2021 (7) TMI 1324 - AT - Income Tax

Tribunal overturns CIT's decision under Section 263, emphasizes AO's authority.

The Tribunal ruled in favor of the appellant, holding that the Commissioner of Income Tax (CIT) wrongly exercised jurisdiction under Section 263 of the ... Revision u/s 263 - only grievance of the appellant/assessee is that the Pr. CIT has wrongly exercised the jurisdiction u/s 263 of the Act directed the AO to pass the assessment order afresh - HELD THAT:- Under section 263 of the Act, the CIT has jurisdiction to call for and examine the record of any proceeding under the Act and if he considers that any order passed by the AO is erroneous in so far as it is prejudicial to the interest of the revenue, to pass order enhancing or modifying the assessment or cancelling the assessment and directing a fresh assessment after affording an opportunity of being heard to the assessee. So, as per the settled law, in order to exercise jurisdiction u/s 263 of the Act, the CIT has to be satisfied of twin conditions that the order sought to be revised is erroneous and that the order is prejudicial to the interest of the revenue. In the case of CIT vs. Indo German Fabs [2015 (1) TMI 437 - PUNJAB & HARYANA HIGH COURT] has inter alia held that under section 263 the CIT has power to examine an assessment order to ascertain as to whether it is erroneous and prejudicial to the interest of the revenue, but does not confer jurisdiction to substitute his opinion for the opinion of the AO. Therefore, u/s 263 of the Act CIT has power to revised only those orders which are erroneous and prejudicial to the interest of the revenue. In the present case, the Ld. CIT has revised the assessment order on the ground that the AO has not taken any adverse view in respect of the payment made to the retiring partner, without pointing out as to how the assessment order is erroneous. In the case of CIT vs. Krishna Capbox (P) Ltd [2015 (3) TMI 17 - ALLAHABAD HIGH COURT] has held that where the assessing officer passes assessment order after raising queries from the assessee, mere non discussion or non-mention thereof in assessment order could not lead to the assumption that the AO did not apply his mind. Invoking of revisional jurisdictional on the said ground was held unjustified. We hold that the impugned order is not in consonance with the law laid down by the Hon’ble Courts discussed above. Since the AO had passed the assessment order after making proper enquiry, the Ld. CIT has wrongly exercised the jurisdiction u/s 263 - Appeal of assessee allowed. Issues:1. Jurisdiction of CIT under Section 263 of the Income Tax Act.2. Validity of assessment order passed by AO under Section 143(3).3. Condonation of delay in filing the appeal.4. Proper enquiry conducted by AO regarding payment to retiring partner.5. Correct exercise of jurisdiction by CIT under Section 263.Analysis:1. Jurisdiction of CIT under Section 263:The appeal was filed against the order passed by the Commissioner of Income Tax (CIT) under Section 263 of the Income Tax Act, setting aside the assessment order and directing the Assessing Officer (AO) to reframe the assessment. The appellant challenged the CIT's jurisdiction, arguing that the CIT exceeded legislative jurisdiction. The Tribunal held that for the CIT to exercise jurisdiction under Section 263, two conditions must be satisfied: the order must be erroneous and prejudicial to the revenue's interest. The Tribunal referenced case law to emphasize that the CIT cannot substitute their opinion for that of the AO. In this case, the Tribunal found that the CIT had wrongly exercised jurisdiction as the AO had conducted proper enquiries before passing the assessment order.2. Validity of Assessment Order under Section 143(3):The AO had initially passed an assessment order under Section 143(3) after making certain additions, which the appellant challenged before the CIT(A). The CIT(A) deleted the additions, leading to the AO allowing the expenses. Subsequently, the CIT initiated proceedings under Section 263, questioning the AO's treatment of payments to a retiring partner. The Tribunal noted that the AO had raised queries, received detailed replies with supporting documents, and allowed the expenses after verification. The Tribunal held that the AO's actions were in line with proper enquiry procedures, rendering the CIT's revision of the assessment order unwarranted.3. Condonation of Delay in Filing Appeal:The appellant faced a delay of 196 days in filing the appeal, attributing it to the COVID-19 lockdown and subsequent restrictions. The Tribunal, after considering the reasons provided and the circumstances, condoned the delay, allowing the appeal to proceed on merit.4. Proper Enquiry Conducted by AO Regarding Payment to Retiring Partner:The appellant contended that the AO had thoroughly examined the issue of payments to a retiring partner, supported by documentary evidence. The Tribunal agreed, highlighting that the AO's actions were based on proper enquiry and verification. Citing relevant case law, the Tribunal emphasized that when the AO takes a plausible view after conducting enquiries, interference under Section 263 is not permissible.5. Correct Exercise of Jurisdiction by CIT under Section 263:The Tribunal concluded that the CIT had wrongly exercised jurisdiction under Section 263 as the AO had conducted proper enquiries and arrived at a reasonable decision. By referencing various court judgments, the Tribunal highlighted that the CIT's revisional order was not in line with established legal principles. Consequently, the Tribunal allowed the appeal, setting aside the CIT's order.In conclusion, the Tribunal upheld the appeal, emphasizing the importance of proper enquiry procedures by the AO and the necessity for the CIT to adhere to legal standards when revising assessment orders under Section 263 of the Income Tax Act.