J.R.D TATA TRUST ,MUMBAI vs. CIT (E), MUMBAI

In this appeal the assessee has assailed the order of Commissioner of Income Tax(Exemptions), Mumbai [ in short ‘the CIT(E)’] dated 31/03/2019 passed under section 263 of the of the Income Tax Act, 1961 ( in short ‘the Act’) for assessment year 2009-10.

Shri Percy Pardiwala appearing on behalf of the assessee submitted at the outset that the assessee in appeal has raised legal grounds assailing the action of CIT in invoking Revisional Jurisdiction under section 263 of the Act, as well as, challenged the validity of impugned order on the ground of limitation. In grounds No.1 and 2 of appeal, the assessee has assailed validity of order passed under section 263 of the Act on the ground that it is time barred. The legal ground raised in grounds No. 1 and 2 are not pressed at this stage, however, the assessee seeks liberty to revive these grounds in case the situation arises at later point of time.

Shri Prabhat Kumar Gupta representing the Department supported the impugned order passed under section 263 of the Act . However, the ld.Departmental Representative fairly admitted that similar orders passed u/s.263 of the Act in the case of Sir Dorabji Tata Trust(supra) and in assessee’s own case for the assessment year 2014-15(supra) has been set-aside by the Tribunal.

We have heard the submissions made by rival sides and have examined the orders of authorities below. The ld.Counsel for the assessee has stated at the Bar that he is not pressing grounds No. 1 and 2 of the appeal at this stage and seeks liberty to revive the grounds, if need arises at later point of time. No objection has been raised by the Revenue on the liberty sought by ld.Counsel for the assessee. In view of the statement made by ld.Counsel for the assessee, grounds No.1 and 2 of the appeal are dismissed as not pressed at this stage with liberty to revive, as prayed for.

Now, the assessee has assailed the impugned order passed under section 263 of the Act on following grounds:

Both sides are unanimous that grounds raised in present appeal challenging validity of revisional order passed under section 263 of the Act are identical to the grounds raised in the case of Sir Dorabji Tata Trust (supra). We have observed that the order of CIT(E) in the case of Sir Dorabji Tata Trust (supra) and in the present appeal is almost identical. In fact, conclusion of the order passed by CIT(E) is verbatim. For the sake of completeness the concluding part of the impugned order is reproduced herein below:

In the light of the discussion in the preceding paragraphs, I am of the opinion that the order u/s 143(3) r.w.s. 147 dated 30.11.2016 for the assessment year 2009-10 is Erroneous in so far as it is prejudicial to the interests of the revenue. Therefore, order is set aside to the file of the A.O. for making a de-novo assessment after proper examination of various issues including the aforesaid issues. Needless to mention, the Assessing Officer must decide the issue after affording reasonable opportunity of being heard to the assessee and must pass a speaking and well reasoned order dealing with all the submissions of the assessee.”

The Co-ordinate Bench of Tribunal in the case Sir Jamshedji Tata Trust (supra) decided both the grounds assailing invoking of jurisdiction under section 263 of the Act on the premise that the assessment order is erroneous and prejudicial to the interest of Revenue as the Assessing Officer has failed to conduct verification, in favour of assessee, by observing as under:

We have heard the rival contentions, perused the material on record and duly considered facts of the case in the light of the applicable legal position.

