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2015 (9) TMI 63 - AT - Income TaxRevision u/s 263 - no proper inquiry was made by AO - Held that - It is very clear that if there is an inquiry even inadequate that would not by itself gives power to the Commissioner to pass order under Section 263 of the Act merely because he had a different opinion in the matter. It is only in the cases of total lack of inquiry that the revision under section 263 would be justified. The assessment can t be set aside to the file of the Assessing Officer for the purposes of further inquiry/investigation and to come to the conclusion that the assessment order is erroneous. The CIT himself has to conduct the inquiry before the order under Section 263 is passed. Assessing Officer as an investigator of the case, it is open to him where to start or stop inquiry. The CIT(A) cannot direct the Assessing Officer to conduct inquiry in a particular manner since it is a well settled principle of law that the Commissioner had no valid power to direct the Assessing Officer to frame the assessment order in a particular manner. In these circumstances, we have no hesitation to quash the order passed under Section 263 of the Act by the CIT - Decided in favour of assessee.
Issues Involved:
1. Validity of the CIT's revision of the assessment order under Section 263 of the Income-tax Act, 1961. 2. Adequacy of inquiries conducted by the Assessing Officer (AO) during the assessment process. Issue-wise Detailed Analysis: 1. Validity of the CIT's Revision of the Assessment Order under Section 263: The appellant challenged the order dated 25.03.2013 passed by the CIT, Meerut, under Section 263 of the Income-tax Act, 1961. The primary contention was that the revision was based solely on a difference of opinion and did not indicate any error or prejudice in the original assessment order dated 27.12.2010. The appellant argued that the CIT's order was "ab initio illegal and void" and must be quashed. The CIT's revision was deemed "perverse and preposterous" by the appellant, who insisted that the original assessment order was without blemish and should be restored. 2. Adequacy of Inquiries Conducted by the Assessing Officer: The CIT issued a notice under Section 263, proposing the revision on the grounds of inadequate inquiries by the AO regarding: a) Unsecured loans amounting to Rs. 4,38,58,522/-. b) Sundry creditors totaling Rs. 1,20,42,621/-. c) Addition in fixed assets of Rs. 68,31,743/- without verifying the source of investment. d) Non-verification of bank statements and genuineness of shareholders. e) The negligible net profit of Rs. 8,73,333/- despite a turnover of Rs. 16,39,30,613/-, and the absence of a stock register. The appellant contended that the AO had conducted necessary inquiries, as evidenced by the questionnaire issued on 29th July 2010 and the detailed replies provided by the appellant. The CIT, however, did not appreciate the explanations and set aside the assessment, citing improper inquiry by the AO. The Tribunal examined whether the CIT was justified in exercising jurisdiction under Section 263. It was noted that the AO had indeed made some inquiries, albeit deemed inadequate by the CIT. The Tribunal emphasized that the law allows the CIT to exercise jurisdiction under Section 263 only in cases of "lack of inquiry," not "inadequate inquiry." This principle was supported by multiple judicial precedents, including CIT Vs. Gabriel India Ltd. (1993) 203 ITR 108 (Bom.) and CIT Vs. Sunbeam Auto Ltd., 332 ITR 167. The Tribunal highlighted that the CIT must conduct the necessary inquiry and establish the error or mistake in the AO's order before revising it under Section 263. The Tribunal referred to the case of ITO Vs. D.J. Housing Projects Ltd., 343 ITR 329, which underscored that the CIT cannot remand the matter to the AO for further inquiries without first establishing that the original order was erroneous. The Tribunal also distinguished the decision in Gee Vee Enterprises Vs. Addl. CIT, 99 ITR 375 (Del.), noting that the CIT's reliance on this case was misplaced as it pertained to situations where no inquiry was conducted by the AO. Ultimately, the Tribunal concluded that the CIT's direction for further inquiry was not justified. The AO, as the investigator, has the discretion to determine the scope of the inquiry. The CIT cannot direct the AO to conduct inquiries in a specific manner. Therefore, the Tribunal quashed the CIT's order under Section 263 and allowed the appeal filed by the assessee company. Conclusion: The appeal was allowed, and the Tribunal quashed the CIT's order under Section 263, reinstating the original assessment order dated 27.12.2010. The decision was pronounced on 21st August 2015.
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