2015 (8) TMI 968 - HC - Income Tax

Court rules in favor of revenue, upholds Commissioner's power under Section 263

Commissioner of Income Tax-I, Ludhiana Versus Shri Rakesh Jain

The court held that the Tribunal erred in allowing the appeal of the assessee by ignoring the provision of Section 263 of the Income Tax Act. The court ... Revision u/s 263 - detail of the contracts/work done was not filed before the Assessing Officer and the details of expenses and their genuineness was not examined by the Assessing Officer - Tribunal allowed the assessee appeal holding that the assessment has been framed under Section 143(3) after examination of various papers and due application of mind and the CIT was not justified in invoking his jurisdiction under Section 263 - Held that:- Assessing Officer had failed to apply his mind to the case in all perspective and the order passed by him was erroneous. He had accepted the returned income by making an addition of ₹ 98,500/- in the absence of verification of the accounts, examining supporting material and without making any enquiry. The present is a case of lack of enquiry made by the Assessing Officer as has been recorded by the CIT in detail in his order passed under Section 263 of the Act. The irresistible conclusion on these facts would be that the assessment order passed by the Income Tax Officer was erroneous. According to the scheme of the Act, the revenue is entrusted with the levy and collection of tax in accordance with law. If due to an erroneous order of the Assessing Officer, the revenue is deprived of tax lawfully payable by an assessee, it would certainly be prejudicial to the interests of the revenue. The CIT had rightly invoked revisional power under Section 263 of the Act. The Tribunal while setting aside the revisional order passed by CIT has dealt with the scope of Section 263 of the Act in general without examining the details which had been examined by the CIT. Learned counsel for the respondent was unable to displace the discussion made by the CIT in the order passed under Section 263 of the Act. The Tribunal was, thus, in error in negating the order of CIT passed under Section 263 of the Act. - Decided in favour of revenue. Issues Involved:1. Justification of the Tribunal in allowing the appeal of the assessee by ignoring the provision of Section 263 of the Income Tax Act, 1961.Issue-wise Detailed Analysis:1. Justification of the Tribunal in allowing the appeal of the assessee by ignoring the provision of Section 263 of the Income Tax Act, 1961:The appeal was filed by the revenue under Section 260A of the Income Tax Act, 1961 against the order dated 4.11.2008 passed by the Income Tax Appellate Tribunal, Chandigarh Bench, relating to the assessment year 2005-06. The substantial question of law was whether the Tribunal was justified in allowing the appeal of the assessee by ignoring the provision of Section 263 of the Act.The facts necessary for adjudication are that the assessee, an individual and proprietor of a civil construction company, filed its return of income on 31.10.2005 declaring an income of Rs. 1,71,580/-. The assessment was completed under Section 143(3) of the Act at an income of Rs. 2,70,080/- by making an addition of Rs. 98,500/- for inadmissible and unvouched expenses. The CIT, in a revisional order under Section 263, held the assessment order to be erroneous and prejudicial to the interest of the revenue, directing a de novo assessment. The Tribunal allowed the appeal of the assessee, holding that the assessment was framed after due application of mind and the CIT was not justified in invoking Section 263.The revenue argued that the Assessing Officer (AO) made the assessment in a slip-shod manner, only adding Rs. 98,500/- without proper examination of records and details. The CIT, after examining the assessment record, found that the AO failed to apply his mind and compute total income as per the Act, particularly noting the lack of details on contracts, expenses, credits in the capital account, and bank accounts.The Tribunal reversed the CIT's order without considering these specific points, which led to the revenue's appeal. The revenue relied on the judgment of the Madhya Pradesh High Court in Commissioner of Income Tax v. Deepak Kumar Garg, emphasizing that the Tribunal failed to appreciate the detailed findings of the CIT.The assessee contended that the AO had examined the books of account in detail and framed the assessment under Section 143(3) correctly, arguing that the CIT's invocation of Section 263 was improper.The court examined Section 263 of the Act, which empowers the Commissioner to revise an order that is erroneous and prejudicial to the interests of the revenue. The court referred to guiding principles from the Hon'ble Apex Court in Malabar Industrial Co. Limited v. CIT, highlighting that the Commissioner must be satisfied that the order is both erroneous and prejudicial to the revenue. The court also cited Delhi High Court's observations in CIT v. Vikas Polymers, distinguishing between lack of inquiry and inadequate inquiry, with Section 263 applicable in cases of lack of inquiry.The court found merit in the revenue's submissions, noting that the CIT had detailed the AO's failure to apply his mind and examine necessary details. The court agreed with the CIT's findings that the AO's order was erroneous due to lack of inquiry and was prejudicial to the revenue. The court concluded that the Tribunal erred in setting aside the CIT's revisional order without addressing the detailed examination by the CIT.In conclusion, the court answered the substantial question of law in favor of the revenue, holding that the Tribunal was not justified in allowing the appeal of the assessee by ignoring the provision of Section 263 of the Act. The appeal was allowed, supporting the CIT's invocation of revisional power under Section 263.