scrutinized the major expenses and payments in question and that the PCIT's concerns were addressed during the original assessment.

- Application of Law to Facts: The Tribunal applied the legal standards for directing a fresh assessment and found that the conditions were not met in this case. The original assessment was deemed adequate and comprehensive.

- Treatment of Competing Arguments: The appellant argued against the need for a fresh assessment, citing the thoroughness of the original inquiry. The Tribunal agreed, finding no basis for the PCIT's directive.

- Conclusions: The Tribunal concluded that the direction for a fresh assessment was unjustified, as the original assessment was neither erroneous nor prejudicial to the revenue.

SIGNIFICANT HOLDINGS

- Core Principles Established: The Tribunal reaffirmed that an order under Section 263 requires clear evidence of error and prejudice to the revenue. Mere inadequacy of inquiry does not suffice for revision.

- Final Determinations on Each Issue: The Tribunal determined that the original assessment was conducted with adequate inquiry and was not erroneous or prejudicial to the revenue. Consequently, the PCIT's order under Section 263 was canceled.