2024 (9) TMI 1821 - AT - Income Tax

Revision under s.263 quashed; assessments under s.153A r/w s.143(3) restored for AYs 2014-15 to 2021-22

Nalanda Engicon Pvt. Ltd. Versus DCIT, Central Circle-2, Patna

ITAT quashed the revision proceedings under s.263 and restored assessments framed u/s.153A r/w s.143(3) for AYs 2014-15 to 2021-22. Tribunal held the AO ... Revision u/s 263 - CIT holding that the assessment orders framed u/s. 153A r.w.s. 143(3) of the Act is erroneous and prejudicial to the interest of revenue - As argued impugned order deserves to be quashed as the approval granted u/s. 153D has not been revised - HELD THAT:- 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 AO is erroneous and prejudicial to the interest of the Revenue. Thus, where there are two possible views and the AO 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. It remains an undisputed fact that each of the seized material has been examined by the AO and the assessee has been asked to reply about each of the transaction appearing in the seized material and the replies given by the assessee are not mere formality but they are exhaustive replies giving explanation about each transaction. The audited financial statement for each of the impugned years along with the books of account were produced before the ld. AO and he after verifying these details has examined the replies filed by the assessee and has completed the assessment proceedings. It has consistently been held that each and every details called for and examined by the Ld. AO cannot form part of the assessment order and only those issues on which ld. AO intends to make the addition appears in the assessment order. The order sheet available in the records gives an insight of the assessment proceeding carried out by the Ld. AO. In the instant case, notice issued u/s. 142(1) of the Act are running into 100s of pages for almost each year and the replies are also running 100s of pages. Hon’ble Apex Court in the case of Malabar Industrial Company Ltd. [2000 (2) TMI 10 - SUPREME COURT] has held that every loss of revenue as a consequent of an order of the AO cannot be treated as prejudicial to the interest of revenue unless the AO do not adopt one of the courses permissible in law. It is quite obvious that if the transactions appearing in the seized material are accounted for in the regular books and the profits for the year have been duly offered to tax, it is not open for the AO to make the additions in the hands of the assessee. We find that Ld. AO after carrying out adequate enquiry has completed the assessments which are neither prejudicial to the interest of the revenue nor are they erroneous in nature. The correctness of the assessment order is further supported by the approval granted by ld. JCIT u/s. 153D of the Act which still remains intact as Ld. PCIT has not revised the said order. This Tribunal in the case of Gyan Infrabuild (P) Ltd [2024 (5) TMI 732 - ITAT PATNA] we find that Ld. Pr. CIT erred in assuming jurisdiction u/s. 263 of the Act firstly because approval granted u/s. 153D of the Act to the draft assessment order u/s. 153A r.w.s. 143(3) of the Act has not been revised and, therefore, the extensive and adequate conducted by the AO is proved. CIT erred in holding the assessment order as erroneous and prejudicial to the interest of revenue because adequate and extensive enquiry has been conducted by the AO for each of the assessment years and detailed replies have been filed by the assessee explaining the transactions appearing in the seized material as well as other transactions appearing in the books of account and since Ld. AO has adopted one of the courses permissible in law under the given facts, the assessment orders cannot be held as erroneous and prejudicial to the interest of Revenue. Even explanation (2) to section 263 of the Act cannot come to rescue the revenue because Ld. Pr. CIT has not carried out any independent enquiry before forming an opinion that the orders of the AO have been passed without making enquiries or verification. The impugned revisionary proceedings u/s. 263 are hereby quashed and the assessment orders framed u/s. 153A r/w section 143(3) of the Act for the impugned assessment years i.e. s 2014-15 to 2021-22 are hereby restored. 1. ISSUES PRESENTED AND CONSIDERED 1.1 Whether the Principal Commissioner/Commissioner (revisionary authority) could invoke powers under section 263 to revise assessment orders passed under section 153A read with section 143(3) when those assessment orders were passed after obtaining prior approval under section 153D, without first revising the approval under section 153D. 1.2 Whether the assessment orders framed under section 153A/143(3) were 'erroneous in so far as prejudicial to the interest of revenue' within the meaning of section 263 where the Assessing Officer had conducted detailed enquiries, examined seized material, issued questionnaire(s) under section 142(1), received and recorded exhaustive replies and obtained prior approval under section 153D. 1.3 Whether Explanation 2 to section 263 (lack of enquiry by AO) was rightly invoked by the revisionary authority where the AO had made enquiries and taken one of the legally permissible views. 