2017 (5) TMI 1613 - AT - Income Tax

Tribunal rules Principal CIT lacked jurisdiction under section 263 of IT Act. Assessment order set aside.

The Tribunal held that the Principal CIT did not validly exercise jurisdiction under section 263 of the IT Act. The assessment order dated 28th Feb., ... Revision u/s 263 - assessment of loss - Order erroneous and Prejudicial To Interests Of Revenue - Held that:- Principal CIT is not specific as to the reasons why the assessment made by the AO was erroneous and prejudicial to the interest of the Revenue. Principal CIT has not arrived at any independent finding for issuance of notice under section 263. Further, we also observed that as available, a thorough enquiry has been conducted by the AO which comprised of questionnaire consisting of 24 questions to which the assessee has submitted his reply, thereafter there is a notice under section 142(1) with a query letter to which again the assessee has replied to the queries and furthermore there is a reply of query by the assessee regarding the loss of ₹ 69,356, so it is evident there has been a detailed investigation and enquiry conducted by the AO. We further take guidance on this issue from the various judicial pronouncements. In Arvind jewellers (2002 (7) TMI 50 - GUJARAT HIGH COURT), it was held that when the AO has considered the materials on record, then the CIT cannot say that such an order of the AO was erroneous and prejudicial to the interest of Revenue. In the instant case, it is evident as we have already observed that a thorough enquiry was conducted on the assessee by the Department and when such an exercise has been concluded, then the order of the AO cannot be erroneous and prejudicial to the interests of the Revenue - decided in favour of assessee Issues Involved:1. Validity of the exercise of Jurisdiction under section 263 of the IT Act by the Principal CIT.2. Examination of expenses claimed by the assessee.3. Application of retrospective amendment under section 44AD(6).4. Adequacy of the AO’s enquiry during the assessment.Issue-wise Detailed Analysis:1. Validity of the exercise of Jurisdiction under section 263 of the IT Act by the Principal CIT:The appeal concerns whether the Principal CIT, Bikaner, validly exercised jurisdiction under section 263 of the IT Act. The Principal CIT found the assessment order dated 28th Feb., 2014, erroneous and prejudicial to the interest of Revenue. A show-cause notice was issued on 19th Feb., 2016, questioning expenses related to builty expenses, demurrage, interest payments, and outstanding debtors and creditors.2. Examination of expenses claimed by the assessee:The assessee argued that the AO had examined the expenses claimed, including bilty expenses and interest payments, during the original assessment. The AO had accepted these claims after examining the books of account. The assessee supported this by citing several judicial precedents where it was held that if the AO conducted an enquiry and reached a conclusion, the CIT could not assume jurisdiction under section 263 merely due to a difference in opinion.3. Application of retrospective amendment under section 44AD(6):The assessee contended that section 44AD(6) was not in existence when the return was filed on 21st Oct., 2011. The retrospective amendment was introduced in the Finance Bill, 2012, effective from the assessment year 2011-12. The Principal CIT argued that the AO should have considered this amendment while completing the assessment on 28th Feb., 2014. The AO's failure to apply the amended provision was deemed a serious lapse.4. Adequacy of the AO’s enquiry during the assessment:The Tribunal examined whether the AO conducted a thorough enquiry. The records showed that the AO had issued a detailed questionnaire and received comprehensive replies from the assessee. The Tribunal referred to several judicial decisions, including CIT v. Ganpat Ram Bishnoi and CIT v. Girdhari Lal, which held that if the AO conducted an enquiry and considered the material on record, the CIT could not revise the order merely because he disagreed with the AO's conclusion.Conclusion:The Tribunal concluded that the AO had conducted a thorough enquiry and applied his mind to the material on record. The Principal CIT did not provide specific reasons for deeming the assessment order erroneous and prejudicial to the interest of Revenue. The Tribunal held that the exercise of jurisdiction under section 263 by the Principal CIT was not valid. Consequently, the assessment order dated 28th Feb., 2014, was set aside, and the appeal filed by the assessee was allowed.