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Facts
The Pr. CIT invoked revisionary jurisdiction u/s 263 to revise an assessment for AY 2015-16, originally framed by the AO u/s 143(3) r.w.s. 147, alleging it was erroneous and prejudicial to the revenue due to lack of in-depth inquiries on issues like capital introduction and various expenses. The assessee filed an appeal to the ITAT, with a delay that was subsequently condoned.
Held
The Tribunal found that the AO had conducted necessary inquiries, examined books of accounts, and considered the assessee's detailed submissions, thus taking a plausible view. The Pr. CIT was not justified in invoking revisionary jurisdiction under Section 263 to substitute his own view, as the AO's order was neither erroneous nor prejudicial to the revenue.
Key Issues
Whether the Pr. CIT was justified in invoking revisionary jurisdiction u/s 263, holding the AO's assessment order as erroneous and prejudicial to the revenue, despite the AO having conducted inquiries and taken a plausible view.
Sections Cited
263, 143(3), 147, 142(1)
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Income Tax Appellate Tribunal, “B” BENCH, CHANDIGARH
Before: HON’BLE SHRI RAJPAL YADAV & HON’BLE SHRI MANOJ KUMAR AGGARWAL, AM
O R D E R Manoj Kumar Aggarwal (Accountant Member) 1. By way of this appeal, the assessee assails invocation of revisionary jurisdiction u/s 263 by Ld. Pr. Commissioner of Income Tax, Ludhiana-1 (Pr. CIT) for the Assessment Year (AY) 2015-16 vide impugned order dated 24-03-2021 proposing revision of an assessment as framed by Ld. Assessing Officer [AO] u/s.143(3) r.w.s. 147 of the Act on 10-04-2017.
The registry has noted delay of 838 days in the appeal, the condonation of which has been sought by Ld. AR on the ground that substantial period of delay falls within lockdown situation arising out of Covid-19 Pandemic. A condonation petition has been filed which is supported by an affidavit of one of the partners of the assessee-firm. It has been stated that the original assessment was framed on 10-04- 2017 and as on 31-03-2017, all the partners had separated and the business stood closed at the address given in the return of income. No business was in existence after 31-03-2017 which led to delay in the appeal. The hearing notices issued during impugned revisionary proceedings were not served and the assessee was not aware of such proceedings. Upon perusal of these documents, we conclude that sufficient cause has been demonstrated by the assessee on the issue of delay and therefore, we condone the delay and proceed for adjudication of the appeal on merits.
The Ld. AR advanced arguments supporting the assessment order and made out a case of one of the possible views as taken by Ld. AO during the course of regular assessment proceedings. The Ld. CIT- DR, on the other hand, advanced arguments supporting the impugned revisionary order. Having heard rival submissions and upon perusal of case records, the appeal is disposed-off as under.
From the case records, it emerges that the assessee’s return of income was scrutinized vide assessment order dated 10-04-2017. During the course of assessment proceedings, various notices were issued to the assessee u/s 142(1) along with detailed questionnaire calling for various details. Necessary details as requisitioned vide questionnaire and as enumerated in order sheet entries were filed which were examined by Ld. AO. The assessment order takes note of the fact that the books of accounts as produced by the assessee were examined on test check basis with respect to information filed. The assessee was engaged as liquor contractor. As against its sales turnover, the assessee claimed various expenditure. The assessee filed details of excise duty, additional excise duty and administrative expenses which were also examined. The details of purchases were also examined. The various expenditure as claimed by the assessee was perused. After due consideration of assessee’s submissions and explanations, Ld. AO assessed total income at Rs.4.25 Lacs as against returned income of Rs.3.10 Lacs and framed the assessment.
