Inadequate enquiry leading to assumption of incorrect facts makes the order erroneous and prejudicial to the interests of the revenue – ITAT upheld the Revision order passed u/s 263
ABCAUS Case Law Citation:
ABCAUS 2934 (2019) (05) ITAT
Important Case Laws Cited/relied upon by the parties
Gee Vee Enterprises vs ACIT [1975] 99 ITR 375
Subhlakshmi Vanijya Pvt.Ltd. 124 TTR 249
Maithan International 375 ITR 128
CIT Vs. Maithen International 375 ITR 123
The only issue to be decided in the instant case was as to whether CIT was justified in exercising his jurisdiction u/s 263 of the Income Tax Act, 1961 (the Act) in the facts and circumstances of the case.
According to CIT, the assessee had claimed an expenditure under social welfare activities and during the assessment proceedings, the details were furnished only at the fag end of the time barring period which compelled the Assessing Officer (AO) to pass order without examining the genuineness of expenses claimed under the above said head.
Further the CIT noted that during the course of the assessment proceedings for the subsequent assessment year, an extensive enquiry was conducted regarding similar expenses, wherein it was found that the said social welfare activities were bogus.
Taking into consideration the above, the CIT held that the claim of having incurring expenditure for social welfare activities by the assessee was bogus. Accordingly, a notice seeking justification was issued u/s 263 of the Act to the assessee.
In explanation, the assessee contended that the AO made sufficient enquiry regarding social welfare expenses on the basis of material produced by the assessee during the course of assessment proceedings u/s 147 of the Act and claimed the order of AO was neither erroneous nor pre-judicial to the interest of the Revenue.
However, not satisfied with the explanation submitted by the assessee, the CIT held the assessment order was erroneous and pre-judicial to the interest of the Revenue and directed the AO to examine the genuineness of the expenditure claimed under head social welfare expenses.
Before the Tribunal, the assessee contended that the assessment order was passed two weeks after the details of the claim of expenditure under head social welfare activities were submitted. It was further argued that the AO had conducted enquiry and his order could not be held to be erroneous and prejudicial to the interest of the Revenue.
The Tribunal observed that in the assessment order, there was no reference or discussion whatsoever regarding verification or examination of details of genuineness of social welfare activities. Therefore, prima facie the AO had not examine the details of such claim as observed by the CIT regarding the genuineness of such expenses.
The Tribunal opined that the enquiry made by the AO with regard to the claim of computation of social welfare activities by the assessee was inadequate.
The Tribunal was of the view that there had been failure on the part of the AO to make proper and adequate enquiries before concluding the assessment. The circumstances pointed out by the CIT clearly warranted an enquiry by the AO.
The Tribunal noted that the Hon’ble High Court had taken a view that jurisdiction u/s 263 of the Act to be invoked when the AO fails to make an enquiry which he ought to have made in the given facts and circumstances of the case. Therefore, the Tribunal rejected the arguments of the assessee in this regard and opined that the exercise of Jurisdiction u/s 263 of the Act was fully justified.
The Tribunal pointed out that the decision of the Hon’ble High Court had dealt with the aspect of lack of enquiry with even more stringent conditions. The assessee in that case had obtained loans. The CIT invoked the powers u/s 263 and observed that the report given by the Inspector was very elementary.
The matter travelled to the Hon’ble High Court who Setting aside the order passed by the Tribunal, laid down that CIT had reasons to hold that credit worthiness of the alleged lenders was not enquired into. It further went on to hold that a mere examination of the bank passbook, profit & loss account and balance sheet was not enough.
When the requisite enquiry was not made, the Hon’ble High Court held that the order was to be considered as erroneous and prejudicial to the interests of the Revenue. It held that if the relevant enquiry was not made, it may in appropriate cases amount to no enquiry and may also be a case of non-application of mind. It was further observed that the question of inadequate enquiry should be understood in its proper perspective and if it can be shown that the inadequate enquiry led the AO or may have led into assumption of incorrect facts, that could make the order erroneous and prejudicial to the interests of the revenue.
In view of the above, the Tribunal held that there was no irregularity in the impugned order passed by the CIT and it did not require any interference.