We find that the case of the Commissioner hinges on, what he perceives as, lack of inquiry, the inadequacy of inquiry, or taking up the pertinent line of inquiry but not following it to its logical conclusion. Learned Departmental Representative has also been very gracious to submit that none doubts the philanthropic work being done by the assessee trust but the short question before us really is whether or not the due verifications have been carried out by the Assessing Officer. The stand of the learned Commissioner has simply been reiterated by the Departmental Representative, and a lot of emphasis is placed on the fact in the light of Explanation 2 to Section 263 once Commissioner is of the view, as he has been on the facts of this case, that “the order is passed without making inquiries or verification which should have been made”, the order is required to be treated as erroneous and prejudicial to the interest of the revenue. Therefore, we must examine the nature of inquiries conducted by the Assessing Officer and whether these inquiries were so deficient as to render the order ‘erroneous and prejudicial to the interests of the revenue’, within meanings of that expression assigned under section 263. 19. The question that we also need to address is as to what is the nature of scope of the provisions of Explanation 2(a) to Section 263 to the effect that an order is deemed to be “erroneous and prejudicial to the interests of the revenue” when Commissioner is of the view that “the order is passed without making inquiries or verification which should have been made”. 20. Undoubtedly, the expression used in Explanation 2 to Section 263 is “when Commissioner is of the view,” but that does not mean that the view so formed by the Commissioner is not subject to any judicial scrutiny or that such a view being formed is at the unfettered discretion of the Commissioner. The formation of his view has to be in a reasonable manner, it must stand the test of judicial scrutiny, and it must have, at its foundation, the inquiries, and verifications expected, in the ordinary course of performance of duties, of a prudent, judicious and responsible public servant- that an Assessing Officer is expected to be. If we are to proceed on the basis, as is being urged by the learned Departmental Representative and as is canvassed in the impugned order, that once Commissioner records his view that the order is passed without making inquiries or verifications which should have been made, we cannot question such a view and we must uphold the validity of revision order, for the recording of that view alone, it would result in a situation that the Commissioner can de facto exercise unfettered powers to subject any order to revision proceedings. To exercise such a revision power, if that proposition is to be upheld, will mean that virtually any order can be subjected to revision proceedings; all that will be necessary is the recording of the Commissioner’s view that “the order is passed without making inquiries or verification which should have been made”. Such an approach will be clearly incongruous. The legal position is fairly well settled that when a public authority has the power to do something in aid of enforcement of a right of a citizen, it is imperative upon him to exercise such powers when circumstances so justify or warrant. Even if the words used in the statute are prima facie enabling, the courts will readily infer a duty to exercise a power which is invested in aid of enforcement of a right—public or private—of a citizen. [L Hirday Naran Vs Income Tax Officer [(1970) 78 ITR 26 (SC)]. As a corollary to this legal position, when a public authority has the powers to do something against any person, such an authority cannot exercise that power unless it is demonstrated that the circumstances so justify or warrant. In a democratic welfare state, all the powers vested in the public authorities are for the good of society. A fortiorari, neither can a public authority decline to exercise the powers, to help anyone, when circumstances so justify or warrant, nor can a public authority exercise the powers, to the detriment of anyone, unless circumstances so justify or warrant. What essentially follows is that unless the Assessing Officer does not conduct, at the stage of passing the order which is subjected to revision proceedings, inquiries and verifications expected, in the ordinary course of performance of duties, of a prudent, judicious and responsible public servant- that an Assessing Officer is expected to be. Commissioner cannot legitimately form the view that “the order is passed without making inquiries or verification which should have been made”. The true test for finding out whether Explanation 2(a) has been rightly invoked or not is, therefore, not simply existence of the view, as professed by the Commissioner, about the lack of necessary inquiries and verifications, but an objective finding that the Assessing Officer has not conducted, at the stage of passing the order which is subjected to revision proceedings, inquiries and verifications expected, in the ordinary course of performance of duties, of a prudent, judicious and responsible public servant that the Assessing Officer is expected to be.

That brings us to our next question, and that is what a prudent, judicious, and responsible Assessing Officer is to do in the course of his assessment proceedings. Is he to doubt or test every proposition put forward by the assessee and investigate all the claims made in the income tax return as deep as he can? The answer has to be emphatically in negative because, if he is to do so, the line of demarcation between scrutiny and investigation will get blurred, and, on a more practical note, it will be practically impossible to complete all the assessments allotted to him within no matter how liberal a time limit is framed. In scrutiny assessment proceedings, all that is required to be done is to examine the income tax return and claims made therein as to whether these are prima facie in accordance with the law and where one has any reasons to doubt the correctness of a claim made in the income tax return, probe into the matter deeper in detail. He need not look at everything with suspicion and investigate each and every claim made in the income tax return; a reasonable prima facie scrutiny of all the claims will be in order, and then take a call, in the light of his expert knowledge and experience, which areas, if at all any, required to be critically examined by a thorough probe. While it is true that an Assessing Officer is not only an adjudicator but also an investigator and he cannot remain passive in the face of a return which is apparently in order but calls for further inquiry but, as observed by Hon’ble Delhi High Court in the case of Gee Vee Enterprises Vs ACIT [(1195) 99 ITR 375 (Del)], “it is his duty to ascertain the truth of the facts stated in the return when the circumstances of the case are such as to provoke an inquiry. (Emphasis, by underlining, supplied by us). It is, therefore, obvious that when the circumstances are not such as to provoke an inquiry, he need not put every proposition to the test and probe everything stated in the income tax return. In a way, his role in the scrutiny assessment proceedings is somewhat akin to a conventional statutory auditor in real-life situations. What Justice Lopes said, in the case of Re Kingston Cotton Mills [(1896) 2 Ch 279, 288)], in respect of the role of an auditor, would equally apply in respect of the role of the Assessing Officer as well. His Lordship had said that an auditor (read Assessing Officer in the present context) “is not bound to be a detective, or, as was said, to approach his work with suspicion or with a foregone conclusion that there is something wrong. He is a watch-dog, but not a bloodhound.”. Of course, an Assessing Officer cannot remain passive on the facts which, in his fair opinion, need to be probed further, but then an Assessing Officer, unless he has specific reasons to do so after a look at the details, is not required to prove to the hilt everything coming to his notice in the course of the assessment proceedings. When the facts as emerging out of the scrutiny are apparently in order, and no further inquiry is warranted in his bonafide opinion, he need not conduct further inquiries just because it is lawful to make further inquiries in the matter. A degree of reasonable faith in the assessee and not doubting everything coming to the Assessing Officer’s notice in the assessment proceedings cannot be said to be lacking bonafide, and as long as the path adopted by the Assessing Officer is taken bonafide and he has adopted a course permissible in law, he cannot be faulted- which is a sine qua non for invoking the powers under section 263. In the case of Malabar Industrial Co Ltd Vs CIT [(2000) 243 ITR 83 (SC)], Hon’ble Supreme Court has held that “Every loss of revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interests of the revenue, for example, when an ITO adopted one of the courses permissible in law and it has resulted in loss of revenue; or where two views are possible and the ITO has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the revenue unless the view taken by the ITO is unsustainable in law.” The test for what is the least expected of a prudent, judicious and responsible Assessing Officer in the normal course of his assessment work, or what constitutes a permissible course of action for the Assessing Officer, is not what he should have done in the ideal circumstances, but what an Assessing Officer, in the course of his performance of his duties as an Assessing Officer should, as a prudent, judicious or reasonable public servant, reasonably do bonafide in a real-life situation. It is also important to bear in mind the fact that lack of bonafides or unreasonableness in conduct cannot be inferred on mere suspicion; there have to be some strong indicators in direction, or there has to be a specific failure in doing what a prudent, judicious and responsible officer would have done in the normal course of his work in the similar circumstances. On a similar note, a coordinate bench of the Tribunal, in the case of Narayan T Rane vs ITO [(2016) 70 taxmann.com 227 (Mum)] has observed as follows: 20. Clause (a) of Explanation states that an order shall be deemed to be erroneous, if it has been passed without making enquiries or verification, which should have been made. In our considered view, this provision shall apply, if the order has been passed without making enquiries or verification which a reasonable and prudent officer shall have carried out in such cases, which means that the opinion formed by Ld Pr. ClT cannot be taken as final one, without scrutinising the nature of enquiry or verification carried out by the AO vis-a-vis its reasonableness in the facts and circumstances of the case. Hence, in our considered view, what is relevant for clause (a) of Explanation 2 to sec. 263 is whether the AO has passed the order after carrying our enquiries or verification, which a reasonable and prudent officer would have claimed out or not. It does not authorise or give unfettered powers to the Ld Pr. CIT to revise each and every order, if in his opinion, the same has been passed without making enquiries or verification which should have been made.

