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Facts
The assessee company filed its return of income, and subsequently, an assessment order was passed. The PCIT initiated proceedings under section 263, holding the assessment order to be erroneous and prejudicial to the revenue. The PCIT noted that the assessee's explanation for cash payments evolved, initially linking it to property bookings and later to wages, with inconsistencies found.
Held
The Tribunal held that the Assessing Officer (AO) had failed to conduct proper inquiries regarding the cash payments made by the assessee, particularly to Mr. Zaffer Babu, and accepted the assessee's claims without adequate verification. The PCIT was justified in exercising revisional powers under section 263 to cause further inquiry.
Key Issues
Whether the PCIT was justified in invoking Section 263 of the Income Tax Act, 1961, to revise the assessment order due to the alleged lack of proper inquiry by the Assessing Officer concerning cash payments.
Sections Cited
263, 133A, 143(3), 131, 69C, 142(1), 37, 192, 192C
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “C’’ BENCH: BANGALORE
Before: SHRI CHANDRA POOJARI & SHRI KESHAV DUBEY
PER CHANDRA POOJARI, ACCOUNTANT MEMBER:
This appeal by assessee is directed against order of PCIT/NFAC for the assessment year 2019-20 dated 4.2.2024 passed u/s 263 of the Income Tax Act, 1961 (in short “The Act”). The assessee has raised following grounds of appeal: 1. The order of the learned Principal Commissioner of Income Tax (Central), Bengaluru (PCIT) in so far as it is against the appellant, is opposed to law, weight of evidence, natural justice, probabilities, facts and circumstances of the appellant's case.
The learned PCIT has grossly erred in revising the order passed by the learned assessing officer without appreciating that there is no error which is prejudicial to the interest of the Revenue and therefore the order passed by the learned PCIT under section 263 of the Act is not in accordance with law and the same requires to be cancelled under the facts and circumstances of the case.
ITA No.652/Bang/2024 M/s. Corporate Leisure & Property Development Pvt. Ltd., Bangalore Page 2 of 19 3. The learned PCIT failed to appreciate that the direction to make fresh assessment amounts to ordering for conducting fishing & roving enquires which is not permissible and consequently the order under section 263 of the Act passed by the PCIT is not in accordance with law and thus the same needs to be quashed on the facts of the case.
The learned PCIT failed to appreciate that no jurisdiction can be assumed under section 263 of the Act if there was any inquiry conducted by the assessing officer on an issue, even if the inquiry so made was inadequate under the facts of the case.
The learned PCIT failed to appreciate that the total payment of wages to the workers across various project sites during the year under consideration was Rs.1,89,60,754/- and the labourers prefer to receive their wages on a daily or weekly basis in cash and consequently the appellant was required to withdraw cash from bank for making such payments. 6. The learned PCIT erred in holding that the appellant has not accounted cash payments of Rs.1.90 crores to Mr. Zaffer Babu under the facts & circumstances of the case. 7. The appellant craves leave to add, alter, delete or substitute any of the grounds urged above.
In view of the above and other grounds that may be urged at the time of the hearing of the appeal, the appellant prays that the appeal may be allowed in the interest of justice and equity.
Facts of the case are that the assessee M/S Corporate Leisure and Property Developments Pvt. Ltd. is a company, which filed its return of income declaring a total income of Rs. 9,59,44,640/-. An Action u/s 133A of Act (Survey) was conducted at the business premises of the assessee on 05.03.2019. Pursuant to survey, assessment order u/s 143(3) of the Act was passed by the AO on 30.09.2021, assessing the total income at Rs. 10,71,29,591/-. 2.1 During the course of survey, it was found that the assessee had made cash payments amounting to Rs.1.90 Crore on different dates to one Shri Zaffer Babu. The Principal Officer of the assessee's company in his/her statement u/s 131 of the Act, stated that the cash payments have been made to Mr. Zaffer babu who had booked
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Page 3 of 19 the flats of "Suncity Gloria Projects" in the launch stage, later it got cancelled and now, he is refunding the amount after selling flats to other persons. It was also found that, these cash payments were not reflected in the cash book of the assessee and the assessee could not offer any explanation regarding the source of this cash. Subsequently, during scrutiny proceedings, the assessee has explained that the cash payments of Rs. 1.84 Crore represents the aggregate wages disbursed to workers. The assessee stated that said cash was from the bank account and kept aside for project/operation work. However, neither details like dates, details of bank account nor supporting materials such as cash book, bank account copies etc. were furnished. On examination, it was observed from the Profit and Loss Statement for the F.Y. 2018-19, an amount of Rs.2,39, 15,928/- has been shown as Salaries, Wages and Bonus and out of this salary alone amounts to Rs.1,61,51,068/- as per ledger account, in view of this, wages cannot be more that Rs.78 lacs.
