2025 (7) TMI 1354 - AT - Income Tax

Revision u/s 263 - considering the assessment order passed u/s. 144 r.w.s. 144B by the AO as erroneous prejudicial to interest of the revenue - HELD THAT - Assessment has been completed u/s 144 of the Act which empowers the AO to complete the assessment to the best of his judgement. The assessment having been completed by the AO to the best of his judgement cannot be faulted with as best possible judgement exercised by the AO cannot be bettered by the learned PCIT as that would amount to interfering and disturbing the best judgement exercised by the AO. A judgement/view having exercised by the AO which under law is deemed to be best possible judgement can by no stretch of imagination be held to be erroneous as the AO vide vested right granted to him u/s 144 has exercised his best possible judgement and which led him to estimate the income of the assessee in the best possible manner and best possible mode and manner having already been exercised by the AO vide the powers conferred to him u/s 144 of the Act the said mode manner and view of the AO cannot be deemed to be erroneous merely because PCIT is of the view that the AO ought to have estimated the profit at a different rate. This would amount to tinkering with the rights given by the statute u/s 144 to the AO which cannot be permitted under law. We further find force in the arguments of the learned counsel for the Assessee that when a power has have been exercised under section 144 of the Act this cannot be held to be a case of lack of enquiry as held by PCIT so as to invoke the powers conferred under section 263 of the Act as the AO was compelled to exercise his powers u/s 144 of the Act considering that there was inadequate reply by the assessee to the queries raised by him during the course of assessment proceedings and which compelled the Assessing Officer to complete the assessment u/s 144 of the Act. There being inadequate compliance by the assessee leading to the AO exercising power u/s 144 of the Act cannot now be held to be a case where the AO has done inadequate enquiries before completing the assessment as held by the learned PCIT justifying invocation of the provision of section 263 of the Act. Once an order is passed u/s 144 of the Act it is after taking into account all relevant material which the Assessing Officer has gathered and after considering the entire case records in totality the law grants power to the Assessing Officer under section 144 of the Act to complete the assessment to the best of his judgement and to determine the sum payable by the Assessee on the basis of such assessment. We find that such power granted under section 144 is absolute for the Assessing Officer. On a conspectus of the above facts the twin conditions prescribed under section 263 of the Act are non existent in as much as the order of the AO neither can be held to be erroneous nor prejudicial to the interests of the Revenue so as to warrant invoking powers u/s 263 of the Act and the learned PCIT fell into an error in revising the order. Appeal filed by the assessee is allowed.

Summary

ISSUES:

Whether the Principal Commissioner of Income Tax (PCIT) was justified in invoking the revisionary jurisdiction under section 263 of the Income Tax Act, 1961 ("the Act") against an assessment order passed under section 144 read with section 147 and section 144B of the Act.Whether an assessment order passed under section 144 of the Act can be considered "erroneous and prejudicial to the interests of revenue" for the purpose of section 263 when the Assessing Officer has exercised "best judgement" in estimating income.Whether the absence of issuance of notice under section 143(2) by the Assessing Officer renders the assessment order invalid and justifies revision under section 263.Whether the scope of proceedings under section 263 can be enlarged from explanation 2(a) to include explanation 2(b) after issuance of the original notice.Whether the Assessing Officer's estimation of income at 2% of bank credits is justified and whether revision under section 263 can be invoked to enhance the rate of estimation.

RULINGS / HOLDINGS:

The PCIT was not justified in invoking the revisionary powers under section 263 against the assessment order passed under section 144, as the assessment was completed "to the best of his judgement" and such judgement cannot be deemed erroneous merely because the PCIT would have taken a different view.An order passed under section 144 of the Act, where the AO has exercised his "best judgement," cannot be held to be "erroneous and prejudicial to the interests of revenue" within the meaning of section 263, as this would undermine the independence granted to the AO under section 144.The absence of notice under section 143(2) does not invalidate the assessment order passed under section 144, nor does it justify invoking section 263 for revision.The scope of proceedings under section 263 cannot be subsequently enlarged from explanation 2(a) to include explanation 2(b) after the original notice has been issued, as such enlargement is impermissible under law.The estimation of income at 2% of bank credits by the AO under section 144 is a possible view exercised in the best judgement of the AO and cannot be revised or enhanced under section 263 merely because the PCIT disagrees with the percentage applied.

RATIONALE:

The legal framework involves the provisions of sections 144, 147, 144B, and 263 of the Income Tax Act, 1961. Section 144 empowers the AO to complete assessment to the best of his judgement in cases where the assessee fails to comply adequately.Section 263 allows the PCIT to revise an order if it is "erroneous and prejudicial to the interests of revenue," as explained in Explanation 2(a) and 2(b). Explanation 2(a) relates to orders passed without making inquiries or verification that should have been made, and 2(b) relates to orders allowing relief without inquiry.The Court emphasized that an order under section 144 is by nature an estimation made after considering all available material and exercising best judgement, thus not susceptible to being deemed erroneous simply due to disagreement on the estimation rate.The Court rejected the PCIT's attempt to broaden the scope of revision from explanation 2(a) to also include 2(b) after issuance of the original notice, holding that such procedural expansion is impermissible.The decision preserves the statutory independence of the AO under section 144 and limits the revisionary jurisdiction under section 263 to cases where the order is demonstrably erroneous and prejudicial, not merely because a different view could be taken.