2022 (4) TMI 160 - AT - Income Tax

Tribunal overturns Commissioner's decision under Section 263, emphasizes importance of prima facie scrutiny.

Reliance Payment Solutions Limited Versus Principal Commissioner of Income Tax-8 Mumbai

The Tribunal held that the Principal Commissioner erred in invoking section 263 as the assessment order was not erroneous or prejudicial to the revenue. ... Revision u/s 263 - whether assessee’s submission being accepted can be faulted with, whether the assessee ought to have produced the appropriate evidence and whether non-recording of the reasons for accepting explanation will render the order erroneous and prejudicial to the interest of the revenue? - HELD THAT:- As long as the action of the Assessing Officer cannot be said to be lacking bonafides, his action in accepting an explanation of the assessee cannot be faulted merely because it could have been lawful to make mere detailed inquiries or because he did not write specific reasons of accepting the explanation. As for learned PCIT’s observations regarding accepting the explanation “without appropriate evidence”, there is nothing to question the bonfides of the Assessing Officer or to elaborate as to what should have been ‘appropriate’ evidence. The fact remains that the specific issue raised, in the revision order was specifically looked into, detailed submissions were made and these submissions were duly accepted by the AO. Merely because the Assessing Officer did not write specific reasons for accepting the explanation of the assessee cannot be reason enough to invoke powers under section 263, and non-mentioning of these reasons do not render the assessment order “erroneous and prejudicial to the interest of the revenue. - Appeal of assessee allowed. Issues Involved:1. Validity of the order under section 263 of the Income Tax Act, 1961.2. Whether the assessment order was erroneous and prejudicial to the interest of the revenue.3. Claim of depreciation on computer including computer software.4. Adequacy of the Assessing Officer's inquiry during the assessment proceedings.Detailed Analysis:1. Validity of the order under section 263 of the Income Tax Act, 1961:The assessee challenged the correctness of the order dated 24th March 2021 passed by the Principal Commissioner under section 263 r.w.s. 143(3) of the Income Tax Act, 1961. The assessee contended that the order under section 263 was bad in law, illegal, ultra-vires, and void. The Principal Commissioner initiated revision proceedings under section 263 on the grounds that the assessment order was erroneous and prejudicial to the interest of the revenue.2. Whether the assessment order was erroneous and prejudicial to the interest of the revenue:The Principal Commissioner observed that the Assessing Officer (AO) failed to make necessary inquiries and bring on record all facts regarding the claim of depreciation amounting to Rs. 6,87,12,817/-. The Principal Commissioner noted that the AO did not make any observations on the depreciation claimed during the assessment order and allowed the excess claim of depreciation without proper verification, which resulted in prejudice to the revenue.3. Claim of depreciation on computer including computer software:The assessee claimed depreciation on computers and computer software under the head 'Plant and Machinery' as per Section 32 of the Income-tax Act, 1961, read with Rule 5 (New Appendix I) of the Income-tax Rules, 1962. The Principal Commissioner argued that the value of additions or classification of block of assets must not change, and the expenses claimed as computers were not classifiable as such, leading to an excess claim of depreciation.4. Adequacy of the Assessing Officer's inquiry during the assessment proceedings:The Tribunal found that the AO had raised specific questions regarding the depreciation claim during the scrutiny assessment proceedings, and the assessee provided detailed replies. The Tribunal emphasized that the AO is not required to doubt or test every proposition put forward by the assessee if the claims made are prima facie in accordance with the law. The Tribunal referred to the case of JRD Tata Trust vs DCIT, stating that the AO's role is to conduct a reasonable prima facie scrutiny of all claims and probe deeper only if there are reasons to doubt the correctness of a claim.The Tribunal concluded that the AO's acceptance of the assessee's explanation without making further inquiries or recording specific reasons did not render the assessment order erroneous and prejudicial to the interest of the revenue. The Tribunal vacated the impugned revision order, allowing the appeal in favor of the assessee.Conclusion:The Tribunal allowed the appeal, holding that the Principal Commissioner erred in invoking section 263 as the AO's acceptance of the assessee's explanation was not lacking in bona fides. The assessment order was neither erroneous nor prejudicial to the interest of the revenue, and the detailed submissions made by the assessee were duly accepted by the AO. The Tribunal emphasized the importance of reasonable faith in the assessee and the necessity for the AO to conduct a reasonable prima facie scrutiny without investigating every claim in detail.