Tribunal quashes Pr.CIT's jurisdiction under sec. 263, AO's order upheld.

The Tribunal held that the Principal Commissioner of Income Tax (Pr.CIT) lacked jurisdiction under section 263 of the Income Tax Act as the Assessing Officer (AO) had conducted adequate enquiries and formed a plausible view. The Tribunal found the AO's order was not erroneous or prejudicial to the Revenue's interest, thus quashing the Pr.CIT's order. The appeal of the assessee was allowed, and the decision was pronounced on 19.12.2019.

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Issues Involved:
1. Jurisdiction of the Principal Commissioner of Income Tax (Pr.CIT) under section 263 of the Income Tax Act.
2. Whether the assessment order passed under section 143(3) was erroneous and prejudicial to the interest of the Revenue.
3. Adequacy of the Assessing Officer’s (AO) enquiries and verification during the assessment process.
4. Applicability of Explanation 2 to section 263 to the assessment year under consideration.

Detailed Analysis:

1. Jurisdiction of the Pr.CIT under section 263 of the Income Tax Act:
The appeal by the Assessee challenges the order of the Pr.CIT dated 26.03.2019, which was passed under section 263 of the Income Tax Act, 1961. The Pr.CIT is empowered to act under section 263 when he considers that the AO's order is erroneous and prejudicial to the interest of the Revenue. The Supreme Court in Malabar Industrial Co. Ltd. v. CIT [2000] 243 ITR 83 (SC) clarified that both conditions (erroneous and prejudicial) must be satisfied for the Pr.CIT to assume jurisdiction under section 263.

2. Whether the assessment order passed under section 143(3) was erroneous and prejudicial to the interest of the Revenue:
The Pr.CIT observed that the AO failed to make necessary enquiries regarding certain expenses claimed by the assessee, such as toll plaza expenses, computer expenses, weigh bridge expenses, court fees, and income from Ahatas. The Pr.CIT held that the AO's order was erroneous and prejudicial to the interest of the Revenue because these enquiries were not adequately addressed.

3. Adequacy of the AO’s enquiries and verification during the assessment process:
The assessee argued that the AO had duly verified and applied his mind to the issues under consideration. The AO had raised specific queries regarding the expenses, and the assessee had provided detailed replies. The Tribunal noted that the AO had made enquiries and taken a plausible view based on the information provided by the assessee. The Tribunal emphasized that lack of enquiry makes an AO's order erroneous, but inadequate enquiry does not. The Tribunal cited several judicial precedents, including CIT v. Sunbeam Auto Ltd. [2011] 332 ITR 167 (Delhi), which held that inadequacy of enquiry does not give jurisdiction to the Pr.CIT under section 263.

4. Applicability of Explanation 2 to section 263 to the assessment year under consideration:
Explanation 2 to section 263, inserted with effect from 01.06.2015, deems an order to be erroneous and prejudicial to the interest of the Revenue if it is passed without making necessary enquiries or verification. The Tribunal noted that the assessment year under consideration was 2014-15, and the amendment was not retrospective in nature. Therefore, Explanation 2 was not applicable for the assessment year under consideration.

Conclusion:
The Tribunal concluded that the AO had made due enquiries and had taken a plausible view, which cannot be disturbed by the Pr.CIT in the name of further verification and framing a fresh assessment. The Tribunal quashed the impugned order passed under section 263 of the Act, as the twin conditions for invoking jurisdiction under section 263 were not satisfied. The appeal of the assessee was allowed.

Order Pronouncement:
The order was pronounced in the open Court on 19.12.2019.

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