2025 (7) TMI 1376 - AT - Income Tax

Revision u/s 263 - PCIT setting aside the assessment order to be framed de novo - reason for selection of the case for scrutiny was that quantitative details of principal items of goods traded or raw material as well as finished goods were not submitted by the assessee HELD THAT - PCIT has discussed in detail how the Assessing Officer did not make inquiry even in respect of the reasons for which the case was selected for scrutiny. PCIT has also discussed in detail how the AO did not make relevant inquiries which were required during the assessment proceedings having regard to nature and scale of assessee s business. No material has been brought for our consideration to persuade us to interfere with the impugned order of learned PCIT. Therefore the impugned order is upheld. Appeal of the assessee is dismissed.

Summary

ISSUES:

Whether an assessment order passed under section 143(3) of the Income Tax Act, 1961 can be considered "erroneous in so far as it is prejudicial to the interest of revenue" under section 263 for failure to make necessary inquiries or verifications.Whether the Assessing Officer's failure to examine quantitative details of principal goods traded, verify creditors, and scrutinize expenses and audit reports constitutes an error prejudicial to revenue.Whether the Principal Commissioner of Income Tax (PCIT) is justified in revising the assessment order under section 263 on grounds of inadequate inquiry by the Assessing Officer.The extent and scope of the revisional powers under section 263 of the Income Tax Act, 1961, including the interpretation of "erroneous" and "prejudicial to the interest of revenue."Whether non-response or absence of the assessee at the hearing affects the exercise of revisional powers under section 263.

RULINGS / HOLDINGS:

The assessment order passed under section 143(3) without making inquiries or verification which should have been made is "erroneous in so far as it is prejudicial to the interest of the revenue" within the meaning of explanation 2(a) to section 263 of the Income Tax Act, 1961.The Assessing Officer's failure to examine or verify "quantitative details of principal items of goods traded or raw materials," creditors' confirmations, audit reports (Form 3CD), and expenses claimed amounts to a lack of necessary inquiry, rendering the assessment order erroneous and prejudicial to revenue.The Principal Commissioner of Income Tax was justified in exercising revisional powers under section 263 to set aside the assessment order and direct a fresh assessment to be framed in accordance with law.The term "erroneous" in section 263 includes not only apparent errors of law or fact but also the failure of the Assessing Officer to make inquiries which are called for in the circumstances of the case, as the Income Tax Officer is both an adjudicator and an investigator.The absence of any response or appearance by the assessee at the hearing allows the revision proceeding to be decided ex parte, applying the maxim "vigilantibus non dormientibus jura subveniunt" ("the law assist those who are vigilant and not those who sleep over their rights").

RATIONALE:

The court applied the statutory framework of section 263 of the Income Tax Act, 1961, which empowers the Principal Commissioner or Commissioner to revise any order passed by the Assessing Officer if it is "erroneous in so far as it is prejudicial to the interest of the revenue."Explanation 2(a) to section 263 clarifies that an order is erroneous if passed "without making inquiries or verification which should have been made." This provision was central to the court's reasoning.The court relied on binding precedents including judgments of the jurisdictional High Court and Supreme Court, which establish that failure to conduct necessary inquiries or verifications renders an assessment order erroneous and justifies revision under section 263.Judicial authorities emphasized the dual role of the Income Tax Officer as both adjudicator and investigator, requiring proactive inquiry when circumstances warrant scrutiny.The court noted that the Assessing Officer's acceptance of the return without verifying material facts such as creditors, audit reports, and business premises was a failure to discharge statutory duties, making the order liable to be set aside.The court recognized the principle that revisional powers under section 263 extend even when errors are not apparent on the face of the order but arise from failure to investigate relevant facts.No dissent or doctrinal shift was indicated; the court followed established legal principles and precedent in upholding the revisional order.