2015 (8) TMI 854 - HC - Income Tax

Revision u/s 263 - as per CIT(A) proper inquiry should be made with regard to the charging of excise duty which could have impacted the drastic decrease in the rate of gross profit and net profit as compared to earlier assessment years - ITAT set aside revision order - Held that - We are of the opinion that Section 263 of the Act cannot be exercised by the authority in the instant case. We are of the opinion that once an inquiry has been made and the reply of the assessee has been considered the same matter cannot be re-agitated on the ground that some further inquiry was necessary. In our view Section 263 can be exercised where there was a lack of inquiry by the Assessing Officer and not on the ground of inadequate inquiry. If there was an inquiry and due consideration was made by the Assessing Officer the said assessment cannot be opened on the ground that the inquiry made was inadequate. There is a distinction between lack of inquiry and inadequate inquiry. See Commissioner of Income Tax v. Sunbeam Auto Ltd. (2009 (9) TMI 633 - Delhi High Court) and CIT v. Vikas Polymers (2010 (8) TMI 745 - Delhi High Court) - Decided in favour of assessee.

Summary

Issues:
1. Validity of the order passed under Section 263 of the Income Tax Act.
2. Distinction between lack of inquiry and inadequate inquiry by the Assessing Officer.

Analysis:

1. Validity of the order under Section 263:
The case involved the assessment of an assessee deriving income from manufacturing Tobacco and Gutkha. The assessing officer, after scrutiny, found no adverse inference in the trading results. However, the Commissioner of Income Tax passed an order under Section 263, deeming the initial assessment prejudicial to revenue due to inadequate inquiry regarding the drastic decrease in gross profit. The High Court observed that Section 263 cannot be exercised merely due to inadequate inquiry if an inquiry was conducted and the assessee's response considered. The Court emphasized that Section 263 applies to cases of lack of inquiry, not inadequate inquiry. The Court cited precedents to support this interpretation, ultimately dismissing the appeal as no substantial question of law arose.

2. Distinction between lack of inquiry and inadequate inquiry:
The Court highlighted the distinction between lack of inquiry and inadequate inquiry by the Assessing Officer. It noted that if an inquiry was conducted and due consideration given, the assessment cannot be reopened on grounds of inadequate inquiry alone. In this case, the Commissioner of Income Tax found the inquiry inadequate, triggering the Section 263 order. However, the Court held that as long as an inquiry was made and considered, the assessment should not be revisited for inadequacy. Citing relevant judgments, the Court reinforced that Section 263 is applicable where there is a lack of inquiry, not just inadequate inquiry. The decision of the Tribunal in setting aside the Commissioner's order under Section 263 was upheld, emphasizing the importance of distinguishing between lack and inadequacy of inquiry in tax assessments.