2021 (10) TMI 671 - AT - Income Tax

Tribunal upholds Section 263 revision due to inadequate inquiry by AO, emphasizes need for thorough scrutiny

Kapil Mehta Versus Pr. CIT (Central), Delhi-3.

The Tribunal upheld the Principal Commissioner of Income Tax's invocation of Section 263, emphasizing the Assessing Officer's failure to conduct a ... Revision u/s 263 by CIT - Non enquiry by AO on claim of expenses submitted by the assessee in its books and statements of accounts submitted along with return - HELD THAT:- We are inclined to hold that the present case is squarely covered in favour of the revenue by the decisions of Hon’ble Jurisdictional High Court of Delhi in the case of Gee Vee Enterprises [1974 (10) TMI 29 - DELHI HIGH COURT] and CIT vs. Nagesh Knitwears P. Ltd. [2012 (6) TMI 65 - DELHI HIGH COURT] as in the present case, the AO did not raise any query of make any inquiry pertaining to the claim of expenses submitted by the assessee in its books and statements of accounts submitted along with return and this is a clear case of “lack of inquiry”. We may also point out that if the AO fails to conduct the said investigation, he commits the error and the word “erroneous” includes failure to make inquiry. In such cases, the order becomes erroneous because necessary inquiry or verification has not been made and not because a wrong order has been passed on merits. Therefore, on this ground the appeal of the assessee fails. Approval of the Addl. CIT had been received u/s 153 D - Categorically here the orders are not passed even under the instructions of the superior authority or under the direction of the superior authority, but merely an approval was granted by the Joint Commissioner of Income Tax under Section 153D of the Act to pass the orders. Provisions of Section 153D speak about “prior approval for assessment in the case of search”. They also provide for obtaining the prior approval of the Joint Commissioner for merely passing an order. Therefore, ‘any order passed by the Assessing Officer’ can be revised under Section 263 of the Act irrespective of the fact that any authority has granted any direction to the Assessing Officer. Natural corollary would be show that all orders of search and seizure passed under Section 153A or under Section 153C of the Act are required to be passed after prior approval of the Joint Commissioner except as provided under Section 154BA(12). Therefore, if the argument of the Ld. AR is to be accepted then in such cases where the assessment has been framed under Section 153A or Section 153C, the same will go out of the ambit of the provisions of Section 263 of the Act and such a view is directly contrary to the decision in T .N .Civil Corporation [2003 (1) TMI 7 - SUPREME COURT], NIIT LTD. VERSUS UNION OF INDIA & ORS. [2009 (12) TMI 927 - DELHI HIGH COURT] and M/S OSHO FORGE LTD. [2018 (5) TMI 161 - PUNJAB AND HARYANA HIGH COURT]. The power of the Commissioner under Section 263 of the Act is in the nature of supervisory jurisdiction. This power is granted to correct an error, which is prejudicial to the interest of the Revenue in the order of the Assessing Officer, even if it is approved by the Joint Commissioner, who is also falling below the rank of the Pr. Commissioner. If the argument of the ld. AR is accepted then the supervisory authority of the Pr. Commissioner granted under the Act is hampered. On provisions of Section 263 of the Act give un-fettered right to the Commissioner of Income Tax to revise any order passed by the Assessing Officer. Whatever was to be excluded by the law has already been provided under that Section and the only exception are the issues ‘decided and considered’ in the appellate orders. Therefore, the reasoning of the arguments advanced by the Ld. AR on this line also fails and we dismiss the same. Thus we hold that the impugned order passed u/s 263 of the Act is illegally sustainable and no interference is called for. - Decided against assessee. Issues Involved:1. Legality of invoking Section 263 of the Income Tax Act, 1961.2. Adequacy of the Assessing Officer's (AO) inquiry into the source of cash claimed as agricultural income.3. Validity of the assessment order passed with the approval of the Additional Commissioner under Section 153D.4. The effect of the search and seizure action on the assessment order.Issue-wise Detailed Analysis:1. Legality of Invoking Section 263 of the Income Tax Act, 1961:The Principal Commissioner of Income Tax (PCIT) invoked Section 263, arguing that the AO's order was erroneous and prejudicial to the revenue's interest. The PCIT noted that the AO accepted the assessee's claim of the cash being agricultural income without proper inquiry. The Tribunal upheld the PCIT's invocation of Section 263, emphasizing that the AO failed to conduct necessary inquiries to verify the genuineness of the agricultural income claim. The Tribunal cited the Delhi High Court's decision in Gee Vee Enterprises, which distinguished between 'inadequate inquiry' and 'lack of inquiry,' stating that the latter justifies the invocation of Section 263.2. Adequacy of the AO's Inquiry:The Tribunal found that the AO did not conduct a thorough inquiry into the source of the cash. The AO's acceptance of the assessee's claim was based on minimal verification, such as recording the statement of the landowner and examining lease documents. The Tribunal noted the absence of substantial evidence, such as the details of agricultural activities, expenses, and income verification. The Tribunal highlighted that the assessee failed to provide documents demonstrating that the AO had made pertinent inquiries, thus supporting the PCIT's view that the AO's order lacked proper scrutiny.3. Validity of the Assessment Order Passed with the Approval of the Additional Commissioner under Section 153D:The assessee argued that the assessment order, having been approved under Section 153D, could not be revised under Section 263. However, the Tribunal dismissed this argument, referencing the Punjab & Haryana High Court's decision in Osho Forging Ltd., which held that the approval under Section 153D does not preclude the PCIT from exercising revisionary powers under Section 263. The Tribunal emphasized that the supervisory jurisdiction of the PCIT under Section 263 remains intact, even if the assessment order was approved by a lower authority.4. Effect of the Search and Seizure Action on the Assessment Order:The Tribunal noted that the search and seizure action led to the discovery of cash, which the assessee claimed as agricultural income. However, the original return of the assessee's father did not disclose any agricultural income, and the return was subsequently revised. The Tribunal found that the AO did not adequately investigate the claim, and the assessee failed to provide evidence of agricultural activities or income in previous years. The Tribunal concluded that the AO's order was erroneous due to the lack of proper inquiry, justifying the PCIT's revision under Section 263.Conclusion:The Tribunal upheld the PCIT's invocation of Section 263, emphasizing the AO's failure to conduct a thorough inquiry into the source of the cash claimed as agricultural income. The Tribunal dismissed the argument that the approval under Section 153D precluded the PCIT's revisionary powers, reaffirming the PCIT's supervisory jurisdiction. The Tribunal's decision underscores the necessity for AOs to conduct comprehensive inquiries to verify claims made by assessees, particularly in cases involving significant cash transactions.