Subsequently, Ld. Pr. CIT, upon perusal of case records, alleged that the assessment was completed without making in-depth enquiries. The first issue that was flagged was that the two partners of the assessee-firm introduced capital of Rs.43.20 Lacs, the sources of which were not verified. The second issue was that the assessee debited expenses of Rs.6.60 Crores as License fees and another amount of Rs.52.56 Lacs as additional license fees but no confirmation / verification was called for by Ld. AO to justify the genuineness and allowability of the transactions. Thirdly, purchases for Rs.2.85 Crores were not verified. Further, no verification of assets was done. The assessee debited rent expenses for Rs.7.25 Lacs but no rent deed was obtained by Ld. AO nor any verification of TDS was done. Also, the assessee debited salary expenditure of Rs.16.25 Lacs but the AO did not obtain list of employees to verify the genuineness of the expenditure. Lastly, AO did not call for bank statement etc. from the assessee. The assessee made various submissions during assessment proceedings but none of the flagged issues were investigated and verified and the same remained unaddressed. Accordingly, the assessment was held to be erroneous and prejudicial to the interest of the revenue and the assessee was show caused. In the absence of any reply forthcoming from the assessee, Ld. AO was directed to make fresh assessment keeping in mind the flagged issues. Aggrieved as aforesaid, the assessee is in further appeal before us. Our findings and Adjudication 6. We find that the assessee’s return of income for this was subjected to scrutiny wherein various notices were issued to the assessee u/s 142(1) along with detailed questionnaire calling for various details from the assessee. From the face of the assessment order itself, it is quite clear that necessary details as requisitioned vide questionnaire and as enumerated in the order sheet entries were filed by the assessee which were duly examined by Ld. AO. The assessment order also takes note of the fact that the books of accounts were produced by the assessee which was examined on test check basis. The assessee filed details of various expenditure which were also examined. The details of purchases were also examined. After due consideration of assessee’s submissions and explanations, Ld. AO substantially accepted the returned income and made adhoc disallowance of expenditure and finally, assessed total income at Rs.4.25 Lacs as against returned income of Rs.3.10 Lacs.
The perusal of documents, as placed in the paper-book, would show that the assessee financial statements were duly audited as mandated under law. No adverse comment has been made by Tax Auditor in its report. The perusal of Profit & Loss Account would show that the expenditure as claimed by the assessee has clearly been identified under each head. The assessee’s Balance Sheet has Annexures which contain capital accounts of the partners. In response to notice u/s 142(1) dated 03-03-2017, the assessee, inter-alia, furnished month-wise purchase and sales account, copy of capital accounts as well as details of additions made to fixed assets. The copy of bank statements and details of all expenses was also furnished along with the reply. In the bank ledger, the payment of Addl. License fee was reflected and ledger of Addl. License fees was also furnished. The ledger of license fees, rent account, salary expenses was also furnished. The perusal of order sheet entries of Ld. AO would reveal that the assessee produced books of accounts on 22-03-2017 which were test checked. The assessee also furnished copy of TCS Account, copy of purchase bills and copies of excise receipts in support of its claim of expenditure. The same are placed on Page Nos.49 to 238 of the paper-book. The case was duly discussed by Ld. AO with the assessee’s representative before framing the assessment. Upon perusal of all these documents, it could very well be said that the various issues as flagged in the impugned revisionary order were duly been questioned by Ld. AO and the same were aptly replied by the assessee from time to time. Upon perusal of all these replies and documents, it could very well be said that whatever information was called for by Ld. AO, the same was duly been supplied by the assessee. The Ld. AO considered the replies of the assessee and after having satisfied with aforesaid explanation as furnished by the assessee, he chose to substantially accept the returned income of the assessee. It could thus be seen that Ld. AO had raised a specific query on various issues as flagged in the impugned revisionary order and accepted the claim of the assessee with due application of mind. Therefore, it is a case of acceptance of one of the plausible views which was more on facts and the said view could not be said to be opposed to any law or statutory provisions. The Ld. AO, in our opinion, had taken one of the plausible views in the matter and therefore, Ld. Pr. CIT could not be said to be justified in substituting the view of Ld. AO with that of his own view. Simply because some further verification was required or simply because the verification was not done in a particular manner, the same could not justify revision of the order unless it was shown that the view of Ld. AO was erroneous or opposed to any law.
