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2022 (11) TMI 476 - AT - Income TaxRevision u/s 263 by CIT - Whether PCIT has failed to give any plausible reasons as to how the assessment order passed by the AO is erroneous in so far as it is prejudicial to the interest of the Revenue? - HELD THAT - It is a well settled principle of law by the decision of the Hon ble Supreme Court in the case of Malabar Industrial Co. Ltd. 2000 (2) TMI 10 - SUPREME COURT . where it has been held that the phrase prejudicial to the interest of the Revenue u/s.263 of the Act , has to be read in conjunction with the expression erroneous order of the AO. Further the Courts observed that every loss of Revenue as a consequent of an order of the AO, cannot be treated as prejudicial to the interest of the Revenue. We find that four issues questioned by the PCIT in their show cause notice issued u/s.263 of the Act, has been thoroughly examined by the AO during the course of assessment proceedings, which is evident from notice issued by the AO and reply furnished by the assessee. Even during revision proceedings, the PCIT did not specify how and why the assessment order passed by the AO is erroneous in so far as it is prejudicial to the interest of the Revenue. Further, if you go by the observations of the PCIT, it is abundantly clear that the PCIT has set aside the assessment order for further verification which in our considered view is not permissible u/s.263 of the Act, even after insertion of Explanation (2) to sec. u/s.263 - Therefore, we are of the considered view that the assessment order passed by the AO is neither erroneous nor prejudicial to the interest of the Revenue and thus, we quashed the order passed by the PCIT u/s.263. Appeal filed by the assessee is allowed.
Issues Involved:
1. Legality of the Principal Commissioner of Income Tax (PCIT) invoking Section 263 of the Income Tax Act, 1961. 2. Whether the assessment order passed under Section 143(3) by the Assessing Officer (AO) was erroneous and prejudicial to the interest of the Revenue. 3. Examination of expenses and depreciation claims made by the assessee. 4. Verification of creditors appearing in the balance sheet. Issue-wise Detailed Analysis: 1. Legality of the PCIT invoking Section 263 of the Income Tax Act, 1961: The assessee challenged the order of the PCIT, arguing that the invocation of Section 263 was opposed to law, facts, and circumstances. The PCIT issued a show cause notice questioning payments made to M/s. Sun Med Health Care Pvt. Ltd., purchase of medical equipment, depreciation on building improvements, and certain creditors in the balance sheet. The PCIT held that the AO failed to apply his mind during the assessment proceedings, rendering the order erroneous and prejudicial to the interest of the Revenue. The Tribunal, however, found that the PCIT's order was cryptic and lacked specific reasons demonstrating how the assessment order was erroneous and prejudicial. 2. Whether the assessment order passed under Section 143(3) by the AO was erroneous and prejudicial to the interest of the Revenue: The Tribunal emphasized that for the PCIT to assume jurisdiction under Section 263, two conditions must be met: the order must be erroneous and prejudicial to the interest of the Revenue. The Tribunal noted that the PCIT failed to provide plausible reasons for how the AO's order was erroneous and prejudicial. The Tribunal referred to the Supreme Court's decision in Malabar Industrial Co. Ltd. v. CIT, which held that every loss of revenue does not automatically make an order prejudicial to the interest of the Revenue. 3. Examination of expenses and depreciation claims made by the assessee: The PCIT questioned the payments made to M/s. Sun Med Health Care Pvt. Ltd., the purchase of medical equipment, and depreciation on building improvements. The assessee provided detailed submissions, including invoices, payment details, and VAT returns, to support the claims. The Tribunal found that the AO had examined these details during the assessment proceedings and chose not to make any additions, indicating that the AO applied his mind to these issues. The Tribunal held that the PCIT's direction for further verification was not justified. 4. Verification of creditors appearing in the balance sheet: The PCIT also questioned the creditors appearing in the balance sheet and observed that no evidence was provided to justify these creditors. The assessee had provided names, addresses, and confirmation letters of the creditors. The Tribunal found that the AO had considered these details and decided not to make any additions. The Tribunal held that the PCIT's observation lacked specific reasons for how the AO's order was erroneous and prejudicial. Conclusion: The Tribunal concluded that the assessment order passed by the AO was neither erroneous nor prejudicial to the interest of the Revenue. The PCIT's order under Section 263 was quashed, and the appeal filed by the assessee was allowed. The Tribunal emphasized that the PCIT failed to demonstrate how the AO's order caused prejudice to the Revenue and that mere lack of detailed discussion in the assessment order does not imply non-application of mind by the AO.
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