2024 (10) TMI 31 - AT - Income Tax

AO's failure to conduct proper inquiry after reopening assessment renders order erroneous under section 263

Sipura Developers Pvt. Ltd. Versus Pr. CIT-7, New Delhi

The ITAT Delhi upheld the CIT's revision order under section 263, finding the AO's assessment under section 147 r.w.s. 144B erroneous and prejudicial to ... Revision u/s 263 - as per CIT order passed u/s 147 r.w.s. 144B determining the income as erroneous and prejudicial to the interest of revenue - HELD THAT:- Core reason for reopening the assessment has not been properly examined/investigated. AO, after having reopened the case u/s 147 was required to carry out detailed enquiry and verification, not only on the reasons for reopening the case but also about the genuineness of the transactions as a whole and other issues emerged during the reopened assessment proceedings. In the order passed u/s 147 r.w.s. 144B of the Act, there is no whisper about any enquiry or verification done by the AO in this regard. Though, in his order disposing of the assessee's objection on validity of proceedings u/s 147 it is seen that he has passed a detailed order justifying the assumption of jurisdiction under section 147 of the Act. However, there is no clear-cut finding on this score in the order dated 30.03.2022 passed under section 147 r.w.s. 144B of the Act. Here in this case, one important aspect which needs to be kept in mind that the reopening has been done within four years from the end of the relevant assessment year. Thus, the law contained in proviso to section 147 of the Act will not apply whereby ascribing of failure on part of the assessee by the AO is sine-qua-non to acquire the jurisdiction beyond the period of 4 years. It is nowhere borne out from the record of the reopened assessment proceedings that the AO has properly verified the genuineness of the issues/transactions referred by the Ld. PCIT in the impugned order. There is no categorical rebuttal of the observation of the Ld. Pr. CIT. First contention raised is in respect of non-application of mind on the part of the Ld. PCIT - The record shows that the impugned order is in respect of the reopened assessment order passed u/s 147 r.w.s. 144B - The final show-cause notice and the impugned order passed u/s 263 show correct and complete factual details and there is no discrepancy crept therein. We find that there were some factual errors in the initial notice issued under section 263 of the Act, which got revised/rectified in the subsequent notice. It shows that the revised show case notice issued u/s 263 reflected correct facts and figures and was issued after due diligence and application of mind by the PCIT. Thus, the appellant/assessee has been provided an opportunity to response to a valid notice dated 18.03.2024 and no prejudice has been caused to the appellant/assessee on account of inadvertent error crept in notice dated 04.01.2024. The said revision/rectification of the show-cause notice speaks volume about the application of mind. Only a person, after applying her/his mind, revises/rectifies herself/himself. Thus, we do not find any merit, on this score, in the contention/argument of the Ld. Sr. Counsel. Order passed u/s 147 r.w.s. 144B is not a valid order, therefore, the same cannot be revised after two years u/s 263 - From perusal of the order passed under section 147 r.w.s. 144B it is evident that the AO did not make any addition in respect of the issue for which the case was reopened. Keeping in view the ratios laid in the above cited decision of Mehak Finvest P. Ltd., Govind Raju and Majinder Singh Kang [2012 (6) TMI 616 - PUNJAB AND HARYANA HIGH COURT] we are of the considered opinion that the AO is legally competent to make addition on other issues even if no addition is made in respect of those issues for which the assessment has been reopened under section 148 of the Act. In any case, assumption of the jurisdiction under section 147 of the Act based on the information/material referred to in the 'reasons recorded' has never been disputed here. Only, the outcome there of has been disputed here. The order passed u/s 147 r.w.s. 144B of the Act has not become non-est or invalid order just because the AO has accepted the returned income. If the proposition of the Ld. Sr. Counsel is accepted on this score, then a very peculiar situation will arise against the intent of amendment brought into the section 263 of the Act. Take a case, where the AO has not carried out any investigation or improper investigation and has accepted the returned income in the scrutiny assessment; then the PCIT/CIT cannot invoke her/his revisionary power under section 263 of the Act. Thus, in such situation as contemplated by the Ld. Counsel, the AO by not carrying out the investigation will have upper hand on the revisionary power under section 263 of the Act. When the AO has failed to carry out requisite inquiry and verification as in this case, the order passed under