ITAT upholds Pr. CIT's sec. 263 revision for lack of inquiry on liquor income, turnover, and sec. 44AB

ITAT Raipur dismissed the assessee's appeal and upheld the Pr. CIT's revision u/s 263. It held that the assessment, framed by summarily accepting the returned income and replies, was made without requisite inquiry or verification regarding underassessment of income from liquor business and applicability of audit provisions u/s 44AB, given the turnover of Rs. 8.28 crore. Applying s. 263 read with Expl. 2, and relying on SC precedent that lack of inquiry causing revenue loss renders an order erroneous and prejudicial to the interests of Revenue, the Tribunal sustained the revisional jurisdiction exercised by the Pr. CIT.

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1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether the appeal could be heard and decided ex parte in the absence of the assessee and without granting further adjournment, having regard to the directive against routine adjournments.

1.2 Whether the revisional jurisdiction under section 263 of the Income Tax Act, 1961 was validly exercised on the ground that the assessment order was passed without proper enquiry or verification, rendering it erroneous and prejudicial to the interests of the Revenue.

1.3 Whether failure by the Assessing Officer to examine (i) under-assessment arising from estimation of net profit in liquor business, and (ii) applicability of tax audit under section 44AB, justified revision under section 263.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Ex parte hearing and refusal of further adjournment

Interpretation and reasoning

2.1 The matter was listed and called on several dates over a prolonged period, during which there was no appearance on behalf of the assessee and no adjournment applications were filed. The record showed that multiple opportunities had already been provided but not availed.

2.2 The Court relied on the directive of the Supreme Court that adjournments should not be granted in a routine or mechanical manner and should not become a cause for delay in dispensing justice; delay undermines access to justice and shakes litigants' confidence in the justice delivery system.

2.3 It was observed that the assessee had been absent from the very beginning, displayed no consciousness of the proceedings, and could not be allowed to take undue advantage of the legal process to deliberately delay the matter. Any further adjournment would run contrary to the Supreme Court's directive.

Conclusions

2.4 The Court held that no further adjournment was warranted and proceeded to hear the matter ex parte, based on the Departmental Representative's submissions and the material on record.

Issue 2 & 3: Validity of revision under section 263 - lack of enquiry; under-assessment and section 44AB

Legal framework (as discussed)

2.5 The Court examined section 263 of the Act along with Explanation 2. Explanation 2 deems an assessment order to be "erroneous in so far as it is prejudicial to the interests of the Revenue" where the order is passed without making inquiries or verification which should have been made, or where relief is allowed without inquiring into the claim.

2.6 The Court referred to Supreme Court decisions holding that where the Assessing Officer accepts the returned income without proper enquiry, resulting in loss of revenue, the order is erroneous and prejudicial to the interests of the Revenue, justifying revision under section 263. It also relied on the principle that an assessment order granting substantial relief without proper application of the relevant law is both erroneous and prejudicial.

Interpretation and reasoning

2.7 The assessee, engaged in liquor business, had large cash deposits in bank accounts. During reassessment, the assessee claimed the deposits represented cash sales from liquor business, and the Assessing Officer accepted the returned income and explanation and framed assessment under sections 147/144B without discussing or examining key points.

2.8 The Internal Audit pointed out that, in line with a High Court decision in respect of liquor business, net profit should be estimated at 5% of total sales. Applying 5% to the assessee's total turnover of Rs. 8,28,78,128/-, net profit was worked out at Rs. 41,43,906/-, which, together with commission and interest income, yielded total income of Rs. 43,66,584/-, as against assessed income of Rs. 19,10,820/-, resulting in under-assessment of Rs. 24,55,764/- and corresponding under-levy of tax and interest.

2.9 It was further noted that with turnover of Rs. 8,28,78,128/-, the provisions of section 44AB (tax audit) were attracted. However, the assessment order contained no discussion, enquiry, or verification on (i) the alleged under-assessment arising from profit estimation in liquor trade, or (ii) applicability and compliance with section 44AB.

2.10 On a plain reading of section 263 together with Explanation 2, the Court observed that the Assessing Officer had passed the assessment in a summary manner, accepting the return and the assessee's reply without making the necessary inquiries or verification. This squarely fell within the deeming provisions of Explanation 2: the order was passed without making inquiries or verification which should have been made and relief was allowed without adequate enquiry.

2.11 Relying on the principles laid down by the Supreme Court in earlier decisions, the Court held that an assessment completed without requisite enquiry, resulting in loss of revenue, becomes both "erroneous" and "prejudicial to the interests of the Revenue," thereby validly attracting revisional jurisdiction under section 263.

Conclusions

2.12 The Court held that:

(a) The Assessing Officer failed to examine and verify crucial aspects relating to estimation of income from liquor business and the applicability of section 44AB, despite the high turnover and indications of under-assessment.

(b) The assessment order was passed in a summary fashion, without appropriate inquiry or discussion on these two areas, leading to under-assessment of income and under-levy of tax.

(c) By virtue of Explanation 2 to section 263, the assessment order was deemed to be erroneous in so far as it was prejudicial to the interests of the Revenue.

2.13 The Court concluded that the Principal Commissioner was correct and justified in invoking and exercising powers under section 263 and in holding the assessment order to be erroneous and prejudicial to the interests of the Revenue. The revisional order under section 263 was upheld, and the assessee's appeal was dismissed.

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