Merely because no addition is made, assessment cannot be held as erroneous or prejudicial – ITAT
In a recent judgment, the ITAT Jaipur has held that merely because assessment unit has not made any addition the assessment cannot be considered as erroneous or prejudicial u/s 263.
ABCAUS Case Law Citation:
ABCAUS 4100 (2024) (06) ITAT
In the instant case, the assessee had challenged the order passed u/s 263 of the Income Tax Act, 1961 (the Act) by the Principal Commissioner of Income Tax.
The return filed by the appellant assessee was processed u/s 143(1) of the Act at the returned income. Subsequently, the case was reopened on the basis of information received from Investigation Wing that the assessee is one of the beneficiaries of accommodation entry in the form of bogus long term capital gains.
A notice u /s 148 of the Act was issued in response to which assessee filed return of income including exempt income. Later notice u/s 142(1) of the act was issued along with questionnaire and thereby the assessee filed the details of the purchase of equity share and sales of shares along with copy of demate account and bank statement, so as to establish the claim of the as claimed in the return of income.
Accordingly, an order was passed accepting the income returned by the assessee.
On culmination of the assessment proceeding the PCIT called for the assessment record for examination. Upon examination of the records the PCIT observed that AO did not examine the issue of bogus long term capital gain properly and failed to make inquires / investigation which was required to be considered and the bogus LTCG claimed was required to be added to the total income of the assessee.
The PCIT initiated the revisionary proceeding u/s 263 of the Act and the assessee was asked to file response. The assessee filed a detailed reply but the same was not found tenable. As a result, the PCIT set aside the assessment order with a direction to AO make necessary verification in respect of the observations made in revisionary order after allowing reasonable opportunity to the assessee.
The Bench noted that the order of the assessment recorded the reasons of re-opening, called for the information from the assessee relating the issue under examination, the assessee submitted the details called for and upon examination of the details so placed on record the AO had given his finding as to the income returned by the assessee. Thus, the order of the assessment was passed as per the four corner of the provisions of the law and the PCIT in her order did not placed on record a single reasons pointing out the error in the order of the assessment. The PCIT merely noted that based on the report of the Investigation Mumbai addition is required to be made has not been made. This alone observation cannot make the order of the assessment hit by the provision of section of 263 of the Act because it failed on test of order of the assessment being erroneous and prejudicial to the interest of the revenue.
The Tribunal opined that in the give case, twin condition was not satisfied the view taken by the AO was not erroneous or prejudicial and the issues which were already raised, verified and settled there cannot be applied the provision of the section 263 of the Act.
The Tribunal further opined that the order had also been passed in this case by NeAC where there are as much as four units i.e. Assessment unit, Verification unit, technical unit and Review unit and thus, these all units tested order merely the addition is not made cannot hit the provision of section 263 of the Act.
The Tribunal further stated that revisionary powers u/s 263 cannot be invoked to correct each and every type of mistake or error committed by the AO; it is only when an order is erroneous as also prejudicial to Revenue’s interest, than the provision will be attracted. An incorrect assumption of the fact or an incorrect application of law will satisfy the requirement of the order being erroneous. The phrase ‘prejudicial to the interest of the Revenue’ has to be read in conjunction with an erroneous order passed by the AO. Where two views are possible and AO has taken one view with which the Pr. CIT does not agree, it cannot be treated as an erroneous order and it is prejudicial to the interest of the Revenue, unless the view taken by the AO is totally unsustainable in law for which nothing has been placed on record by the PCIT that view of the AO was totally incorrect.
Accordingly, the Tribunal held that the order of the PCIT is not in accordance with the provisions of section 263 of the Act as the twin conditions failed.
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