2012 (3) TMI 227 - HC - Income Tax

Commissioner's s.263 revision set aside for failing to record independent reasons; doubts or directions to AO insufficient

HC held the Commissioner's exercise of revisionary powers under s.263 was unjustified and set aside his order, upholding the Tribunal. The HC found the ... Validity of revisionary powers exercised by Commissioner u/s 263 on ground that A.O. has not examined aspect of full value of consideration and that high-yielding asset could not be disposed off at such a low value - erroneous and prejudicial to revenue - assessee claimed long-term capital loss on sale of immovable property in year 2003 for 70 lacs, purchased in year 1997 for 69.63 lacs - Held that:- A.O. is both an investigator and an adjudicator. If the A.O. fails to conduct enquiry, he commits an error and the word 'erroneous' includes failure to make the enquiry. In cases where there is inadequate enquiry but not lack of enquiry, again the CIT must give and record a finding that the order/inquiry made is erroneous. An order is not erroneous and prejudicial to the interest of Revenue, unless the CIT hold and records reasons why it is erroneous. In the present case, the findings recorded by the Tribunal are correct as the CIT has not gone into and has not given any reason for observing that the order passed by the Assessing Officer was erroneous. The finding recorded by the CIT is that “order passed by the Assessing Officer may be erroneous”. The CIT had doubts about the valuation and sale consideration received but the CIT should have examined the said aspect himself and given a finding that the order passed by the Assessing Officer was erroneous. He came to the conclusion and finding that the Assessing Officer had examined the said aspect and accepted the respondent's computation figures but he had reservations. The CIT in the order has recorded that the consideration receivable was examined by the Assessing Officer but was not properly examined and therefore the assessment order is “erroneous”. The said finding will be correct, if the CIT had examined and verified the said transaction himself and given a finding on merits. As held above, a distinction must be drawn in the cases where the Assessing Officer does not conduct an enquiry; as lack of enquiry by itself renders the order being erroneous and prejudicial to the interest of the Revenue and cases where the Assessing Officer conducts enquiry but finding recorded is erroneous and which is also prejudicial to the interest of the Revenue. In latter cases, the CIT has to examine the order of the Assessing Officer on merits or the decision taken by the Assessing Officer on merits and then hold and form an opinion on merits that the order passed by the Assessing Officer is erroneous and prejudicial to the interest of the Revenue. In the second set of cases, CIT cannot direct the Assessing Officer to conduct further enquiry to verify and find out whether the order passed is erroneous or not. The CIT is patently wrong in mentioning and stating that Schedule III to the Wealth Tax Act, 1957 was not applicable but, the Assessing Officer should have adopted the said formula/method. The aforesaid reasoning cannot be accepted and does not show or establish that the assessment order was erroneous. Therefore, we upheld the order of Tribunal setting aside the order of CIT since CIT has not examined the said aspect himself and has not given any finding/reason for observing that the order passed by the A.O. was erroneous – Decided against the Revenue. Issues: Whether the Income Tax Appellate Tribunal was correct in setting aside the Commissioner of Income Tax's order passed under Section 263 of the Income-tax Act, 1961 (i.e., whether the Commissioner properly exercised revisionary powers by holding the assessment order to be erroneous and prejudicial to the interests of revenue).Analysis: Section 263 permits the Commissioner to revise an Assessing Officer's order only if the Commissioner records a conclusion that the order is erroneous and prejudicial to the interests of revenue. The term 'erroneous' includes failure to make required enquiries but, where the Assessing Officer has conducted enquiries, mere disagreement or the existence of an inadequate inquiry does not suffice. In cases where the Assessing Officer has made enquiries, the Commissioner must examine the record and, if necessary after making further inquiry, record a clear, unambiguous finding on merits that the order is unsustainable in law. A direction to remand for further enquiry without the Commissioner first recording that the order is erroneous does not satisfy the statutory precondition for exercise of revisionary power. Applied to the present facts, the Commissioner merely expressed doubts about valuation and sale consideration and directed a fresh assessment without independently determining or recording that the Assessing Officer's order was erroneous; the Commissioner's reliance on Schedule III to the Wealth Tax Act as a basis for asserting error was not a recorded finding establishing the assessment order to be unsustainable in law.Conclusion: The Tribunal was correct in setting aside the Commissioners order under Section 263; the appeal by the Revenue is dismissed and the decision is in favour of the assessee.