2022 (7) TMI 36 - AT - Income Tax

Tribunal overturns Commissioner's decision under Income Tax Act, stresses importance of proper inquiries

Jila Sahkari Kendriya Bank Maryadit, Jila Sahakari Bank Versus Pr. CIT-1, Jabalpur

The Tribunal allowed the Assessee's appeal, ruling that the Principal Commissioner's exercise of power under section 263 of the Income Tax Act was ... Revision u/s 263 by CIT - Deduction u/s 36(1)(viia) - assessee’s claim u/s. 36(1)(viia) is not correct or in excess as per CIT - HELD THAT:- CIT has merely chosen to ignore the assessee’s clear and pointed reply in the matter. It would be a different matter, we may clarify, where the assessee had not satisfactorily replied or suitably addressed the concerns of the competent authority. Also, this, we are conscious, may not be feasible in all cases, and there may be circumstances, as where verification of facts and figures is required, in which case the ld. Pr. CIT would be justified in, stating the reason/s, directing the assessing authority suitably. How could in the instant case, then, the assessee’s claim, which, qua this limb (of the deduction), works to Rs. 156.88 lacs (i.e., Rs. 175.73 lacs – Rs. 18.85 lacs), be said to be in excess? It is only, where so, even if prima facie, that the revisionary authority can be regarded as within his province to say that the AO had not examined the same, remitting it back for necessary verification. Even here, there is scope for the assessee to explain his claim on the basis of admitted facts and law, as it may well be that the revisionary authority has misconstrued or not assumed the facts correctly. In other words, there must be scope for enquiry and verification, for which the revision is being proposed to be made by the revisionary authority. Without this basic condition being met, serving as a primary check, the exercise may degenerate into a probing exercise, which could then extend to every aspect of an assessee’s return. It is to be borne in mind that it is the non-application of mind, that the absence or lack of inquiry exhibits, which renders an order erroneous and, thus, liable for revision (Malabar Indl. Co. Ltd. [2000 (2) TMI 10 - SUPREME COURT] - The words “which should have been made” in Explanation 2 to sec. 263, in our view, and at the cost of repetition, provide the necessary perspective and framework, suggestive of there being circumstance/s warranting enquiry by the AO, which he has failed to. No such circumstance is available on record or otherwise brought to our notice in the instant case, thus failing the exercise of power of revision u/s. 263. Assessee appeal allowed. Issues:Maintainability of order under section 263 of the Income Tax Act, 1961.Detailed Analysis:Issue: Maintainability of order under section 263The appeal pertains to an order under section 263 of the Income Tax Act, 1961, concerning the assessment of the Assessee for the Assessment Year 2017-18. The primary contention revolves around the maintainability of the impugned order in the given circumstances. The Assessee, a cooperative bank, underwent assessment due to a significant increase in cash deposits during the demonetization period compared to the pre-demonetization period. The Assessing Officer completed the assessment at the returned income of Rs. 62.88 lacs after the Assessee provided suitable explanations during the assessment proceedings. However, the Principal Commissioner of Income Tax-1 initiated section 263 proceedings as the Assessee claimed a provision for bad and doubtful debts under section 36(1)(viia) at Rs. 175.73 lacs, which was deemed excessive by the competent authority. The Principal Commissioner invoked Explanation 2 to section 263 and set aside the assessment order for reconsideration.Upon hearing the parties and examining the material on record, the Tribunal found the argument against the sustainability of section 263 proceedings unpersuasive. The Tribunal noted that the assessment proceedings were not limited solely to cash deposit transactions, as the Assessee's return was selected for complete scrutiny. The absence of initiation of reassessment on the issue of the claim under section 36(1)(viia) indicated no parallel proceedings on the same issue for the current year. However, the Tribunal questioned the basis of invoking section 263 in this case.The Tribunal emphasized that an order becomes erroneous under section 263 if there is a failure to make necessary inquiries or verifications that should have been conducted. The Tribunal cited legal precedents to explain that the duty of the Assessing Officer is to investigate and ascertain the truth of facts stated in the return, especially when circumstances warrant further inquiry. In this case, there was no inquiry by the Assessing Officer regarding the Assessee's claim under section 36(1)(viia), and the Principal Commissioner overlooked the Assessee's detailed reply on the matter. The Tribunal highlighted that the absence of a provoking circumstance for an inquiry rendered the exercise of revisionary power under section 263 unjustified.Ultimately, the Tribunal allowed the Assessee's appeal, concluding that the exercise of power of revision under section 263 was not warranted in the absence of circumstances necessitating inquiry by the Assessing Officer.The judgment delves into the intricacies of section 263 proceedings, emphasizing the importance of conducting necessary inquiries and verifications by the Assessing Officer to avoid erroneous orders prejudicial to the revenue. The Tribunal's detailed analysis underscores the legal principles governing revisionary powers and the need for provoking circumstances to trigger a revision under section 263.