2025 (9) TMI 420 - AT - Income Tax

Appeal allowed: PCIT revision under s.263 unsustainable where AO examined records and took plausible view on PF contributions

Shyam Enterprise, Jamnagar Versus Pr. Commissioner of Income Tax, Jamnagar

ITAT RAJKOT - AT allowed the appeal, holding the PCIT's revision under s.263 unsustainable. The Tribunal found the AO had made full enquiries, examined ... Revision u/s 263 - as per CIT AO while completing the assessment proceeding did not make enquiries which he ought to have made - assessee's case was selected for complete scrutiny - Contribution to employees' contribution to provident fund - HELD THAT:- PCIT has himself agreed that in the assessee’s case “the information was available with the AO as discussed in the Para 5.1 to 5.4 above” therefore, it means all the information and documents were collected by the assessing officer, from the assessee, and examined them, therefore, it is not a case of lack of enquiry, it means, full enquiry has been made by the assessing officer, during the assessment proceedings. Hence, in these circumstances, order passed by the assessing officer, should not be erroneous. We note that in case of contribution to PF, most of the contributions, were made by the assessee within the grace period as per the relevant Act therefore, it is not a contravention of the provisions of relevant Law, as the payment was made within the grace period, and in case of few contributions, there is only a minor delay, therefore, assessing officer has taken a plausible view, moreover, the assessing officer framed the assessment order prior to the decision of the Hon’ble Supreme Court in the case of Checkmate services Private Limited. [2022 (10) TMI 617 - SUPREME COURT (LB)] and hence applied his mind as per the position of the law prevailing on that date. Our view is also fortified by the decision of Daffodills Pharmaceuticals Ltd. [2023 (9) TMI 1309 - ITAT DELHI], wherein, it was held that where AO framed reassessment under section 147 in case of assessee accepting returned income after being satisfied with explanation given by assessee, Pr. Commissioner in exercise of power under section 263 could not find fault with reassessment order under section 143 read with section 147 passed by Assessing Officer and direct AO to carry out further enquiry on materials or judgments of High Court which were not part of assessment records. In the case of the assessee, there is no denying the fact, as detailed above and acknowledged in the assessment order u/s. 143(3) dated 20.04.2021, that in response to notices u/s. 143(2)/142(1) and further requisitions made during the course of assessment proceeding, the assessee appeared from time to time and produced/ submitted necessary details/documents as per requisitions in relation to the issues raised by the Ld. Pr. C.I.T., which were examined by Assessing Officer. Therefore, it is the appraisal of the same records which are already with the Ld. A.O. and the Ld. Pr. C.I.T. took a different view than adopted by the A.O. on the same set of facts, which is not permissible u/s. 263 of the Act. PCIT cannot pass the order u/s 263 of the Act on the ground that further/thorough enquiry should have been made by AO. It is a settled position in law that provisions of sec. 263 of the Act do not permit substituting one opinion by another opinion. Therefore, the order of the C.I.T. cannot be sustained on the principle of ‘erroneous’ nature of the order of the A.O., as it is not erroneous. Further, in the instant case, to reiterate, there was no allegation by the Ld. revenue authorities that the evidences produced were fictitious or invented, thus accepted the authenticity of the same. Such an order cannot be called erroneous and prejudicial to interests of revenue only because the A.O. made the assessment without discussing such details therein - Appeal of the assessee is allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether the order passed by the Principal Commissioner under section 263 of the Income-tax Act was erroneous and prejudicial to the interests of revenue, having regard to the assessment proceedings and materials on record. 2. Whether the assessee was denied sufficient opportunity of being heard in the section 263 proceedings (service of notices / validity of service). 3. Whether the assessing officer failed to make requisite enquiries (distinction between 'lack of inquiry' and 'inadequate inquiry') in respect of: (a) employees' contribution to provident fund; (b) outstanding GST liability; (c) non-deduction of TDS on specified expenses; and (d) disclosure made during survey proceedings (section 133A) and addition under section 69C. 4. Whether selection of the case as 'limited scrutiny' curtailed the power of the Assessing Officer to examine issues raised subsequently in revision (scope of scrutiny selection: limited vs complete). 