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2020 (9) TMI 875 - HC - Income TaxRevision u/s 263 - as per CIT-A AO failed to examine the expenditure incurred by the assessee towards the exempt income as required under Section 14A - lack of enquiry / inadequate enquiry - twin conditions are required to be satisfied for exercise of revisional jurisdiction under Section 263 - HELD THAT - We examine the facts of the case in hand. In 'CIT VS. SUNBEAM AUTO LTD. 2009 (9) TMI 633 - DELHI HIGH COURT held that Assessing Officer in the order of assessment is not required to give detailed reasoning in respect of each and every item of deduction and therefore, the question whether there has been an application of mind before allowing expenditure has to be examined from the record of the case. The question of lack of enquiry / inadequate enquiry is also required to be kept in mind and mere inadequacy of the enquiry would not confer jurisdiction on the CIT u/s 263. In the instant case, the Commissioner of Income Tax has held that the enquiry conducted by the Assessing Officer is inadequate and has assumed the revisional jurisdiction. The assessee has filed all the details before the AO who accepted the contention of the assessee that no expenditure is attributable to the exempt income during the relevant Assessment Year. Thus, while recording the aforesaid finding, the AO has taken one of the plausible views in allowing the claim of the assessee and therefore, the CIT could not have set aside the order of assessment merely on the ground of inadequacy of enquiry, the order passed by the Commissioner of Income Tax is not sustainable in law and the same has rightly been set aside by the Tribunal - Decided in favour of the assessee.
Issues:
1. Interpretation of Section 263 of the Income Tax Act, 1961 regarding revision of orders prejudicial to revenue. 2. Application of legal principles in determining the correctness of the Assessing Officer's order. 3. Assessment of expenditure incurred for earning exempt income under Section 14A of the Act. 4. Adequacy of enquiry conducted by the Assessing Officer before completing the assessment. Analysis: Issue 1: Interpretation of Section 263 of the Income Tax Act The High Court examined Section 263 of the Income Tax Act, which allows the Commissioner to revise orders if they are erroneous and prejudicial to the revenue's interests. The Court highlighted the need for both conditions to be satisfied for the exercise of revisional jurisdiction. Issue 2: Application of Legal Principles Referring to legal precedents, the Court emphasized that not every loss of revenue due to an order can be deemed prejudicial. If the Assessing Officer's decision is based on a valid interpretation of the law, even if different from the Commissioner's view, it may not be considered erroneous. The Court reiterated that lack of detailed reasoning in the assessment order does not automatically warrant revision under Section 263. Issue 3: Assessment of Expenditure for Exempt Income In this case, the Commissioner invoked Section 263 due to the Assessing Officer's alleged inadequate enquiry into the expenditure debited by the assessee for earning exempt income under Section 14A of the Act. However, the Court found that the Assessing Officer had accepted the assessee's contention that no expenditure was attributable to the exempt income during the relevant assessment year. As the Assessing Officer had taken a plausible view in allowing the claim, the Commissioner's decision to set aside the assessment was deemed unsustainable. Issue 4: Adequacy of Enquiry by Assessing Officer The Court further clarified that mere inadequacy of enquiry does not grant jurisdiction to the Commissioner under Section 263. In this case, since the Assessing Officer had considered the details provided by the assessee and had a valid basis for the assessment, the Commissioner's decision to set it aside was deemed incorrect. Based on the analysis, the Court ruled in favor of the assessee, dismissing the appeal by the revenue. The judgment emphasized the importance of following legal principles and ensuring that revisionary powers are exercised judiciously in tax matters.
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