2.2 From the above, the ld. PCIT observed that, the assessee has changed his statement/explanation regarding the nature of cash payments. At first instance it stated that the cash payments were in connection to booking of flats in "Sun City Gloria Project" but on later date, (during scrutiny proceedings) the assessee has changed the explanation to the cash payments as wages payments. He further observed that the later explanation does not match with the ledger accounts in books of assessee Company. The explanation of assessee appears to be an afterthought and fails to inspire confidence, hence liable to be rejected. It was required by the AO to treat the above amount of Rs.1.90 Crore as unexplained expenditure and charged to tax u/s 69C of the Act. However, the AO has failed to do so, thereby resulting in under assessment. Hence, the ld. PCIT observed that the assessment order u/s 143(3) dated 30.09.2021 for the A. Y. 2019-20,
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Page 4 of 19 (impugned order) is erroneous and prejudicial to the interest of revenue. 2.3 After issuing show cause notice and calling for the reply from the assessee, the ld. PCIT observed as under:
ii) “During scrutiny proceedings, the assessee has attempted to explain that the cash payments of Rs. 1.84 Crore represents the aggregate wages disbursed to workers. The said cash was stated to be drawn from the bank and kept aside for project/operation work. However, corroboration and correlation of drawings from bank & payments from books of accounts were not made during the assessment proceedings. iii) On examination, it is observed from the Profit and Loss Statement for the F.Y. 2018-19, an amount of Rs.2,39,15,928/- has been shown as Salaries, Wages and Bonus and out of this salaries amounts to Rs.1,61 ,51 ,068/-, hence the wages cannot exceed Rs.78 lacs, whereas the impugned cash payments amount to Rs.1,89,60,754/-. In view of this, the explanation of assessee is found incorrect. On perusal of the audit report, Form 3CB/3CD for A. Y. 2019-20 it is iv) evident that the assessee has maintained cash book, bank book etc., however the same were not produced to Corroborate its explanation. v) The assessee has not offered any credible explanation for making such large payments in cash. The details of payees (name, address, PAN etc.), the rational and justification for making payments in cash is not furnished.
The payments have not been subjected to TDS under relevant provisions vi) such as Sect 192 or Sect 192C of the Income Tax Act, 1961.
vii) It is noticed that the assessee has not accounted for the cash payments of Rs. 1.90 crores made to Sri. Zaffer Babu even though it has maintained regular books of accounts.
viii) It is seen from the assessee's reply that, the assessee has contended that the A.O has sought for the information pertaining to the cash payments made to Sri. Zaffar Babu and also that the details called for were furnished, The assessee in its reply has claimed that once the A.O has conducted due enquiries and satisfied with the nature of explanation, information, details provided by the assessee, forms an opinion and completes the assessment, it cannot be equated to being both erroneous and prejudicial to the interest of the Revenue. This contention of assessee is not supported by facts evident or record and hence not acceptable. It is clear that all the relevant details were not called for by Ld. AO and the assessee has also not produced comprehensive set of details. Further it is evident from assessment records that the issue was not examined and required inquiries and verifications were not conducted by Ld.AO before completion of the (3 assessment. It is for this
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Page 5 of 19 reason of non-verification by the A.O that the assessment was considered as erroneous and prejudicial to the interest of the Revenue.”
