2018 (1) TMI 1189 - AT - Income Tax

Revision u/s 263 - addition of commission - Held that - Order without making enquiries on the issues in question is liable to be held as erroneous insofar as it is prejudicial to the interest of the Revenue. In the instant case, assessee has failed to produce any evidence of any enquiry carried out by the Assessing Officer on the issue of commission income or interest expenditure and, thus, in our opinion, the Ld. CIT has validly assumed jurisdiction under section 263 of the Act. As argued that on the issue of commission the Assessing Officer has examined the matter subsequently and in the assessment order passed in compliance to 263 proceedings, no addition has made and, therefore, to the extent the jurisdiction assumed by the Ld. CIT under Section 263, we are not convinced with this argument of the Ld. counsel. The validity of the assuming jurisdiction under Section 263 of the Act is decided whether the Assessing Officer carried out any enquiry on the issue in original assessment proceedings. If he did not carry out any enquiry in the original assessment order, that order is erroneous and prejudicial to the interest of the Revenue and the CIT has assumed the jurisdiction validly. The subsequent action of the Assessing Officer of making no addition after examination of the issue, cannot make the action of the Ld. CIT under Section 263 of the Act, invalid. - Decided against assessee.

Summary

Issues:
Assessment under section 263 of the Income-tax Act, 1961 for assessment year 2011-12.

Detailed Analysis:

Issue 1: Assessment Order under Section 263
The appeal was against the order passed by the Ld. Principal Commissioner of Income Tax, Rohtak, canceling the assessment under section 263 for the assessment year 2011-12. The grounds raised by the assessee challenged the invocation of Sec. 263 by the Ld. CIT, stating that the original assessment order was not erroneous or prejudicial to the interest of revenue.

Issue 2: Observations Leading to Cancellation
The Ld. CIT observed discrepancies in the assessment, including unreported commission income and interest expenses not capitalized. The CIT found that the Assessing Officer did not conduct necessary inquiries on these matters, leading to the cancellation of the assessment under section 263.

Issue 3: Arguments and Submissions
The Authorized Representative of the assessee argued that all issues were duly considered during the assessment proceedings, and no additions were made by the Assessing Officer. However, the Ld. CIT found that essential documentary evidence was missing, and no proper inquiries were conducted by the Assessing Officer.

Issue 4: Legal Interpretation
The Ld. CIT (DR) contended that the assessment order was erroneous as it lacked necessary investigations and verifications. Citing legal precedents, it was argued that failure to conduct essential inquiries rendered the order erroneous and prejudicial to the revenue's interest.

Issue 5: Judicial Pronouncements
The Tribunal referred to judicial decisions emphasizing the importance of conducting thorough investigations by the Assessing Officer. It was highlighted that failure to make necessary inquiries could render the assessment order erroneous, as observed in various legal cases.

Issue 6: Lack of Enquiry by Assessing Officer
The Tribunal noted that no proper inquiry was conducted by the Assessing Officer on the issues raised by the Ld. CIT under section 263. The failure to produce evidence of any examination on commission income or interest expenditure strengthened the argument that the original assessment was erroneous.

Issue 7: Validity of Jurisdiction under Section 263
Considering the Explanation-2 to section 263, which deems an order erroneous if made without necessary inquiries, the Tribunal upheld the Ld. CIT's jurisdiction in assuming authority under section 263 due to the lack of proper investigations by the Assessing Officer.

Issue 8: Impact of Subsequent Actions
The Tribunal rejected the argument that subsequent examination by the Assessing Officer, resulting in no additions, invalidated the Ld. CIT's jurisdiction under section 263. It was clarified that the original lack of inquiry rendered the assessment order erroneous and justified the CIT's actions.

In conclusion, the Tribunal dismissed the appeal, upholding the Ld. CIT's decision to cancel the assessment under section 263 due to the lack of necessary inquiries and verifications by the Assessing Officer, rendering the original assessment erroneous and prejudicial to the revenue's interest.