2025 (1) TMI 327 - AT - Income Tax

Revision u/s 263 - case of assessee was reopened u/s 147 - bogus purchases - HELD THAT - We find that it is not a case lack of enquiry or inadequate enquiry even if there is inadequate enquiries that could not by itself, the occasion of PCIT to pass order u/s 263 merely because he has different of opinion on the matter as recorded above, AO duly examined the fact and formed opinion that no addition is necessary. In case of Mukesh Chand Mal Pitti 2023 (10) TMI 1064 - GUJARAT HIGH COURT held that where cash deposits made by assessee during demonetization period were specifically verified during original assessment proceedings wherein assessee produced all necessary documents as asked for by AO, it was not a case where no enquiry was made by AO during course of assessment proceedings regarding cash deposits, and therefore, impugned revision proceedings u/s 263 was to be quashed. We further find that in Rajmal Kanwar 2016 (2) TMI 1317 - ITAT JAIPUR also held that where AO has made sufficient enquiry, considered survey record and surrender made by assessee and after considering submissions of assessee completed assessment proceedings u/s 143(3), assessment order could not be held to be an erroneous order which was prejudicial to interest of revenue. We also find merit in the contention of assessee that similar assessment order for assessment year 2016-17 wherein similar transaction has been accepted by AO and same is not revised on the ground of same issue. We find that once the explanation/reply of assessee was found acceptable by AO and no addition was made he has taken a plausible view which is otherwise legally sustainable view supported with various evidence furnished by assessee, which cannot be considered as erroneous. Thus, the twin condition for exercising jurisdiction u/s 263 is not fulfilled in the present case. In our view, when the transaction of assessee with Unique Polypack was examined by the AO in accepting the impugned transaction, PCIT was not justified in invoking the provisions of section 263. Therefore, the order passed by PCIT is not legally sustainable and the same is set aside. Grounds of appeal raised by the assessee are allowed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment are:

• Whether the Principal Commissioner of Income Tax (PCIT) was justified in invoking the provisions of Section 263 of the Income Tax Act, 1961, to revise the assessment order passed by the Assessing Officer (AO) under Section 147 read with Section 144B for the assessment year 2017-18.
• Whether the assessment order passed by the AO was erroneous and prejudicial to the interests of the revenue.
• Whether the PCIT's decision to direct a fresh assessment was legally sustainable.
• Whether the AO conducted adequate inquiries and whether the PCIT's invocation of Section 263 was justified based on the alleged inadequacy of such inquiries.
• Whether the principles established by previous judgments support the PCIT's or the assessee's position in this case.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Justification for invoking Section 263

• Relevant legal framework and precedents: Section 263 of the Income Tax Act allows the PCIT to revise an assessment order if it is deemed erroneous and prejudicial to the interests of the revenue. The precedents considered include decisions that emphasize the necessity for the AO to conduct adequate inquiries during assessments.
• Court's interpretation and reasoning: The Tribunal analyzed whether the AO had conducted sufficient inquiries and whether the PCIT's invocation of Section 263 was warranted. The Tribunal noted that the AO had indeed conducted inquiries and was satisfied with the explanations provided by the assessee.
• Key evidence and findings: The Tribunal found that the AO had issued various show cause notices and received detailed replies from the assessee, which included financial statements, bank statements, VAT returns, and other relevant documents. The AO's satisfaction with these submissions was documented in the assessment order.
• Application of law to facts: The Tribunal applied the legal standards for invoking Section 263 and found that the AO had taken a legally sustainable view based on the evidence presented. The Tribunal concluded that the AO's decision was reasonable and could not be substituted by the PCIT's differing opinion.
• Treatment of competing arguments: The Tribunal considered the arguments from both the assessee and the revenue. The assessee argued that the AO had made adequate inquiries, while the revenue supported the PCIT's view that the AO's order was erroneous.
• Conclusions: The Tribunal concluded that the PCIT's invocation of Section 263 was not justified, as the AO had conducted adequate inquiries and the assessment order was neither erroneous nor prejudicial to the interests of the revenue.

Issue 2: Adequacy of AO's inquiries

• Relevant legal framework and precedents: The Tribunal referred to precedents where courts have held that an assessment order cannot be revised under Section 263 merely because the PCIT has a different opinion, provided the AO has conducted adequate inquiries.
• Court's interpretation and reasoning: The Tribunal emphasized that the AO's inquiries were sufficient and that the AO had formed a reasonable opinion based on the evidence provided.
• Key evidence and findings: The Tribunal noted that the AO had considered the report from the ITO (Investigation) and the statements recorded during the survey, which were the basis for reopening the assessment.
• Application of law to facts: The Tribunal found that the AO had duly examined the facts and formed an opinion that no addition was necessary, thereby fulfilling the requirements of adequate inquiry.
• Treatment of competing arguments: The Tribunal acknowledged the revenue's argument that the AO had not considered certain reports, but it found this claim to be incorrect, as the AO had indeed considered the report as part of the reopening process.
• Conclusions: The Tribunal held that the AO's inquiries were adequate and that the PCIT's invocation of Section 263 was not warranted based on the alleged inadequacy of inquiries.

3. SIGNIFICANT HOLDINGS

• Preserve verbatim quotes of crucial legal reasoning: "The twin condition for exercising jurisdiction under section 263 is not fulfilled in the present case."
• Core principles established: An assessment order cannot be revised under Section 263 merely because the PCIT has a different opinion, provided the AO has conducted adequate inquiries and formed a reasonable opinion based on the evidence.
• Final determinations on each issue: The Tribunal set aside the PCIT's order under Section 263, concluding that the AO's assessment order was not erroneous or prejudicial to the interests of the revenue. The appeal by the assessee was allowed.

In conclusion, the Tribunal found that the AO had conducted sufficient inquiries and that the PCIT's invocation of Section 263 was not justified. The AO's assessment order was upheld, and the PCIT's order was set aside.