ITAT expalains expression ‘without making inquiries or verification’ in Section 263

Expression ‘without making inquiries or verification’ in Section 263 to be read in conjunction with the words ‘which should have been made’.

ABCAUS Case Law Citation
ABCAUS 3602 (2022) (06) ITAT

The Appellant/Assessee had challenged the Order passed by the Principal Commissioner of Income Tax (PCIT) under Section 263 of the Income Tax Act, 1961 (the Act).

The case of the Assessee was selected for limited scrutiny on the issue of genuineness of sundry creditors and whether receipts/turnover had been correctly offered to tax. A notice under Section 143(2) and 142(1) of the Act along with a questionnaire were issued to the Assessee. The Assessing Officer completed the assessment  under Section 143(3) of the Act and accepted the returned income.

Subsequently, on examination of the assessment records, the PCIT noticed that the Appellant had claimed credit of entire amount of tax deducted at source without offering entire amount of Receipts.

According to the PCIT, the aforesaid facts were not considered by the Assessing Officer while passing the Assessment Order. Accordingly, a show-cause notice under Section 263(1) of the Act was issued to the Appellant. 

In response to the same, the Appellant filed written submission. However, the PCIT not being satisfied with the explanations and submissions of the Appellant passed order under Section 263 of the Act setting aside the Assessment Order by invoking the provisions of the Clause (a) of Explanation 2 to Section 263 of the Act on the ground that the Assessing Officer had failed to carry out necessary inquiry or verification before passing the Assessment Order.

The Tribunal observed that the Assessing Officer had merely asked for age-wise details, and balance confirmation in relation to the sundry creditors. Though the Appellant had provided the said information/ documents during the assessment proceedings, however, but the same were not sufficient to enable the Assessing Officer to verify the   genuineness   of   sundry   creditors.     

Similarly, the statement of Reconciliation of 26AS filed by the Appellant was also not sufficient to show that the receipts had been offered to tax correctly.

The Tribunal opined that clearly, the Assessing Officer had not undertaken necessary inquires/verification during assessment proceedings. The Assessment Order was also silent on said issues and therefore, did not support the contentions of the assessee that the Assessing Officer had   carried out all the inquiries/verifications during the assessment proceedings and therefore, it could not be said that the Assessment Order had been passed without making inquiries. 

The assessee had relied on the expression ‘without making inquiries’    used in Clause (a) of Explanation 2 to Section 263 of the Act.  It was submitted that admittedly, according to the PCIT inquiries were conducted, however, the same were found to be insufficient. Therefore, since the Assessment Order had not been passed ‘without making inquiries’ provisions of Clause (a) of Explanation 2 to Section 263 are not attracted.

The Tribunal was not convinced to accept the above contention and opined that the expression ‘without making inquiries or verification’ used in Clause (a) of Explanation 2 to Section 263 of the Act, has to be read in conjunction with the words that follow this expression ‘which should have been made’.

The Tribunal held that in the instant case, the Assessing Officer had failed to carry out necessary inquiries and verification in relation to the issues identified for limited scrutiny which should have been made in the facts and circumstances of the case.

Accordingly, the Tribunal upheld the order passed by the PCIT under Section 263 of the Act.

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