2024 (7) TMI 1429 - AT - Income Tax

Validity of Revision u/s 263 - distinction between lack of inquiry and inadequate inquiry - nature and character of the one time regulatory fee paid by it as well as the bank and stamp duty charges - assessee has gone through the rigours of the proceedings u/s 143(3), 147/ 148 by playing two innings as there are two separate independent assessment orders one u/s143 (3) and another u/s 147/148 r.w.s 144 r.w.s. 144B - HELD THAT - Assessment order dt. 12/06/2020 basis which revisionary proceedings were initiated u/s 263 culminating into the impugned order has accepted the return of income. The said acceptance of returned income is arrived after a proper inquiry and verification because prior to thereto notices u/s 143(2) and 142(1) were duly served to the assessee firm and that they were suitably replied with all material information so that computation of income is done in just and proper way for purpose of levy of tax on it. We have minutely perused the notices and replies which are more than two to three and it contains and answers all query of AO. We also hold that notice u/s 142(1) is appropriately answered with relevant enclosure by the assessee firm. As seen both the notice and reply from pape book volume II. Further we notice that vide notice u/s. 142(1) dt. 17/02/2020 the Ld. AO raised few more query and that the same were replied by the assessee. We have perused the further query and reply from paper book Volume II. Vide notice u/s 142(1) AO raised few more query and that the same were replied by the assessee. We have perused such further more query and reply from paper book Vol. III. AO has applied his mind and have enquired and verified the state of affairs of the assessee firm and has passed the assessment order dt. 12/06/2020 in a manner know to law. Raising query after query periodically while the assessment proceedings are going on shows proper application of mind coupled with due inquiry and verification. The Ld. AO has examined all the papers and proceedings of the case and has accepted the return u/s 143(3) after due diligence. The assessee thus has gone through rigor s of law; during the scrutiny proceedings. We hold that it is only after the proper inquiry and verification that the AO has accepted the returned income. The documents on record speaks for it as query s were raised and answered according to law. We also hold that under Income Tax Act besides being practice that whenever any addition / disallowances are made an opportunity is given to the assessee to show cause why addition / disallowance should not be made. In so far as income and its components are concerned which are untainted are normally accepted as it is. See Hari Iron Trading Company 2003 (5) TMI 48 - PUNJAB AND HARYANA HIGH COURT as held Commissioner can exercise powers under subsection (1) of section 263 of the Act only after examining the record of any proceedings under the Act . The expression record has also been defined in clause (b) of the Explanation so as to include all records relating to any proceedings available at the time of examination by the Commissioner. Thus it is not only the assessment order but the entire record which has to be examined before arriving at a conclusion as to whether the Assessing Officer had examined any issue or not. The assessee has no control over the way an assessment order is drafted. The assessee on its part had produced enough material on record to show that the matter had been discussed in detail by the AO. We further hold that by virtue of Government of India Ministry of Finance Department of Revenue (CBDT) Instructin NO. 8/2017 dt. 23/09/2017 at para 5.1 - Enquiry before assessment in electronic mode a particular methodology is prescribed which has been followed. The assessee has rightly relied upon it to demonstrate that due enquiry before assessment was done. AO has made enquiries on all the matters from notices issued under section 142(1) and that the assessee has filed submission on the questions in the notices issued by AO from time to time. The assessee therefore has rightly submitted that the enquiries has been made as per provision of Section 142(iii) of the Income Tax Act 1961 and that AO framed the assessment after considering the replies submitted by assessee during the course of assessment proceedings. We further hold that AO has applied his mind irrespective of the fact that issues were not discussed in the assessment order. We also hold that by virtue of Section 263 it is incumbent upon the Ld. PCIT while exercising supervisory / Revisionary jurisdiction to at least carry out a bare minimum inquiry himself before terming the order of AO as erroneous and prejudicial to the interest of Revenue. In the instant case that has not happened. See Delhi Airport Metro Express Pvt. Ltd. 2017 (9) TMI 529 - DELHI HIGH COURT Impugned order of PCIT is not proper just and fair and in accordance with law as Ld. PCIT has not made any minimal inquiry before holding that Ld. AO has not made any inquiry and therefore order is erroneous and prejudicial to the interest of the Revenue. We hold that the Ld. PCIT ought not to have passed the impugned order. We also hold enough inquiries as the AO deemed fit and proper had been made on more than one occasion supra. It is not a case of no inquiry the impugned order is therefore without jurisdiction and / or in excess of jurisdiction and / or in irregular exercise of jurisdiction and is null and void. It is illegal and not proper. It is in irregular exercise of supervisory / revisionary jurisdiction u/s 263 of the Act and therefore bad in law. Decided in favour of assessee.

