2025 (4) TMI 1137 - SCH - Income Tax

Validity of revision u/s 263 - as per HC 2024 (9) TMI 1725 - PUNJAB HARYANA HIGH COURT simply by holding that the AO was required to make more enquiries would not be a valid ground for treating the order of the AO as erroneous and prejudicial to the interests of the revenue. The power u/s 263 of the Act cannot be invoked in such circumstances by the PCIT. The order therefore passed by the PCIT is not sustainable in the eyes of law and the same has been quashed by the ITAT. HELD THAT - Order passed by the High Court which upheld the decision of the Tribunal is correct on facts and in law as case does not involve a failure by the assessing officer to conduct an investigation. Instead according to the Revenue it is a case where the assessing officer having made inquiries erred by not making additions. The assessee does not have control over the pen of the AO. Once the AO carries out the investigation but does not make any addition it can be taken that he accepts the plea and stand of the assessee. In such cases it would be wrong to say that the Revenue is remediless. The power u/s 263 can be exercised by the Commissioner of Income Tax but by going into the merits and making an addition and not by way of a remand recording that there was failure to investigate. There is a distinction between the failure or absence of investigation and a wrong decision/conclusion. A wrong decision/conclusion can be corrected by the Commissioner of Income Tax with a decision on merits and by making an addition or disallowance. There may be cases where the AO undertakes a superficial and random investigation that may justify a remit albeit the CIT must record the abject failure and lapse on the part of the Assessing Officer to establish both the error and the prejudice caused to the Revenue. Recording the aforesaid the special leave petition is dismissed.

Summary

The Supreme Court, through Chief Justice Sanjiv Khanna and Justices Sanjay Kumar and K.V. Viswanathan, dismissed the special leave petition, condoning the delay. The Court upheld the High Court's order affirming the Tribunal's decision, holding that the case did not involve a failure by the Assessing Officer (AO) to investigate, but rather an alleged error in not making additions after conducting inquiries.The Court emphasized that the assessee does not control the AO's discretion, and if the AO investigates but refrains from additions, it implies acceptance of the assessee's stand. The Court clarified the distinction between "failure or absence of investigation" and a "wrong decision/conclusion." Under Section 263 of the Income Tax Act, 1961, the Commissioner of Income Tax may exercise power to correct a wrong decision by making additions or disallowances on merits, but not by remanding the matter on the ground of failure to investigate.The Court acknowledged that only in cases of "abject failure and lapse" by the AO, evidenced by error and prejudice to Revenue, can a remand be justified. Since such failure was not established here, the petition was dismissed. Pending applications were disposed of accordingly.