2016 (5) TMI 213 - AT - Income Tax

Income Tax Appeal Dismissed: Tribunal Emphasizes Importance of Thorough Investigations

Krushnasinh Dilubha Vaghela Versus The Pr. Commissioner-3, Ahmedabad.

The Tribunal upheld the Commissioner of Income Tax's decision to invoke section 263 of the Income Tax Act due to the Assessing Officer's failure to ... Revision u/s 263 - whether revision was under influence of auditors’ objection? - Held that:- If the ld.Commissioner initiated the proceedings under influence of audit objection and took such objection as gospel truth, then, probably, the ld.counsel for the assessee may be justified to raise this plea that on the basis of auditors’ objection proceeding under section 263 ought not to be initiated, but in case where, the role of auditors’ objection is only assumption of a information, which has been evaluated by the ld.Commissioner, and after such evaluation, he was satisfied to initiate the action under section 263 of the Act, then, law does not prohibit the ld.Commissioner to initiate proceeding. His opinion ought not to be influenced by any objection. The role of objection is only as a source of information to decide whether any action under section 263 requires to be taken or not. In the present case, ld.counsel for the assessee failed to demonstrate as to how the notice under section 263 was under the influence of auditors’ objection. The ld.Commissioner has recorded his individual satisfaction before taking action against the assessee. Therefore, we do not find any error in the order of the ld.Commissioner. - Decided against assessee Issues Involved:1. Validity of action under section 263 of the Income Tax Act.2. Adequacy of inquiries conducted by the Assessing Officer (AO) during assessment.3. Justification for the Commissioner of Income Tax (CIT) invoking section 263.Issue-wise Detailed Analysis:1. Validity of Action under Section 263 of the Income Tax Act:The primary grievance of the assessee was that the Commissioner erred in taking action under section 263 of the Income Tax Act, setting aside the assessment order for a de novo assessment. The Commissioner formed an opinion that the original assessment order was erroneous and prejudicial to the interest of the Revenue, necessitating a show-cause notice to the assessee. The assessee contended that the AO had issued a show-cause notice under section 142 and scrutinized the return, implying the AO had applied his mind. However, the Commissioner held that the AO did not conduct any inquiries during the assessment proceedings, leading to an erroneous order.2. Adequacy of Inquiries Conducted by the AO:The Tribunal examined whether the AO made adequate inquiries during the assessment. The AO's assessment order was brief and lacked detailed reasoning or investigation into the issues. The Tribunal referenced various judicial principles, including those from the ITAT and Hon'ble Supreme Court, emphasizing that an order passed without application of mind or adequate inquiry could be deemed erroneous. The Tribunal noted that the AO had not verified crucial aspects such as sundry creditors and payments made by Shreeji Developers, nor had he issued show-cause notices for these issues.3. Justification for the CIT Invoking Section 263:The Tribunal evaluated the CIT's justification for invoking section 263. The CIT issued two show-cause notices highlighting multiple issues, including the absence of tax audit reports and unverified transactions. The Tribunal found that the AO failed to make necessary inquiries or verify critical details, justifying the CIT's action under section 263. The Tribunal also addressed the assessee's reliance on the Hon'ble Gauhati High Court's judgment, clarifying that the CIT's action was not solely based on auditors' objections but on an independent evaluation of the facts.Conclusion:The Tribunal concluded that the CIT was justified in invoking section 263 due to the AO's failure to conduct adequate inquiries and verify essential details. The appeal of the assessee was dismissed, affirming the CIT's order for a de novo assessment. The Tribunal's decision emphasized the importance of thorough inquiries and application of mind by the AO during assessments to avoid erroneous and prejudicial orders.