Best judgement assessment u/s 144 cannot under any means be held to be erroneous u/s 263 for lack of enquiry- ITAT
In a recent judgment, the ITAT Nagpur has held that best judgement assessment under section 144 of the Act, cannot under any means be held to be erroneous which is one of the conditions for invoking the powers under section 263 of the Income Tax Act, 1961 (the Act). when power has have been exercised u/s 144 of the Act, this cannot be held to be a case of lack of enquiry.
ABCAUS Case Law Citation:
4413 (2025) (02) abcaus.in ITAT
In the instant case, the assessee had challenged the order passed by the Principal Commissioner of Income Tax (PCIT) in invoking the provisions of section 263 of the Income Tax Act, 1961 (the Act).
The appellant assessee had initially not filed its return of income. The Assessing Officer (AO) received information from the Asstt. Director of Income Tax (Inv.) that the assessee, during the year under consideration, had entered into high value transaction in his bank account available. Hence, the assessee’s case was re–opened under section 147 of the Act by issuing notice under section 148 of the Act.
The assessee, in response to the notice under section 148 of the Act, filed his return of income which was treated as invalid by the Assessing Officer. As stated by the Assessing Officer, the assessee was provided enough opportunities. However, the Assessing Officer held that the assessee failed to provide the details called for and hence the Assessing Officer was constrained to invoked the provisions of section 144 of the Act and estimating the income of the Appellant @2% of the credits in the assessee’s bank account and treated the same as business income.
Thereafter, Meanwhile, the PCIT invoked his jurisdiction under section 263 of the Act keeping in view the assessment order passed by the Assessing Officer which, according to the PCIT, was erroneous and prejudicial to the interests of Revenue.
The PCIT was of the view that the income disclosed by the assessee in the return of income was less than 8% of Gross receipts which is compulsorily required to be declared as per the provisions of Sec. 44AD of the Act in No accounts case. This aspect was not examined by the AO.
The PCIT set aside the assessment order, passed by the National Faceless Appeal Centre, passed under section 147 r/w section 144B of the Act, and restored the entire matter to the file of the Assessing Officer to make the assessment restricted and limited to the issue of credits in the bank account of the assessee.
Before the Tribunal, the assessee contended that the order of the PCIT was not justified in invoking the provisions of section 263 of the Act by considering the assessment order passed u/s. 144 r.w.s. 144B by the Assessing Officer as erroneous & prejudicial to interest of the revenue when the impugned assessment order was passed by AO with the approval of National Faceless Assessment Centre (NFAC) as per guidelines issued by CBDT.
The Tribunal observed that the assessment having been completed by the Assessing Officer to the best of his judgement cannot be faulted with as best possible judgement exercised by the Assessing Officer cannot be bettered by the learned PCIT as that would amount to interfering and disturbing the best judgement exercised by the Assessing Officer. A judgement/view having exercised by the Assessing Officer which under law is deemed to be best possible judgement can by no stretch of imagination be held to be erroneous as the Assessing Officer vide vested right granted to him under section 144 of the Act had exercised his best possible judgement and which led him to estimate the income of the assessee in the best possible manner and best possible mode and manner having already been exercised by the Assessing Officer vide the powers conferred to him under section 144 of the Act, the said mode, manner and view of the Assessing Officer cannot be deemed to be erroneous merely because the learned PCIT is of the view that the Assessing Officer ought to have estimated the profit at a different rate. This would amount to tinkering with the rights given by the statute under section 144 to the Assessing Officer which cannot be permitted under law. If this is permitted then each and every case where income is estimated by the Assessing Officer exercising the powers under section 144 of the Act would be amenable to the provisions of section 263 of the Act and which would make the powers conferred under section 144 of the Act to the Assessing Officer dependent and take away independence of the AO to exercise his best possible judgement in section 144 of the Act.
The Tribunal further expressed agreement with the argument that when a power has have been exercised under section 144 of the Act, this cannot be held to be a case of lack of enquiry as held by the learned PCIT so as to invoke the powers conferred under section 263 of the Act as the Assessing Officer was compelled to exercise his powers under section 144 of the Act considering that there was inadequate reply by the assessee to the queries raised by him during the course of assessment proceedings and which compelled the Assessing Officer to complete the assessment under section 144 of the Act. There being inadequate compliance by the assessee leading to the Assessing Officer exercising power under section 144 of the Act cannot now be held to be a case where the Assessing Officer has done inadequate enquiries before completing the assessment as held by the learned PCIT justifying invocation of the provision of section 263 of the Act.
The Tribunal opined that once an order is passed under section 144 of the Act it is after taking into account all relevant material which the Assessing Officer has gathered and after considering the entire case records in totality, the law grants power to the Assessing Officer under section 144 of the Act to complete the assessment to the best of his judgement and to determine the sum payable by the Assessee on the basis of such assessment. The power granted under section 144 is absolute for the Assessing Officer. The Assessing Officer having exercised his best possible judgement under section 144 of the Act, his best possible judgement cannot under any means be held to be erroneous which is one of the conditions for invoking the powers under section 263 of the Act.
The Tribunal further noted that considering the assessed income was substantially higher than income as referred to by the learned PCIT in the order passed under section 263 of the Act and consequently no prejudice caused to the Revenue which again is one of the conditions for invoking powers under section 263 of the Act.
The Tribunal opined that on a conspectus of the above facts, the twin conditions prescribed under section 263 of the Act were non–existent in as much as the order of the Assessing Officer neither can be held to be erroneous nor prejudicial to the interests of the Revenue so as to warrant invoking powers under section 263 of the Act and the PCIT fell into an error in revising the order.
Consequently, the Tribunal held that the present case was not a fit case for invoking the provisions of section 263 of the Act the impugned order passed by the PCIT under section 263 of the Act was quashed.
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