2022 (4) TMI 1543 - AT - Income Tax

Tribunal quashes PCIT's order for lack of evidence & fairness. Appellant wins appeal.

The Tribunal quashed the revisionary order of the Principal Commissioner of Income Tax (PCIT), finding it unsustainable due to lack of independent ... Revision u/s 263 - assumption of revision jurisdiction on the basis of audit objection - HELD THAT:- An incorrect assumption of facts or an incorrect application of law or passing an order without application of mind or without applying the principle of natural justice, shall discretely be sufficient to hold the order being erroneous. Albeit the term prejudicial to the interests of the revenue is not at all defined in the Act, but is needs to be understood in its ordinary meaning and it is of wide import and is not confined to mere loss to an ex-chequer. Where the revisionary proceedings are concluded entirely in concurrence of assessment proceedings and thereby betokening the mistake apparent on the face of the assessment order, where concluded finding of assessment remained untaxed, shall clearly validate the revisory action and jurisdiction u/s 263 for the protection loss of revenue to the ex-chequer, and not otherwise. In no case, mere audit information renders the order of assessment erroneous, and the very absence of material before the revisionary authority itself sufficient to hold the action as unsustainable in law and our view has been invigorated in “Jeewanlal limited [1975 (12) TMI 34 - CALCUTTA HIGH COURT]. Also in “CIT Vs Gabriel India Ltd” [1993 (4) TMI 55 - BOMBAY HIGH COURT] has also taken similar view that, unless the revisionary authority forms a conclusion on the basis of concrete evidential material, it cannot reach to the conclusion rendering the order of assessment erroneous and prejudicial to the interests of the Revenue - Decided in favour of assessee. Issues Involved:1. Assumption of revisionary jurisdiction under Section 263 of the Income-tax Act, 1961.2. Direction for fresh adjudication by the Assessing Officer (AO).3. Consideration of the appellant’s reply by the Principal Commissioner of Income Tax (PCIT).4. Validity of the assessment order dated 10/01/2018.5. Procedural aspects and principles of natural justice.Detailed Analysis:Assumption of Revisionary Jurisdiction:The appellant challenged the PCIT's initiation of proceedings under Section 263 based on an audit objection, arguing that this initiation was 'illegal and without jurisdiction.' The Tribunal noted that the PCIT invoked revisionary powers under Section 263(1) without placing any emblematic material on record, deeming the assessment order erroneous and directing the AO to reframe the assessment. The Tribunal emphasized that the exercise of revisionary jurisdiction requires that the order of the AO be both erroneous and prejudicial to the interests of the revenue, as per the conditions laid out in Section 263(1). The Tribunal found the PCIT’s action to be based solely on the audit objection, lacking independent findings, and thus untenable in law.Direction for Fresh Adjudication:The PCIT directed the AO to reframe the assessment after proper inquiry into the genuineness of an unsecured loan of Rs. 21,21,850/-. The Tribunal scrutinized the assessment proceedings and found that explicit queries were raised, and detailed inquiries were conducted by the AO, leading to the addition under Section 68 of the Act. The Tribunal held that the revisionary action, based on an audit objection without any independent material, was not justified.Consideration of the Appellant’s Reply:The appellant contended that the PCIT set aside the proceedings without considering their reply filed on 24/03/2021. The Tribunal noted that the PCIT concluded the revisionary proceedings desultorily, without addressing the appellant's submissions or conducting necessary inquiries, thereby violating principles of natural justice.Validity of the Assessment Order:The assessment order dated 10/01/2018 was challenged by the appellant. The Tribunal found that the AO had conducted a detailed inquiry into the financial health and capacity of the share-subscribing companies, leading to the addition under Section 68. The Tribunal held that the assessment order was neither erroneous nor prejudicial to the interests of the revenue, thus invalidating the PCIT's revisionary order.Procedural Aspects and Principles of Natural Justice:The Tribunal emphasized that the revisionary authority must follow the principles of natural justice, including providing an opportunity of being heard and conducting necessary inquiries. The Tribunal referred to judicial precedents, including 'Malabar Industries Co Ltd Vs CIT' and 'Sirpur Paper Mill Ltd. Vs CWT,' underscoring that the PCIT must have an unbiased mind and cannot be influenced by another authority. The Tribunal concluded that the PCIT's action, influenced by an audit objection without independent inquiry, violated these principles.Conclusion:The Tribunal quashed the revisionary order of the PCIT, finding it unsustainable in law due to the absence of independent material and failure to follow principles of natural justice. The appeal of the appellant was allowed, with no order as to cost. The Tribunal pronounced the order on April 1, 2022.