2.4 He gave a direction to the ld. AO to re-examine the issue in accordance with law. Against this assessee is in appeal before us. 3. The ld. A.R. submitted that during the assessment proceedings, notices under Section 142(1) of the Act were issued, requesting explanations regarding cash seized, loans advanced, seized material, etc. the appellant had diligently provided voluminous replies, furnishing all details and information sought by the assessing officer. While the assessing officer did consider all the contentions, regrettably; not all were upheld. Consequently, the appellant had filed an appeal against the said order. The fact that the assessing officer considered all the replies and submissions in reaching the assessment underscores the application of mind in the process. 3.1 The assessment order dated 29.09.2021 was passed by the assessing Officer, after thorough analysis of various submissions, details, and information provided by us at different stages of the assessment proceedings. There was no lack of inquiry or inadequacy in the inquiry conducted by the learned assessing officer. The ld. A.R. submitted that all details concerning the proposed additions were duly furnished to the assessing officer and are well-documented in the department's records. Consequently, the order passed by the assessing officer is neither erroneous nor prejudicial to the interests of the revenue in the context of this case. Therefore, the order passed by the learned PCIT under section 263 of the Act is not in accordance with law and hence the same needs to be quashed in the interest of advancing substantial justice. 3.2 It is relevant to mention that the assessing officer during the course of assessment proceedings vide notice issued under section 142(1) of the Act dated 13.08.2021 has sought for the source of
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Page 6 of 19 cash payments made to Mr. Zaffer Babu. The relevant extract of the notice is as follows:
"30. Further, during the course of survey, loose sheets impounded vide Annexure A/CPLD/LS/I wherein written pages 178 & 183 contains cash payments made to Zaffer Babu. Kindly explain the source for the same. If you failed to furnish any explanation, Rs.1,90,00,000/- will be treated as unexplained expenditure."
3.3 In response to the information sought by the assessing officer during the course of assessment proceedings, the appellant had filed its submissions on 26th August, 2021. The assessing officer after considering the submissions made by the appellant did not make any addition on this matter. However, the assessing officer has estimated the business income of the appellant at 12% of the turnover. It is submitted that, an order can be deemed to be erroneous in so far as it is prejudicial to the interests of the revenue, if the said order is pased without making any enquiries or verification. In the instant case, the assessing officer has specifically sought for the information pertaining to the cash payments made to Mr. Zaffer Babu and we had furnished the details sought by the assessing officer which clearly indicates that the assessing officer has made sufficient enquiries before passing the assessment order and hence revision of the said order under section 263 of the Act is not warranted under the facts & circumstances of case.
3.4 It is contended that once an assessing officer, having conducted due inquiries and being satisfied with the nature of explanations, information, and details provided by the assessee, forms an opinion and completes an assessment—even if it is not prejudicial to the assessee—it cannot be equated to being both erroneous and prejudicial to the interests of revenue.
ITA No.652/Bang/2024 M/s. Corporate Leisure & Property Development Pvt. Ltd., Bangalore Page 7 of 19 3.5 The ld. A.R. placed reliance on the decision of the Hon'ble Delhi High Court in the case of CIT vs M/S. Sunbeam Auto Limited, reported in 332 1TR 167 wherein it was held as follows:
"12. We have considered the rival submissions of the counsel on the other side and have gone through the records. The first issue that arises for our consideration is about the exercise of power by the CIT under s. 263 of the IT Act. As noted above, the submission of learned counsel for the Revenue was that while passing the assessment order, the AO did not consider this aspect specifically whether the expenditure in question was revenue or capital expenditure. This argument predicates on the assessment order, which apparently does not give any reasons while allowing the entire expenditure as revenue expenditure. However, that by itself would not be indicative of the fact that the AO had not applied his mind on the issue. There are judgments galore laying down the principle that the AO in the assessing order is not required to give detailed reason in respect of each and every item of deduction, etc. Therefore, one has to see from the record as to whether there was application of mind before allowing the expenditure in question as revenue expenditure. Learned counsel for the assessee is right in his submission that one has to keep in mind the distinction between "lack of inquiry" and "inadequate inquiry". If there was any inquiry, even inadequate that would not by itself qive occasion to the CIT to pass orders under s. 263 of the Act, merely because he has different opinion in the matter.
When we examine the matter in the light of the aforesaid principle, we find that the AO had called for explanation on this very item, from the assessee and the assessee had furnished his explanation vide letter dt. 26th Sept., 2002. This fact is even taken note of by the CIT himself in para 3 of his order dt. 3rd Nov., 2004...
