2022 (4) TMI 328 - AT - Income Tax

Tribunal quashes revisionary proceedings under Section 263, finding AO's inquiries sufficient, no independent inquiry by PCIT.

Sh. Daljit Singh Bassi Versus The PCIT, Chandigarh-1

The Tribunal quashed the revisionary proceedings under Section 263, holding that the AO had conducted adequate inquiries and the PCIT had not conducted ... Revision u/s 263 by CIT - assessee's claim of exemption u/s. 54 - case was selected for limited scrutiny under CASS guidelines on the issue of 'Deduction claimed under the head Capital Gain ' - HELD THAT:- AO made the requisite enquiries, therefore, it is not a case of no enquiry and if the Ld. Pr. CIT was not satisfied with the enquiries made by the AO, he should have conducted the enquiries himself to record the findings that the assessment order was erroneous and he should not have simply set aside the order passed by the AO directing him to conduct the further enquiries. In the present case, as we have been observed earlier, the Assessing officer had made due inquiries about the capital gain earned on sale of agricultural land as well as the assessee's claim of exemption u/s. 54 of the Act and the assessee too had duly responded by the query raised by the Assessing officer and had submitted details and evidences in support of his claim before the Assessing officer. This was also brought to the notice of the Ld. PCIT in response to the show cause notice issued u/s. 263 of the Act but the same did not find favour with the Ld. PCIT. Thus there was due application of mind on the part of the Assessing officer and that adequate and proper enquiry had been conducted by the Assessing officer in this regard and, therefore, the impugned order passed u/s. 263 of the Act cannot be upheld. Accordingly, we hold that the proceedings u/s. 263 of the Act were bad in law and we quash the revisionary proceedings for the reason that the Assessing officer had already made adequate inquiries on the issue raised by the Ld. PCIT and further the Ld. PCIT himself had not raised any independent inquiry on his own before coming to an incorrect concussion that the assessment order was erroneous and prejudicial to the interest of Revenue. Appeal of the assessee stands allowed. Issues Involved:1. Jurisdiction under Section 263 of the Income Tax Act, 1961.2. Adequacy of inquiries conducted by the Assessing Officer (AO) regarding the assessee's claim of exemption under Sections 54B and 54F of the Income Tax Act, 1961.3. Validity of the Principal Commissioner of Income Tax's (PCIT) order setting aside the assessment order.4. Requirement for the PCIT to conduct independent inquiries before invoking Section 263.Issue-wise Detailed Analysis:1. Jurisdiction under Section 263 of the Income Tax Act, 1961:The appeal was preferred by the assessee against the order passed under Section 263 of the Income Tax Act, 1961, by the Principal Commissioner of Income Tax (PCIT), Chandigarh-1. The PCIT held that the assessment order dated 22.11.2017 for the assessment year 2015-16 was erroneous and prejudicial to the interest of the Revenue due to the failure of the AO to make proper inquiries and verification. The PCIT canceled the assessment order with a direction to the AO to pass a fresh order.2. Adequacy of inquiries conducted by the AO:The assessee filed a return declaring taxable income of Rs. 1,65,28,620/-. The return was processed under Section 143(1) and later selected for limited scrutiny under CASS guidelines on the issue of 'Deduction claimed under the head Capital Gain.' The AO accepted the returned income after completing the limited scrutiny assessment on 22.11.2017. The PCIT issued a notice under Section 263, alleging that the AO failed to properly verify the deduction claimed under Sections 54B and 54F, resulting in an erroneous order. The assessee contended that the AO conducted thorough inquiries and submitted voluminous documents, including purchase deeds, copies of Khasra and Girdawari, and a certificate of Patwari, which were duly considered by the AO.3. Validity of the PCIT's order setting aside the assessment order:The assessee argued that the PCIT's order was unjustified as the AO had conducted adequate inquiries and the PCIT failed to demonstrate which necessary inquiries were not carried out by the AO. The Tribunal observed that the AO had indeed made inquiries and verified the assessee's claim of exemption under Section 54 of the Act. The Tribunal noted that the PCIT did not outline what further inquiries were required and did not conduct any independent inquiries before concluding that the assessment order was erroneous and prejudicial to the interest of the Revenue.4. Requirement for the PCIT to conduct independent inquiries before invoking Section 263:The Tribunal referred to several judicial precedents, including the Hon'ble Delhi High Court's judgment in CIT Vs. Sunbeam Auto Ltd., which distinguished between 'lack of inquiry' and 'inadequate inquiry.' It was held that if the AO conducted some inquiry, even if inadequate, the PCIT could not invoke Section 263 without conducting verification or inquiry himself. The Tribunal also referred to the Hon'ble Supreme Court's judgment in Malabar Industries vs. CIT, which stated that the PCIT must be satisfied with twin conditions: the order must be erroneous and prejudicial to the interests of the Revenue. The Tribunal concluded that the AO had made proper inquiries and there was due application of mind, thus the PCIT's order under Section 263 was not justified.Conclusion:The Tribunal quashed the revisionary proceedings under Section 263, holding that the AO had conducted adequate inquiries and the PCIT had not conducted any independent inquiry to substantiate the claim that the assessment order was erroneous and prejudicial to the interest of the Revenue. The appeal of the assessee was allowed.Order Pronounced:The order was pronounced on 25.03.2022.