2021 (7) TMI 291 - AT - Income Tax

Court overturns Commissioner's order due to lack of evidence, emphasizing need for concrete errors in assessment process.

The court overturned the Commissioner's order under section 263 of the Income-tax Act, citing a lack of evidence to show that the acceptance of the ... Revision u/s 263 by CIT - AO did not carry out enquiries or examination in respect of five issues - trade payable, advances receivable & short term borrowings, Inventory, salary to directors increased and bad debts written off - HELD THAT:- All the five points raised by the ld. CIT for revising the assessment order were duly enquired into by the AO and the assessee also furnished its reply to each one of them. Onus lies on the CIT to demonstrably indicate as to in which manner either the AO did not make proper enquiry on relevant aspects of the assessment or that the reply furnished by the assessee was fallacious, thereby rendering the assessment order erroneous causing prejudice to the interest of revenue. If the CIT simply declares an assessment order falling within the ken of section 263 just on his whims without any specific foundation for such a belief, the revision will not pass the test of judicial scrutiny. Simply put, in no situation - where the AO conducts proper enquiry; reply is filed by the assessee; and the claim of assessee is accepted – can the CIT invoke section 263 without indicating lacunas in the AO’s enquiry or fallacy either in the assessee’s reply or in the action of the AO in accepting such reply leading to under assessment of income, thereby causing prejudice to the interest of revenue. Adverting to the facts of extant case, we find that it falls in the afore discussed second way of the second outcome of the third category, namely, where the AO conducted enquiry; the assessee furnished his reply thereto; and the assessment was made accepting the point of view of the assessee without making any separate discussion in the assessment order. In such a panorama, the onus was upon the ld. CIT to show as to how the acceptance of the assessee’s claims by the AO led to the passing of an erroneous order thereby causing prejudice to the interest of revenue. The only raison d`etre given by him for the revision is that: “In the present case the AO has not verified all the relevant issues to deduce the correct taxable income and therefore the order passed by the Assessing Officer is prima-facie found to be erroneous in so far as it is prejudicial to the interest of revenue”. It is manifest on a bare perusal of the impugned order that, apart from relying on certain decisions justifying the revisionary exercise, the ld. CIT has not refuted the assessee’s contention that all the five points were raised by the AO during the course of the assessment proceedings and the assessee did satisfactorily furnish reply to each one of them backed by necessary details and further that there was nothing amiss in that. If the revision is held valid in such circumstances as are instantly obtaining, then each and every case of assessment would give a license to the CIT for making revision u/s 263 without first fulfilling the jurisdictional conditions of the assessment order being erroneous and prejudicial to the interest of revenue. As such, we are satisfied that the ld. CIT was not justified in setting aside the assessment order. - Decided in favour of assessee. Issues:1. Revision of assessment order under section 263 of the Income-tax Act, 1961 based on lack of proper enquiry by the Assessing Officer.2. Consideration of five specific issues by the Commissioner of Income Tax for revision.3. Evaluation of the adequacy of enquiries conducted by the Assessing Officer on the five identified issues.4. Analysis of the three situations justifying the revisionary exercise in tax assessments.Detailed Analysis:Issue 1: Revision of assessment order under section 263The judgment pertains to an appeal against an order passed by the Commissioner of Income Tax under section 263 of the Income-tax Act, 1961. The Commissioner invoked section 263 due to perceived lack of proper enquiry by the Assessing Officer on five specific issues, deeming the assessment order erroneous and prejudicial to the interest of revenue.Issue 2: Consideration of five specific issuesThe five issues raised by the Commissioner for revision included trade payable, advances receivable from customers, short term borrowings, inventory, hike in directors' remuneration, and bad debts written off. The assessee provided detailed replies and justifications for each issue during the assessment proceedings.Issue 3: Evaluation of enquiries conducted by the Assessing OfficerThe judgment extensively reviewed the enquiries conducted by the Assessing Officer on the five identified issues. It was highlighted that the Assessing Officer had indeed made enquiries and the assessee had responded satisfactorily with necessary details, refuting the Commissioner's assertion of inadequate enquiry.Issue 4: Analysis of the three situations justifying revisionThe judgment elaborated on the three situations that justify the revisionary exercise in tax assessments. It differentiated scenarios where the Assessing Officer fails to make enquiries, where enquiries are made but not responded to by the assessee, and where enquiries are made and responded to satisfactorily by the assessee. The judgment emphasized the importance of the Commissioner demonstrating specific errors or fallacies in the assessment order to warrant revision under section 263.In conclusion, the judgment overturned the Commissioner's order, stating that the Commissioner failed to establish how the acceptance of the assessee's claims led to an erroneous order causing prejudice to revenue. The decision emphasized the necessity for concrete evidence of errors or fallacies in the assessment process to justify revision under section 263.