2021 (6) TMI 168 - AT - Income Tax

Revision u/s 263 - On-money receipt - Lack of enquiry v/s inadequate enquiry - HELD THAT - In the case of the assessee, there is no denying the fact, as detailed above and acknowledged in the assessment order u/s. 143(3) dated 11.12.2017, that in response to notices u/s 143(2)/142(1) and further requisitions made during the course of assessment proceeding, the A/R of the assessee appeared from time to time and produced/ submitted necessary details/documents as per requisitions in relation to the issues raised by the Ld. Pr. C.I.T., which were examined by Assessing Officer. Therefore, it is the appraisal of the same records which are already with the Ld. A.O. and the Ld. Pr. C.I.T. took a different view than adopted by the A.O. on the same set of facts, which is not permissible u/s. 263 The view taken by the A.O. was one of the possible views and the assessment order passed by him could not be held to be erroneous and prejudicial to the interests of revenue. There is difference between Lack of enquiry and inadequate enquiry . It is for the AO to decide the extent of enquiry to be made as it is his satisfaction as what is required under law. CIT cannot pass the order u/s 263 of the Act on the ground that further/thorough enquiry should have been made by Assessing Officer. We note that assessing officer has examined the issue of On-money of ₹ 8,20,00,000/-(vide para 4 of the assessment order passed under section 143(3) of the Act, dated 11.12.2017) and applied his mind, therefore such order passed by him is neither erroneous nor prejudicial to the interest of revenue. Based on the above discussion on assessee s facts as well as on various precedents applicable to assessee s facts, we are of the view that revisionary jurisdiction exercised by the Ld. Pr. C.I.T. u/s. 263 of the Act was not in tune with the facts and evidences on record duly explained to the Ld. A.O. and verified by him and that being so the order passed u/s. 263 of the Act on such erroneous stand is liable to be quashed. - Decided in favour of assessee.

Issues Involved:
1. Whether the order passed by the Assessing Officer (AO) under section 143(3) of the Income Tax Act, 1961 was erroneous and prejudicial to the interest of the Revenue.
2. Whether the Principal Commissioner of Income Tax (PCIT) was justified in invoking section 263 of the Income Tax Act, 1961 to set aside the assessment order.

Detailed Analysis:

Issue 1: Erroneous and Prejudicial to the Interest of the Revenue
The primary contention was whether the AO's order, which allowed the assessee to claim expenses against the disclosed 'on money' income, was erroneous and prejudicial to the interest of the Revenue. The PCIT argued that the assessee claimed expenses of ?31,43,427 against the disclosed 'on money' income of ?8,20,00,000, which was irregular under section 115BBE of the Act. The PCIT issued a show cause notice under section 263, stating that no deduction in respect of any expenditure or allowance should be allowed in computing the income referred to in sections 68, 69A, 69B, 69C, or 69D.

The assessee contended that the 'on money' was part of the business income and related expenses, such as service tax and VAT, were correctly claimed. The assessee also argued that the AO had examined the books of accounts, documents, and evidences, and had applied his mind before passing the assessment order. The assessee further highlighted that the income disclosed was treated as business income by other government departments, including VAT and service tax authorities.

Issue 2: Invocation of Section 263 by PCIT
The PCIT invoked section 263, stating that the AO did not examine whether the 'on money' was business income or income from other sources, and thus, the order was erroneous and prejudicial to the interest of the Revenue. The PCIT directed the AO to frame the assessment de novo.

The Tribunal examined the jurisdiction of the PCIT under section 263, referring to the Supreme Court's decision in Malabar Industries Ltd. vs. CIT, which held that twin conditions must be satisfied: the order must be erroneous and prejudicial to the interest of the Revenue. The Tribunal noted that the AO had conducted a detailed examination of the assessee's books of accounts, documents, and evidences, and had applied his mind. The Tribunal found that the AO had taken a possible view that the expenses claimed by the assessee were related to the business income, including the 'on money'.

The Tribunal also referred to the decision in CIT v. Sunbeam Auto Ltd., which held that if there was any inquiry, even if inadequate, the Commissioner could not invoke section 263 merely because he had a different opinion. The Tribunal concluded that the AO's order was neither erroneous nor prejudicial to the interest of the Revenue, as the AO had conducted sufficient inquiry and applied his mind.

Conclusion:
The Tribunal quashed the order of the PCIT under section 263, holding that the AO's order was neither erroneous nor prejudicial to the interest of the Revenue. The appeals of the assessees were allowed.

Summary:
The Tribunal found that the AO had conducted a detailed examination of the assessee's books of accounts and related documents, and had applied his mind before allowing the expenses claimed against the disclosed 'on money' income. The Tribunal held that the PCIT's invocation of section 263 was not justified, as the AO's order was neither erroneous nor prejudicial to the interest of the Revenue. Consequently, the Tribunal quashed the PCIT's order and allowed the appeals of the assessees.

← Previous Next →