TMI Blog2021 (10) TMI 789X X X X Extracts X X X X X X X X Extracts X X X X ..... rned income without waiting for the report of the Transfer Pricing Officer. Although, it is the assessee s contention that the AO was aware of the reference so made, however it is undisputed that the AO did not deem it necessary to wait for the said report while passing the Assessment Order. This Bench, during the course of hearing, specifically asked the Ld. AR, to demonstrate with the evidence if the AO had required the assessee to establish that the international transaction was at arms length before reaching the conclusion that no reference to the TPO was required - AR expressed his inability to file any documents. AR was repeatedly asked by this Bench if he could substantiate the stand of the assessse that the AO had initiated inquiry into this aspect of the case and had, thereafter, accepted the return of the assessee only after going through the submissions and documents submitted by the assessee and after being duly satisfied that the returned income of the assessee was to be accepted. The assessee has also not bothered to file a paper book in this regard which could enable us to consider the entire factual matrix of the case on the line of argument of the Ld. AR. Thu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... seizure operation was conducted while the assessment was pending. It was further noted by the Ld. Pr. CIT that the assessment which was completed u/s 143(3) read with section 153A of the Act vide order dated 30.3.2016 was completed accepting the returned income of Rs. NIL without the report of the TPO. Ld. Pr. CIT observed that the assessment had been completed hurriedly and without waiting for the report of the TPO which was subsequently received by the AO vide order dated 28.10.2016 wherein an adjustment of ₹ 23.23 crores was proposed by him on account of adjustment to ALP of the international transaction. The Ld. Pr. CIT was, therefore, of the opinion that the assessment order passed by the AO vide order dated 30.3.2016, was erroneous and prejudicial to the interest of the revenue and, accordingly, proceedings u/s 263 of the Act were initiated and the assessee was issued a show cause notice requesting the assessee to explain as to why the assessment order not be set aside as it was erroneous and prejudicial to the interest of the revenue. 2.2 In response to the show cause notice, the assessee submitted before the Ld. Pr.CIT that the issue of the assessee having entere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned Principal Commissioner of Income Tax has further erred both in law and, on facts in directing assessing officer to make an adjustment of ₹ 23.23 crores on account of alleged understatement of arm s length price in respect of international transactions entered between the assessee company and its associated enterprises ( herein after referred to as AE ). 3.0 The Ld. AR submitted that it is undisputed that the fact of a reference having been made to the Transfer Pricing Officer was within the knowledge of the AO and, therefore, he would have give a thoughtful consideration to the issue and would have passed the assessment order after duly considering that the Ld. AR further submitted that it was not a case of lack of inquiry and at most it could be said that there was an inadequate inquiry but such orders could not have been revised u/s 263 of the Act. 4.0 Per contra, Ld. CIT(DR) placed reliance on the observations and conclusions of the Ld. Pr. CIT and submitted that the assessment order has been rightly set aside by the Ld. Pr. CIT. 5.0 We have heard the rival submissions and have also perused the material on record. The facts in this case are undisputed. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the cases of inadequate inquiry and lack of inquiry by also considering the ratio of the decision of Hon ble Apex Court in the case of Rampyari Devi Sarogi vs CIT (671 ITR 8) and Tara Devi Aggarwal vs CIT (88 ITR 323) and held that it is incumbent upon the ITO to further investigate the facts stated in the return when circumstances would make such an inquiry prudent with the word erroneous in Section 263 includes failure to make such an inquiry. It was further held that the order becomes erroneous because such an inquiry has not been made and not because there is anything wrong with the order if all the facts stated therein are asummed to be correct. The relevant operative part of this decision reads as under:- In Rampyari Devi Saraogi v. Commissioner of Income -tax, the Income-tax Officer accepted the return of the assessee in respect of the initial capital, the gift received and the sale of jewellery, the income from business, etc., without any inquiry or evidence whatsoever. For this reason the Commissioner held the order to be erroneous. In revision, he cancelled the order and ordered the Income- tax Officer to make a fresh assessment. In his order the Commissione ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... smen t order of the Income-tax Officer. The Commissioner can regard the order as erroneous on the ground that in the circumstances of the case the Income-tax Officer should have made further inquiries before accepting the statements made by the assessee in his return.The reason is obvious. The position and function of the Income Tax Officer is very different from that of a civil court. The statements made in a pleading proved by the minimum amount of evidence may be accepted by a civil court in the absence of any rebuttal. The civil court is neutral. It simply gives decision on the basis of the pleading and evidence