2024 (10) TMI 1720 - AT - Income Tax

Revision under s.263 set aside; assessments under s.153A read with s.143(3) restored for AYs 2017-18 to 2021-22

Gandhipati Construction Private Limited Versus Principal Commissioner of Income Tax, Bihar

ITAT KOLKATA - AT allowed the taxpayer's appeal, holding the Pr. Commissioner/Commissioner erred in invoking s.263. The AO conducted adequate inquiry, ... Powers of revision granted by section 263 to the learned Commissioner/PCIT - challenged the assumption of jurisdiction and validity of orders u/s. 263 - erroneous and prejudicial to the interests of revenue - approval u/s. 153D - validity of assessment order passed u/s 153A/143(3) - Applicability of Explanation 2(a) to section 263 ​​​​​​​- ​​​​​​​non-cooperation during the search, post-search or assessment proceedings or for the deliberate delay in submission of replies - no application of mind on the part of the ld. Assessing Officer - whether the assessment order in question is erroneous and prejudicial to the interest of revenue on account of no inquiry/ adequate inquiry conducted by the ld. Assessing Officer - HELD THAT:- In the light of the provisions of section 263 of the Act and a settled position of law, powers u/s 263 of the Act can be exercised by the Pr. Commissioner/Commissioner on satisfaction of twin conditions, i.e., the assessment order should be erroneous and also prejudicial to the interest of the Revenue. By 'erroneous' is meant contrary to law. Thus, this power cannot be exercised unless the Commissioner is able to establish that the order of the Assessing Officer is erroneous and prejudicial to the interest of the Revenue. Thus, where there are two possible views and the Assessing Officer has taken one of the possible views, no action to exercise powers of revision can arise, nor can revisional power be exercised for directing a fuller enquiry to find out if the view taken is erroneous. This power of revision can be exercised only where no enquiry, as required under the law, is done. It is not open to enquire in case of inadequate inquiry. We note that Ld. PCIT has observed in the impugned order that ld. Assessing Officer should have further raised the queries after receiving the reply to notice under section 142(1) of the Act. We, however, are of the view that when a detailed query has been raised and a satisfactory reply has been received, ld. Assessing Officer, who is an Officer having quasi-judicial authority, has taken one of the legally permissible views then only in case, he is not satisfied, he could have raised further query. Each and every detailed discussion by the ld. Assessing Officer cannot form part of the assessment order and for this we draw inference from the judgment of Hon’ble Bombay High Court in the case of CIT Vs. Gabriel India Ltd. [1993 (4) TMI 55 - BOMBAY HIGH COURT], wherein the Hon’ble Court has held that ITO’s order could not be held to be erroneous simply because in his order, he did not make an elaborate discussion. Therefore, we are of the considered view that so far as the first issue is concerned, we find that since it is not a case of no enquiry or inadequate enquiry because the ld. Assessing Officer has conducted adequate inquiry to which adequate and satisfactory reply has been filed by the assessee to the satisfaction of the ld. Assessing Officer, which ld. Assessing Officer has accepted after detailed discussion and with proper application of mind and considering one of the legally permissible views has framed the assessment after getting approval u/s. 153D of the Act, therefore, the assessment order in question is not erroneous in so far as prejudicial to the interest of revenue and thus, ld. PCIT erred in assuming jurisdiction u/s. 263 of the Act. Applicability of Explanation 2(a) to section 263 - Held That:- Merely giving general observation that ld. Assessing Officer has not carried out adequate inquiry will not meet the requirement of law as provided under section 263 of the Act. Perusal of the impugned order indicates that ld. PCIT after having referred to show-cause notice and the reply filed by the assessee has concluded the revisionary proceedings by referring certain judicial pronouncements without discussing any fact of the case. Under these given facts and circumstances, since ld. PCIT has not carried out any independent inquiry before arriving at to the decision that the order of ld. Assessing Officer is erroneous in so far as prejudicial to the interest of revenue, Explanation 2(a) to sec. 263 of the Act cannot be applied for a valid revisionary proceeding and, therefore, the impugned proceedings are to be held as invalid and without jurisdiction. We also note that the assessment order in question have been passed after getting proper approval under section 153D of the Act by the superior authority to ld. Assessing Officer. However, ld. PCIT has only used his revisionary powers for setting aside the assessment order but has not revised the approval order under section 153D of the Act. Accordingly allow the effective grounds of appeal challenging the assumption of jurisdiction and validity of orders u/s. 263 of the Act raised by the assessee for AYs 2017-18 to 2021-22 and restore the assessment orders framed for the respective assessment years u/s. 153A read with section 143(3) of the Act evenly dated 30.03.2022. ISSUES PRESENTED AND CONSIDERED 1. Whether the Commissioner properly exercised revisionary jurisdiction under section 263 by holding that the assessment order was erroneous and prejudicial to the interests of revenue where the assessment was completed under section 153A/143(3) after post-search enquiries. 