2024 (11) TMI 1325 - HC - Income Tax

Revision u/s 263 - no proper enquiry has been conducted by the AO on issue of cash deposited during demonetization period, scrap sale and non-submission of audit report - ITAT set aside revision order - substantial question of law - HELD THAT - In the instant appeal the department has only challenged the fact finding of the Tribunal. A catena of Supreme Court judgments have concluded that in relation to facts, no substantial question of law would arise unless the finding of fact is perverse. A factual decision is perverse when it is without any evidence or when it cannot be reasonably arrived at by a prudent man. Finding based upon surmises, conjectures or suspicion or when they are not rationally possible, have to be struck down. One may therefore examine the interpretation of perversity by various Courts including the Supreme Court. Unless there is any perversity in finding of facts, no substantial question of law would arise. Furthermore, for the Tribunal s fact finding to be perverse, it would have be established that the finding of fact by the Tribunal directly or indirectly affects substantial rights of the assessee in the sense that it is such as could not have been reasonably arrived at on the material placed on record before the Tribunal. In the present factual matrix, it is crystal clear that the Tribunal has examined the facts in great detail, and only thereafter, held in favour of the assessee.

Summary

Issues Involved:

1. Whether the Tribunal erred in holding that the Assessing Officer conducted proper inquiries before making the assessment.
2. Whether the Tribunal was justified in holding that the exercise of jurisdiction under Section 263 by the Principal Commissioner of Income Tax was invalid and unsustainable.

Issue-wise Detailed Analysis:

1. Proper Inquiry by the Assessing Officer:

The primary issue in this case revolves around whether the Assessing Officer conducted adequate inquiries before finalizing the assessment order under Section 143(3) of the Income Tax Act. The Tribunal, after a thorough examination of the records, found that the Assessing Officer had conducted a detailed inquiry. The process included issuing notices under sections 143(2) and 142(1) with a comprehensive questionnaire, demanding explanations for cash deposits and other financial details. The Assessing Officer also conducted discreet inquiries from third parties, including banks, under section 133(6). The Tribunal concluded that the Assessing Officer's actions were meticulous and well-documented, hence dismissing the Principal Commissioner of Income Tax's claim of inadequate inquiry.

2. Validity of Jurisdiction under Section 263:

The second issue pertains to the validity of the Principal Commissioner of Income Tax's exercise of jurisdiction under Section 263 of the Act. The Tribunal held that for Section 263 to be invoked, the order must be both erroneous and prejudicial to the interest of the Revenue. The Tribunal emphasized that the Principal Commissioner relied heavily on Explanation 2 to Section 263, which does not grant unchecked power to the revisionary authority. The Tribunal stated that mere allegations of inadequate inquiry by the Assessing Officer without substantiation from the record cannot justify the invocation of revisionary power. The Tribunal found that the necessary conditions for invoking Section 263 were not met, as the Assessing Officer had conducted all requisite inquiries and verifications.

High Court's Observations:

The High Court examined the Tribunal's findings and emphasized the limited jurisdiction under Section 260A of the Act, which allows interference only if a substantial question of law arises. The court reiterated the principles laid down by the Supreme Court regarding substantial questions of law, which include affecting substantial rights, being of general public importance, or involving an open question not settled by higher courts. The court noted that the department's appeal primarily challenged the Tribunal's fact-finding, which does not constitute a substantial question of law unless the findings are perverse.

The court further elaborated on the concept of perversity, explaining that a decision is perverse if it ignores relevant material, considers irrelevant material, or defies logic. The court found no such perversity in the Tribunal's findings, as they were based on a detailed examination of facts and evidence.

Conclusion:

The High Court concluded that there was no perversity in the Tribunal's findings, and therefore, no substantial question of law arose in the appeal. Consequently, the appeal was dismissed, affirming the Tribunal's decision that the Assessing Officer conducted proper inquiries and that the exercise of jurisdiction under Section 263 by the Principal Commissioner was invalid.