This clearly shows that the AO had undertaken the exercise of examining as to whether the expenditure incurred by the assessee in the replacement of dyes and tools is to be treated as revenue expenditure or not. It appears that since the AO was satisfied with the aforesaid explanation, he accepted the same.............. . It is clear that view taken by the A.O. was one of the possible views and therefore, the assessment order passed by the A.O. could not be held to be prejudicial to the Revenue. Thus from whatever angle the matter is to be looked into, the conclusion could be that the order of the Tribunal does not cal/ for any
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Page 8 of 19 interference.......... the A.O. having made enquiries, elicited replies and thereafter allowed the expenditure..... it cannot be said that it is a case of lack of enquiry. "
3.6 He further placed reliance on the decision of the High Court of Bombay in the case of CIT vs Gabriel India Ltd. reported in 203 1TR 108 where it was held that: . It is because the Income-tax Officer has exercised the quasi-judicial power vested in him in accordance with law and arrived at a conclusion and such a conclusion cannot be termed as to be erroneous simply because the Commissioner does not feel satisfied with the conclusion"
3.7 He further placed reliance on the decision of the Delhi High Court in the case o/ CIT vs. Vikas Polymers, reported in 341 ITR 537.
3.8 He submitted that deeming the assessment order as erroneous and prejudicial to the interest of revenue requires cogent reasons to be recorded, as merely forming different opinion than that of the assessing officer on the matter is insufficient to establish such error. Reliance is also placed on the decision of the Delhi High Court in the case of CIT vs. New Delhi Television Ltd, reported in 360 ITR 44.
3.9 He further submitted that the learned assessing officer conducted thorough inquiries before reaching a conclusion, as evident from the facts of the case. Hence, the proceedings under Section 263 of the Act are not warranted, as both the conditions mentioned earlier have not been fulfilled in the present case. Reliance is placed on the decision of the Hon'ble Apex Court in the case of Malabar Industrial Co. Ltd. vs. CIT, reported in 243 ITR 83 where it was held as under: . The phrase "prejudicial to the interest of the Revenue" has to be read in conjunction with an erroneous order passed by the Assessing Officer. Every Loss of revenue as a consequence of an order of the Assessing Officer, cannot be treated as prejudicial
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Page 9 of 19 to the interests 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 interests of the Revenue unless the view taken by the Income-tax Officer is unsustainable in "
3.10 The ld. A.R. further placed reliance on the decision of the Apex Court in the case of CIT Vs. MAX India Ltd. reported in 295 ITR 282 for the proposition that when two views are possible and the view adopted by the learned assessing officer is not accepted by the commissioner, the same cannot be treated as an erroneous order prejudicial to the revenue.
3.11 The ld. A.R. submitted that the revision of an order under Section 263 of the Act cannot be based solely on the subjective intention of the officer while passing the order. Rather, it must be established -as an unambiguous fact that the order, in its substance, is both erroneous and prejudicial to the interests of the revenue. This essential criterion needs to be demonstrated clearly when assuming jurisdiction under Section 263 of the Act, a condition that has not been met in the present case. Therefore, the order passed under Section 263 of the Act should be cancelled on this count alone.
3.12 The ld. A.R. submitted that upon examining subsection (1) of section 263, it is evident that the Commissioner holds the power of suo motu revision exclusively. This power can only be exercised if, upon scrutiny of the records in any proceedings under the Act, the Commissioner deems any order by the Assessing Officer to be 'erroneous insofar as it is prejudicial to the interests of the revenue.' It is not an arbitrary authority but is constrained by the conditions stipulated in subsection (1). The Commissioner's assessment of whether an order is prejudicial to revenue must be supported by
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Page 10 of 19 materials on the record. Initiating proceedings without a reasonable basis in the existing materials is illegal and lacks jurisdiction. The Commissioner cannot conduct fishing or roving inquiries in matters or orders that are already concluded. This contradicts the legal principle of finality in all legal proceedings, avoiding reactivation of stale issues beyond a certain stage. An order cannot be labelled as erroneous unless it deviates from the law. If the Income-tax Officer, acting in accordance with the law, issues a certain assessment, it cannot be deemed erroneous merely because the Commissioner believes the order should have been more detailed. This section does not envision the Commissioner substituting his judgment for that of the Assessing Officer, unless the decision is proven to be erroneous.
