2022 (11) TMI 254 - HC - Income Tax

Revision u/s 263 by CIT - whether the PCIT had passed a speaking order on the various queries raised and the reply submitted by the assessee? - HELD THAT - When the PCIT has formal five queries and the assessee has submitted reply to those queries along with annexures it is expected that the authority should deal with the submission made by the assessee and passed a speaking order. However, the only reason which appears to have been well played in the mind of the PCIT the details were not furnished before assessing officer. Senior Advocate appearing for the appellant points out that such finding is factually incorrect and has drawn our attention to the letter of the assessee dated 20th December, 2016, from which we find not only the assessee has submitted on the merits of the matter but pointed out the legal position and the letter contains as many as seventeen annexures. Therefore, we can safely conclude that the order passed by the PCIT is a non speaking order. The assesee being aggrieved carried the matter up to the appeal before the Tribunal. On perusal of the order passed by the Tribunal we have no hesitation to hold that the order passed by the Tribunal is also a non speaking order of course the learned Tribunal could not be faulty because it was testing the correctness of the order which was without reasons. This conclusion would be sufficient for us to interfere with the order passed by the Tribunal. After the order was passed by the PCIT it giving effect to an order passed by the assessing officer dated 28th November, 2019 in which the assessing officer has accepted the stand taken by the assessee except for queries (A) and (E). So far as queries, (B), (C) (D) the assessing officer has accepted the stand taken by the assessee. Therefore, in our considered view the matter has to be remanded back to the PCIT for a fresh consideration and to pass a speaking order only with regard to queries (A) and (E). For the above reasons the appeal is allowed. The order passed by the Tribunal is set aside and the order passed by the PCIT dated 7 th February, 2019 is also set aside and the matter stands remanded to the PCIT for fresh consideration of queries (A) and (E) alone. The appellant assessee is permitted to file additional submissions before the PCIT after considering the same and affording the personal hearing to the assessee. Fresh order be passed on merits and in accordance with law assigning reasons.

Summary

Issues:
1. Tribunal's justification of Assessing Officer's order being prejudicial to revenue's interests
2. Validity of Principal Commissioner's order under section 263 of the Income Tax Act, 1961
3. CIT's decision to set aside assessment order without findings on merits
4. Applicability of Explanation 2 to section 263 of the Act for AY 2014-15
5. Consideration of material by Principal Commissioner before deeming assessment order prejudicial
6. Principal Commissioner's opinion on completion of assessment without proper inquiries
7. Impact of circular no. 3 of 2016 on Assessing Officer's discretion under section 92C(3)
8. Error in assessment order for not referring case to Transfer Pricing Officer

Analysis:
1. The High Court assessed whether the Tribunal was correct in deeming the Assessing Officer's order prejudicial to revenue's interests. It was noted that discrepancies in interest income and other incomes were not reconciled during assessment proceedings, leading to the conclusion that the assessing officer failed to address these issues adequately.
2. The Court examined the validity of the Principal Commissioner's order under section 263 of the Income Tax Act. It was found that the order lacked sufficient reasoning and failed to address the submissions made by the assessee, rendering it a non-speaking order.
3. The Court questioned the CIT's decision to set aside the assessment order without providing findings on the merits of the issues involved. The absence of reasons and failure to address the submissions made by the assessee led to the conclusion that the order was not adequately reasoned.
4. The applicability of Explanation 2 to section 263 of the Act for AY 2014-15 was deliberated upon. It was argued that the CIT should have considered the material submitted by the appellant before deeming the assessment order prejudicial to the revenue's interests.
5. The Court examined whether the Principal Commissioner properly assessed the completion of the assessment without conducting necessary inquiries. It was highlighted that the assessing officer failed to refer certain matters to the Transfer Pricing Officer as mandated, indicating errors in the assessment process.
6. The impact of circular no. 3 of 2016 on the Assessing Officer's discretion under section 92C(3) was analyzed. The Court considered whether the assessment order was erroneous for not referring the case to the Transfer Pricing Officer despite examining relevant documents.
7. Ultimately, the Court allowed the appeal, setting aside the Tribunal's order and remanding the matter back to the Principal Commissioner for fresh consideration on specific queries. The appellant was granted the opportunity to submit additional information for a new decision to be made in accordance with the law and with proper reasoning.