Summary

Issues Involved:
1. Legality of the revisionary order under Section 263 of the Income Tax Act.
2. Adequacy of inquiries conducted by the Assessing Officer (AO) during the assessment proceedings.
3. Whether the assessment order was erroneous and prejudicial to the interests of the Revenue.
4. Requirement of detailed reasoning in the assessment order by the AO.
5. The necessity for the Principal Commissioner of Income Tax (PCIT) to conduct an inquiry before passing a revisionary order.

Issue-wise Detailed Analysis:

1. Legality of the revisionary order under Section 263 of the Income Tax Act:
The Tribunal held that the impugned order under Section 263 by the PCIT was not proper, just, and fair. It was observed that the PCIT did not conduct any minimal inquiry before holding that the AO had not made any inquiry. The Tribunal emphasized that Section 263 can be invoked only to set right distortions and prejudices to the revenue, not for setting aside favorable orders without proper grounds. The PCIT's failure to examine the entire record, including the assessment order under Section 147 dated 24/03/2023, which was part of the record before the impugned order dated 27/03/2023, rendered the revisionary order illegal and contrary to law.

2. Adequacy of inquiries conducted by the Assessing Officer (AO) during the assessment proceedings:
The Tribunal found that the AO had conducted adequate inquiries during the assessment proceedings. The AO had issued multiple notices under Sections 143(2) and 142(1), and the assessee had duly replied to these notices with all required information. The Tribunal observed that the AO had applied his mind and verified the state of affairs of the assessee firm before passing the assessment order dated 12/06/2020. The Tribunal held that the AO had examined the papers and proceedings of the case and accepted the return under Section 143(3) after due diligence.

3. Whether the assessment order was erroneous and prejudicial to the interests of the Revenue:
The Tribunal held that the assessment order was neither erroneous nor prejudicial to the interests of the Revenue. The PCIT's conclusion that the AO's order was erroneous and prejudicial was based on the assumption that the AO had not made any inquiry or verification, which the Tribunal found to be incorrect. The Tribunal emphasized that the AO had conducted proper inquiries and verifications, and the acceptance of the returned income was arrived at after a thorough examination of the details provided by the assessee.

4. Requirement of detailed reasoning in the assessment order by the AO:
The Tribunal held that the AO is not required to give detailed reasons in the assessment order for each and every item of deduction or claim. It is sufficient if the AO has applied his mind and conducted inquiries before allowing the claims. The Tribunal referred to the judgment of the jurisdictional High Court in Hari Iron Trading Company Vs. CIT, which held that the absence of detailed reasoning in the assessment order does not render it erroneous if the AO has made full inquiries before accepting the claims.

5. The necessity for the Principal Commissioner of Income Tax (PCIT) to conduct an inquiry before passing a revisionary order:
The Tribunal held that it is incumbent upon the PCIT to conduct at least a bare minimum inquiry before passing a revisionary order under Section 263. The Tribunal referred to the judgment of the Hon'ble Delhi High Court in PCIT Vs. Delhi Airport Metro Express Pvt. Ltd., which held that the PCIT must undertake an inquiry himself before sending the matter back to the AO for a fresh assessment. The Tribunal found that the PCIT had not conducted any inquiry and had passed the revisionary order in a mechanical manner, which was not in accordance with law.

Conclusion:
The Tribunal allowed the appeal of the assessee, holding that the impugned order under Section 263 was bad in law, illegal, and not proper. The Tribunal emphasized that the AO had conducted adequate inquiries and verifications, and the assessment order was not erroneous or prejudicial to the interests of the Revenue. The Tribunal also highlighted the necessity for the PCIT to conduct an inquiry before passing a revisionary order under Section 263.