3.13 He submitted that the learned PCIT failed to appreciate that the appellant withdraw cash and set it aside to ensure the smooth continuity of the day-to-day operations and project work. If funds were to remain in the bank account, there is a possibility of diverting them elsewhere for investment, potentially causing delays in the project. It is submitted that the learned PCIT has stated that from the Profit and Loss Statement for the financial year 2018-19, an amount of Rs.2,39,15,928 has been shown as Salaries, Wages and80nus and out of this wage amounts to Rs.1,61,51,068 as per ledger account.
3.14 He submitted that the total salaries, wages, and bonuses disbursed during the relevant year amounted to Rs.2,39,15,928, with wages for workers totalling Rs.1,89,60,754. It is essential to highlight that wages are consistently paid in cash. Typically, labourers receive their wages on a daily or weekly basis, and the total amount dispersed to our workers across various project sites during the specified period was Rs.1,89,60,754. The source for
ITA No.652/Bang/2024 M/s. Corporate Leisure & Property Development Pvt. Ltd., Bangalore Page 11 of 19 payment of wages in cash is the cash withdrawn from the bank, and the distribution is routinely overseen by Mr. Zafferhulla Khan. 3.15 The ld. A.R. submitted that the source of cash payments to Mr. Zaffer Babu was out of the cash withdrawals made on various dates from the bank. The assessing officer after perusal of the submissions made by the appellant had formed a decision not to make addition on this count. Therefore, he submitted that the order passed by the learned PCIT under section 263 of the Act revising the assessment order dated 30.09.2021 is not in accordance with law and thus the same needs to be quashed in the interest of equity & justice. 3.16 He further relied on following case laws: a) Malabar Industrial Co. Ltd. Vs CIT (243 ITR 83) b) CIT Vs. Max India Ltd. (295 ITR 282) c) K.R. Satyanarayana Vs. CIT (279 Taxman 175) d) CIT Vs. Gabriel India Ltd. (203 ITR 108) e) CIT Vs. Vikas Polymers (341 ITR 537) f) CIT Vs. Sunbeam Auto Limited (332 ITR 167) g) CIT Vs. New Delhi Television Ltd. (360 ITR 44) h) The Totgars’ Co-operative Sale Society Ltd. Vs. PCIT (ITA
No.168/Bang/2023) i) The Peerless General Finance & Investment Company Limited
Vs. DCIT (ITA No.892/Kol/2019)
The ld. D.R. submitted that there was no proper verification of this expenditure by ld. AO at the time of assessment. It is the failure of the ld. AO to carry out necessary verification. The ld. PCIT invoked section 263 of the Act and same to be confirmed. Further, she relied on the judgement of Hon’ble Supreme Court in the case of Paville
ITA No.652/Bang/2024 M/s. Corporate Leisure & Property Development Pvt. Ltd., Bangalore Page 12 of 19 Projects Pvt. Ltd. (SC) (2023) 453 ITR 447 and also order of Tribunal in the case of ABB Ltd. Vs. Addl. CIT (LTU) ITA No.787/Bang/2013 (AY 2007-08) dated 7.6.2017 for the proposition that there is a failure on the part of ld. AO to verify the issues as required under law which amounts to erroneous and so far as prejudicial to the interest of revenue as there was loss of revenue.
We have heard the rival submissions and perused the materials available on record. We have gone through the assessment order passed by ld. AO vide order dated 30.9.2021. There was no discussion by ld. AO with regard to impugned issue taken up by the ld. PCIT u/s 263 of the Act. The order is very silent about the impugned issue. The contention of the ld. A.R. is that the ld. AO issued notice u/s 142(1) of the Act on 13.8.2021 and vide question No.30, assessee replied the question as follows vide reply dated 26.8.2021: “30. Further, during the course of survey, loose sheets impounded vide Annexure A/CPLD/LS/1 wherein written pages 178 & 183 contains cash payments made to Zaffer Babu. Kindly explain the source for the same. If you failed to furnish any explanation, Rs.1,90,00,000/- will be treated as unexplained expenditure.
Reply:- With respect to above, a summons was issued on 18th June 2019 and written reply also submitted to Income Tax Department vide letter dated 27th June 2019, both notice and reply copy enclosed as Annexure-30.”