1.4 Whether validity of assessment orders could be challenged on the ground that they did not quote a Document Identification Number (DIN), and whether that ground should be adjudicated given the pendency/stay of higher court proceedings on the DIN question. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Validity of invoking section 263 in respect of assessment orders passed under section 153A/143(3) after approval under section 153D Legal framework: Section 153D requires prior approval of the Joint Commissioner (or higher) before an assessing officer below that rank may pass an assessment/reassessment in search cases under section 153A. Section 263 empowers the Commissioner to revise an order if it is erroneous and prejudicial to revenue; the exercise of that power requires satisfaction of twin conditions. Precedent treatment: Coordinate Benches and certain High Court/Tribunal decisions (discussed in the judgment) have held that where an assessment under section 153A/143(3) has been passed after obtaining approval under section 153D, the Commissioner cannot validly exercise revisionary powers under section 263 without first revising the approval under section 153D. The Tribunal relied on recent, directly-on-point precedents of its own and other benches which consistently adopt this view. Interpretation and reasoning: The Tribunal examined the statutory scheme for search assessments and emphasized that the approval under section 153D forms an integral part of the assessment process in search cases; the draft assessment is examined by the Joint Commissioner vis-à-vis seized material before approval. Where approval remains intact and unchallenged, the Tribunal reasoned that the Commissioner cannot treat only the consequent assessment order as erroneous without addressing or revising the underpinning approval (section 153D). Thus the jurisdictional basis for a section 263 revision is vitiated if the Commissioner does not also satisfy himself about the validity of the prior approval. Ratio vs. Obiter: Ratio - A section 153A/143(3) assessment passed after prior approval under section 153D cannot be validly revised under section 263 unless the approval under section 153D itself is revised (or shown to be erroneous/prejudicial). Obiter - Discussion of various appellate authorities corroborating principle; factual contrasts with authorities not directly involving section 153D. Conclusion: The Tribunal held that the revisionary proceedings under section 263 were unsustainable to the extent they were initiated without revising the prior approval under section 153D; this ground alone justified quashing the revisionary order. Issue 2 - Whether the AO's enquiries were adequate (application of section 263 and Explanation 2) Legal framework: Section 263 applies only where an order of the AO is erroneous and prejudicial to revenue. The jurisprudence requires (i) both conditions to be satisfied, (ii) that mere difference of opinion is insufficient where AO has taken one of two permissible views, and (iii) that lack of enquiry by AO can make an order erroneous; conversely, adequate enquiry by AO precludes exercise of section 263. Precedent treatment (followed/distinguished): The Tribunal relied on apex and High Court precedents that articulate the twin-condition test, the principle that two possible views favour the assessee, and authorities holding that absence of enquiry may render an order erroneous while adequacy of enquiry precludes revision. The decision aligns with prior Tribunal decisions (including a recent directly-applicable bench decision) and Supreme Court guidance on Malabar Industrial and subsequent authorities. Interpretation and reasoning: The Tribunal performed a fact-sensitive analysis of records across assessment years: voluminous 142(1) notices, extensive point-wise questionnaires, multi-occasion detailed written responses by the assessee, examination of seized material by the AO, entries on assessment file/order sheet, audited accounts and the AO's application of mind resulting in acceptance of returned income. The Tribunal concluded that the AO had conducted detailed and adequate enquiry, had taken a legally permissible view and had recorded satisfaction; the Commissioner had not conducted any independent inquiry to rebut that record or form his own finding