2023 (12) TMI 586 - AT - Income Tax

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 ... Revision u/s 263 - 'lack of inquiry' v/s 'inadequate inquiry' - assessee has failed to deduct TDS on the expenditure on contract payments and the same is in contravention to the provisions of Sec.40(a)(ia) - as per CIT 30% of the above expenditure was required to be disallowed and added to the total income of the assessee, which the Assessing Officer failed to do so - HELD THAT:- Hon’ble Supreme Court in the case of Malabar Industries (2000 (2) TMI 10 - SUPREME COURT) held that it has to be remembered that every loss of revenue as a consequence of an order of Assessing Officer cannot be treated as prejudicial to the interest of the revenue. When the Assessing Officer adopted one of the courses permissible in law and it has resulted in loss to the revenue, or where two views are possible and the Assessing Officer has taken one view with which the CIT does not agree, it cannot be treated as an erroneous order prejudicial to the interest of the revenue “unless the view taken by the Assessing Officer is unsustainable in law”. Therefore, we are of the considered opinion that AO’s order cannot be termed as erroneous as well as prejudicial to the interest of the revenue and therefore, jurisdictional condition precedent as prescribed by statute for invoking revisional jurisdiction is absent and therefore, we are inclined to quash the impugned order passed by ld PCIT under section 263 of the Act One has to keep in mind the distinction between 'lack of inquiry' and 'inadequate inquiry'. If there was any inquiry, even inadequate, that would not by itself, give occasion to the Commissioner to pass orders under section 263 of the Act, merely because he has different opinion in the matter. If an Income-tax Officer acting in accordance with law makes a certain assessment, the same cannot be branded as erroneous by the Commissioner simply because, according to him, the order should have been written more elaborately. Therefore, in the assessee`s case, it cannot be said that it is a case of 'lack of inquiry'. In view of the facts of the case and judicial pronouncements relied upon, it is well established that the impugned order passed u/s 143(3) of the Act, was passed by assessing officer, after calling for relevant information and after detailed examination of the same. The Assessing Officer has passed the assessment order after calling for details on the issue and after considering the reply and documents and after verification of the same and after due application of mind passed the assessment order, so it cannot be termed as erroneous and prejudicial to the interest of the revenue. So, the Ld. PCIT’s finding fault, with the order of the Assessing Officer is erroneous as well as prejudicial to the interest of revenue, on account of lack of inquiry, has to fail. Assessee appeal allowed. 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.