Whether AO applied his mind or not is question of fact not law – SC dismisses SLP of Department

Whether AO applied his mind or not is question of fact not law – SC dismisses SLP of Department challenging setting aside of revisionary order passed u/s 263 of the Income Tax Act 1961

ABCAUS Case Law Citation
ABCAUS 3621 (2022) (11) SC

In the instant case, the Income Tax Department (Revenue) had challenged the order passed by the Hon’ble High Court holding that no substantial question of Law was involved in the appeal.

The Hon’ble High Court had sustained the order passed by the ITAT in cancelling the revisionary order of the Commissioner of Income Tax passed under section 263 of the Income Tax Act, 1961 (the Act).

The Assessing Officer had passed the order under section 143(3) of the Act making few disallowances/ additions to the Respondent’s income.

Later, the Principal Commissioner of Income Tax issued notice u/s 263 of the Act to the assessee calling upon to show cause as to why power undersection 263 of the Act should not be exercised in respect of the assessment on the ground that the same was erroneous and prejudicial to the Revenue. The basis of the said show-cause-notice was that the operating loss claimed in share trading was not examined into by the Assessing Officer.

Not agreeing with the objections filed by the assessee the PCIT exercised his powers u/s 263 of the Act and set aside the assessment order with direction to the Assessing Officer to pass a fresh order.

On appeal by the assessee, the Tribunal held that the view taken by the Assessing Officer was after examination of exhaustive details and evidence and it was a possible view. Therefore, the Tribunal quashed and set aside the revisionary order.

Aggrieved by the order of the ITAT, the Revenue approached the Hon’ble High Court.

The Hon’ble High Court observed that order of the Tribunal that the proceedings under section 263 of the Act, on the face of it, have been initiated without   examination of records before the Assessing Officer was not shown to be perverse by the Revenue.

The Hon’ble High Court further observed that the basis to invoke section 263 of the Act factually did not exist as there was due enquiry by the Assessing Officer during the assessment proceedings. The Assessing Officer had applied his mind while accepting the claim of the of operating loss, therefore making the proceedings under section 263 of the Act were bad in law. The view taken on fact by the Assessing Officer was a possible view and the same was not shown to be bad.

The Hon’ble High Court dismissed the appeal of the Revenue holding that the question proposed by the Revenue did not give rise to any substantial question of law. 

Still not satisfied the Revenue filed a Special Leave Petition (SLP) before the Hon’ble Supreme Court The Division Bench of the Hon’ble Supreme Court opined that the issues resolved by the High Court were pure questions of fact. In the absence of any question of law being involved, the Hon’ble Supreme Court declined to interfere with the impugned order of the High Court and dismissed the SLP of the Revenue.

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