section 147 r.w.s. 144B of the Act in this case has become erroneous and prejudicial to the interest of the Revenue. Appeal of the assessee is dismissed. Issues Involved:1. Whether the order of the Principal Commissioner of Income Tax (PCIT) under section 263 of the Income Tax Act, 1961, is justified.2. Whether the PCIT exceeded her jurisdiction in initiating proceedings under section 263.3. Whether the order dated 30.03.2022 passed under section 147 r.w.s. 144B of the Income Tax Act is erroneous and prejudicial to the interest of revenue.4. Whether the PCIT acted without jurisdiction by holding the assessment order erroneous and prejudicial to the interest of revenue.5. Whether the initiation of proceedings under section 263 was based on non-existent grounds.6. Whether the PCIT failed to make any inquiry or investigation before initiating proceedings under section 263.7. Whether the proceedings under section 263 were initiated on mere suspicion and assumptions.8. Whether the order dated 30.03.2022 passed under section 147 r.w.s. 144B of the Act is valid.Detailed Analysis:1. Justification of PCIT's Order under Section 263The core issue is whether the PCIT's order under section 263 of the Income Tax Act, 1961, is justified. The Tribunal noted that the PCIT found the re-assessment order erroneous and prejudicial to the revenue, invoking section 263 to direct the Assessing Officer (AO) to pass a fresh assessment order. The Tribunal upheld the PCIT's order, confirming that the AO failed to carry out requisite inquiries and verification, making the assessment order erroneous and prejudicial to the interest of revenue.2. Jurisdiction of PCIT in Initiating Proceedings under Section 263The assessee contended that the PCIT exceeded her jurisdiction in initiating proceedings under section 263. The Tribunal observed that the PCIT had issued a revised show-cause notice with correct factual details, demonstrating due diligence and application of mind. The Tribunal found no merit in the contention that the PCIT acted without jurisdiction, as the revised notice corrected any errors from the initial notice.3. Erroneous and Prejudicial to RevenueThe Tribunal examined whether the order dated 30.03.2022, passed under section 147 r.w.s. 144B, was erroneous and prejudicial to the interest of revenue. It was noted that the AO did not make any addition based on the reasons for reopening the assessment and failed to properly investigate other issues. The Tribunal held that the AO's failure to carry out proper inquiries rendered the order erroneous and prejudicial to the revenue.4. PCIT Acting Without JurisdictionThe assessee argued that the PCIT acted without jurisdiction by holding the assessment order erroneous and prejudicial to the revenue. The Tribunal found that the PCIT had the authority to revise the order under section 263, as the AO did not make necessary inquiries or verifications. The Tribunal upheld the PCIT's jurisdiction in this matter.5. Non-Existent Grounds for InitiationThe assessee claimed that the PCIT initiated proceedings under section 263 on non-existent grounds. The Tribunal observed that the PCIT's revised show-cause notice contained valid grounds for revision, and the initial errors were rectified. The Tribunal found that the initiation of proceedings was based on valid grounds and not non-existent ones.6. Inquiry or Investigation by PCITThe assessee contended that the PCIT failed to make any inquiry or investigation before initiating proceedings under section 263. The Tribunal noted that the PCIT had demonstrated in the impugned order that the AO did not make proper inquiries or verifications. The Tribunal held that the PCIT was justified in invoking section 263 based on the lack of proper investigation by the AO.7. Proceedings Based on Suspicion and AssumptionsThe assessee argued that the proceedings under section 263 were initiated on mere suspicion and assumptions. The Tribunal found that the PCIT's order was based on the AO's failure to conduct proper inquiries and verifications, which were necessary. The Tribunal rejected the contention that the proceedings were based on suspicion and assumptions.8. Validity of the Order Dated 30.03.2022The assessee questioned the validity of the order dated 30.03.2022, passed under section 147 r.w.s. 144B of the Act. The Tribunal held that the order was valid, even though no addition was made to the returned income. The Tribunal emphasized that the AO's failure to investigate properly did not invalidate the order. The Tribunal upheld the PCIT's revisionary power under section 263, confirming that the order was erroneous and prejudicial to revenue.ConclusionThe Tribunal dismissed the appeal of the assessee, upholding the PCIT's order under section 263. The Tribunal confirmed that the AO's failure to make necessary inquiries and verifications rendered the assessment order erroneous and prejudicial to the interest of revenue, justifying the PCIT's revisionary action.