2006 (5) TMI 412 - AT - Income Tax

Tribunal quashes CIT order under section 263, finding it not justified. Assessee's appeal allowed.

The Tribunal quashed the order of the CIT, ruling that the CIT was not justified in revising the assessment order under section 263 as the twin conditions ... Revision - Of orders prejudicial to interest of revenue Issues Involved:1. Whether the order of CIT was passed without allowing proper opportunity, violating the principle of natural justice.2. Whether the order passed by the CIT was against provisions of law and therefore invalid.Issue-wise Detailed Analysis:1. Violation of Principle of Natural Justice:The first issue raised was that the CIT, Amritsar, passed the order without allowing proper opportunity to the assessee, which was against the principle of natural justice. The hearing was fixed on 29-11-2004, but instead of the CIT accepting the written submissions, the counsel was directed to see the ITO (Judicial). The case was adjourned to 17-1-2005, and again the counsel was directed to see the ITO (Judicial). The CIT passed the order under section 263 on 18-2-2005 without discussing the case with the counsel for the assessee. Additionally, the CIT covered grounds not raised in the show-cause notice under section 263. The assessee supported these claims with an affidavit. The CIT denied these allegations, stating that the case was discussed with the ITO (Judicial) and the counsel. The Tribunal did not record specific findings on this issue but considered the points made by both parties to determine if the CIT decided the case without allowing an opportunity to the assessee.2. Invalidity of the Order Passed by the CIT:The second issue was whether the order passed by the CIT was against provisions of law and therefore invalid. The return filed by the assessee was processed under section 143(1)(a) and selected for scrutiny. The assessment was completed under section 143(3) with certain additions/disallowances. The CIT, Amritsar, found the assessment order erroneous and prejudicial to the interests of revenue, issuing a show-cause notice under section 263 pointing out several infirmities. The assessee submitted a detailed reply, explaining the withdrawals, electricity expenses, and GP rate. However, the CIT did not accept these explanations, stating that necessary verification/investigation was not made by the Assessing Officer.The Tribunal examined whether the CIT was justified in exercising powers under section 263. According to the Supreme Court in Malabar Industrial Co. Ltd. v. CIT, the twin conditions for section 263 are that the order must be erroneous and prejudicial to the interests of the revenue. The Tribunal found that the Assessing Officer had made inquiries and the assessment was not completed in undue haste. The CIT's reliance on another case (Sant Stone Crusher (P.) Ltd.) was not upheld by the first appellate authority and did not relate to the same assessment year. The Tribunal concluded that the CIT was not justified in exercising powers under section 263 as the twin conditions were not satisfied.Conclusion:The Tribunal quashed the order of the CIT, stating that the CIT was not justified in exercising power under section 263 revising the assessment order. The appeal of the assessee was allowed.