AO's adequate inquiry prevents revision under Section 263 when permissible legal view adopted despite revenue loss

ITAT Surat-AT allowed the assessee's appeal against PCIT's revision order u/s 263. The case involved failure to deduct TDS on contract payments, with PCIT directing 30% disallowance under Section 40(a)(ia). ITAT held that AO's order was not erroneous or prejudicial to revenue interest, distinguishing between lack of inquiry versus inadequate inquiry. Following SC precedent in Malabar Industries, ITAT ruled that when AO adopts a permissible course in law resulting in revenue loss, it cannot be deemed erroneous unless the view is legally unsustainable. The AO had conducted adequate inquiry by calling for details, examining documents, and applying due consideration before passing the assessment order.

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Issues Involved:
1. Whether the assessment order passed by the Assessing Officer was erroneous and prejudicial to the interest of the revenue.
2. Whether the Principal Commissioner of Income Tax (PCIT) was justified in invoking Section 263 of the Income-Tax Act, 1961.
3. Whether the assessee complied with TDS provisions on freight expenses.
4. Whether the revisionary order passed by the PCIT was valid without mentioning any DIN.

Summary:

1. Erroneous and Prejudicial Assessment Order:
The assessee challenged the correctness of the order dated 30.01.2023, passed by the Learned Principal Commissioner of Income-Tax (PCIT) under Section 263 of the Income-Tax Act, 1961 for the assessment year 2018-19. The PCIT considered the assessment order as erroneous and prejudicial to the interest of revenue, alleging that the Assessing Officer failed to disallow Rs.70,69,910/- (30% of Rs.2,35,66,362/-) for non-deduction of TDS on freight expenses.

2. Invocation of Section 263:
The PCIT exercised jurisdiction under Section 263, noting that the assessee had debited Rs.6,13,22,970/- under "freight expenses" without deducting TDS on Rs.2,35,66,362/-. The PCIT issued a show cause notice and, after considering the assessee's reply, held that the assessment order was erroneous and prejudicial to the revenue, requiring a fresh assessment.

3. Compliance with TDS Provisions:
The assessee argued that all necessary TDS details and documents were submitted during the assessment proceedings. The Assessing Officer had issued notices under Section 142(1) and received detailed replies from the assessee, including lists of transporters with PANs and declarations where no TDS was required. The assessee contended that the payments were made to hired transporters not on a contract basis and were below the threshold limit for TDS deduction.

4. Validity of Revisionary Order Without DIN:
The assessee raised an additional ground that the revisionary order under Section 263 was null and void due to the absence of a DIN, as required by Circular No.19/2019 by the CBDT. However, this ground was dismissed as "not pressed" by the assessee.

Judgment:
The Tribunal held that the Assessing Officer had conducted a proper inquiry and was satisfied with the TDS compliance. The PCIT's differing opinion on the inquiry method did not render the assessment order erroneous or prejudicial to the revenue. The Tribunal referred to the Supreme Court's decision in Malabar Industries Ltd. vs. CIT, emphasizing that an order cannot be considered prejudicial merely because the PCIT disagrees with the Assessing Officer's approach. The Tribunal quashed the PCIT's order under Section 263, concluding that the assessment order was neither erroneous nor prejudicial to the interest of the revenue.

Conclusion:
The appeal of the assessee was allowed, and the order passed by the PCIT under Section 263 was quashed. The judgment emphasized the distinction between "lack of inquiry" and "inadequate inquiry," stating that even an inadequate inquiry does not justify revision under Section 263 if the Assessing Officer acted in accordance with the law.

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