Having said that, we may also add that while in a situation in which the necessary inquiries are not conducted or necessary verifications are not done, Commissioner may indeed have the powers to invoke his powers under section 263 but that it does not necessarily follow that in all such cases the matters can be remitted back to the assessment stage for such inquiries and verifications. There can be three mutually exclusive situations with regard to exercise of powers under section 263, read with Explanation 2(a) thereto, with respect to lack of proper inquiries and verifications. The first situation could be this. Even if necessary inquiries and verifications are not made, the Commissioner can, based on the material before him, in certain cases straight away come to a conclusion that an addition to income, or disallowance from expenditure or some other adverse inference, is warranted. In such a situation, there will be no point in sending the matter back to the Assessing Officer for fresh inquiries or verification because an adverse inference against the assessee can be legitimately drawn, based on material on record, by the Commissioner. In exercise of his powers under section 263, the Commissioner may as well direct the Assessing Officer that related addition to income or disallowance from expenditure be made, or remedial measures are taken. The second category of cases could be when the Commissioner finds that necessary inquiries are not made or verifications not done, but, based on material on record and in his considered view, even if the necessary inquiries were made or necessary verifications were done, no addition to income or disallowance of expenditure or any other adverse action would have been warranted. Clearly, in such cases, no prejudice is caused to the legitimate interests of the revenue. No interference will be, as such, justified in such a situation. That leaves us with the third possibility, and that is when the Commissioner is satisfied that the necessary inquiries are not made and necessary verifications are not done, and that, in the absence of this exercise by the Assessing Officer, a conclusive finding is not possible one way or the other. That is perhaps the situation in which, in our humble understanding, the Commissioner, in the exercise of his powers under section 263, can set aside an order, for lack of proper inquiry or verification, and ask the Assessing Officer to conduct such inquiries or verifications afresh.

The Co-ordinate Bench of Tribunal in assessee’s own case for assessment year 2014-15 in (supra) has quashed the order passed under section 263 of the Act for identical reasons. We are live to the fact that rule of resjudicata does not operate under Income Tax Law, however, when facts are admittedly identical the principle of consistency comes into play. Since, the facts germane to the issue assailed in grounds No.3 and 4 of the appeal are identical to the one adjudicated by the Tribunal in the case of Sir Dorabji Tata Trust (supra) and in assessee’s own case (supra) we see no reason to take a different view. Consequently, the assessee succeeds on grounds No.3 and 4 of the appeal. The impugned order is quashed and ground No.3 and 4 of appeal are allowed..

In the result, appeal is allowed.