2024 (1) TMI 1469 - HC - Income Tax

HC upholds no second revision under Section 263 without reasons; Tribunal affirms assessing officer's lawful view

Principal Commissioner Of Income Tax Central 2 Versus M/s Pearl Tracom Pvt Ltd

Principal Commissioner Of Income Tax Central 2 Versus M/s Pearl Tracom Pvt Ltd - [2025] 476 ITR 456 ISSUES PRESENTED AND CONSIDERED 1. Whether the Principal Commissioner was justified in invoking jurisdiction under Section 263 of the Income Tax Act for a second revision of assessment on the same issue. 2. Whether the Tribunal erred in quashing the revisional order on the ground that the Assessing Officer had, in the second round of proceedings, made proper application of mind and conducted detailed enquiries under Sections 142(1) and 131. 3. Whether Explanation 2 to Section 263 (deeming an assessment order erroneous if passed without enquiries or verification which should have been made) applied to validate the Principal Commissioner's second invocation of Section 263. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Validity of second invocation of Section 263 Legal framework: Section 263 empowers the Principal Commissioner/Commissioner to revise an assessment if it is deemed erroneous and prejudicial to the revenue. Explanation 2 to Section 263 treats an order as erroneous if, in the opinion of the revisional authority, the order was passed without making enquiries or verifications which should have been made. Precedent Treatment: The Tribunal relied on prior coordinate-bench authority with substantially similar facts to assess whether re-invocation of Section 263 was permissible; the Court accepted the Tribunal's reliance. Interpretation and reasoning: The Court examined whether the revisional power was legitimately exercisable a second time on the same issue where, on remand, the Assessing Officer conducted further enquiries and reached a view. The Tribunal found, and the Court agreed, that in the second round the Assessing Officer had made the necessary enquiries and applied his mind; therefore the conditions contemplated by Explanation 2 (i.e., absence of enquiries or verifications which should have been made) were not satisfied. The revisional order merely gave directions without recording reasons to conclude that the earlier assessment remained erroneous despite the subsequent enquiries. Ratio vs. Obiter: Ratio - Section 263 cannot be properly invoked where the Assessing Officer, on a second assessment, has conducted enquiries and applied his mind; absence of reasons in the revisional order is fatal when the factual record shows satisfactory enquiries. Obiter - observations on policy implications of repeated revisions. Conclusion: The Principal Commissioner's second invocation of Section 263 was not justified on the facts because the Assessing Officer had conducted appropriate enquiries and reached a permissible view; hence the revisional exercise was quashed. Issue 2 - Whether Assessing Officer conducted proper enquiries in the second round (Sections 142(1) and 131) Legal framework: Section 142(1) authorizes the Assessing Officer to call for information/documents; Section 131 authorizes summons to third parties and recording of statements; both are tools to verify genuineness of transactions and to reappreciate evidence. Precedent Treatment: The Tribunal compared the facts with a coordinate-bench decision where similar enquiries and document production were held sufficient to sustain an assessment on reappreciation; the Court accepted that approach. Interpretation and reasoning: The factual record showed that in the second round the Assessing Officer issued notices under Section 142(1), demanded full details of share capital/share premium and investor particulars, received complete documentation to his satisfaction, summoned directors of investor companies under Section 131 who appeared and gave statements on oath, and verified books of accounts. The Tribunal found these steps constituted detailed enquiry and application of mind. The Court endorsed this factual reappraisal and observed that the Assessing Officer's view after such enquiries was a permissible conclusion of law and fact. Ratio vs. Obiter: Ratio - Where the Assessing Officer conducts comprehensive enquiries (document production, Section 131 summons, statement recording, books verification), a revisional authority cannot set aside the assessment on the sole ground that enquiries were not made. Conclusion: The Assessing Officer did conduct the requisite enquiries in the second round; the Tribunal correctly concluded that the assessment then was not vitiated by want of enquiry or non-application of mind. Issue 3 - Application of Explanation 2 to Section 263 in light of the second-round enquiries Legal framework: Explanation 2 deems an assessment order erroneous if it was passed without making enquiries or verifications which should have been made, thereby sustaining revision under Section 263. Precedent Treatment: The Tribunal applied Explanation 2's requirements to the factual matrix and treated prior coordinate decisions as instructive; the Court endorsed this application without overruling prior precedents. Interpretation and reasoning: The Court focused on the factual threshold for Explanation 2: it requires absence of enquiries or verifications that ought to have been conducted prior to the assessment. Because the Assessing Officer, in the second assessment, had carried out the enquiries that Explanation 2 contemplates (document calls under Section 142(1), summons under Section 131, verification of accounts, recording of statements), the condition precedent for deeming the order erroneous under Explanation 2 was not satisfied. Moreover, the revisional order failed to furnish reasons demonstrating that requisite enquiries were still lacking despite the record of enquiries. Ratio vs. Obiter: Ratio - Explanation 2 cannot be invoked to deem an assessment erroneous where the record shows the Assessing Officer performed the enquiries and verifications which Explanation 2 requires; absence of reasons in the revisional order compounds the defect. Conclusion: Explanation 2 did not apply to validate the revisional order; the revisional authority's failure to record reasons and the existence of adequate enquiries in the record precluded invoking Explanation 2. Overall Conclusion and Disposition On reappraisal of facts and law, the Tribunal correctly held that there was no non-application of mind or failure of reappreciation by the Assessing Officer in the second-round proceedings, and therefore no substantial question of law arose for interference. The revisional action under Section 263 was rightly quashed and the appeal by the revenue was dismissed.