In case of superficial enquiry by AO PCIT may be justified in invocation of revisionary powers u/s 263 but not before making some enquiries – ITAT
In A Recent judgment, ITAT Lucknow has held that in absence of findings of Assessing Officer (AO), PCIT may be justified in invocation of revisionary powers under Section 263 of the Act. But thereafter, he was expected to make some enquiry before cancelling the assessment order and remanding it to AO for decision afresh
ABCAUS Case Law Citation:
4771 (2025) (10) abcaus.in ITAT
In the instant case, the assessee had challenged the order under section 263 of the Income Tax Act, 1961 (the Act) passed by the PCIT and setting aside the case to the Assessing officer.
The assessee was a company engaged in the business of real estate, construction and purchase and sale of immovable properties. The case of the assessee for the relevant assessment year was selected for complete scrutiny under Computer Assisted Scrutiny System (CASS) mainly the issues i.e. (i) Real estate business with high closing stock and (ii) Higher turnover reported in Service Tax Return as compared to Income Tax Return.
The statutory notice u/s 143(2) of the Act and notices u/s 142(1) of the Act were issued along with detailed questionnaire. In response to the notices, the assessee company filed its copy of income tax return with acknowledgment, Audit report, audited balance-sheet, audited Profit & Loss account, copy of bank accounts and other documents as directed by the Assessing Authority.
After considering the assessee’s submission and the material placed the AO accepted the returned income vide assessment order.
Subsequently, the PCIT issued a notice u/s 263 of the Act for hearing before passing the order u/s 263 of the Act. After considering the reply, the PCIT passed the impugned order, thereby setting aside the assessment order and directing the Assessing Officer to frame de novo assessment order.
Before the Tribunal the assessee submitted that the action of CIT was unjustified and was against the settled principles of law. He contended that in fact, the Assessing Officer had examined all the issues by making multiple queries that were duly replied by the assessee. The order sought to be revised is neither erroneous nor prejudicial to the interests of the Revenue. Even if, in the opinion of PCIT that the inquiry conducted by the Assessing officer was not sufficient, he ought to have conducted some inquiry himself and pointed out the specific errors in the finding of the Assessing Officer which in his opinion needed further examination and investigation of the issue.
It was submitted that the Assessing Officer had issued detailed questionnaire had duly applied his mind on the facts of the case and accepted the return declared by the assessee as no adverse material was noticed by him. Therefore, he contended that there was no justifiable reason for setting aside the assessment order and directing the AO for framing de novo assessment.
It was submitted that merely because the Assessing Officer had not discussed about the issues which he had examined would not make the assessment order being erroneous and prejudicial to the interests of Revenue.
In support of its contentions, the assessee relied upon the judgment of Hon’ble Supreme Court and Delhi High Court. The assessee also relied upon decision of the Co-ordinate Bench of this Tribunal.
It was submitted that the Hon’ble Supreme Court and the Hon’ble High Court categorically ruled that in the event of revising the assessment on the ground of non-enquiry and insufficient enquiry, it is incumbent upon the PCIT to make some enquiry and bring clearly the material which would necessitate revising the assessment order.
The Tribunal observed that in this case, undisputedly, the Assessing Officer had issued various notices u/s 142(1) of the Act calling upon the assessee on various issues including the issues which is the subject matter of the proceedings u/s 263 of the Act. Further, AO did not make any addition and accepted the Income Tax Return without making any reference to the enquiry conducted by him.
The Tribunal noted that PCIT, in the present case, had set aside the assessment order on the ground of non-investigation of the issues as recorded in the impugned order. The grievance of the assessee was that the Assessing Officer had carried out investigation and examined the issues by issuing various notices u/s 142(1) of the Act along with questionnaire which were duly replied. However, the PCIT without making any inquiry or bringing any adverse material suggesting that the explanation offered by the assessee during the course of assessment was not correct or found lacking arbitrarily set aside the order.
The Tribunal further observed that the Hon’ble Supreme Court had categorically observed that there may be cases where the Assessing Officer undertakes a superficial and random investigation that may justify a remit, albeit the Commissioner of Income Tax must record the abject failure and lapse on the part of the Assessing Officer to establish both the error and the prejudicial caused to the Revenue. Therefore, the PCIT is under legal obligation for recording such finding. In this case, however, PCIT had narrated the issues and remitted the issues to the AO. Thus, the PCIT was required to establish the prejudice caused to the Revenue before setting aside the assessment order. In the absence of such clear findings, the impugned order cannot be sustained. Though no straight jacket formula can be applied, each case needs to be decided on the basis of the facts of such case.
The Tribunal further observed that the AO had issued multiple questionnaires to the assessee covering most of the issue that had necessitated scrutiny. However, he had not stated anything in his order that the explanation as offered by the assessee was verified independently or not. The AO ought to have brought on record the outcome of investigation carried out by him. The assessment order was silent regarding this aspect. But such silence cannot conclusively be inferred that no enquiry was conducted by him.
The Tribunal observed that it is now settled that superficial enquiry conducted by the AO would not meet the requirement of law. In such cases, the PCIT may remit the matter where the facts of the case warrant complete verification.
The Tribunal observed that in the present case, the AO had issued questionnaire but without discussing each and every issue he merely accepted the return of income. In the absence of any finding, the PCIT may be justified in a given case invocation of his revisionary powers in terms of Explanation -2 to Section 263 of the Act. But thereafter, he was expected to make some enquiry before cancelling the assessment order and remanding it to AO for decision afresh.
The Tribunal further observed that the Hon’ble Supreme Court had noted that the assessee has no control on the pen of the AO. Therefore, in the light of the decision of Hon’ble Supreme Court, the PCIT ought to have clearly established by making some investigation at his end that the assessment order was erroneous and prejudicial to the interest of Revenue.
Accordingly, the ground of appeal was allowed.
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