2021 (11) TMI 132 - AT - Income Tax

Assessing Officer's Inquiry Upheld, Principal Commissioner's Revision Order Invalid.

Rajhans Metals Versus The Pr. CIT-1, Valsad

The Tribunal found that the Assessing Officer (AO) had conducted sufficient inquiries during the assessment proceedings, leading to the conclusion that ... Revision u/s 263 by CIT - AO made the detailed inquiry by issuing not only notice u/s 143(2) but also u/s 142(1) - HELD THAT:- AO has adopted one of the courses permissible in law and even if it has resulted in loss to the revenue, the said decision of the Assessing Officer cannot be treated as erroneous and prejudicial to the interest of the revenue as in Malabar Industries Ltd. vs. CIT [2000 (2) TMI 10 - SUPREME COURT] - Since the order of the AO cannot be held to be erroneous as well as prejudicial to the interest of the revenue, in the facts and circumstances narrated above, the usurpation of jurisdiction exercising revisional jurisdiction by the Principal CIT is ‘’null’’ in the eyes of law and, therefore, we are inclined to quash the very assumption of jurisdiction to invoke revisional jurisdiction u/s 263 by the Learned Principal CIT. Therefore, we quash the revision order of the ld Principal CIT dated 23.03.2017 being ab initio void. - Decided in favour of assessee. Issues Involved:1. Legitimacy of the Principal Commissioner's order under section 263 of the Income Tax Act, 1961.2. Adequacy of the Assessing Officer's inquiry during the assessment proceedings.3. Verification of cash payments and other expenses.4. Examination of payments to related parties.5. Verification of capital contributions by partners.6. Applicability of section 14A/36(1)(iii) of the Act.Detailed Analysis:1. Legitimacy of the Principal Commissioner's order under section 263:The assessee challenged the correctness of the order passed by the Principal Commissioner of Income Tax (PCIT) under section 263 of the Income Tax Act, 1961. The PCIT had observed that the Assessing Officer (AO) failed to initiate a penalty under section 271(1)(C) of the Act and proposed that the assessment order was erroneous and prejudicial to the interest of revenue.2. Adequacy of the Assessing Officer's inquiry during the assessment proceedings:The AO had issued notices under sections 143(2) and 142(1) of the Act, and the assessee had submitted replies along with evidence. The AO framed the assessment order under section 143(3) after making inquiries and verifying the books of accounts and supporting documents. The PCIT contended that the AO did not conduct further inquiries, making the order erroneous and prejudicial to the interest of revenue. However, the Tribunal noted that the AO had made a detailed inquiry and the assessment order was passed after due verification.3. Verification of cash payments and other expenses:The PCIT pointed out that the AO did not verify major expenses debited to the Profit and Loss account, including cash payments made to certain parties. The Tribunal found that the AO had verified the expenses and the assessee had provided explanations for cash payments, which were within the limits laid down under section 40A(3) of the Act.4. Examination of payments to related parties:The PCIT observed that the AO did not examine payments made to related parties. The Tribunal noted that the assessee had provided details and explanations for these payments during the assessment proceedings, and the AO had considered them before passing the order.5. Verification of capital contributions by partners:The PCIT stated that the AO did not verify the increase in partners' capital. The Tribunal found that the assessee had explained the increase in capital contributions and provided necessary details during the assessment proceedings, which the AO had verified.6. Applicability of section 14A/36(1)(iii) of the Act:The PCIT contended that the AO did not examine the applicability of section 14A/36(1)(iii) regarding the cost of funds and investments in tax-exempt instruments. The Tribunal observed that the AO had made inquiries and considered the assessee's explanations before passing the assessment order.Conclusion:The Tribunal concluded that the AO had made adequate inquiries and the assessment order was neither erroneous nor prejudicial to the interest of revenue. The PCIT's assumption of jurisdiction under section 263 was deemed 'null' in the eyes of law, and the revision order dated 23.03.2017 was quashed. The appeal filed by the assessee was allowed.