Assessment Order Without Reasons, Not Erroneous Or Prejudicial To The Interest Of The Revenue: ITAT Quashes Revenue's Revision Order

The Bench, consisting of members Pramod Kumar (Vice President) and Kuldip Singh (Judicial Member), held that non-mentioning of reasons does not render the assessment order passed by the Assessing Officer as "erroneous and prejudicial to the interest of the revenue" so as to invoke powers of revision under Section 263 of Income Tax Act, 1961.

The Assessee Reliance Payment Solutions Limited is engaged in the business of operating semi closed prepaid instrument by the RBI. The income tax return filed by the Assessee was picked up for scrutiny assessment. One of the grounds for scrutiny assessment was that the Assessee had claimed depreciation at a higher rate. The Assessee submitted documents in support of its reply that depreciation was claimed as per the rate prescribed under the provisions of Income Tax Act and Income Tax Rules and that there was no excess depreciation claimed by it. The Assessing Officer (AO) passed an assessment order accepting the submissions made by the Assessee. However, the AO did not make any observations in the assessment order with respect to the claim of depreciation. Thereafter, the Principal Commissioner of Income Tax (PCIT) initiated revision proceedings under Section 263 of the Income Tax Act on the ground that there was excess claim of depreciation made by the Assessee which was allowed by the AO and that the AO passed the assessment order without making any further inquiry. The PCIT held that the assessment order resulted in prejudice to the revenue under Section 263 of the Act since the claim of the Assessee was allowed in excess and the income of the Assessee was under assessed.

The submissions made by the Assessee before the PCIT were rejected. The PCIT held that since the AO had not recorded any reason for accepting Assessee's submission with respect to claim of depreciation it could not be said that documents submitted by the Assessee were duly verified by the AO before passing the assessment order. The Assessee Reliance Payment Solutions filed an appeal before the ITAT against the revision order passed by the PCIT under Section 263 of the Act.

The ITAT observed that there was a specific question raised to which a detailed reply was submitted by the Assessee during the assessment proceedings which was accepted by the AO, and yet the PCIT initiated revision proceedings under Section 263 of Income Tax Act.

The ITAT held that as long as the action of the AO was bonafide, the acceptance of Assessee's explanation by the AO could not be faulted on the ground that the AO did not write specific reasons for accepting the explanation or merely because it could have been lawful to make more detailed inquiries.

The ITAT ruled that non-mentioning of reasons by the AO cannot be a reason to invoke power of revision under Section 263 of the Act since non-mentioning of reasons does not render the assessment order passed by the AO as "erroneous and prejudicial to the interest of the revenue".

The ITAT thus allowed the Assessee's appeal and quashed the revision order passed by the PCIT.

Case Title: Reliance Payment Solutions Limited versus Principal Commissioner of Income Tax, Mumbai

Dated: 21.03.2022 (Mumbai ITAT)

Counsel for the Appellant: Nimesh Vora

Counsel for the Respondent: Sandeep Raj

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