2025 (4) TMI 1649 - AT - Income Tax

Revenue can revise assessment orders under section 263 when proper verification not conducted despite incomplete documents

ITAT Delhi upheld PCIT's revision order u/s 263 regarding reassessment proceedings u/s 147 r/w 144B involving accommodation entries. The AO accepted ... Revision u/s 263 - revise the assessment order passed u/s 147 r/w section 144B when the issue of accommodation entries was already examined during reassessment proceedings HELD THAT:- In the instant case we find that the CIT (A) has rightly exercised revisional powers, as both the conditions are satisfied. The AO on one hand is writing that complete documents were not furnished by the assessee and on the other accepted returned income without verification of documents. This makes the order erroneous and prejudicial to the interest of revenue. CIT (A) while passing the order u/s. 263 of the Act has invoked the provision of section 263 read with explanation 2 inserted by the Finance Act 2015 w.e.f. 01.06.2015. Explanation 2(a) in an unambiguous manner states that where the order is passed without making enquiries or verification which should have been made, the same shall be deemed to be erroneous and in so far as it is prejudicial to interest of revenue. We find no infirmity in the impugned order. PCIT has exercised revisional jurisdiction in a valid and justified manner. Hence, impugned order is upheld and appeal of the assessee is dismissed being devoid of any merit. 1. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered by the Tribunal in this appeal are:(a) Whether the Principal Commissioner of Income Tax (PCIT) was justified in invoking revisional powers under section 263 of the Income Tax Act, 1961, to revise the assessment order passed under section 147 read with section 144B of the Act, when the issue of accommodation entries was already examined during reassessment proceedings under section 148/147Rs.(b) Whether the assessment order passed by the Assessing Officer (AO) was erroneous and prejudicial to the interests of revenue, thereby justifying revision under section 263Rs.(c) Whether the AO had made proper enquiries and verifications before completing the assessment, or whether the assessment was completed without due diligence, thus rendering the order liable to be revisedRs.(d) Whether the invocation of revisional jurisdiction by the PCIT without making further enquiries or detailed examination was in accordance with the spirit and conditions of section 263 of the ActRs.2. ISSUE-WISE DETAILED ANALYSISIssue (a): Validity of invoking revisional powers under section 263 after reassessment under section 148/147Relevant legal framework and precedents: Section 263 of the Income Tax Act empowers the PCIT to revise an assessment order if it is found to be erroneous and prejudicial to the interests of revenue. However, the revisional power is circumscribed and cannot be exercised to re-examine issues already considered by the AO in reassessment proceedings under section 148/147. The principle that once an issue is examined in reassessment, it cannot be reopened under revisional proceedings is supported by judicial precedents, including the decision relied upon by the assessee from the Telangana and Andhra Pradesh High Court.Court's interpretation and reasoning: The Tribunal acknowledged that the issue of accommodation entries amounting to Rs. 1,94,00,000/- was indeed reopened and examined during reassessment proceedings initiated under section 148. The AO had issued detailed notices under section 142(1) and sought specific information and documents from the assessee regarding the transactions with M/s. Parth International. The assessee submitted replies and documents in response.However, the Tribunal noted that the AO in the assessment order explicitly recorded that the information furnished by the assessee was incomplete, particularly the books of account and bank statements, and that the assessment was completed without full verification due to the impending time bar. This incomplete verification and acceptance of returned income without proper enquiry rendered the AO's order erroneous.Therefore, despite the issue being examined in reassessment proceedings, the Tribunal held that the revisional powers under section 263 could still be invoked if the order is found to be erroneous and prejudicial due to lack of proper enquiry, as per Explanation 2(a) inserted by the Finance Act, 2015.Application of law to facts: The Tribunal applied the twin conditions of section 263-error and prejudice to revenue-and found both satisfied because the AO accepted the returned income without complete verification of documents, which were not fully furnished by the assessee.Treatment of competing arguments: The assessee argued that the issue had been examined in reassessment and no addition was made, so revisional powers could not be invoked again. The Tribunal countered this by emphasizing the incomplete enquiry by the AO and the statutory provision that an order passed without necessary verification is deemed erroneous and prejudicial.Conclusion: The revisional jurisdiction under section 263 was validly exercised despite prior reassessment, as the AO's order was erroneous and prejudicial due to incomplete enquiry.Issue (b): Whether the assessment order was erroneous and prejudicial to revenueRelevant legal framework and precedents: Section 263 requires that the order sought to be revised must be both erroneous and prejudicial to the interests of revenue. Explanation 2(a) clarifies that an order passed without making enquiries or