2. Whether Explanation 2(a) to section 263 (order deemed erroneous where passed without making inquiries or verifications which should have been made) applied where seized material was available to the Assessing Officer, a detailed questionnaire under section 142(1) was issued and voluminous replies and supporting documents were furnished. 3. Whether a revision under section 263 addressing an assessment order passed with prior approval under section 153D is valid unless the approving order under section 153D is also revised. 4. Whether the Commissioner was required to conduct independent enquiries before forming the view that the assessment order was erroneous and prejudicial to revenue, particularly where the Assessing Officer had made enquiries and adopted a legally permissible view. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Valid exercise of section 263 where assessment under section 153A/143(3) followed post-search enquiries Legal framework: Section 263 permits the Commissioner to call for and examine records and, if satisfied that any order by the Assessing Officer is erroneous and prejudicial to revenue, to make appropriate orders after giving opportunity to be heard; applicability requires satisfaction of two conditions - the order be erroneous (contrary to law) and prejudicial to revenue. Precedent Treatment: Supreme Court and tribunal authorities (principally the Malabar Industrial line of decisions and subsequent Tribunal jurisprudence) hold that section 263 is not for correcting every error; where two views are possible and the AO adopts a permissible view, revision is not justified. Where no enquiry is conducted by the AO, section 263 may be attracted; where AO conducts enquiry, Commissioner must demonstrate error unsustainable in law. Interpretation and reasoning: The Tribunal analysed the assessment record for the representative year and found that the AO had seized the seized-material copies, issued detailed 142(1) questionnaires referencing seized documents, received voluminous replies with supporting evidence, examined accounts, made additions where considered necessary (e.g., unrecorded payments, disallowance of 80IA claim, initiation of penalty), and obtained approval under section 153D before finalizing the assessment. The AO therefore conducted targeted and adequate enquiries and applied mind, taking a legally permissible view. Ratio vs. Obiter: Ratio - where AO has conducted adequate enquiries, examined seized material and taken a permissible view, Commissioner cannot invoke section 263 merely because he would have preferred more intensive enquiries; Tribunal followed binding principles that Section 263 requires an order to be contrary to law or passed without application of mind. Obiter - observations on degree of intensity of enquiry constitute commentary but do not change the ratio. Conclusions: The Tribunal concluded the Commissioner erred in invoking section 263 on the ground that the AO had not conducted enquiries; the assessment was not shown to be erroneous and prejudicial to revenue on that basis, so revision under section 263 was not justified. Issue 2 - Applicability of Explanation 2(a) to section 263 where seized material existed and AO issued/considered detailed queries Legal framework: Explanation 2(a) deems an order erroneous if it was passed without making inquiries or verifications which should have been made; however, the Commissioner's view under Explanation 2(a) is subject to objective scrutiny - the AO must have failed to make inquiries a reasonable and prudent AO would make in the circumstances. Precedent Treatment: Tribunal and High Court decisions (including JRD Tata Trust interpretation) emphasize that Commissioner's view under Explanation 2(a) is not unfettered; courts require an objective finding that the AO omitted inquiries a prudent officer would have performed. Threefold categories were recognized: (i) Commissioner can make additions directly if material supports it; (ii) Commissioner may find omissions that would not have changed result; (iii) Commissioner may remit for further enquiry when omission makes outcome inconclusive. Interpretation and reasoning: The Tribunal assessed the record and found that the AO raised specific queries tied to seized documents, received detailed replies backed by documents, and examined and acted (including making additions where