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Income Tax Appellate Tribunal (ITAT) Mumbai in a recent judgment has quoted several decisions to held that before passing revision order u/s 263 of the Income Tax Act, 1961, Commissioner must make/cause to make an enquiry, give findings of facts/law and form a prima-facie opinion.
Case Details:
ITA No.3469/M/2010 AY : 2005-06
M/s. A.V. Industries, (Appellant) vs ACIT (Respondent)
Date of Order: 06-11-2015
Case Laws referred:
CIT vs. Sunbeam Auto Ltd. 227 CTR 133 (Delhi HC); CIT vs. Vikas Polymers (2010) 194 taxman 57 (Delhi HC); CIT vs.Gupta Spinning Mills Ltd. ITA No.410/2003; CIT vs. Amit Corporation (2013) 213 taxman 19 (MAG) (Gujarat-HC); CIT vs. Gabriel India (1993) 203 ITR 108 (Bombay-HC)
Brief Facts of the Case:
CIT exercising his revisional jurisdiction u/s 263 called for and examined the assessment records and was of the view that the order of the AO was erroneous in so far as it was prejudicial to the interest of Revenue on the grounds that some purchases, depreciation and deduction had been allowed by the Assessng Officer (AO) without verification or examination. The CIT not satisfied with the replies filed by the assessee, observed that the AO should have given a specific finding as to whether the particular claim of the assessee was allowable or disallowable. However, no such finding was given by the AO. He, therefore, concluded that the claim of the assessee has not been allowed after proper verification. He observed that on proper verification, certain claims of the assessee may be found allowable or disallowable either in part or full. But if such verification has not been made at the time of assessment, such assessment is liable to be treated as erroneous in so far as it is prejudicial to the interest of Revenue.
On appeal, The Tribunal observed that assessment order mentioned that the books of the accounts were produced and were test checked, case was discussed with the assessee. Thereafter, the AO made certain disallowances and assessed the income. Also AO vide his letter put numerous queries to the assessee and from time to time called for various records.
The ITAT opined that before passing an order u/s 263, Cit must make/cause to make an enquiry and form a prima-facie opinion. The opinion of the Commissioner that AO had not made proper enquiries or verifications should be based on his objective satisfaction and not a substantive satisfaction from the assessment order. Merely because, the assessment order in question is not a detailed order and the AO has not mentioned item wise findings regarding the claims of the assessee, that itself, does not mean that the AO had not made enquiries in this respect.
Important Excerpts from ITAT Judgment
The Hon’ble Delhi High Court in the case of “Sunbeam Auto Ltd.” (supra) has held that there is a distinction between lack of enquiry and inadequate enquiry. If there is an enquiry even inadequate that would not by itself give occasion to the CIT to pass order under section 263 merely because he has a different opinion in the matter. The AO is not required to give detailed reasoning in respect of each and every item of deduction in the assessment order. Where the AO had called for an explanation regarding the claim made by the assessee and the assessee had furnished its explanation, then it cannot be said to be a case of lack of enquiry.
In the case of “Vikas Polymers” (supra) the Hon’ble Delhi High Court has held that for exercising powers under section 263, it is pre-requisite that Commissioner must give reasons to justify exercise of revisional powers under section 263 to reopen a concluded assessment. The exercise of the power being quasi judicial in nature, the reasons must be such as to show that the enhancement or modification of the assessment or cancellation of the assessment or directions issued for a fresh assessment was called for and must irresistibly lead to the conclusion that the order of the AO was not only erroneous but was also prejudicial to the interest of the Revenue.
The Hon’ble Bombay High Court in the case of “Gabriel India Ltd.” (supra) has held that the Commissioner cannot initiate proceedings with a view to starting fishing and rowing enquiries in matters or orders which are already concluded. There must be material on record to show that tax which was lawfully exigible has not been imposed if the claim was allowed by the Income Tax Officer (ITO). On being satisfied with the explanation of the assessee, such decision of the ITO cannot be held to be ‘erroneous’ simply because in his order he did not make an elaborate discussion in that record. The Hon’ble Bombay High Court observed in the said case that when the CIT himself , even after initiating proceedings for revision and hearing the assesse, could not say that the allowance of the claim of the assessee was erroneous,…..he simply asked the AO to reexamine the matter; that was not permissible. Almost similar proposition has been laid down in the case of “Gupta Spinning Mills Ltd.” (supra) and “Amit Corporation” (supra) that Commissioner has to give a definite finding that the order of the AO is erroneous and that inadequate enquiries by itself will not make the order as erroneous.
