2021 (3) TMI 562 - AT - Income Tax

Revision u/s 263 - Payments made to parties in violation of provisions of section 40A(3) - HELD THAT - On perusal of assessment order u/s.143(3) of the Act, we observe that the Assessing Officer has not discussed the issue in the assessment order or made any enquiry and simply accepted the returned income by the assessee and there is no deliberation. When the circumstances of the case are such so as to provoke an enquiry, it is his duty to make proper enquiry. Failure to make enquiry in such circumstances would make the assessment order erroneous. Hon ble Apex Court in the case of Smt. Tara Devi Aggarwal vs. CIT, 1972 (11) TMI 2 - SUPREME COURT , has held that the CIT may consider an order of the AO to be erroneous not only it contains some apparent error of reasoning or of law or of fact on the face of it but also because it is a stereo typed order which simply accepts what the assessee has stated in his return and fails to make enquiries which are called for in the circumstances of the case. The Assessing Officer cannot remain passive in the face of a return which is apparently in order but calls for further inquiry. By accepting the returned income without making any enquiry and deliberation on the points raised by the Lr. Pr. CIT, the assessment order is erroneous and prejudicial to the interest of the revenue. Hence, the Pr. CIT is justified in setting the assessment order and directing the AO to make fresh assessment after providing opportunity to the assessee. - Decided against assessee.

Summary

Issues:
Appeal against order of Pr. CIT under section 263 for AY 2013-14.

Analysis:
The appeal was filed by the assessee against the order of the Pr. CIT, Cuttack under section 263 of the Income Tax Act for the assessment year 2013-14. The Pr. CIT found that the assessee made payments exceeding ?20,000 in cash towards tyre, vehicle, machine insurance, and capital expenditure in violation of section 40A(3) of the Act. The Pr. CIT issued a show cause notice to the assessee, who explained that the payments were not to a single party on the same day and were genuine. However, the Pr. CIT did not accept the explanation, stating that the payments were made in violation of the law. The Pr. CIT held the assessment order to be erroneous and prejudicial to the revenue's interests and directed the AO to conduct an inquiry and pass a fresh order. The disputed issue was whether the assessment order was erroneous for not making inquiries on the disputed issue raised during the revision proceedings. The ITAT observed that the Assessing Officer did not discuss the issue or make any inquiry but simply accepted the returned income without deliberation. Citing a Supreme Court case, the ITAT held that the assessment order was erroneous as the AO failed to make necessary inquiries when circumstances warranted. Therefore, the ITAT upheld the Pr. CIT's order to set aside the assessment and directed a fresh assessment after providing an opportunity to the assessee.

This case highlights the importance of conducting proper inquiries and not accepting returned income without deliberation, especially when circumstances call for further investigation. The ITAT emphasized that an assessment order can be considered erroneous if it lacks necessary inquiries, even if the return appears to be in order. The judgment serves as a reminder for Assessing Officers to actively investigate and not pass stereotyped orders merely accepting what is stated in the return. The ITAT's decision to uphold the Pr. CIT's order and dismiss the appeal underscores the significance of thorough assessments in ensuring compliance with tax laws and protecting the revenue's interests.