2025 (7) TMI 1568 - AT - Income Tax

Revision u/s 263 - assessment order was passed ex-parte i.e. u/s 144 of the IT Act and in the absence of the assessee - provisions of section 45(4) has not been looked - HELD THAT - Proper notices were issued to the assessee but he chose not to appear before the AO which compelled AO to pass ex-parte order. We also find that the assessee himself has not accepted the impugned assessment order passed u/s 144 by the AO and challenged the same before CIT(A). We also find that the AO has made additions on account of disallowance u/s 43B addition u/s 68 r.w.s. section 115BBE of the IT Act on account of unproved loans and estimated addition on account of long-term capital gain. However according to Ld. PCIT the manner of estimating its income in lieu of its business receipts was not as per law. We also find that as per Ld. PCIT two sets of Profit Loss Accounts and Balance Sheets have been brought on record. From the perusal of detailed written submissions we find that all these additions are not acceptable to the assessee and therefore he furnished first appeal before CIT(A) which is still pending. We also find that according to Ld. PCIT provisions of section 45(4) of the IT Act has not been looked into by the FAO while passing the assessment order. Thus we do not find any error in the order passed by Ld. PCIT u/s 263 wherein the impugned order was found to be erroneous in so far as it is prejudicial to the interests of Revenue and therefore it was rightly set-aside for framing fresh assessment after providing reasonable opportunity of hearing to the assessee. Thus the appeal filed by the assessee is dismissed.

Summary

ISSUES:

Whether the order passed under section 263 of the Income Tax Act is tenable when the assessment order under section 144 was passed ex parte without any error prejudicial to the revenue.Whether the order under section 263 violates the principles of natural justice by not providing adequate opportunity to the assessee.Whether the existence of two different sets of Profit & Loss accounts and Balance Sheets affects the reliability and consistency of the assessee's accounting method.Whether the Assessing Officer's failure to consider applicability of section 45(4) without notice to the assessee is justified.Whether the Assessing Officer's ex parte order under section 144, given the assessee's non-participation, can be set aside under section 263 for being erroneous and prejudicial to the interests of revenue.

RULINGS / HOLDINGS:

The order passed under section 263 was upheld as the assessment order under section 144 was found to be "erroneous in so far as it is prejudicial to the interests of revenue" due to deficiencies and manipulation indicated by the presence of two sets of accounts and adverse remarks by the Tax Auditor.The principle of natural justice was not violated as the order under section 263 directed the Assessing Officer to provide "due opportunity of being heard to the assessee" during the fresh assessment proceedings.The finding that two different sets of Profit & Loss accounts and Balance Sheets were produced by the assessee led to the conclusion that the "method of accounting is neither reliable nor consistent," supporting the invocation of section 263.The Assessing Officer was directed to consider the applicability of section 45(4) during the fresh assessment, with the requirement to give notice and opportunity to the assessee, remedying any prior omission.The ex parte assessment order under section 144 was rightly set aside under section 263 because the manner of estimating income was "not as per law," and concrete evidence of manipulation and under-assessment emerged during revision proceedings.

RATIONALE:

The Court applied the statutory framework of sections 144 and 263 of the Income Tax Act, 1961, emphasizing that an assessment order can be revised under section 263 if it is "erroneous in so far as it is prejudicial to the interests of revenue."The invocation of section 263 was supported by the presence of "two sets of profit & loss account and balance sheet," adverse audit remarks, and inconsistencies in accounting, which are strong indicators of "fudging of accounts and under assessment."The Court recognized the Assessing Officer's duty to provide "reasonable opportunity of hearing" in fresh proceedings, thereby upholding the principle of natural justice despite the ex parte nature of the original order.The Court noted that the failure to consider section 45(4) was a material omission, justifying the direction for reassessment with proper notice and opportunity to the assessee.No dissent or doctrinal shift was recorded; the decision reaffirmed established principles regarding the scope of revision under section 263 and the conditions under which ex parte assessments can be reviewed.