5.1 Further, he drew our attention to the letter filed by the assessee on 27.6.2019 which reads as follows:
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5.2 By the above contention, ld. A.R. pleaded that issue is already thoroughly verified by the ld. AO and the ld. PCIT cannot make fishing enquiry on the same issue which caused undue hardship to the assessee. 5.3 In this case, ld. AO during the course of assessment issued notice u/s 142(1) of the Act dated 13.8.2021 calling the details of unexplained expenditure to the tune of Rs.1.90 crores. The assessee has given reply to this query drawing his attention to the letter filed on 27.6.2009 before ld. DCIT 2(1)(1) which was reproduced in earlier para. After collecting this reply, the ld. AO has not caused any further enquiry. There was no discussion on whatsoever about this impugned issue. The failure on the part of ld. AO in examining the matter properly and it would render the order erroneous so long as view taken by ld. AO was resulted in loss of revenue. The explanation 2 to section 263(1) of the Act, which reads as follows: (a) The order is caused without making enquiry or verification, which should have been made.
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Page 15 of 19 (b) The order passed allowing any relief without enquiring into the claim. 5.4 Being so, the order sought to be revised by ld. PCIT u/s 263 of the Act reflects that no proper application of amount by ld. AO and this be amenable to reason u/s 263 of the Act. In other words, the assessment order passed by ld. AO lacks of judicial strength to stand on its own legs. It is not a case where the assessment order is short but it is not supported by judicial strength by making proper verification of the claim of the assessee. It is in this view of the matter that we are of the opinion that ld. PCIT properly exercised his revisional power u/s 263 of the Act. 5.5 Further, in our opinion, the AO has been entrusted with the role of investigator as well as adjudicator under the scheme of Income-tax Act. "Adopting" one of the courses permissible in law necessarily requires the Assessing Officer to consciously analyse and evaluate the facts in the ljght of relevant Jaw and bring them on record. It is only then that he can be said to have "adopted" or chosen one of the courses permissible in law. The Assessing Officer cannot be presumed or attributed to have "adopted" or chosen a course permissible in law when his order does not speak in that behalf. Similarly, "taking" one view where two or more views are possible also necessarily imports the requirement of analysing the facts in the light of applicable law. Therefore, proper examination of facts in the light of relevant law is a necessary concomitant in order to say that the Assessing Officer has adopted a permissible course of law or taken a view where two or more views are possible. It is only after such proper examination and evaluation has been done by the Assessing Officer that he can come to a conclusion as to what are the permissible courses available in law or what are the possible views on the issue before him. In case he comes to the conclusion that more than one view is possible then he has necessarily to choose a view, which is most appropriate on the facts of the case. In order
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Page 16 of 19 to apply the aforesaid observations to a given case, it must therefore first be shown that the Assessing Officer has "adopted" a permissible course of law or, where two views are possible, the Assessing Officer has "taken" one such possible view in the order sought to be revised under Section 263. This requires the Assessing Officer to take a conscious decision; else he would neither be able to "adopt" a course permissible in law nor "take" a view where two or more views are possible. In other words, it is the Assessing Officer who has to adopt a permissible course of law or take a view where two or more views are possible. It is difficult to comprehend as to how the Assessing Officer can be attributed to have "adopted" a permissible course of law or "taken" a view where two or more views are possible when the order passed by him does not speak in that behalf. We cannot assume, in order to provide legitimacy to the assessment order, that the Assessing Officer has adopted a permissible course of law or taken a possible view where his order does not say so. The submissions made.by the learned Counsel, if accepted, would require us to form, substitute and read our view in the order of the Assessing Officer when the Assessing Officer himself has not taken a view. It could have been a different position if the Assessing Officer had "adopted" or "taken" a view after analysing the facts and deciding the matter in the light of the applicable law. However, in the case before us, the Assessing Officer has not at all examined as to whether only one view was possible or two or more views were possible and hence, the question of his adopting or choosing one view in preference to the other does not arise. 5.6 In the case of Padmasundara Rao v. State of Tamil Nadu (255 ITR 147), the Hon'ble Supreme Court has held that
There is always peril in treating the words of a speech or judgment as though they are words in a legislative enactment, and it is to be remembered that judicial utterances are made in the setting of the facts of a particular case, said Lord Morrin in Harrington v: British Railways Board [1972] 2 WLR 537 (HL). Circumstantial flexibility, one
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Page 17 of 19 additional or different fact may make a world of difference between conclusions in two cases.... " Therefore, the observations of the Hon'ble Supreme Court in Malabar Industrial Co. Ltd's case (supra) on which reliance has been placed by the learned Counsel cannot be read in isolation. The judgment deserves to be read in its entirety to cull out the law laid down by the Hon'ble Supreme Court. If so read, it is quite evident that the orders passed on an incorrect assumption of facts or incorrect application of law or without applying the principles of natural justice or without application of mind will satisfy the requirement of the order being erroneous and prejudicial to the interest of the revenue. If the order sought to be revised under Section 263 suffers from any of the aforesaid vices, it cannot be said that the Assessing Officer has "adopted", in such an order, a course permissible in law or "taken" a view where two or more views are possible."
