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2021 (11) TMI 808 - AT - Income TaxRevision u/s 263 by CIT-A - essential prerequisite for assuming revisionary jurisdiction u/s 263 - AO having not inquired into the difference in the amount of sales, trade receivables and trade payments as reflected in the financial statements of the assessee and that submitted in the details to the AO, causing prejudice to the Revenue on account of income relating to sales to that extent having escaped assessment or there being unexplained investments of the assessee - HELD THAT - It is a settled proposition of law that for assuming revisionary jurisdiction u/s 263 of the Act there has to be a clear finding of error by the PCIT/CIT in the order so sought to be revised. And this finding has to be arrived at after conducting necessary inquiry if required. In cases of inadequate inquiry there has to be a finding that the inquiry made was erroneous. And this can happen only when the PCIT/CIT himself conducts an inquiry and verification and establishes therefrom the error made by the AO, making his order unsustainable in law. The finding must be clear, unambiguous and not debatable. The matter cannot be remitted for a fresh decision to the AO to conduct further inquiries without a finding that the order is erroneous. Where the assessee we find had duly furnished an explanation of the issue not allegedly found to have been examined by the AO and the Ld.Pr.CIT having not even made an effort of examining the explanation simply restoring it to the AO to do so, there is we hold no finding of error by the Ld.PCIT in the order of the AO. We hold that the orders passed by the ld. Pr. CIT being beyond the scope of section 263 of the Act are not valid. Accordingly we set aside the revision orders passed by the Ld.PCIT for the two years under consideration. - Decided in favour of assessee.
Issues Involved:
1. Exercise of revisionary jurisdiction under Section 263 of the Income Tax Act. 2. Verification and reconciliation of discrepancies in sales, trade receivables, and trade payables. 3. Adequacy of inquiries conducted by the Assessing Officer (AO). Detailed Analysis: 1. Exercise of Revisionary Jurisdiction under Section 263: The Principal Commissioner of Income Tax (PCIT) exercised revisionary jurisdiction under Section 263 of the Income Tax Act for the assessment years 2016-17 and 2017-18. The PCIT noted discrepancies in the financial statements and details furnished during the assessment proceedings. The PCIT issued a Show Cause Notice to the assessee, citing potential errors in the AO's order due to unexplained sales, receivables, and payables. The PCIT concluded that the AO's order was erroneous and prejudicial to the interests of the revenue, directing the AO to re-examine the issues. 2. Verification and Reconciliation of Discrepancies: The discrepancies identified by the PCIT included differences in sales figures and trade receivables/payables between the financial statements and the details submitted during the assessment proceedings. The assessee explained that the differences were due to the inclusion of indirect taxes in the details submitted, while the financial statements reflected figures exclusive of indirect taxes. The assessee provided reconciliations to the PCIT, explaining the differences in sales figures and trade receivables/payables. 3. Adequacy of Inquiries Conducted by the AO: The assessee argued that the AO had examined the books of account and the differences were explained during the assessment proceedings. The PCIT, however, did not verify the assessee's explanations and directed the AO to conduct further inquiries. The ITAT held that the PCIT did not arrive at a clear finding of error in the AO's order. The PCIT's direction to the AO to re-examine the issues without conducting an independent inquiry was beyond the scope of Section 263. Conclusion: The ITAT concluded that the PCIT did not establish a clear finding of error in the AO's order. The revisionary jurisdiction under Section 263 requires a clear and unambiguous finding of error after conducting necessary inquiries. The PCIT's failure to verify the assessee's explanations and merely directing the AO to conduct further inquiries was not in accordance with the law. Consequently, the ITAT set aside the revision orders passed by the PCIT for both assessment years, allowing the appeals of the assessee.
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