2019 (11) TMI 1175 - AT - Income Tax

Revision u/s 263 - assessee had incurred expenditure on foreign travels along with his family that was in excess of ₹ 3 crores - PCIT is of the firm belief that the Assessing Officer failed to conduct proper enquiry and failed to apply proper law leading to the said assessment order being erroneous as well as prejudicial to the interest of the revenue - HELD THAT - Evidences, examined and analysed by the Assessing Officer during the course of assessment proceedings, further supported by thorough investigations/enquiries made by the Assessing Officer during the assessment proceedings, we are of the considered view that there remains nothing for the PCIT to assume jurisdiction u/s 263 to say that the assessment order is not only erroneous but prejudicial to the interest of the revenue. We are of the considered view that the PCIT has wrongly assumed jurisdiction u/s 263 of the Act, hence his combined order for all the A.Ys deserves to be set aside. We, accordingly, set aside the order of the PCIT and restore that of the Assessing Officer. We order accordingly. We are constrained to bring on record, to be looked into by the Central Board of Direct Taxes (CBDT) that proceedings u/s 263 of the Act have been initiated in this case apparently on the basis of false, frivolous and baseless allegations with malafide intention of the quarter concerned which were also examined and found not sustainable by the Vigilance Directorate of Income-tax Department. Senior Officer of the Revenue Department had not only got the proceedings u/s 263 initiated against Appellant on false, frivolous and baseless allegations rather continued to litigate against the appellant as well as against the Revenue Department by filing frivolous applications one after the other before the Hon ble High Court of Delhi as well as the Tribunal. We direct the CBDT to initiate a discreet enquiry in this case to find out, as to how and under what circumstances on the basis of false, frivolous and baseless allegations, that too with malafide intentions, proceedings u/s 263 of the Act have been initiated apparently to victimize the appellant, to proceed against the guilty officials under Rules and to further frame the guidelines to deal with such abuse of powers by the senior officers, so that such incident should not reoccur.

Issues Involved:
1. Assumption of jurisdiction under Section 263 of the Income Tax Act, 1961.
2. Validity of intervening applications by a third party.
3. Adequacy of inquiry conducted by the Assessing Officer during assessment proceedings.
4. Legal principles governing the exercise of revisionary powers under Section 263.

Issue-Wise Detailed Analysis:

1. Assumption of Jurisdiction under Section 263:
The core grievance in all four appeals was the challenge against the assumption of jurisdiction under Section 263 of the Income Tax Act, 1961 by the Principal Commissioner of Income Tax (PCIT). The assessee argued that the order passed by the Assessing Officer (AO) was neither erroneous nor prejudicial to the interest of the Revenue. The PCIT had issued a show-cause notice asserting that the AO had accepted the returned income without conducting proper inquiries, particularly regarding the expenditure on foreign travels. The PCIT's contention was based on complaints alleging that the assessee incurred unaccounted expenditure on foreign trips, which were not properly investigated by the AO.

2. Validity of Intervening Applications by a Third Party:
Applications were moved by an individual, seeking to be impleaded as a necessary party in the appeals. The Tribunal framed the question of whether the presence of this applicant was necessary for the effective adjudication of the appeals. The Tribunal concluded that the applicant, being a third party, had no locus standi in the present appeals, as the dispute was between the Department and the assessee. The Tribunal dismissed the application, emphasizing that the applicant's presence was not required for the complete adjudication of the controversy.

3. Adequacy of Inquiry Conducted by the AO:
The Tribunal scrutinized the AO's assessment proceedings, which were initiated based on a Tax Evasion Petition (TEP) alleging unaccounted expenditure on foreign travels by the assessee. The AO had conducted extensive inquiries, including calling for information from various parties under Section 133(6) of the Act, recording statements under oath, and verifying bank statements and passports. The AO concluded that the foreign trips were funded by the salary and savings of the assessee's spouse, and no unaccounted expenditure was found. The Tribunal noted that the AO had made thorough and investigative inquiries, contrary to the PCIT's assertion of inadequate inquiry.

4. Legal Principles Governing the Exercise of Revisionary Powers under Section 263:
The Tribunal reiterated the legal principles governing the exercise of powers under Section 263, emphasizing that the Commissioner must be satisfied that the order of the AO is both erroneous and prejudicial to the interest of the Revenue. The Tribunal cited various judicial precedents, including the Supreme Court's decision in Malabar Industrial Co. Ltd., to assert that where the AO has taken one of the possible views after conducting proper inquiries, the Commissioner cannot invoke Section 263 merely because he disagrees with the AO's view. The Tribunal concluded that the PCIT had wrongly assumed jurisdiction under Section 263, as the AO had conducted adequate inquiries and the assessment order was neither erroneous nor prejudicial to the interest of the Revenue.

Conclusion:
The Tribunal set aside the PCIT's order passed under Section 263 for all the assessment years in question, restoring the AO's assessment orders. The Tribunal also directed the Central Board of Direct Taxes (CBDT) to initiate an inquiry into the initiation of proceedings under Section 263 based on false and frivolous allegations, highlighting the need to prevent abuse of power by senior officers. The appeals were allowed in favor of the assessee.

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