2021 (10) TMI 1106 - AT - Income Tax

Revision u/s 263 by CIT - Case was selected for scrutiny - assessee had claimed rental income and claimed deduction u/s 24B as interest paid for home loan against the property bearing No.C-207, Sarvodaya Enclave, New Delhi-110017 - on the basis of audit objection, the Assessing Officer initiated rectification proceedings u/s 154 however, same was dropped instead the Assessing Officer ( AO ) made proposal for revising the assessment u/s 263 of the Act made to the Ld.Pr.CIT - Whether objections of the assessee were not duly considered by the Ld. Pr. CIT before passing the impugned order? - HELD THAT - From the order of the Ld. Pr. CIT, it is clear that he set-aside the assessment order and directed the Assessing Officer to investigate the issue and pass a speaking order. In our considered view, this approach of the Ld. Pr. CIT is erroneous as the law is clear that the Ld. Pr. CIT either he can make enquiry himself or cause such enquiry to be made but such exercise is to be made before passing the order u/s 263 of the Act. It is not disputed by the Revenue that proceedings u/s 154 of the Act were dropped by the same Assessing Officer who had requested for exercising powers u/s 263 of the Act by the Ld. Pr. CIT. It is also not disputed that the revision by the Ld. Pr. CIT is based upon the audit objections. Pr. CIT did not dispose of the objections of the assessee that assessment order passed by the Assessing Officer was without jurisdiction. Under these undisputed facts, we are of the view that the exercise of power u/s 263 of the Act by the Ld. Pr. CIT is not accordance with law. Therefore, the same deserves to be quashed. We, therefore, hereby quash the impugned order being unjust and contrary to the settled law. The grounds raised in this appeal by the assessee are allowed. Appeal of the assessee is allowed

Summary

Issues Involved:
1. Invocation of Section 263 of the Income Tax Act, 1961.
2. Justification for the revision of the assessment order.
3. Adequacy of the Assessing Officer's investigation and application of mind.
4. Jurisdictional validity of the assessment order.

Issue-wise Detailed Analysis:

1. Invocation of Section 263 of the Income Tax Act, 1961:
The assessee challenged the invocation of Section 263 by the learned Pr. Commissioner of Income Tax (Pr. CIT), arguing that the original assessment order was neither erroneous nor prejudicial to the interest of the revenue. The Tribunal noted that the Pr. CIT initiated proceedings under Section 263 based on an audit objection and the Assessing Officer's (AO) proposal. However, Section 263 requires the Pr. CIT to independently form the opinion that the order is erroneous and prejudicial to the revenue. The Tribunal found that the Pr. CIT had not conducted an independent inquiry or caused such an inquiry to be made before passing the order.

2. Justification for the Revision of the Assessment Order:
The Pr. CIT observed that the AO had accepted the assessee's claim of interest deduction without proper verification of the rental income and home loan interest. The Pr. CIT noted that essential documents, such as the rent agreement and loan certificate, were missing from the records. The Tribunal, however, emphasized that the Pr. CIT should have conducted a thorough inquiry before setting aside the assessment order. The Tribunal found the Pr. CIT's approach of directing the AO to investigate further as erroneous and contrary to the requirements of Section 263.

3. Adequacy of the Assessing Officer's Investigation and Application of Mind:
The Tribunal highlighted that the AO had initiated rectification proceedings under Section 154 based on the audit objection but later dropped them after making necessary inquiries. The Tribunal noted that the AO's acceptance of the assessee's claims during the original assessment was not sufficiently scrutinized. However, the Tribunal concluded that the Pr. CIT's reliance on the AO's proposal without conducting an independent inquiry was not justified.

4. Jurisdictional Validity of the Assessment Order:
The assessee argued that the assessment order was non-est as the officer who passed it did not have the requisite jurisdiction. The Pr. CIT dismissed this objection, stating that jurisdictional issues were not raised during the assessment proceedings and could not be raised during Section 263 proceedings. The Tribunal, however, found that the Pr. CIT did not adequately address the jurisdictional objections raised by the assessee.

Conclusion:
The Tribunal quashed the order passed by the Pr. CIT under Section 263, holding that the Pr. CIT did not follow the legal requirements of conducting an independent inquiry before revising the assessment order. The Tribunal emphasized that the Pr. CIT's reliance on the AO's opinion and audit objections without proper verification was contrary to the settled law. The appeal of the assessee was allowed, and the impugned order was set aside.

Order Pronouncement:
The order was pronounced in the open court on 25th October 2021.