Inadequate Enquiry By AO Would Not By Itself Give Occasion To CIT To Pass Order U/s 263 Merely Based On Difference Of Opinion: Ahmedabad ITAT

Section 263 of the Income Tax Act is a provision that empowers the Commissioner of Income Tax to revise any order passed by an assessing officer if the Commissioner believes that the order is erroneous and prejudicial to the interests of the revenue.

The ITAT held so after finding that the AO had taken a view after considering the reply of assessee and dropped the proceeding u/s 147, by accepting the returned income.

Section 147 of Income tax Act empowers the tax authorities to make reassessments on filed returns if they have a reason to believe that certain income has not been assessed.

The Division Bench of T.R. Senthil Kumar (Judicial Member) and Narendra Prasad Sinha (Accountant Member) observed that “The assessee had denied the alleged transaction and thereafter no evidence was brought on record by the AO to establish the alleged transaction on the basis of which the case was reopened”.

Facts of the case:

The assessee filed its return declaring a total income of Rs.83,72,000/- and the assessment was framed. Subsequently, the case was reopened u/s 147 and the revised assessment was completed u/s 147 r.w.s 144B by accepting the returned income. The assessment record was subsequently called for by the PCIT wherein he noticed that the issue on which the case was reopened was not properly examined by the AO. The case was reopened to examine the accommodation entry of Rs. 35,04,500/- taken by the assessee from paper/dummy company controlled and managed by an entry operator. According to the PCIT, despite specific reason for reopening, no addition was made and, therefore, the order of AO was treated as erroneous and prejudicial to the interest of the Revenue. Accordingly, the PCIT directed the AO to complete the assessment de novo.

Observation of the Tribunal

The Bench found that the reason for which the case for AY 2013-14 was reopened by the Assessing Officer was duly confronted to the assessee, and the assessee was asked to explain as to why the amount of Rs. 35,04,500/- should not be added to the income of assessee.

The Bench found that the information was received regarding accommodation entry taken by the assessee from paper/dummy company controlled and managed by one Rajiv Shah.

However, the Bench noted that assessee had filed a detailed reply denying receipt of any amount from Rajiv Shah, and in fact enclosed the details of his unsecured loans and the bank book copy to establish the fact that there was no entry from anyone amounting to Rs.35,04,500/-.

Further, the assessee had requested the AO to provide the evidence for such transaction and also the supporting documents as available with the AO in support of the information based on which the case was reopened, added the Bench.

After considering the reply of assessee, the Bench noted that the AO had completed the assessment and accepted the returned income, after duly examining the issues during re-assessment proceedings.

Since the matter was duly examined by the AO during assessment proceedings, the Bench concluded that the order of AO is neither erroneous nor prejudicial to the interest of the Revenue.

Referring to the Delhi High Court in case of CIT Vs. Sunbeam Auto Ltd [(2011) 332 ITR 167 (Delhi)], the Bench reiterated that if there was any enquiry, even inadequate, that would not by itself give occasion to the Commissioner to pass order u/s 263 merely because he has a different opinion in the matter.

The ITAT found that the AO did conduct proper inquiries based on which the case was reopened and had accepted the explanation of the assessee.

Therefore, the ITAT held that PCIT was not justified in invoking the revisional jurisdiction u/s 263 and directing further inquiries or taking different view in the matter without bringing anything on record to establish that the view as taken by the AO was not correct.

Hence, the ITAT quashed the order of PCIT passed u/s 263 and allowed Assessee's appeal.

Counsel for Appellant/ Assessee: Sulabh Padshah

Counsel for Respondent/ Revenue: Sudhendu Das

Case Title: Kaivan Jitendrakumar Shah HUF versus PCIT

Case Number: ITA No. 644/Ahd/2024 

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