warranted). The Commissioner had not conducted independent enquiries to establish that the AO omitted inquiries a prudent AO should have made. The mere recording of the Commissioner's view without corroborative independent inquiry was held inadequate to satisfy Explanation 2(a). Ratio vs. Obiter: Ratio - Explanation 2(a) cannot be validly invoked by mere expression of opinion by the Commissioner; an objective showing that enquiries expected of a prudent AO were omitted is required. Obiter - classification of factual situations where remission versus direct interference is appropriate elaborates methodology but does not extend the legal test. Conclusions: Explanation 2(a) did not apply because AO had carried out the inquiries that a reasonable officer would be expected to make; Commissioner failed to perform independent verification before invoking Explanation 2(a), rendering the revision invalid. Issue 3 - Necessity to revise section 153D approval before revising assessment made with that approval Legal framework: Section 153D requires prior approval of the Joint Commissioner for assessments/reassessments in search cases; the approval forms part of the procedural chain for finalizing assessments under section 153A. Precedent Treatment: Multiple tribunal benches and some High Court decisions have consistently held that where an assessment under section 153A is passed with prior approval under section 153D, the Commissioner cannot validly revise the assessment under section 263 without also revising the prior approval; several Tribunal decisions cited support the proposition that revisional power is constrained in such cases. Interpretation and reasoning: The Tribunal observed that the draft assessment had been placed before the Joint Commissioner, who examined seized material and granted section 153D approval; the Commissioner's section 263 action set aside assessments without revisiting or declaring the 153D approval itself erroneous. Given the procedural role of 153D approval, revising the assessment without altering the approving order was inconsistent with the established approach. Ratio vs. Obiter: Ratio - where an assessment in a search case was finalized after obtaining section 153D approval, the Commissioner should not invoke section 263 to revise that assessment without also addressing/revising the 153D approval; failure to do so vitiates the revision. Obiter - policy observations about the role of senior officer in monitoring search-case assessments. Conclusions: The Tribunal held the Commissioner erred in revising assessment orders passed with 153D approval while leaving the approving order intact; this ground independently warranted quashing the revision. Issue 4 - Requirement of independent enquiry by Commissioner when AO has conducted enquiries and taken a permissible view Legal framework: Jurisprudence requires the Commissioner, before invoking section 263 in cases where AO has made enquiries, to examine the issues independently and form a reasoned opinion on merits that the AO's order is unsustainable in law; Commissioner cannot simply remand to allow AO to make up perceived deficiencies. Precedent Treatment: Decisions (including D.G. Housing Projects and Malabar Industrial principles) establish that in cases where AO conducts enquiries but conclusions are contested, Commissioner must itself examine and form a view on merits; mere reservations without independent enquiry are insufficient. Interpretation and reasoning: The Tribunal found the Commissioner had not undertaken independent verification to show the seized documents belonged to the assessee or that enquiries were omitted; instead the Commissioner relied on general observations and precedents without factual inquiry. The AO had also made substantial additions against other persons based on same seized material, indicating AO applied mind and adopted a permissible distribution of findings. Ratio vs. Obiter: Ratio - Commissioner must carry out independent enquiry and record reasoned findings on merits before invoking section 263 where AO has already conducted enquiries; absent such enquiry, invoking revision is impermissible. Obiter - emphasis on avoiding double additions and on safeguards against arbitrary revision. Conclusions: The Tribunal concluded the Commissioner failed to fulfil the requirement of independent factual examination before exercising section 263; that failure rendered the revisionary orders invalid. Overall Disposition The Tribunal held that (a) the AO conducted adequate enquiries in the search-case assessments and took legally permissible views; (b) Explanation 2(a) could not be validly invoked without independent corroborative enquiry by the Commissioner; and (c) an assessment finalized with section 153D approval cannot be revised under section 263 unless the approving order is itself revised. On these independent and cumulative grounds the revisionary orders under section 263 were quashed and the assessment orders under section 153A/143(3) were restored.