on merits. The Tribunal emphasized that section 263 cannot be used to direct the AO to re-conduct enquiries where the AO has already carried out adequate enquiries and taken a permissible view. Ratio vs. Obiter: Ratio - Where the AO has examined seized material, issued specific queries, received detailed documented responses, applied mind and taken a permissible view, the AO's order cannot be treated as erroneous and prejudicial so as to invite section 263; the Commissioner must conduct independent enquiries and form a reasoned conclusion before invoking section 263. Obiter - Observations on sufficiency of intensity of enquiry (i.e., 'intense' versus 'adequate') and the practical workings of assessment file entries. Conclusion: The Tribunal concluded that Explanation 2 to section 263 and section 263 itself were not attracted because the AO had made detailed enquiries and adopted a possible view; the revisionary order was therefore unsustainable on this limb as well. Issue 3 - Requirement of independent inquiry by the Commissioner before invoking section 263 Legal framework: Jurisprudence requires the Commissioner, before forming satisfaction, to examine and verify matters and give reasons; mere expression of reservation or reference to seized material without independent enquiry is insufficient. Precedent treatment: Decisions cited (including High Court authority) hold that where the AO has conducted enquiries, the Commissioner must examine issues on merits and form an independent opinion; he cannot simply remand for further enquiry or rely on speculation. Interpretation and reasoning: The Tribunal found no record of the Commissioner having undertaken any independent technical or factual verification of seized material or documentary particulars before concluding the AO's order was erroneous. The Commissioner relied on perceived deficiencies and brief replies by assessee without conducting the requisite independent verification; thus formation of satisfaction was not supported by material or enquiry. Ratio vs. Obiter: Ratio - Before exercising section 263 where AO has conducted enquiries, the Commissioner must conduct independent enquiry and record reasons on merits; absence of such independent verification undermines exercise of section 263. Obiter - Illustrative remarks on types of enquiries the Commissioner might undertake. Conclusion: The Tribunal held the Commissioner's satisfaction to be unsupported by independent enquiry; therefore the section 263 exercise was invalid. Issue 4 - Challenge to assessment orders for non-quotation of Document Identification Number (DIN) Legal framework: Administrative/CBDT guidance requires quoting of DIN; judicial decisions have treated non-quotation as potentially vitiating. However, appellate and higher court adjudications on that question were (at the time of judgment) under further appellate adjudication. Precedent treatment: The assessee relied on a jurisdictional High Court decision invalidating revision where the underlying assessment lacked DIN. The Tribunal noted that the said High Court order had been stayed by the Supreme Court, rendering the precedent presently non-binding for disposal. Interpretation and reasoning: Given the stay of the pertinent High Court decision and the fact that the DIN point was before the Supreme Court, the Tribunal declined to adjudicate the DIN issue at that stage as infructuous, reserving liberty to the assessee to raise it later if the higher court rules in its favour. Ratio vs. Obiter: Obiter/administrative - The Tribunal treated the DIN objection as not determinative in the appeals before it because of the higher court stay; it did not decide the substantive legal question on DIN. Conclusion: The Tribunal held the DIN ground to be presently infructuous and declined to adjudicate it; the assessee may revive the contention contingent on future higher court pronouncement. Overall Disposition and Controlling Principles (cross-references) * Cross-reference to Issue 1 and Issue 2: Both independent grounds-(a) absence of revision of section 153D approval and (b) adequacy of AO's enquiries-independently rendered the Commissioner's section 263 exercise unsustainable; either ground sufficed to quash the revisionary order. * Controlling principle: Section 263 is a supervisory power constrained by the twin conditions of error and prejudice; it cannot be exercised merely because the Commissioner disagrees with a permissible view adopted by the AO or because he considers more intensive enquiry desirable; where prior statutory approvals (section 153D) exist and where AO has conducted detailed enquiries, the Commissioner must first revisit the approval and/or carry out independent enquiry and record reasoned satisfaction before invoking section 263.