2024 (3) TMI 945 - AT - Income Tax

Revision u/s 263 - PCIT order of revision based on the audit objection - borrowed information or independent application of mind by CIT - HELD THAT - The bench noted the ld. PCIT has raised four issues, on four issue the ld. AO has raised the issue, the assessee submitted the reply and the ld. AO has taken a plausible view on the matter. AO taken a view based on the submission made by the assessee which the ld. PCIT merely based on the audit objection and PCIT s observation that the view taken by the ld. AO on which the ld. PCIT is not in agreement cannot hold the order liable to be sustained PCIT based on the borrowed information and has not established as to how the view taken by the ld. AO is not correct when the issue raised has already been form part of the proceeding before the ld. AO. Based on the discussion so recorded we are of the considered view that the proceeding initiated u/s. 263 is merely based on the audit objection, PCIT is not agreement with the ld. AO and the observation on the stock, in the audit report already filed by the assessee. Thus, there is clear absence of his satisfaction and there is no independent view of the ld. PCIT even on merits thus, the assessee which has been completed there cannot be the second inning to the revenue without justifying the twin condition to the order passed by the ld. AO. We note that on all the four issue the AO has called for the details, examined the issue and the plausible view on the matter is taken. Merely there is an audit objection, adverse remark of the auditor and the ld. PCIT is not in agreement with the view of the AO the order cannot be sustained as liable to quash as the twin condition provided u/s. 263 that the order should be erroneous and prejudicial to the interest of the revenue fails and therefore, we do not agree with the finding of the ld. PCIT wherein he could not point out any mistake / error in order which is prejudicial to the interest of the revenue. The AO while framing the assessment had taken a possible view, and revenue did not demonstrate the error remain on the part of the ld. AO. In fact, when the ld. AO has conducted the required enquiry and not violated any of the conditions mentioned for revision of order as required by Explanation 2 of Section 263 of the Act, the order passed by the Assessing Officer could not be deemed to be erroneous so as to be prejudicial to the interests of the revenue - See MANNA TRUST, 2022 (1) TMI 693 - RAJASTHAN HIGH COURT wherein as held Jurisdiction of the Commissioner under Section 263 of the Act is restricted and cannot be equated with the appellate jurisdiction. The Commissioner does not sit in appeal. As proceeding initiated u/s. 263 is merely based on the audit objection, PCIT is not agreement with the ld. AO and the observation on the stock, in the audit report already filed by the assessee. Thus, there is clear absence of his satisfaction and there is no independent view of the ld. PCIT even on merits - Decided in favour of assessee.

Issues Involved:
1. Jurisdiction of PCIT under section 263.
2. Examination of issues related to payment of freight, transport receipt, closing stock (WIP), and miscellaneous expenses.
3. Adequacy of opportunity provided to the assessee.
4. Basis of the PCIT's order on audit objections.

Summary:

Issue 1: Jurisdiction of PCIT under section 263
The appellant contended that the Principal CIT, Bikaner acted without jurisdiction by setting aside the order passed for further examination to the AO u/s 263 of the I.T. Act. The Tribunal observed that the PCIT's order was based on audit objections and not on independent application of mind. The Tribunal held that the power under section 263 can only be exercised when the order of the AO is both erroneous and prejudicial to the interest of the revenue, which was not demonstrated by the PCIT.

Issue 2: Examination of issues related to payment of freight, transport receipt, closing stock (WIP), and miscellaneous expenses
The PCIT noted that the AO did not properly examine the payment of Rs. 1,71,07,035/- to 593 persons, as no details were available. The PCIT also found that the transportation receipts from M/s ACC Ltd. Tikaria were not scrutinized by the AO. Similarly, the valuation of closing stock/WIP and miscellaneous expenses were not adequately examined. However, the Tribunal found that the AO had called for details and taken a plausible view based on the submissions made by the assessee. The Tribunal emphasized that the PCIT cannot invoke section 263 merely because he disagrees with the AO's view, especially when the AO has conducted the required inquiry.

Issue 3: Adequacy of opportunity provided to the assessee
The appellant argued that no reasonable opportunity was provided while passing the order u/s 263. The Tribunal noted that the AO had provided opportunities and examined the issues during the assessment proceedings. The Tribunal concluded that the PCIT's order did not demonstrate any procedural lapse that prejudiced the assessee's right to be heard.

Issue 4: Basis of the PCIT's order on audit objections
The Tribunal observed that the PCIT's order was primarily based on audit objections from the CAG, rather than an independent examination of the assessment records. The Tribunal cited various judicial precedents, including the decision in the case of Grasim Industries Ltd. v/s PCIT, which held that proceedings under section 263 based on audit objections are impermissible. The Tribunal quashed the PCIT's order, stating that it was based on borrowed satisfaction from the audit objections and not on an independent application of mind.

Conclusion:
The Tribunal allowed the appeal of the assessee, quashing the order of the PCIT, Bikaner, and held that the AO had taken a possible view after proper examination of the issues. The Tribunal emphasized that the PCIT cannot invoke section 263 merely based on audit objections or disagreement with the AO's view.

← Previous Next →