2022 (9) TMI 551 - Income Tax

Revision u/s 263 by CIT - as per CIT assessment order has been passed by Ld. AO without making inquiries or verification - Lack of inquiry v/s inadequate inquiry - HELD THAT:- An inquiry made by the Assessing Officer, considered inadequate by the Commissioner of Income Tax, cannot make the order of the Assessing Officer erroneous. In our view, the order can be erroneous if the Assessing Officer fails to apply the law rightly on the facts of the case. As far as adequacy of inquiry is considered, there is no law which provides the extent of inquiries to be made by the Ao. It is Assessing Officer’s prerogative to make inquiry to the extent he feels proper. Commissioner of Income Tax by invoking revisionary powers under section 263 of the Act cannot impose his own understanding of the extent of inquiry. There were a number of judgments by various Hon’ble High Courts in this regard.

Delhi High Court in the case of CIT Vs. Sunbeam Auto [2009 (9) TMI 633 - DELHI HIGH COURT] made a distinction between lack of inquiry and inadequate inquiry. The Hon’ble court held that where the AO has made inquiry prior to the completion of assessment, the same cannot be set aside u/s 263 of the Act on the ground of inadequate inquiry.

the phrase 'prejudicial to the interests of the revenue' has to be read in conjunction with an erroneous order passed by the Assessing Officer. Every loss of revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interests of the revenue.

As in the case of the assessee, the AO during the course of assessment proceedings, made enquiries on the issues as discussed above and after consideration of written submissions filed by the assessee and documents / evidence placed on record, and then framed the assessment under section 143(3) accepting the return of income. This fact can be verified from the notice issued under section 142(1) of the Act by the AO and the reply of the assessee against such notice.

Thus it is not the case that the AO has not made any enquiry. Indeed the Pr. CIT initiated proceedings under section 263 of the Act on the ground that the AO has not made enquiries or verification which should have been made in respect of matters objected by the Ld. PCIT. It is not the case of the Pr. CIT that the Ld. AO did not apply his mind to the issue on hand or he had omitted to make enquiries altogether. We find, in the instant set of facts, that the AO had made enquiries and after consideration of materials placed on record accepted the genuineness of the claim of the assessee.

PCIT in his order passed under section 263 of the Act has made reference to the explanation 2 of section 263 - PCIT has not invoked the explanation 2 of section 263 of the Act in show cause notice dated 17 January 2022 about the same. Therefore, the opportunity with respect to the explanation 2 of section 263 of the Act was not afforded to the assessee. Thus, on this count the learned PCIT erred in taking the re-course of such provisions while deciding the issue against the assessee. Secondly, the learned PCIT has also not specified the nature and the manner in which the enquiries which should have been conducted by the AO in the assessment proceedings. Thus, in the absence of any specific finding of the learned PCIT with respect to the enquiries which should have been made, we are not convinced by his order passed under section 263 of the Act. - Decided in favour of assessee.