5. Whether delay of 222 days in filing the appeal should be condoned for reasons of sufficient cause (service of section 263 notices on wrong email and resultant ignorance of revision order). ISSUE-WISE DETAILED ANALYSIS Issue 1 - Validity of exercise of jurisdiction under section 263 (legal framework) Legal framework: Section 263 permits the Principal Commissioner/Commissioner to revise an assessment order which is 'erroneous in so far as it is prejudicial to the interests of the revenue.' Explanation 2 (as inserted) specifies that an order is deemed erroneous if passed without making inquiries or verification which should have been made, or allowing relief without inquiry, or contrary to Board directions or binding higher-court decisions. Precedent treatment: The Tribunal applied established principles that section 263 cannot be used to substitute the Commissioner's view where the Assessing Officer has made inquiries and taken a plausible view; judicial authority holds that mere difference of opinion or claim for more elaborate reasoning by the Commissioner does not render an order erroneous. Interpretation and reasoning: The Tribunal examined the assessment record, the multiple notices issued under section 142(1), the replies and documentary evidence furnished by the assessee, and the assessment order. It found that the AO had issued two show-cause notices, had obtained and considered relevant documents (financial statements, ledgers, bank statements, challans, survey disclosure and tax payment), and had applied his mind before passing the assessment. The PCIT's own finding that 'information was available with the AO' was held to undermine any claim of lack of inquiry. The Tribunal emphasised the distinction between 'lack of enquiry' and 'inadequate enquiry' and held that mere possibility of more detailed inquiry does not justify revision under section 263. Ratio vs. Obiter: Ratio - where the AO has conducted inquiries and taken a plausible view on matters supported by record, the Commissioner cannot reopen the assessment under section 263 merely because he would have preferred a different conclusion. Obiter - commentary on comparative authority decisions cited. Conclusion: The revision order under section 263 was not sustainable because the AO had made requisite inquiries and applied his mind; the order was quashed. Issue 2 - Sufficiency of opportunity / Validity of service in section 263 proceedings Legal framework: Natural justice requires that the assessee be given reasonable opportunity of being heard in revision proceedings; notices must be validly served as per departmental procedures. Precedent treatment: The Tribunal reviewed factual allegations of defective service but treated service as a factual question to be resolved on record; it considered departmental confirmations about email, registered post and SMS alerts from the ITBA/e-filing module. Interpretation and reasoning: The assessee pleaded non-service (not receiving e-notices sent to an incorrect email). The Tribunal examined record and the PCIT's written confirmation that notices and order were sent by email, registered post and that ITBA sends SMS alerts; the Tribunal found the plea of non-service factually incorrect in the light of departmental records. However, on the separate procedural ground of delay in filing the appeal, the Tribunal accepted the assessee's affidavit explaining mistaken email routing as a sufficient cause for condonation. Ratio vs. Obiter: Ratio - validity of service in revision proceedings is a fact-specific enquiry and can be decided on departmental records; non-service pleas must be raised in grounds of appeal but may still be examined if substantiated. Obiter - discussion on ITBA/e-filing mechanisms and SMS alerts. Conclusion: The plea that no notice was served in section 263 proceedings was rejected on record; notwithstanding that, delay in filing appeal was condoned based on sufficient cause (mistaken email ID) and principles favouring substantial justice over technicality. Issue 3 - Whether AO failed to make requisite enquiries on the four contentious items Legal framework: AO's obligations under sections 142(1), 143(3) and evidentiary standards; Explanation 2 to section 263 (inquiries/verification that should have been made); relevant substantive provisions invoked by PCIT (section 36(1)(va) regarding employees' contribution, section 40(a)(ia) re TDS disallowance, section 69C for unexplained money/goods/property, and tax treatment of GST liability treatment). Precedent treatment: The Tribunal relied on authorities establishing that an AO's decision between two plausible views cannot be branded erroneous; subsequent judicial decisions altering legal position (e.g., on timing for PF deduction) cannot be used to fault an AO who acted under then-existing law. Interpretation and reasoning - employees' provident fund: The Tribunal found that most employee contributions were deposited within statutorily permitted grace periods and that the AO had considered the issue before framing assessment. The assessment was completed before a later Supreme Court decision that changed law on timing of deposit; the AO's view was therefore plausible under prevailing law. Interpretation