2018 (8) TMI 1721 - AT - Income Tax

Tribunal overturns PCIT's order in favor of assessee, upholding interest component on refund

The Tribunal set aside the order of the Principal Commissioner of Income Tax and restored that of the Assessing Officer. The appeal by the assessee was ... Revision u/s 263 - AO framed the assessment without conducting proper enquiries in respect of the utilisation of borrowed funds for making investment in subsidiary companies and expenditure incurred in relation to exempt income - Held that:- AO did raise queries which were complied by the assessee. It is a settled position of law that powers u/s 263 of the Act can be exercised by the Commissioner on satisfaction of twin conditions, i.e., the assessment order should be erroneous and prejudicial to the interest of the Revenue. By 'erroneous' is meant contrary to law. Thus, this power cannot be exercised unless the Commissioner is able to establish that the order of the Assessing Officer is erroneous and prejudicial to the interest of the Revenue. Thus, where there are two possible views and the Assessing Officer has taken one of the possible views, no action to exercise powers of revision can arise, nor can revisional power be exercised for directing a fuller enquiry to find out if the view taken is erroneous. This power of revision can be exercised only where no enquiry, as required under the law, is done. It is not open to enquire in case of inadequate inquiry. The assessment was framed u/s 143(3) of the Act after detailed enquiries and verification and merely because the assessment order is silent, the same cannot be considered as erroneous and prejudicial to the interest of the Revenue as held by the Hon'ble Bombay High Court in the case of Gabriel India Ltd [1993 (4) TMI 55 - BOMBAY HIGH COURT]. Issues:Challenging validity of order under section 263 of the Income-tax Act, 1961 for assessment year 2013-14.Comprehensive Analysis:1. Validity of Jurisdiction under Section 263:The assessee challenged the validity of the order of the Principal Commissioner of Income Tax [Appeals] -2, New Delhi under section 263 of the Income-tax Act, 1961. The contention was that the ld. PCIT erred in assuming jurisdiction under section 263 on the basis that the assessment order framed under section 143(3) of the Act was both erroneous and prejudicial to the interest of the Revenue.2. Detailed Enquiries and Assessment Proceedings:The assessee filed a detailed reply explaining how the assessment was not erroneous and prejudicial to the interest of the Revenue. The reply emphasized that detailed enquiries were made during the scrutiny assessment proceedings regarding exempt income under section 14A of the Act. The assessee provided specific details and explanations in response to queries raised by the Assessing Officer.3. Application of Explanation 2 to Section 263:The Explanation 2 to section 263, inserted by the Finance Act 2015, provides criteria for deeming an order erroneous and prejudicial to the Revenue's interest. It states that the order will be considered erroneous if passed without necessary inquiries or verification. The Tribunal analyzed the replies submitted by the assessee and concluded that the Assessing Officer did raise queries that were adequately addressed by the assessee.4. Judicial Precedents and Legal Interpretations:The Tribunal referred to various judicial decisions to support its conclusion. It highlighted that revisional powers under section 263 can only be exercised if the assessment order is both erroneous and prejudicial to the Revenue's interest. The Tribunal cited cases where revision was not allowed when the Assessing Officer had taken a plausible view or had conducted detailed enquiries.5. Distinguishing Previous Cases:The Tribunal distinguished previous cases cited by the ld. DR where revision under section 263 was upheld. In the present case, it was noted that the Assessing Officer had conducted detailed enquiries and the assessee had provided satisfactory responses, unlike the situations in the cases referenced.6. Final Decision and Outcome:After a thorough analysis of the facts and legal interpretations, the Tribunal set aside the order of the PCIT and restored that of the Assessing Officer. The appeal filed by the assessee was partly allowed, with the findings of the PCIT upheld only regarding the interest component on the refund received by the assessee.In conclusion, the Tribunal's decision provided a detailed analysis of the issues raised by the assessee, the application of legal provisions, and the interpretation of judicial precedents to arrive at a reasoned judgment in favor of the assessee.