2021 (12) TMI 635 - AT - Income Tax

Revision u/s 263 by CIT - Reopening of assessment u/s 147 initiated - Deduction of interest income claimed u/s 80P(2)(d) - HELD THAT - Here being the assessment u/s 147/148 PT.CIT could not be said to be justified in holding that the assessment order was passed without examining the issue of deduction u/s 80P(2)(d). PT.CIT has no where concluded that as to how any prejudice in fact has been caused to the revenue and in case, if no loss to the revenue is caused then in that eventuality the provision of Section 263 of the Act could not have been invoked. It was incumbent upon the ld. PT.CIT to have shown as to how the order of assessment was prejudicial to the interest of revenue. Pr. CIT did not prove or bring any material or circumstantial evidence on record that the claims of the assessee on these issues are not genuine, bogus, not verifiable and not correct. Pr. CIT has not decided the merits of the case as to whether any addition or disallowance was called for or not despite all the details, facts position of law available before him. He was only of the view that the AO has not examined the issue of deduction u/s 80P(2)(d). When he has issued the notice u/s 263 on 25.03.2021 and sought the reply on the very next day i.e on dt.26.03.2021, despite being very short span of time assessee filed the detailed reply and after receiving reply the ld. Pr. CIT has passed the order on 31.03.2021 straight way without confronting the issue or asking any query, question explanation on the issue. PT.CIT failed to do so and summarily reach to the conclusion that the order was prejudicial to the interest of revenue. Such a view taken by the PT.CIT is not well founded in the law or by various Hon'ble courts. Pr.CIT can assume jurisdiction if there has been lack of enquiry. In the instant case, the enquiry has been made admittedly on the issue of reopening, though the enquiry may not be sufficient in the opinion of the ld Pr. CIT. A.O. has made enquiry on the issue of reopening and not supposed to examination of the issue which is not the subject matter of reasons recorded, however sufficiency of enquiry can be depending upon from person to person. The AO cannot remain passive in the face of a return which is apparently in order but calls for further enquiry. It is the duty of the AO to ascertain the truth of the facts stated in the return, when the circumstances of the case are such as to provoke an enquiry. The word 'erroneous' includes the failure to make enquiry. Considering all the documents' replies and submissions made by the assessee before the Id. Pr.CIT and also before us, we are of the view that the assessee has duly satisfied all the queries raised by the ld. Pr. CIT in his order passed U/s 263 of the Act, therefore, in such circumstances and keeping in view our above observations that the A'O' had made all the detailed enquiries and Verifications, therefore, no action U/s 263 of the Act was warranted' Accordingly' we quash the proceedings U/s 263 of the Act and allow the grounds raised by the assessee.

Issues Involved:
1. Jurisdiction and validity of the order under Section 263.
2. Error in law and facts by invoking Section 263.
3. Allegations regarding interest income and deduction under Section 80P(2)(d).
4. Opportunity of being heard and natural justice.
5. Examination and verification by the Assessing Officer (AO).

Detailed Analysis:

1. Jurisdiction and Validity of the Order under Section 263:
The assessee contended that the order under Section 263 was invalid and without jurisdiction. The Pr. CIT incorrectly stated that the case was selected for complete scrutiny through CASS, whereas it was reopened under Sections 147/148 for a limited issue of cash deposits. The Pr. CIT's action was deemed illegal and void ab initio due to this incorrect basis.

2. Error in Law and Facts by Invoking Section 263:
The Pr. CIT can invoke Section 263 only if the AO's order is both erroneous and prejudicial to the interests of the revenue. The AO had reopened the case based on cash deposits, issued detailed queries, and received responses, thus conducting a proper inquiry. The AO's decision to allow the deduction under Section 80P was a reasonable view after examining the details, and the AO's order was not erroneous or prejudicial to the revenue.

3. Allegations Regarding Interest Income and Deduction under Section 80P(2)(d):
The Pr. CIT alleged that the AO erroneously allowed a deduction of ?1,08,464 under Section 80P(2)(d) for interest income from FDRs with cooperative banks. The assessee clarified that the interest income was from Sikar Kendriya Sahakari Bank Ltd., a cooperative society, making the deduction allowable. The Pr. CIT failed to prove that the claims were not genuine or verifiable, and the AO's view was supported by relevant judicial precedents.

4. Opportunity of Being Heard and Natural Justice:
The Pr. CIT issued a notice under Section 263 on 25.03.2021 and scheduled a hearing for the next day, 26.03.2021. Despite the short notice, the assessee filed a detailed reply. The Pr. CIT did not provide a further opportunity or address the assessee's explanations, violating the principles of natural justice. The hurried manner of passing the order without adequate hearing was deemed a breach of natural justice.

5. Examination and Verification by the Assessing Officer (AO):
The AO had issued detailed queries and received responses regarding cash deposits and deductions under Section 80P. The AO verified the books of accounts and allowed the deductions after due examination. The Pr. CIT's view that the AO did not make proper inquiries was unfounded, as the AO had conducted a reasonable and prudent examination. The AO's order was not erroneous merely because the Pr. CIT disagreed with the AO's conclusions.

Conclusion:
The ITAT concluded that the Pr. CIT's order under Section 263 was not justified as the AO had conducted a proper inquiry and the order was not erroneous or prejudicial to the revenue. The principles of natural justice were violated by the Pr. CIT, and the AO's view was a reasonable one supported by judicial precedents. Consequently, the ITAT quashed the proceedings under Section 263 and allowed the appeals of the assessee.

← Previous Next →