AO cannot be presumed to adopted or chosen a course permissible in law when his order does not speak in that behalf – ITAT
In a recent judgment, the ITAT Bangalore has confirmed the revisonary order passed by PCIT u/s 263 holding that the Assessing Officer cannot be presumed or attributed to have “adopted” or chosen a course permissible in law when his order does not speak in that behalf.
ABCAUS Case Law Citation:
ABCAUS 4093 (2024) (06) ITAT
Important Case Laws relied upon:
Malabar Industrial Co. Ltd. vs. CIT, reported in 243 ITR 83
CIT vs M/S. Sunbeam Auto Limited, 332 1TR 167
CIT vs. Vikas Polymers, reported in 341 ITR 537
Padmasundara Rao v. State of Tamil Nadu 255 ITR 14
CIT vs Gabriel India Ltd. 203 1TR 108
In the instant case, the assessee had challenged the order passed by the Principal Commissioner of Income Tax (PCIT) u/s 263 of the Income Tax Act, 1961 (the Act)
Pursuant to a survey u/s 133A conducted at the business premises of the assessee, assessment order u/s 143(3) was passed by the Assessing Officer (AO).
During the course of survey, it was found that the assessee company had made large amount of cash payments on different dates to one person. The Principal Officer of the assessee’s company in statement u/s 131 of the Act, stated that the cash payments had been made to person who had booked flats in the Projects of the company in the launch stage, later it got cancelled and now, he is refunding the amount after selling flats to other persons. It was also found that, these cash payments were not reflected in the cash book of the assessee and the assessee could not offer any explanation regarding the source of this cash.
However, during the scrutiny proceedings, the assessee explained that the cash payments represented the aggregate wages to be disbursed to workers. The Assessing Officer (AO) completed the assessment accepting the explanation of the assessee.
The PCIT observed that during the assessment, the assessee changed its statement and stated that said cash was from the bank account and kept aside for project/operation work. However, neither details like dates, details of bank account nor supporting materials such as cash book, bank account copies etc. were furnished.
The PCIT further observed that the later explanation does not match with the ledger accounts in books of assessee Company. The explanation of assessee appeared to be an afterthought and fails to inspire confidence, hence liable to be rejected. It was required by the AO to treat the above amount of Rs.1.90 Crore as unexplained expenditure and charged to tax u/s 69C of the Act. However, the AO failed to do so, thereby resulting in under assessment.
Hence, the PCIT observed that the assessment order u/s 143(3) was erroneous and prejudicial to the interest of revenue.
After issuing show cause notice and calling for the reply from the assessee, the PCIT vise order passed u/s 263, set aside the assessment and gave a direction to the AO to re-examine the issue in accordance with law.
Before the Tribunal the assessee contended that the assessing officer during the course of assessment proceedings vide notice issued under section 142(1) had sought for the source of cash payments made and after considering the submissions made by the appellant did not make any addition on this matter.
It was submitted that, an order can be deemed to be erroneous in so far as it is prejudicial to the interests of the revenue, if the said order is passed without making any enquiries or verification. In the instant case, the assessing officer had specifically sought for the information pertaining to the cash payments made and the assessee had furnished the details sought by the assessing officer which clearly indicated that the assessing officer has made sufficient enquiries before passing the assessment order and hence revision of the said order under section 263 of the Act was not warranted under the facts & circumstances of case.
It is contended that once an assessing officer, having conducted due inquiries and being satisfied with the nature of explanations, information, and details provided by the assessee, forms an opinion and completes an assessment—even if it is not prejudicial to the assessee—it cannot be equated to being both erroneous and prejudicial to the interests of revenue.
In support of its contentions, the assessee relied upon various judgments of Hon’ble Supreme Court and Hon’ble High Courts.
The Tribunal observed that the AO after collecting the submission of the assessee on the impugned issue of cash payments, the AO had not caused any further enquiry. There was no discussion on whatsoever about this impugned issue. The failure on the part of AO in examining the matter properly and it would render the order erroneous so long as view taken by AO was resulted in loss of revenue.
The Tribunal further observed that as per Explanation to Section 263, an order passed shall be deemed to be erroneous in so far as it is prejudicial to the interests of the revenue, not only when it is passed without making inquiries but also if the order is passed allowing any relief without enquiring into the claim.
The Tribunal opined that “Adopting” one of the courses permissible in law necessarily requires the Assessing Officer to consciously analyse and evaluate the facts in the ljght of relevant Jaw and bring them on record. It is only then that he can be said to have “adopted” or chosen one of the courses permissible in law. The Assessing Officer cannot be presumed or attributed to have “adopted” or chosen a course permissible in law when his order does not speak in that behalf.
The Tribunal further stated that “taking” one view where two or more views are possible also necessarily imports the requirement of analysing the facts in the light of applicable law. Therefore, proper examination of facts in the light of relevant law is a necessary concomitant in order to say that the Assessing Officer has adopted a permissible course of law or taken a view where two or more views are possible. It is only after such proper examination and evaluation has been done by the Assessing Officer that he can come to a conclusion as to what are the permissible courses available in law or what are the possible views on the issue before him. In case he comes to the conclusion that more than one view is possible then he has necessarily to choose a view, which is most appropriate on the facts of the case.
The Tribunal further stated that in order to apply the aforesaid observations to a given case, it must therefore first be shown that the Assessing Officer has “adopted” a permissible course of law or, where two views are possible, the Assessing Officer has “taken” one such possible view in the order sought to be revised under Section 263. This requires the Assessing Officer to take a conscious decision; else he would neither be able to “adopt” a course permissible in law nor “take” a view where two or more views are possible.
The Tribunal further stated that it cannot be assumeed, in order to provide legitimacy to the assessment order, that the Assessing Officer has adopted a permissible course of law or taken a possible view where his order does not say so.
The Tribunal opined that it could have been a different position if the Assessing Officer had “adopted” or “taken” a view after analysing the facts and deciding the matter in the light of the applicable law. However, the Assessing Officer had not at all examined as to whether only one view was possible or two or more views were possible and hence, the question of his adopting or choosing one view in preference to the other does not arise.
The Tribunal held that in the instant case, the AO had absolutely closed his eyes for the reasons best known to him and accepted the submission of the assessee without verifying the same at the face of it, which necessitated the PCIT to exercise his powers u/s.263 of the Act.
Accordingly, the Tribunal confirmed the order of the PCIT and the grounds raised by the assessee were rejected.
Download Full Judgment Click Here >>
- Order not in conformity of Faceless Assessment Scheme if not est? – ITAT remands case
- Extension of the validity of FCRA registration certificates till 30.09.2024
- Section 68 to 69B applicable only if assessee is required to maintain books of accounts
- When show cause notice proposed addition u/s 68, addition can not be made u/s 69A
- AO directed to consider belated reply due to illegible copy of SCN u/s 148A(b)
