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2025 (2) TMI 236 - AT - Income TaxRevision u/s 263 - as per CIT AO while the framing assessment had failed to consider the disallowance u/s. 40(a)(ia) therefore the same had rendered his order as erroneous in so far it was prejudicial to the interest of the revenue - HELD THAT - Pr. CIT cannot without recording an observation after considering the documents/material/submissions filed by the assessee in the course of the proceedings before him and arbitrarily dispensing with the very process of arriving at an opinion that the order passed by the A.O was erroneous in so far it was prejudicial to the interest of the revenue summarily set-aside the same to the A.O for carrying out the necessary verification. If that is so permitted then we are afraid that it will lead to a situation where the Pr. CIT without himself arriving at a finding will summarily set aside the matter to the file of the A.O i.e. without recording a finding that the assessment order passed by the A.O is found to be erroneous in so far it is prejudicial to the interest of the revenue u/s 263 which we are afraid is not permissible as per the mandate of law. Outsourcing of the jurisdiction under Section 263 by the Pr. CIT to the A.O. is not permissible as per the settled position of law. Rather we will mince no words in observing that the setting aside of the matter to the file of the A.O for carrying out necessary verification and arriving at a conclusion as to whether or not the order so passed by him is erroneous thus would lead to a situation wherein the jurisdiction to revise the order u/s. 263 of the Act would impliedly get vested with the A.O. CIT had failed to bring the proceedings initiated by him under Section 263 of the Act to a logical end i.e. the assessment order passed by the A.O u/s. 143(3) as per him was found to be erroneous in so far it was prejudicial to the interest of the revenue and rather had aborted in the mid-way the very process for arriving at the aforesaid view thus the same had resulted to setting-aside of the assessment order to the file of the A.O for verifying as to whether or not the assessment order is found to be erroneous in so far it was prejudicial to the interest of the revenue which is not found as per the mandate of Section 263 of the Act. Thus in the absence of any observation of the Pr. CIT that the order passed by the A.O. is found to be erroneous therefore are constrained to set-aside the order passed by him u/s 263 and restore the order passed by the A.O. u/s. 143(3). Assessee appeal allowed.
ISSUES PRESENTED and CONSIDERED
The core legal issues considered in this judgment were:
ISSUE-WISE DETAILED ANALYSIS 1. Legality of the Pr. CIT's Order under Section 263 Relevant legal framework and precedents: Section 263 of the Income-tax Act empowers the Pr. CIT to revise an assessment order if it is deemed erroneous and prejudicial to the interests of the revenue. The Pr. CIT must make or cause to be made such inquiry as deemed necessary before passing the order. The explanation to Section 263 clarifies that an order is erroneous if it is passed without making necessary inquiries or verifications. Court's interpretation and reasoning: The Tribunal observed that the Pr. CIT did not record any finding or reason to substantiate that the assessment order was erroneous. The Pr. CIT set aside the assessment order without conducting any minimal inquiry or verification, which is a prerequisite for exercising jurisdiction under Section 263. Key evidence and findings: The assessee provided detailed documentation, including a list of TDS payments, names of deductees, PAN numbers, and a screenshot from the Traces site showing no outstanding demand. Despite this, the Pr. CIT did not verify these documents and instead set aside the assessment order for further verification by the Assessing Officer (A.O). Application of law to facts: The Tribunal emphasized that the Pr. CIT must first form an opinion that the assessment order is erroneous and prejudicial to the revenue before setting it aside. The Pr. CIT failed to do so, thereby overstepping the jurisdiction under Section 263. Treatment of competing arguments: The Tribunal noted that the Pr. CIT relied on "Explanation-2" of Section 263, which deems an order erroneous if passed without necessary inquiries. However, the Tribunal held that the Pr. CIT must record an observation based on the evidence submitted by the assessee, which was not done in this case. Conclusions: The Tribunal concluded that the Pr. CIT's order was premature and not in accordance with the mandate of Section 263, as it did not establish that the assessment order was erroneous and prejudicial to the revenue. 2. Adequacy of Opportunity Provided to the Appellant Relevant legal framework and precedents: The principles of natural justice require that an assessee be given a fair opportunity to present their case before any adverse order is passed. Court's interpretation and reasoning: The Tribunal did not specifically address this issue in detail, as the primary focus was on the procedural lapse by the Pr. CIT in exercising jurisdiction under Section 263. Key evidence and findings: The assessee claimed that adequate opportunity was not provided, but the Tribunal's decision primarily hinged on the procedural error by the Pr. CIT. Conclusions: The Tribunal allowed the appeal based on the procedural lapse without delving deeply into whether adequate opportunity was provided. SIGNIFICANT HOLDINGS Preserve verbatim quotes of crucial legal reasoning: The Tribunal emphasized that "the Pr. CIT by not recording any observation that there was any short deduction/short collection of tax at source by the assessee...had, thus without carrying out the minimal inquiry and giving any specific reason for concluding that the assessment order was erroneous and prejudicial to the interest of the revenue, traversed beyond the jurisdiction that was vested with him u/s. 263 of the Act." Core principles established: The Pr. CIT must conduct a minimal inquiry and provide specific reasons for concluding that an assessment order is erroneous and prejudicial to the interests of the revenue before setting it aside under Section 263. Final determinations on each issue: The Tribunal set aside the Pr. CIT's order under Section 263 and restored the original assessment order, concluding that the Pr. CIT did not fulfill the prerequisites for revising the assessment.
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