The Commissioner of the Income Tax IV vs. Satya Prasad Anagani,

Facts leading to filing of the appeal briefly stated are that the assessee is engaged in business of investment and sale of filtration, equipment and spares and service. The assessee filed the return of income on 26.10.2007 for Assessment Year 2007-08 and declared a total income of Rs.80,93,859/-. The Assessing Officer by an order dated 30.09.2009, without considering the expenditure which was not allowable under Section 14A of the Act proceeded to complete the assessment. The Commissioner of Income Tax, on examination of the records, found that the assessee had earned dividend income, which was exempt from tax. The Assessing Officer without examining the quantum of expenditure incurred by the assessee for earning the exempt income, proceeded to complete the assessment. It was further noticed that expenditure incurred for earning exempt income has to be disallowed under Section14A of the Act.

Thereupon, the Commissioner of Income Tax issued a notice under Section 263 of the Act to the assessee and held that non consideration of disallowable expenditure under Section 14A of the Act is erroneous and is prejudicial to the interest of the revenue. Accordingly, the Commissioner of Income Tax by an order dated 11.01.2012 set aside the order of the Assessing Officer and remitted the matter to the Assessing Officer to re do the assessment. Being aggrieved, the assessee approached the Income Tax Appellate Tribunal (hereinafter referred to as 'the Tribunal' for short). The Tribunal by an order dated 19.04.2013 inter alia held that the Commissioner of Income Tax erred in setting aside the order passed by the Assessing Officer merely on the ground that the enquiry conducted by the Assessing Officer is inadequate. In the aforesaid factual background, this appeal has been filed by the revenue.

Learned counsel for the revenue submitted that the Tribunal ought to have appreciated that the Assessing Officer has failed to conduct any enquiry with reference to the expenditure debited by the assessee. It is further submitted that the Tribunal grossly erred in holding that invocation of revisional powers under Section 263 of the Act was not permissible as the assessee had furnished all the details without appreciating the fact that Assessing Officer has failed to examine the incurring of expenditure by assessee towards exempt income as required under Section 14A of the Act. On the other hand, learned counsel for the assessee has supported the order passed by the Tribunal.

We have considered the submissions made by learned counsel for the parties and have perused the record. Before proceeding further, it is apposite to take note of the relevant extract of Section 263 of the Act, which reads as under:

Revision of orders prejudicial to revenue

Thus, from close scrutiny of Section 263 it is evident that twin conditions are required to be satisfied for exercise of revisional jurisdiction under Section 263 of the Act firstly, the order of the Assessing Officer is erroneous and secondly, that it is prejudicial to the interest of the revenue on account of error in the order of assessment.

The aforesaid provision was considered by the Supreme Court in MALABAR INDUSTRIAL CO. LTD.I supra and it was 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 and every loss of revenue as a consequence of the order of the Assessing Officer cannot be treated as prejudicial to the interest of revenue. It was further held that where two views are possible and the Income Tax Officer has taken one view with which the Commissioner does not agree, the order passed by the Assessing Officer cannot be treated as erroneous order prejudicial to the interest of the revenue. The principles laid down in the aforesaid decision were reiterated by the Supreme Court in ‘CIT VS. MAX INDIA LTD.,’ 295 ITR 282 (SC) and recently in ‘ULTRATECH CEMENT LTD. AND ORS. VS. STATE OF RAJASTHAN AND ORS.’, CIVIL APPEAL NO.2773/2020 DECIDED ON 17.07.2020.

In the backdrop of aforesaid well settled legal principles, we may examine the facts of the case in hand. In ‘CIT VS. SUNBEAM AUTO LTD.’, 332 ITR 167, it has been held by Delhi High Court that Assessing Officer in the order of assessment is not required to give detailed reasoning in respect of each and every item of deduction and therefore, the question whether there has been an application of mind before allowing expenditure has to be examined from the record of the case. The question of lack of enquiry / inadequate enquiry is also required to be kept in mind and mere inadequacy of the enquiry would not confer jurisdiction on the Commissioner of Income Tax under Section 263 of the Act. In the instant case, the Commissioner of Income Tax has held that the enquiry conducted by the Assessing Officer is inadequate and has assumed the revisional jurisdiction. The assessee has filed all the details before the Assessing Officer and Assessing Officer has accepted the contention of the assessee that