Revision under section 263 set aside where assessing officer made sufficient inquiries; mere allegations of non-verification fail

ITAT MUMBAI - AT held that the Commissioner's revision under s.263 was unjustified and set aside the revision order. The Tribunal explained Explanation 2(a) requires an objective finding that the AO failed to make inquiries a prudent officer would make; mere allegation is insufficient. Only where lack of inquiry prevents any conclusive finding can revision be ordered. Here the AO had examined investments, payments and records (including financial schedules and Form 26AS), no prejudice to revenue was shown, and alleged non-verifications did not warrant revision. Decision in favour of the assessee trust.

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Issues Involved:
1. Initiation of proceedings under section 263 of the Income Tax Act.
2. Assessment order being erroneous due to lack of verification by the Assessing Officer.
3. Jurisdiction under section 263 in relation to prejudicial interest to the Revenue.
4. Direction for de novo assessment due to non-verification of applicability of sections 13(1)(c), 13(1)(d), and 13(2)(h) of the Act.
5. Allegation of non-enquiry into payments to Trustees.

Detailed Analysis:

1. Initiation of Proceedings under Section 263 of the Income Tax Act:
The appellant challenged the initiation of proceedings under section 263 by the Commissioner of Income Tax (Exemptions) [CIT(E)], arguing that the necessary inquiries and verification had already been carried out by the Assessing Officer (AO). The Tribunal noted that the AO had indeed sought details regarding payments to trustees and investments held by the Trust, and the appellant had provided comprehensive responses. The Tribunal found that the AO had conducted reasonable inquiries and had no reason to doubt the correctness of the claims made by the appellant. Thus, the initiation of proceedings under section 263 was not justified.

2. Assessment Order Being Erroneous Due to Lack of Verification by the AO:
The CIT(E) contended that the AO's assessment order was erroneous as it lacked due verification. The Tribunal observed that the AO had asked for and received detailed information from the appellant, including the remuneration paid to trustees and the investments held by the Trust. The AO had examined these details and found them to be in order. The Tribunal concluded that the AO had conducted adequate verification and that the assessment order was not erroneous.

3. Jurisdiction under Section 263 in Relation to Prejudicial Interest to the Revenue:
The CIT(E) argued that the assessment order was prejudicial to the interest of the Revenue. The Tribunal noted that for an order to be revised under section 263, it must be both erroneous and prejudicial to the interests of the Revenue. The Tribunal found that the AO had applied his mind to the facts and circumstances of the case and had determined the income accordingly. The Tribunal held that the assessment order was neither erroneous nor prejudicial to the interests of the Revenue.

4. Direction for De Novo Assessment Due to Non-Verification of Applicability of Sections 13(1)(c), 13(1)(d), and 13(2)(h) of the Act:
The CIT(E) directed the AO to pass a de novo assessment, alleging that the AO had failed to verify the applicability of sections 13(1)(c), 13(1)(d), and 13(2)(h) of the Act. The Tribunal found that the AO had sought and received detailed information regarding the Trust's investments and payments to trustees. The AO had examined these details and found them to be in compliance with the provisions of the Act. The Tribunal concluded that the AO had conducted adequate verification and that the direction for a de novo assessment was not warranted.

5. Allegation of Non-Enquiry into Payments to Trustees:
The CIT(E) alleged that the AO did not inquire whether the payments to trustees were as per the Trust Deed and reasonable under the Act. The Tribunal found that the AO had specifically asked for details of any fees, remuneration, or salary paid to trustees, and the appellant had provided comprehensive responses. The AO had examined these details and found them to be in order. The Tribunal held that the AO had conducted adequate verification and that the allegation of non-enquiry was unfounded.

Conclusion:
The Tribunal quashed the revision order under section 263, concluding that the AO had conducted adequate verification and that the assessment order was neither erroneous nor prejudicial to the interests of the Revenue. The appeal was allowed in favor of the appellant.

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