CIT to make enquiries himself to allege assessment order as erroneous and prejudicial

CIT is required to make enquiries himself to allege assessment order as erroneous and prejudicial to the interest of Revenue u/s 263

ABCAUS Case Law Citation
ABCAUS 3596 (2022) (05) ITAT

Important case law relied referred:
CIT Vs Jaiswal Motor Finance 141 ITR 706 (All)
CIT Vs Metachem Industries 245 ITR 160 (MP)
CIT Vs Burma Electro Corporation 252 ITR 344 (P&H)
Abhyudaya Pharmaceuticals Vs CIT 350 ITR 358 (All)
Kesharwani Sheetalaya Sahsaon vs CIT
CIT vs. Md. Perwez Ahmad & Ors [2004] 268 ITR 381 (Patna)
CIT vs. Metal & Metals of India (ll)TMI 630 (P&H)
Greenworld Corporation – [2009] 181 Taxman 111 (SC)
CIT v. Vodafone Essar South Ltd. – [2012] 28 taxmann.com 273 (Delhi)
CIT v. Anil Kumar Sharma – [2010] 194 Taxman 504 (Delhi)

In the instant case, the assessee had challenged the order passed by the PCIT in assuming power u/s. 263 of the Income Tax Act, 1961 (the Act) holding the assessment order as erroneous and prejudicial to the interest of revenue.

The order under revision was passed by the Assessing Officer (AO) u/s 143(3) on the returned loss.

The Pr CIT had assumed revisionary jurisdiction u/s 263 of the Act and issued a show cause notice (SCN) requiring the appellant to show cause as to why the assessment be not set aside being erroneous and prejudicial to the interest of revenue based on the several discrepancies as identified in the SCN issued such as creditworthiness of this loan creditors, capital introduced etc.

The assessee contended that as per judgment of the Hon’ble Supreme Court and other decisions, lack of inquiry/no inquiry is quite distinct and different from the inadequate inquiry and in case of no enquiry by the Assessing Officer, PCIT can exercise jurisdiction u/s. 263 of the Act and not in a case where the Assessing Officer had made sufficient enquiries. 

The Tribunal observed that the assessee had specifically demonstrated that the Assessing Officer had made enquiries and demanded various evidences on almost all the issues raised and therefore PCIT was not correct in holding the assessment order as erroneous and prejudicial to the interests of revenue on this count.

The Tribunal observed from the revisionary order that PCIT had noted the factual circumstances of the case. Thereafter he mentioned some case laws in support of his order and thereafter without making any further enquiry himself proceeded to hold the assessment order erroneous and prejudicial to the interests of revenue without considering the reply and explanations of the assessee to the notice u/s. 263 of the Act.

The Tribunal, following the judgment of Hon’ble High court as relied by the assessee including the recent judgment of Hon’ble Delhi High court held that the PCIT can exercise revisionary powers u/s. 263 of the Act in case he feels that the Assessing Officer has not made adequate and sufficient enquiry on a particular issue, thenthe PCIT is required to undertake enquiries himself to allege the assessment order as erroneous and prejudicial to the interest of Revenue.

The Tribunal held that without such exercise, valid jurisdiction to revise assessment order u/s. 263 of the Act cannot be assumed and exercised.

The Tribunal opined that that in the instant case, the PCIT was not correct in alleging the impugned assessment order as erroneous and prejudicial to the interest of Revenue and quashed the impugned revisionary order u/s 263 of the Act.

As a result, the Tribunal allowed the appeal in favour of the assessee.

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