CIT must hold bare minimum inquiry before passing revisionary order u/s 263. The words “as he deems necessary”, do not mean that PCIT has a choice either to make or not to make an enquiry.
In a recent judgment, ITAT Chandigarh has held that it is incumbent upon the CIT while exercising revisionary jurisdiction u/s 263 to at least carry out a bare minimum inquiry himself before terming the order of AO as erroneous and prejudicial to the interest of Revenue.
ABCAUS Case Law Citation:
4182 (2024) (08) abcaus.in ITAT
Important Case Laws relied upon:
G.M Mittal Stainless Steel (P) Ltd.
Rajalakshmi Mills Ltd. Vs. ITO
CIT vs. Delhi Airport Metro Express Private Limited
Deepak Real Estate Developers (I) (P) Ltd.
In the instant case, the assessee had challenged the revisionary order passed u/s 263 of the Income Tax Act, 1961 (the Act).
The assessee was a partnership firm, which was engaged in the business of development and construction of Real Estate i.e; Construction and Sale of residential Flat.
The case was selected for scrutiny under CASS, therefore a notice under section 143(2) was issued to the assessee and that the same was duly served upon the assessee in time. Reason for scrutiny was “Income from Real Estate Business”.
Thereafter a Notice under section 142(1) of the Act was served on the assessee firm, by virtue of which questionnaire calling basic information and so also other information were sought.
In response to the statutory notices and questionnaire, the assessee firm furnished necessary details on e-proceeding portal which have been examined by Assessing Officer (AO) who accepted the income returned.
Subsequently, the assessee firm was served with a show cause notice in respect of revision proceedings under section 263 of the Act stating that the order was passed without making inquiries or verification which should have been made rendering the assessment order erroneous as well as prejudicial to the interests of Revenue.
The assessee objected to the show cause notice u/s 263 and submitted that enquiries were made by the AO and the AO had taken the one of the view and by applying his mind, it is not open to the PCIT to brand the order of the A.O. as erroneous, simply without considering the reply of the assessee and on the assumption that AO has not made any enquiry in relation to the reply of the assessee. The assessee relied upon several judgments and orders of High Court and ITAT orders of Coordinate Bench.
However, the PCIT set aside the assessment order with the direction to the Assessing Officer to make requisite inquiries and proper verification.
Before the Tribunal, the assessee contended that the AO, after verifying the detailed explanation given by the assessee (supra), did not find any adverse thereon and accepted the returned income. The Ld. AO had issued all required notices under section 143(2) and under section 142(1) which all were duly replied extensively on all the matters.
It was further submitted that the PCIT ought to have conducted bare minimal inquiry if PCIT is of the considered opinion that AO did not conduct any inquiry and verification. He placed reliance on judgment of Hon’ble Delhi High Court
It was further contended that no amount whatsoever was specified in the revisionary order u/s 263 consequently impugned order was not prejudicial to the interest of Revenue. Both condition of erroneous nature of order and prejudicial to Revenue must be seen by PCIT and that he has miserably failed to do so. According to him PCIT satisfaction under section 263 must be objectively justifiable and cannot be the mere ipse dixit of the Commissioner as held by Hon’ble Supreme Court.
The Tribunal noted that acceptance of returned income by the AO was arrived after a proper inquiry and verification as all notices were suitably replied with all material information. The Tribunal stated that during the course of assessment proceedings, the AO examine numerous issues. Generally the issues which are accepted do not find mention in the assessment order and only such points are taken note of on which the assessee’s explanations are rejected and additions / disallowances are made. The Revenue could not bring any SOP or instruction which was not followed by AO while framing the assessment order under section 143(3) of the Act.
The Tribunal held that it is but incumbent upon the PCIT to conduct the inquiry at least prima facie or bare minimum before passing the impugned order under section 263 to which did not happen in the instant case.
The Tribunal opined that in section 263, the words “as he deems necessary”, do not mean that the PCIT was left with a choice either to make or not to make an enquiry. As per the relevant provisions of section 263, it was incumbent upon the PCIT to make or cause to make an enquiry. So far as the words “as he deems necessary” are concerned, the said words suggest that the enquiries which are necessary to form a view as to whether the order of the AO is erroneous and prejudicial to the interest of Revenue or not?
The Tribunal held that the impugned order of PCIT was not proper just and fair and in accordance with law as PCIT had not made any minimal inquiry before holding that AO has not made any inquiry and therefore order is erroneous and prejudicial to the interest of the Revenue. The Tribunal further held that that assessment order of AO was not erroneous and prejudicial to the interest of Revenue simply because while accepting the return as it is he had not given any reasons in support of his said conclusion.
The Tribunal also held that the PCIT’s impugned order was bad in law as he had not laid down any points for determination for the purpose of fresh assessment to be done by AO nor had laid down any points for treating the order as erroneous and prejudicial to Revenue.
Accordingly, the appeal of the assessee was allowed.
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