It could further be seen that the assessee is a partnership-firm. The capital accounts of the partners stood credited by certain amounts as introduced by the two partners. The source of funds, in the hands of the assessee-firm, in such a case, could not be doubted since the same was nothing but capital introduction by the partners. The onus to prove the source of capital introduction would be on the partners only but the same would not have any bearing on determination of assessee-firm’s income. Therefore, the order could not be said to be erroneous on this score. The ledger extracts and requisite evidences of payment of License fees, additional license fees, purchases, rent expenses and salary expenses were duly filed by the assessee during the course of assessment proceedings. The assessee also furnished bank statements. The books of accounts were produced which were test checked which is evident from order sheet entries. Similarly, the details of addition to fixed assets were also furnished by the assessee. On these facts, the allegation of Ld. Pr. CIT, while proposing impugned revision of the assessment order, could not be sustained.
The Hon’ble Supreme Court in Malabar Industrial Co. Ltd. vs. CIT (243 ITR 83) has held that the phrase 'prejudicial to the interests of the revenue has to be read in conjunction with an erroneous order passed by the Assessing Officer. Every loss of revenue as consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interest of the revenue. For example, when an Income-tax Officer adopted one of the courses permissible in law and it has resulted in loss of revenue; or where two views are possible and the Income-tax Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interest of the revenue, unless the view taken by the Income-tax Officer is unsustainable in law. The said principal has been reiterated by Hon’ble Court in its subsequent judgment titled as CIT V/s Max India Ltd. (295 ITR 282). Similar principal has been followed in Grasim Industries Ltd. V/s CIT (321 ITR 92). The ratio of all these decisions is that where two views are possible and AO has preferred one view against another view, order could not be said to be erroneous or prejudicial to the interest of the revenue.
In the case of Gabriel India Ltd. (203 ITR 108), Hon’ble Bombay High Court observed that from a reading of sub-section (1) of section 263, it is clear that the power of suo-motu revision can be exercised by revisionary authority only if, on examination of the records of any proceedings under this Act, he considers that any order passed therein by the Income-tax Officer is "erroneous in so far as it is prejudicial to the interests of the Revenue". However, this power is not an arbitrary or unchartered power. It could be exercised only on fulfilment of the requirements laid down in sub-section (1). The consideration of revisionary authority must be based on materials on the record of the proceedings called for by him. The revisionary authority could not initiate proceedings with a view to start fishing and roving enquiries in matters or orders which already stood concluded. Such action will be against the well-accepted policy of law that there must be a point of finality in all legal proceedings, that stale issues should not be reactivated beyond a particular stage and that lapse of time must induce repose in and set at rest judicial and quasi-judicial controversies as it must in other spheres of human activity. If Ld. AO, acting in accordance, with law makes a certain assessment, the same could not be branded as erroneous simply because, according to revisionary authority, the order should have been written more elaborately. This section does not visualize a case of substitution of the judgment of the revisionary authority for that of the Income-tax Officer, who passed the order unless the decision is held to be erroneous. When the assessee filed detailed explanation which are part of the record, it could be said that Ld. AO was satisfied with the explanation of the assessee. Such decision of the Income-tax Officer cannot be held to be "erroneous" simply because in his order he did not make an elaborate discussion in that regard. Further inquiry and / or fresh determination can be directed by revisionary authority only after coming to the conclusion that the earlier finding of the Income-tax Officer was erroneous and prejudicial to the interests of the Revenue.
Therefore, on the given facts, the impugned revision of assessment order could not be sustained in law. We order so. The assessment as framed by Ld. AO stand restored back.
The appeal stands allowed in terms of our above order. Order pronounced on 12-08-2025.