which comes before it. The Income-tax Officer is not only an adjudicator but also an investigator. He cannot remain passive in the face of a return which is apparently in order but calls for further inquiry. It is his duty to ascertain the truth of the facts stated in the return when the circumstances of the case are such as to provoke an inquiry. The meaning to be given to the word erroneous in section 263 emerges out of this context. It is because it is incumbent on the. Income-tax Officer to further investigate the facts stated in' the return when circumstances ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n and function of the Income-tax Officer is very different from that of a civil court. The statements made in a pleading proved by the minimum amount of evidence may be accepted by a civil court in the absence of any rebuttal. 'The civil court is neutral. It simply gives decision on the basis of the pleading and evidence which comes before it. The Income- tax Officer is not only an adjudicator but also an investigator. He cannot remain passive in the face of ITA No. 591/2008 and connected matters 29 a return which is apparently in order but calls for further inquiry. It is his duty to ascertain the truth of the facts stated in the return when the circumstances of the case are such as to provoke an inquiry. The meaning to be given to the word erroneous in section 263 emerges out of this context. It is because it is incumbent on the Income-tax Officer to further investigate the facts stated in the return when circumstances would make such an inquiry prudent that the word erroneous in section 263 includes the failure to make such an inquiry. The order becomes erroneous because such an inquiry has not been made and not because there is anything wrong with the order if all the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the fact that the Assessing Officer had not applied his mind on the issue. There are judgments galore laying down the principle that the Assessing Officer in the assessment order is not required to give detailed reason in respect of each and every item of deduction, etc. Therefore, one has to see from the record as to whether there was application of mind before allowing the expenditure in question as revenue expenditure. Learned counsel for the assessee is right in his submission that one has to keep in mind the distinction between lack of inquiry and inadequate inquiry . If there was any inquiry, even inadequate that would not by itself give occasion to the Commissioner to pass orders under section 263 of the Act, merely because he has a different opinion in the matter. It is only in cases of lack of inquiry that such a course of action would be open. In Gabriel India Ltd. [1993] 203 ITR 108 (Bom), law on this aspect was discussed in the following manner:- ... From a rending of sub-section (1) of section 263, it is clear that the power of suo motu revision can be exercised by the Commissioner only if, on examination of the records of any proceedings under this Act, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Income-tax Officer. That would not vest the Commissioner with power to re-examine the accounts and determine the income himself at a higher figure. It is because the Income-tax Officer has exercised the quasi-judicial power vested in him in accordance with law and arrived at a conclusion and such a conclusion cannot be formed to be erroneous simply because the Commissioner does not feel satisfied with the conclusion ... There must be some prima facie material on record to show that tax which was lawfully exigible has not been imposed or that by the application of the relevant statute on an incorrect or incomplete interpretation a lesser tax than what was just has been imposed ... We may now examine the facts of the present case in the light of the powers of the Commissioner set out above. The Income-tax Officer in this case had made enquiries in regard to the nature of the expenditure incurred by the assessee. The assessee had given detailed explanation in that regard by a letter in writing. All these are part of the record of the case. Evidently, the claim was allowed by the Income-tax Officer on being satisfied with the explanation of the assessee. Such decision of the Incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... investigator, is erroneous, without CIT conducting verification/inquiry. The order of the Assessing Officer may be or may not be wrong. CIT cannot direct reconsideration on this ground but only when the order is erroneous. An order of remit cannot be passed by the CIT to ask the Assessing Officer to decide whether the order was erroneous. This is not permissible. An order is not erroneous, unless the CIT hold and records reasons why it is erroneous. An order will not become erroneous because on remit, the Assessing Officer may decide that the order is erroneous. Therefore CIT must after recording reasons hold that the order is erroneous. The jurisdictional precondition stipulated is that the CIT must come to the conclusion that the order is erroneous and is unsustainable in law. We may notice that the material which the CIT can rely includes not only the record as it stands at the time when the order in question was passed by the Assessing Officer but also the record as it stands at the time of examination by the CIT [see CIT v. Shree Manjunathesware Packing Products, 231 ITR 53 (SC)]. Nothing bars/prohibits the CIT from collecting and relying upon new/additional material/evidence ..... X X X X Extracts X X X X X X X X Extracts X X X X
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