and reasoning - GST liability: The AO examined outstanding GST and the assessee's explanation about timing and utilization of input credit; documentary evidence was on record and the AO applied his judgment in framing assessment. Mere omission in the assessment order to record every detail did not demonstrate absence of inquiry. Interpretation and reasoning - non-deduction of TDS: The AO issued queries, received ledger and expense details and bank statements; classification of labour purchases versus material purchases was a matter of fact and assessment exercise. The Tribunal held that the AO examined TDS compliance and that different view taken by PCIT is not sufficient to invoke section 263. Interpretation and reasoning - survey disclosure and section 69C addition: Although a partner made a statement during survey and tax paid on surrender, the AO had noted the survey action and had the challans; the Tribunal found that the checking of whether surrendered income was brought to tax in assessment was reviewed and that the AO had information. The PCIT's concern about unconsumed challan credit and non-raising of demand did not convert the AO's order into one that was objectively erroneous given the record examined. Ratio vs. Obiter: Ratio - where AO conducts enquiries evidenced by notices, replies and documentary record, the AO's choice among plausible fact or legal conclusions cannot be recharacterised as 'erroneous' under section 263 merely because the Commissioner prefers a different outcome. Obiter - observations on interplay between survey surrender, challan utilization and revenue protection concerns. Conclusion: The AO had made requisite inquiries on all four items; the AO had applied his mind and taken plausible views under the law prevailing when assessment was completed; therefore PCIT could not sustain revision under section 263 on these grounds. Issue 4 - Scope of scrutiny selection (limited vs complete) and its impact on PCIT's jurisdiction Legal framework: Selection category (limited vs complete scrutiny) indicates scope of AO's enquiry but does not rigidly constrain AO where broader facts (e.g., survey disclosure) surface; jurisdiction under section 263 depends on whether AO made warranted inquiries. Precedent treatment: The Tribunal rejected the assessee's contention that limited scrutiny barred further enquiries, noting that the AO's notices under section 142(1) and record entries showed the case was in fact placed for complete scrutiny and that AO exercised full enquiry powers. Interpretation and reasoning: The Tribunal reviewed the ITBA selection entry, AO's notices and the record and concluded that the selection did not limit AO's enquiries; accordingly, PCIT's exercise could not be justified by claiming the AO should not have examined matters beyond a purported limited scope. Ratio vs. Obiter: Ratio - where record shows AO conducted complete scrutiny enquiries, the selection label is not material to exercise of section 263; Obiter - procedural note that selection category must be read in conjunction with AO's actual actions and notices issued. Conclusion: The AO had treated the case as complete scrutiny and had in fact examined the issues; therefore the argument that PCIT lacked jurisdiction on account of 'limited scrutiny' failed. Issue 5 - Condonation of delay in filing the appeal Legal framework: Statutory limitation for appealing to the Tribunal can be condoned for 'sufficient cause'; courts favour substantial justice where delay is not deliberate or mala fide. Precedent treatment: The Tribunal invoked the principle that substantial justice should prevail over technical delay when sufficient cause is shown, referring to higher-court dicta favouring condonation where delay is unintentional. Interpretation and reasoning: The assessee explained that email notices were sent to an incorrect email ID not belonging to the assessee, resulting in ignorance of the revision order and inability to challenge it within time. The Tribunal found the affidavit and explanation convincing and that the delay was unintentional and not mala fide; accordingly delay of 222 days was condoned in interest of justice. Ratio vs. Obiter: Ratio - delay in filing an appeal may be condoned where sufficient cause (e.g., non-receipt due to wrong email ID) is established and where substantial justice dictates; Obiter - administrative mechanics of ITBA alerts and registered post do not automatically defeat a credible explanation of non-receipt. Conclusion: Delay of 222 days in preferring the appeal was condoned on finding of sufficient cause; appeal admitted for hearing. OVERALL CONCLUSION The Tribunal held that the Assessing Officer had conducted necessary inquiries and applied his mind on the issues raised; the Principal Commissioner's order under section 263 amounted to substitution of opinion rather than correction of an objectively erroneous and prejudicial order. The section 263 order was therefore quashed and the appeal allowed (with delay in filing the appeal condoned on sufficient cause).