ITAT quashes second revision order under Section 263 where assessment resulted in lower income after proper enquiries

The ITAT Kolkata quashed a second revision order u/s 263 passed by PCIT. The case involved a de novo assessment where the AO, after obtaining approval from PCIT-4, passed an order resulting in lower assessed income than the previous assessment. The successor AO proposed revision alleging the order was erroneous for want of proper enquiries. ITAT held that in de novo assessments, all issues are open and the assessee has the right to furnish explanations. A lower assessed income cannot be termed erroneous by fiction of law. The revision jurisdiction cannot be exercised merely for want of enquiries at the whims of PCIT, and assessments cannot remain open in perpetuity. The appeal was allowed.

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Issues Involved:
1. Validity of the revision order passed by the Principal Commissioner of Income Tax (PCIT) under section 263 of the Income Tax Act.
2. Whether the assessment order dated 17.01.2017 was erroneous and prejudicial to the interest of the Revenue.
3. The scope and implications of de novo assessment.

Summary:

1. Validity of the Revision Order Passed by PCIT:
The assessee contested the validity of the revision order dated 14.03.2019 passed by the PCIT under section 263 of the Income Tax Act. The original scrutiny assessment for AY 2012-13 was completed on 19.12.2014, assessing the income at Rs. 5,05,50,540/-. The PCIT exercised revision jurisdiction under section 263, observing that the assessment order was erroneous and prejudicial to the interest of Revenue due to lack of proper enquiries on several issues. A subsequent assessment was carried out under section 143(3) r.w.s. 263, assessing the income at Rs. 71,41,040/-.

2. Whether the Assessment Order Dated 17.01.2017 was Erroneous and Prejudicial to the Interest of the Revenue:
The DCIT proposed that since the assessed income in the revised order was less than the earlier assessed income, the order was erroneous and prejudicial to the interest of the Revenue. The PCIT, agreeing with this proposal, again exercised revision jurisdiction under section 263, stating that any order passed subsequent to an order under section 263 must be in favor of the Revenue, either enhancing or maintaining the earlier assessed income but not reducing it.

3. The Scope and Implications of De Novo Assessment:
The Tribunal held that in a de novo assessment, all issues are open before the Assessing Officer, and the assessee is entitled to furnish explanations and evidence on each issue. The outcome of the fresh assessment cannot be dependent on the earlier assessment order, which was held to be erroneous. The Tribunal observed that there is no statutory power requiring the Assessing Officer to only enhance or maintain the earlier assessed income. The Tribunal further noted that the impugned assessment order was passed after obtaining approval from the PCIT, and the successor PCIT's disagreement with his predecessor does not justify exercising revision jurisdiction again.

The Tribunal referenced the case of "Hari Iron Trading Co. vs. CIT" where it was held that once an assessment order is passed with the approval of the CIT, the successor CIT cannot claim it was decided without application of mind. The Tribunal concluded that the revision jurisdiction for want of mere enquiries cannot be exercised at the whims and wishes of the PCIT, and there must be finality to the assessment proceedings.

Conclusion:
The Tribunal quashed the impugned order passed under section 263 of the Act, holding it unsustainable in law, and allowed the appeal of the assessee.

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