verification which ought to have been made is deemed erroneous and prejudicial.Court's interpretation and reasoning: The Tribunal relied heavily on the AO's own admission in the assessment order that the assessee did not furnish complete books of account and bank statements, and that the assessment was completed without full verification due to time constraints. Accepting the returned income under such circumstances was held to be erroneous and prejudicial.Key evidence and findings: The AO's notice under section 142(1) dated 22.02.2022 sought comprehensive documents including ledger accounts, sale bills, weigh bills, VAT returns, and bank statements. The assessee's reply dated 10.03.2022 claimed to furnish these documents, but no evidence was produced that these were actually uploaded or submitted to the AO. The AO's order noted partial compliance and incomplete submission.Application of law to facts: The Tribunal found the AO's acceptance of the returned income without full enquiry to be a clear error prejudicial to revenue, justifying revision.Treatment of competing arguments: The assessee contended that the PCIT did not make any enquiries before revising the order, which was against the spirit of section 263. The Tribunal rejected this, noting that the AO himself had recorded non-submission of complete documents, and that the revisional authority is empowered to intervene in such cases.Conclusion: The assessment order was erroneous and prejudicial to revenue, warranting revision under section 263.Issue (c): Whether the AO made proper enquiries and verifications before completing the assessmentRelevant legal framework: The AO is required to conduct thorough enquiries and verify documents before passing an assessment order. Failure to do so, especially when documents are incomplete or not furnished, can render the order erroneous under section 263.Court's interpretation and reasoning: The AO issued notices under section 142(1) and sought detailed documents. The assessee furnished partial replies. The AO completed the assessment on 29.03.2022 on the basis of returned income due to the time bar, without obtaining full documents or conducting cross-examination of witnesses. The AO himself noted incomplete submission and lack of verification.Application of law to facts: The Tribunal found that the AO's failure to verify complete documents before accepting the returned income was a significant lapse amounting to an erroneous order.Treatment of competing arguments: The department argued that the assessment was completed without proper enquiry, justifying revision. The assessee argued that the AO had made enquiries and was satisfied. The Tribunal sided with the department, relying on AO's own observations.Conclusion: The AO did not make proper enquiries and verifications before completing the assessment, rendering the order erroneous.Issue (d): Whether PCIT's invocation of revisional jurisdiction without further enquiry was justifiedRelevant legal framework: Section 263 allows the PCIT to revise an assessment order if it is erroneous and prejudicial, even without conducting fresh enquiries, if the AO failed to do so.Court's interpretation and reasoning: The PCIT invoked section 263 read with Explanation 2(a) which deems an order passed without necessary enquiries as erroneous and prejudicial. The Tribunal held that the PCIT was justified in revising the order without further enquiry because the AO's order was itself incomplete and erroneous.Application of law to facts: Since the AO had not conducted proper enquiries, the revisional authority was empowered to intervene directly.Treatment of competing arguments: The assessee contended that the PCIT referred the matter back to AO without making enquiries, which was improper. The Tribunal found that the PCIT's action was consistent with the statutory provision and necessary to protect revenue.Conclusion: The PCIT's invocation of revisional jurisdiction without further enquiry was valid and justified.3. SIGNIFICANT HOLDINGS'The AO on one hand is writing that complete documents were not furnished by the assessee and on the other accepted returned income without verification of documents. This makes the order erroneous and prejudicial to the interest of revenue.''Explanation 2(a) in an unambiguous manner states that where the order is passed without making enquiries or verification which should have been made, the same shall be deemed to be erroneous and in so far as it is prejudicial to interest of revenue.''Considering entire facts of the case and documents on record, we find no infirmity in the impugned order. The PCIT has exercised revisional jurisdiction in a valid and justified manner.'The Tribunal established the core principle that an assessment order passed without making necessary enquiries and verifications, especially when documents are incomplete or not furnished, is erroneous and prejudicial to revenue and is liable to be revised under section 263 of the Income Tax Act.Final determinations on each issue are as follows:(a) Revisional powers under section 263 can be validly invoked even after reassessment under section 148/147 if the assessment order is erroneous and prejudicial due to incomplete enquiry.(b) The assessment order was erroneous and prejudicial to revenue as it was passed without full verification and acceptance of returned income despite incomplete submissions.(c) The AO failed to make proper enquiries and verifications before completing the assessment.(d) The PCIT's exercise of revisional jurisdiction without further enquiry was justified and in accordance with the law.