Section 263 makes it incumbent to the Pr. CIT to conduct enquiry.
In a recent judgment, Hon’ble High Court of Chhattisgarh has held that Section 263 makes it incumbent to the Pr. CIT to conduct enquiry. The reasons for satisfaction or non-satisfaction are required to be recorded.
ABCAUS Case Law Citation:
4234 (2024) (08) abcaus.in HC
In the instant case, the assessee had challenged the order of the ITAT confirming the revision order passed under Section 263 of the Income Tax Act, 1961 (the Act) by the Principal Commissioner of Income Tax (Pr. CIT).
The Petitioner was an apex body of the Co-operative, constituted by an order of the State Government to facilitate collection, storage, processing and disposal of specified forest produce within the periphery of the State of Chhattisgarh and the society was entitled for a commission of Re.1/- per annum for the services rendered by it as an agent of the State Government.
The reason for constitution of the Petitioner was for the reason that the State Government while collecting the forest produce through private contractors found that the forest dwellers were not being fully paid and the benefit is not being passed. In view of such background, the role of the Petitioner was to act as an agency to facilitate collection, storage, processing and disposal of specified forest produce and to act as a coordinator.
The PrCIT by its order u/s 263 held the assessment order as erroneous in so far as it is prejudicial to the interest of revenue stating that the Assessing Officer (AO) had not conducted proper enquiry regarding genuineness of the contention made by the assessee. The AO was directed to verify the claim of deduction u/s 80P(2)(d) of the Act.
The Petitioner submitted that the entire show-cause notice was replied in detail and minimum it is expected that while exercising such quasi judicial power, the Pr. CIT was required to look into it and the reply filed along with the documents wherein everything was explained, but the order had been passed in a cryptic manner and the ITAT too failed to take this into cognizance.
The Hon’ble High Court observed that the order of the Pr. CIT, necessarily would require to explain i.e. record reasons to exercise the power under Section 263 of the Act to say that the order was prejudicial to the interest of Revenue. It was further observed that in the instant case proceedings were initiated, the enquiry was conducted and during such enquiry the reply was submitted by the appellant assessee.
The Hon’ble High Court observed that Section 263 makes it incumbent to the Pr. CIT to conduct enquiry. The enquiry means not to shelve the reply and the documents but to deliberate upon it and the same cannot be set aside on the ground that the Officer is not satisfied with reply. The reasons for satisfaction or non-satisfaction are required to be recorded.
The Hon’ble High Court noted that in the instant case, the said procedure had not been followed.
Accordingly, the Hon’ble High Court allowed the appeal and answered the question of law in favour of the assessee and remand back the case to the Pr. CIT to reconsider the reply and the documents of assessee. It was directed that after giving opportunity of hearing to the assessee, the Pr.CIT shall pass the order, in accordance with law and on its own merits.
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