2018 (11) TMI 208 - AT - Income Tax

Revision u/s 263 - scope of revision - sale consideration disclosure - Held that - Section 263 of the Act shows that jurisdiction thereunder can be exercised if the CIT finds that the order of the AO was erroneous and prejudicial to the interest of Revenue. Mere audit objection and merely because a different view could be taken, were not enough to say that the order of the AO was erroneous or prejudicial to the interest of the Revenue. The jurisdiction could be exercised if the CIT was satisfied that the basis for exercise of jurisdiction existed. No rigid rule could be laid down about the situation when the jurisdiction can be exercised. Whether satisfaction of the CIT for exercising jurisdiction was called for or not, has to be decided having regard to a given fact situation. In the present case, the Tribunal has held that the assessee had disclosed that out of sale consideration, a sum of ₹ 1 lac was to be received for sale of permit. If that is so, there was no error in the view taken by the AO and no case was made out for invoking jurisdiction under Section 263 of the Act. Decided in favour of the assessee

Summary

Issues:
Validity of order u/s 263 of the Income-tax Act, 1961 for A.Y 2011-12 challenged by the assessee.

Analysis:
1. The assessee challenged the validity of the order dated 23.03.2016 framed u/s 263 of the Income-tax Act, 1961, pertaining to A.Y 2011-12. The grievance was that the Principal Commissioner of Income Tax (PCIT) erred in setting aside the order framed u/s 143(3) of the Act without proper inquiries, which was deemed erroneous and prejudicial to the Revenue's interest.

2. The PCIT invoked powers u/s 263 of the Act based on audit objections related to interest payments, disallowances, and additions to taxable income. The Assessing Officer had issued notices to the assessee regarding these issues, and after considering the objections, the proceedings were dropped.

3. The PCIT raised similar issues as the audit party, claiming the order was erroneous. However, the Tribunal emphasized that mere audit objections and the possibility of a different view being taken were insufficient grounds to deem the Assessing Officer's order erroneous. Citing the decision of the Hon'ble Punjab and Haryana High Court, the Tribunal highlighted the need for a valid basis for the PCIT's jurisdiction.

4. The High Court analyzed a similar case involving the sale of machinery and permits, where the CIT initiated proceedings under Section 263. The Tribunal annulled the CIT's order, emphasizing that the jurisdiction under Section 263 could not be exercised merely on the basis of an audit note. The High Court upheld the Tribunal's decision, stating that the CIT must find the AO's order erroneous and prejudicial to the Revenue's interest to exercise jurisdiction under Section 263.

5. Ultimately, the High Court ruled in favor of the assessee, emphasizing that the CIT's jurisdiction under Section 263 should be based on a valid error in the AO's order. Since the assessee had disclosed relevant information regarding the sale of permits, the AO's decision was deemed correct, and the CIT's order was quashed.

6. Consequently, the Tribunal found parity in the facts presented and concluded that the order framed u/s 263 of the Act was legally flawed and ordered the restoration of the assessment order framed u/s 143(3) of the Act for A.Y 2011-12. The appeal of the assessee was allowed, and the decision was pronounced on 31.10.2018.