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Facts
The assessee, a co-operative society, filed its return of income for AY 2018-19, which was accepted in an assessment order passed under Section 143(3). Subsequently, the PCIT initiated revisionary proceedings under Section 263, noting that the AO had failed to inquire into the allowability of significant provisions for expenses made by the assessee. The PCIT set aside the assessment, directing the AO to re-examine the issues, against which the assessee appealed.
Held
The Tribunal held that the Assessing Officer's role is not only adjudicatory but also investigative, and a failure to inquire into substantial claims renders the assessment order erroneous and prejudicial to the revenue. Citing precedents, the Tribunal concluded that the PCIT was justified in exercising powers under Section 263 to revise the assessment order due to the AO's lack of inquiry.
Key Issues
Whether the Principal Commissioner of Income Tax was justified in exercising revisionary powers under Section 263 when the Assessing Officer failed to inquire into the allowability of provisions for expenses; and the scope of the Assessing Officer's investigative duty during assessment.
Sections Cited
143(3), 263
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Income Tax Appellate Tribunal, COCHIN BENCH
Before: SHRI INTURI RAMA RAO, AM & SHRI PRAKASH CHAND YADAV, JM
O R D E R Per: Inturi Rama Rao, AM This appeal filed by the assessee is directed against the order of the learned Pr. Commissioner of Income Tax (PCIT), dated 09.03.2023 for Assessment Year (AY) 2018-19.
Brief facts of the case are that the appellant is a co-operative society engaged in procurement and sale of milk and milk products. The return of income for AY 2018-19 was filed disclosing income of Rs. 15,11,76,788/-. Against the said return of income, the assessment was completed by the ACIT, Circle-2(1), Kozhikode Malabar Regional Co-op. Milk Producers Union Ltd. (hereinafter called "the AO") vide order dated 09.03.2023 passed u/s. 143(3) of the Income Tax Act, 1961 (the Act) accepting the returned income.
Subsequently, the learned PCIT, Kozhikode, on examination of the assessment record found that the appellant company debited an amount of Rs. 1,67,56,792/- towards provision for expenses and created a provision of Rs. 1,57,94,958/- by debiting the Profit & Loss A/c. He was of the opinion that the AO had failed to examine the allowability of the above two items and, therefore, formed an opinion that the assessment order is erroneous and prejudicial to the interests of Revenue. The learned PCIT accordingly issued show cause notice u/s. 263 of the Act proposing to revise the assessment order.
In response to the show cause notice, it was submitted that the provision for expenses of Rs. 1,57,94,958/- was made in terms of the agreement entered by the management with the workers union on pay revision on 08.05.2017. It was stated that as regard, to the second item the provision for expenses was made on accrual basis though permission of the government was obtained ex-post facto.
The PCIT, on due consideration of the submission, found that since the AO failed to enquire about the above items, the assessment order is erroneous and prejudicial to the interests of Revenue and accordingly set aside the assessment with a direction to the AO to examine the issues and pass an order after affording opportunity of hearing to the appellant.
We heard the rival submissions and perused the material on record.
The Parliament had conferred the power of revision on the Commissioner of Income Tax u/s 263 of the Act in case the assessment order passed is erroneous and prejudicial to the interests of revenue. In order to invoke the power of revision, the above two conditions are required to be satisfied cumulatively. References in this regard can be made to the decision of the Hon’ble Supreme Court in the case of Malabar Industrial Co. Ltd. vs. CIT, 243 ITR 83 (SC) and in the case of CIT vs. Max India Ltd., 295 ITR 282 (SC). The error in the assessment order should be one that it is not debatable or plausible view. In a case where the Assessing Officer examined the claim took one of the plausible views, the assessment order cannot be termed as an “erroneous”.
In the light of the above we proceed to examine the facts of the present case, whether the AO had examined the allowability of the above two provisions extracted supra. During the course of hearing of the appeal the learned A.R. fairly conceded that the AO had not examined the allowability or otherwise of these two times of provision. Needless to say that the role of the AO under the Malabar Regional Co-op. Milk Producers Union Ltd. provisions of the Income Tax Act is not only that of a adjudicator but also of an investigator and he cannot remain oblivious to claim without enquiry as held by the Hon'ble Kerala High Court in the case of Cochin International Airport Ltd. v. ACIT, Corporate Circle – 1(1) Kochi, of 2018 dated 07.01.2024 wherein it is held vide para 10 of the order as under: - “10. It is true that all orders, which are erroneous, are not liable to be subjected to proceedings under Section 263 of the Income Tax Act, 1961. To invoke Section 263, the Principal Commissioner of Income Tax must be satisfied that the erroneous order also causes prejudice to the Revenue. The real purport of Section 263 is to remove the prejudice caused to the Revenue by the erroneous order passed by the assessing officer and it empowers the Commissioner to initiate suo motu proceedings, when either the assessing officer takes a wrong decision without considering materials available on record or renders a decision without enquiry. The role of the assessing officer under the Income Tax Act, 1961 is not only that of an adjudicator but also of an investigator and he cannot remain oblivious in the face of a claim without any enquiry. The assessing officer must exercise a dual role of protecting the interest of the Revenue as well as that of the assessee and that is the reason why he is expected to pass orders with utmost diligence. If, on facts, a claim made is assumed to be correct, then the assessing officer must necessarily state reasons as to why he is allowing the claim.”
Thus, non-enquiry by the Assessing Officer renders the assessment order erroneous and prejudicial to the interest of Revenue. Therefore, the learned PCIT is justified in exercising the power of revision.
In the result, appeal filed by the assessee stands dismissed.