2025 (8) TMI 297 - AT - Income Tax

Assessment under Sections 147 and 144 cannot be revised under Section 263 if AO acted on best judgment

The ITAT Mumbai held that an assessment order framed under section 147 read with section 144 of the Act, completed to the best of the AO's judgment, ... Revision u/s 263 - Order framed u/s 147 r.w.s. 144 of the Act as erroneous and prejudicial to the interest of the revenue - as per CIT AO did not make any enquiry and because of which the expenditure claimed by the assessee was allowed and only the balance corpus was assessed to tax which made the assessment order erroneous and prejudicial to the interest of the revenue. Assessee strongly contended that since the assessment order was an ex-parte order by which the AO assessed income of the assessee to the best of his judgement, therefore, the judgement of the AO cannot be substituted with the judgement of the CIT(E). HELD THAT:- As decided in SANJAY UMARSHI DAND [2025 (7) TMI 1354 - ITAT NAGPUR] once an order is passed u/s 144 of the Act it is after taking into account all relevant material which the AO has gathered and after considering the entire case records in totality, the law grants power to the AO u/s 144 of the Act to complete the assessment to the best of his judgement and to determine the sum payable by the Assessee on the basis of such assessment. We find that such power granted u/s 144 is absolute for the AO. AO having exercised his best possible judgement u/s 144 of the Act, his best possible judgement cannot under any means be held to be erroneous which is one of the conditions for invoking the powers u/s 263 of the Act. We are of the considered view that it cannot be denied that u/s 144 AO makes a best judgement assessment and, therefore, the judgement of the AO cannot be substituted by the judgement of the CIT(E). Assessee appeal allowed. ISSUES: Whether an order passed under section 144 of the Income Tax Act, completed ex parte to the best of the Assessing Officer's judgment, can be revised under section 263 of the Act.Whether the Assessing Officer's order is 'erroneous in so far as it is prejudicial to the interests of the revenue' when the AO made partial addition of corpus donations instead of the entire amount.Whether the Assessing Officer failed to make necessary inquiries or verifications before passing the assessment order under section 144.Whether the jurisdiction to invoke revision under section 263 exists when the assessment order is passed by a National Faceless Assessment Centre (NFAC).Whether the conditions for invoking section 263 are satisfied when the assessed income under section 144 is higher than the income proposed to be assessed by the revising authority. RULINGS / HOLDINGS: The power conferred on the Assessing Officer under section 144 to complete assessment 'to the best of his judgement' cannot be substituted or interfered with by the Principal Commissioner under section 263 merely because the revising authority disagrees with the estimate.The order passed under section 144 is not 'erroneous in so far as it is prejudicial to the interests of the revenue' solely because the AO made addition of balance corpus donation instead of the total corpus donation amount, as the AO exercised best judgement based on available material.The AO's exercise of powers under section 144 following inadequate cooperation from the assessee does not amount to passing the order 'without making inquiries or verification which should have been made' under section 263(1)(a).The fact that the assessment order was passed by NFAC does not oust the jurisdiction of the Principal Commissioner or Commissioner to invoke section 263.The twin conditions for invoking section 263 - that the order must be erroneous and prejudicial to the interests of the revenue - are not satisfied where the assessed income under section 144 is higher than the income proposed by the revising authority, thus no prejudice to revenue arises. RATIONALE: The Court applied the statutory framework of sections 144 and 263 of the Income Tax Act, emphasizing the 'best judgement' nature of assessments under section 144 and the limited scope of revision under section 263.It relied on precedent from a Coordinate Bench which held that an order passed under section 144 cannot be deemed erroneous merely because the revising authority disagrees with the quantum of income assessed, as this would undermine the independence granted to the AO under section 144.The Court recognized that the AO's inability to obtain cooperation from the assessee justifies the exercise of powers under section 144 and does not equate to lack of inquiry or verification under section 263.The Court rejected the revising authority's interpretation that partial addition of corpus donation was erroneous, holding that the AO's judgment based on the facts and material before him was not vitiated by error prejudicial to revenue.No doctrinal shift was indicated; rather, the Court reaffirmed established principles limiting the scope of revision under section 263 in cases where assessments are completed under section 144.