We find that the Hon’ble Delhi High Court in the case of “CIT vs. Goetz (I) Ltd.” (supra) has elaborately discussed the various case laws regarding the powers of the Commissioner under section 263 including “CIT vs. Nagesh Knitwars Pvt. Ltd.” (2012) 345 ITR 135 (Delhi – HC) and of the Hon’ble Bombay High Court in the case of “Gabriel India Ltd.” (supra) and also of the Hon’ble Delhi High Court in the case of “Sunbeam Auto Ltd.” (supra) and has reached to the conclusion that the Commissioner should be able demonstrate that the view taken by the AO was not possible being legally unsustainable and incorrect and this finding must be recorded. The Commissioner cannot remand the matter to the AO to decide whether the findings recorded are erroneous. In cases where there is inadequate enquiry but not lack of enquiry, the Commissioner must give and record a finding that the order/enquiry made is erroneous. This can happen if an enquiry and verification is conducted by the Commissioner and he is able to establish and show the error or mistake made by the AO making the order unsustainable in law. The matter cannot be remitted for a fresh decision to the AO to conduct further enquiries without a finding that the order is erroneous and the Commissioner further must also satisfy the second limb of the provision that the order is also prejudicial to the interest of the Revenue. The Hon’ble Supreme Court in the case of “CIT vs. G.M. Mittal Stainless Steel (P) Ltd.” (2003) 263 ITR 255 has observed that the satisfaction by the Commissioner must be one objectively justifiable and based on material either legal or factual when available, it cannot be mere ipse dixit of the Commissioner.
Now coming to the decision of the Apex court in the case of “Malabar Industrial Co. Ltd. vs. CIT” (2000) 109 Taxman 66 (SC) which has been relied by both the parties, the Ld. A.R. of the assessee has strongly relied upon the observation of the Hon’ble Supreme Court that where two views are possible and the AO adopts one of the views permissible in law, then the order cannot be treated as erroneous or prejudicial to the interest of Revenue, unless the view taken by the ITO is unsustainable in law. On the other hand, the Ld. D.R. has stressed upon the finding of the Hon’ble Supreme Court that where the AO had accepted entry in the statement of account filed by the assessee in the absence of any supporting material without making any enquiry, exercise of jurisdiction by Commissioner under section 263(1) of the Act was justified............ The Hon’ble Supreme Court held that as per the provisions of section 263(1) the Commissioner has to be satisfied with twin conditions namely; (i) the order of the AO sought to be revised is erroneous, (ii) it is prejudicial to the interest of Revenue. If one of them is absent, viz., if the order of the ITO is not erroneous but it is prejudicial to the interest of Revenue or if it is erroneous but is not prejudicial to the interest of Revenue, recourse cannot be had to section 263(1).
There is no doubt about the proposition of law laid down in the other case laws relied upon by the Ld. AR that where there are two views possible and the view taken by the AO is one of the possible views, the Commissioner is not justified in exercising the power under section 263 of the Act only because he is of the different view.
In view of the above discussion of the various case laws, we find that except in the lone decision of the Hon’ble Karnataka High Court in the case of “Infosys Technology” ( supra), the Hon’ble Supreme court and various other High Courts including our Jurisdictional High Court have been almost unanimous in holding that before enhancing or annulling or modifying or cancelling the assessment while exercising his powers under section 263 of the Act, the Commissioner must record a finding of fact or of law that the order of the AO is erroneous and is also prejudicial to the interest of Revenue as discussed above.
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ITAT-Before passing revision order u/s 263, Commissioner must record a finding of fact/law that order of AO is erroneous and prejudicial to the interest of Revenue | 13-11-2015 |
