Inadequate enquiry or insufficient material on record no ground to invoke powers u/s 263

Inadequate enquiry or insufficient material on record cannot be a ground to invoke powers under Section 263 of the Act

ABCAUS Case Law Citation
ABCAUS 3406 (2020) (10) HC

Important case law relied upon by the parties:
Malabar Industrial Company vs.  CIT 243 ITR 833
CIT vs. Max India Ltd. 295 ITR 282 (SC)
Ultratech Cement Ltd. and Ors. vs. State of Rajasthan and   Ors

In the instant case, the Revenue had challenged the order passed by the ITAT quashing the revisionary order passed u/s 263 of the Income Tax Act, 1961 (the Act) by Commissioner of Income Tax (CIT).

The assessee was engaged in the business of developing, operating and maintaining infrastructure facilities for software and related sectors.

For the relevant assessment year a notice was issued to the assessee under Section 143(2) of the Act. The Assessing Officer allowed depreciation at 25% on the right to lease hold land, which was classified as an intangible asset by the assessee.

The CIT initiated revisionary proceedings under Section 263 of the Act and directed the Assessing Officer to redo the assessment in the light of observations made in the order.

The Tribunal allowed the appeal preferred by the assessee against the said revisionary order.

The High Court observed that the twin conditions which are required to be satisfied for exercise of revisional jurisdiction under Section 263 of the Act are firstly, the order of the Assessing Officer is erroneous and secondly, that it is prejudicial to the interest of the revenue on account of error in the order of assessment.

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Inadequate enquiry or insufficient material on record no ground to invoke powers u/s 263

The Hon’ble High Court stated that the Hon’ble Supreme Court has held that the phrase ‘prejudicial to the interests of the revenue has to be read in conjunction with an erroneous order passed by the Assessing Officer and every loss of revenue as a consequence of the order of the Assessing Officer cannot be treated as prejudicial to the interest of revenue.

The Hon’ble Supreme Court also held that where two views are possible and the AO has taken one view with which the Commissioner does not agree, the order passed by the AO cannot be treated as erroneous order prejudicial to the interest of the revenue.  The principles laid down were reiterated by the Supreme Court in many decisions.

The Hon’ble High Court observed that Tribunal had found that the Assessing Officer on meticulous appreciation of evidence on record had allowed depreciation and the CIT while passing the order under Section 263 of the Act held that the enquiry and verification made by the Assessing Officer was inadequate and the land cannot be treated as intangible asset.

The Hon’ble High Court opined that the view taken by the Tribunal that mere inadequacy of an enquiry or insufficiency of material on record cannot be a ground to invoke powers u/s 263 of the Act was in consonance with well settled legal principles referred to supra.

Accordingly, the Hon’ble High Court answered the substantial questions of law against the revenue and in favour of the assessee.

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