5.7 In our opinion, the Assessing Officer has been entrusted the role of an investigator, prosecutor as well as adjudicator under the scheme of the Income-tax Act. If he commits an error while discharging the aforesaid roles and consequently passes an erroneous order causing prejudice either to the assessee or to the State Exchequer or to both, the order so passed by him is liable to be corrected. The assessee can have the prejudice caused to him corrected by filing an appeal; as also by filing a revision application under Section 264. But the State Exchequer has no right of appeal against the orders of the Assessing Officer. Section 263 has therefore been enacted to empower the Commissioner to correct an erroneous order-passed by the Assessing Officer which he considers to be prejudicial to the interest of the revenue. The Commissioner has also been empowered to invoke his revisional jurisdiction under Section 264 at the instance of the assessee also. The line of difference between Sections 263 and 264 is that while the former can be invoked to remove the prejudice caused to the State the later can be invoked to remove the prejudice caused to the assessee. The provisions of Section 263 would lose significance if they were to be interpreted in a manner that prevented the Commissioner from revising the erroneous order passed by the Assessing Officer, which was prejudicial to the interest of the revenue. In fact, such a course
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Page 18 of 19 would be counter -productive as it would have the effect of promoting arbitrariness in the decisions of the Assessing Officers and thus destroy the very fabric of sound tax discipline. If erroneous orders, which are prejudicial to the interest of the revenue, are allowed to stand, the consequences would be disastrous in that the honest tax payers would be required to pay more than others to compensate for the loss caused by such erroneous orders. For this reason, also, we are of the view that the orders passed on an incorrect assumption of facts or incorrect application of law or without applying the principles of natural justice or without application of mind or without making requisite inquiries will satisfy the requirement of the order being erroneous and prejudicial to the interest of the revenue within the meaning of Section 263. 5.8 Being so, the PCIT having gone through the assessment record, found that the AO has not made proper enquiry and passed the order in a very cryptic manner by accepting the claim of assessee on the impugned issue without conducting further verification where the situation warrants further enquiry. The AO having failed to gather necessary information regarding the impugned issue as discussed in para 2.3 of this order, the PCIT is justified in exercising his power u/s 263 of the Act to cause further enquiry on this issue. Further, it is incumbent upon the AO to come to an independent conclusion that the expenditure is allowable u/s 37 of the Act or taxable u/s 69C of the Act. In the present case, the ld. AO absolutely closed his eyes for the reasons best known to him and accepted the submission of the assessee without verifying the same at the face of it, which necessitated the PCIT to exercise his powers u/s.263 of the Act. Hence, we are inclined to confirm the order of the ld. PCIT on this issue and the grounds raised by the assessee are rejected.
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Page 19 of 19 5.9 Further, various case laws relied by the assessee are delivered on its own facts are not applicable to the present case. Accordingly, appeal of the assessee is dismissed. 6. In the result, appeal of the assessee is dismissed.
Order pronounced in the open court on 12th June, 2024
Sd/- Sd/- (Keshav Dubey) (Chandra Poojari) Judicial Member Accountant Member
Bangalore, Dated 12th June, 2024. VG/SPS
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The Applicant 2. The Respondent 3. The CIT 4. The DR, ITAT, Bangalore. 5 Guard file By order
Asst. Registrar, ITAT, Bangalore.