CIT can invoke jurisdiction u/s 263 if assessment order was based on inadequate or improper enquiry
Case Law Citation: PVS Multiplex (India) Ltd. Vs. CIT (ITAT DELHI), ITA No. 2370/Del /2013, Date of Decision: 14.08.2015
Brief of the case:
In the case of PVS Multiplex (India) Ltd. Vs. CIT Delhi Bench of ITAT held that CIT can pass order u/s 263 where he can hold that AO did not made adequate inquiry. ITAT observed that there is difference between “lack of enquiry” and Inadequate Inquiry”. ITAT held that the revenue does not have any right to appeal to the first appellate authority against an order passed by the Assessing Officer. Section 263 has been enacted to empower the CIT to exercise power of revision and revise any order passed by the Assessing Officer, if two cumulative conditions are satisfied. Firstly, the order sought to be revised should be erroneous and secondly, it should be prejudicial to the interest of the Revenue.
Facts of the case:
Assessment order u/s 143(3) was passed Addl. CIT, Meerut at returned income of Rs.1,06,57,220/- without making any disallowance or additions.
Subsequently, the case was picked up by the CIT, Meerut and notice u/s 263 of the Act was issued to the assessee.
CIT passed order setting aside the assessment order on three issues
a. for proportionate disallowance on interest paid by the assessee of interest free advances for non-business purposes
b. for verification of TDS on certain payments
c. to exclude income on sale of shops and FDR interest from business income for the purpose of calculation of deduction u/s 80IB(7A).
Contention of the assessee:
The assessment order was passed by the AO after due enquiry on all important issues by issuing a detail questionnaire which was replied by the assessee vide its submissions during the assessment proceeding.
The assessment order was neither erroneous nor prejudicial to the interest of Revenue and the CIT had no valid jurisdiction to invoke the provisions of Section 263.
CIT was not correct and justified in directing the AO to disallow the proportionate interest with higher low advance given by the assessee as it had sufficient interest free funds in its hands for advancement of interest free advances which were given out of business purposes.
CIT was not correct and justified in directing the AO to verify the TDS deducted or not on payments made for building repairs and maintenance because the assessee filed entire details of TDS before the AO, which was duly verified and examined during the assessment proceeding
No addition on the issue of TDS has been made by the AO in pursuant to the order u/s 263/154/143 (3) of the Act.
CIT was not correct and justified in directing the AO to disallow the deduction u/s 80IB(7A) of the Act proportionately on profit of sale of shop area of multiplex on interest of FDR because these incomes was accrued to the assessee out of active and complex business activities.
Reliance was placed on the decision of ITAT Kolkatta Bench in the case of PFH Mall & Retail Management Ltd. Vs. ITO (2008) 110 ITD 337 and submitted that the rental income earned by the assessee in the business of running multiplex is assessable as business income and not as income from house property.
This issue was mentioned in the notice u/s 263 but dropped in the final order u/s 263 and conclusion of the AO has been impliedly accepted by the CIT.
Contention of the revenue:
AO passed a very brief one page order accepting the return income of the assessee in toto and without making any further verifications and examination on the all relevant issues specially on the five issues agitated by the CIT in her notice issued u/s 263.
CIT was quite justified in fair in passing the order wherein CIT dropped issue of treatment rental income and on the issue of assessee’s claim for deduction u/s 80IB(7A).
CIT only disturbed the assessment order on the issue of interest paid on interest free investment, advances and loan, on the issue of TDS and on the issue of claiming deduction u/s 80IB(7A) incurred to income earned from sale of shop and interest on FDR.
Reliance was placed on the decision of the Hon’ble High Court of Delhi in the case of CIT Vs. Goetze (India) Ltd. (2014) 361 ITR 505 (Del) wherein submitted that the Revenue Department does not have any right to appeal against the order of the Assessing Officer therefore, the power of revision has been conferred of on the commissioner u/s 263 of the Act to revise erroneous assessment orders which are also prejudicial to the interest of the Revenue.
When the Assessing Officer takes a view but the view is not correct and is erroneous according to the findings recorded by the commissioner with the findings that the order passed by the AO was also prejudicial to the interest of Revenue.
In the above circumstances the order of the commissioner cannot be set aside on the ground that the two views are possible or probable.
AO accepted returned income of the assessee in original proceedings without any examination verification on the relevant issues therefore, the order was erroneous and prejudicial to the interest of the Revenue.
Reliance was placed on the decision of the Hon’ble High Court of Delhi in the case of CIT Vs. Nagesh Knitwears P. Ltd. (2012) 345 ITR 135 (Delhi) where it was submitted that if the Assessing Officer omits to conduct required examination and investigation on important issues then he (AO) commits an error and the word erroneous includes failure to make the enquiry and in such cases, the order becomes erroneous because enquiry or verification has not been made by the AO and not because a wrong order has been passed on merits.
AO issued details questionnaire on all the relevant issues which were picked up by the CIT while issuance notice u/s 263 of the Act. Assessee in reply to the questionaires submitted all requisite details regarding advance of Rs.18,00,000/-given to Rajpur Residency Dehradin and investment of Rs.19,15,000/- made in the shares of M/s Tuffest Safty Glasses (P) Ltd.
AO was quite justified and correct while granting deduction to the assessee u/s 80IB(7A) of the Act and concluding that thus the assessee was correct in submitting all relevant details of the TDS.
Held by ITAT:
AO have not raised any query in regard to interest free advances for non business purposes showing intention to disallow proportionate interest thereon and also on the issue of verification of TDS on certain payments noted by the CIT.
There is no query or verification or examination by the AO to work out interest free advances for non business purposes and for making in proportionate disallowance of interest paid by the assessee thereon.
Also there is no query in the AO’s note issued and there is no reply or details from the assessee showing the correctness of the TDS and its deposit to the exchequer properly.
No adverse inference drawn against the assessee on the the issue of exclusion of income on sale of shop and FDR interest from business income for the purpose calculation of deduction u/s 80IB(7A) of the Act.
AO has not raised any query and has not made any examination and verification on the issue of claim of deduction of the assessee u/s 80IB(7A) of the Act and on the basis of calculation and claim of deduction under the said section.
AO has not paid any heal of deduction towards treatment of income on sale of shops and FDR interest accrued to the assessee during the relevant assessment period which was included by the assessee for the purpose of calculation of deduction u/s 80IB(7A).
Since the CIT dropped the issue of treatment of rental income as business income by the assessee in the final order passed u/s 263 therefore, benefit of the ratio of the order of the ITAT Kolkata ‘A’ Bench in the case of PFH Mall & Retail Management Ltd. (Supra) is not available for the assessee.
The present case is not a case of ‘lack of inquiry’ or inadequate inquiry but present case is the case wherein the Assessing Officer has not made required inquiry.
Hon’ble Supreme Court in the case of Ram Pyari Devi Sargosi 67 ITR 84 (SC) and in the case of Tara Devi Aggarwal Vs. CIT (1973), 88 ITR 323 (SC) and the judgment of Hon’ble Delhi High Court in the case of CIT Vs. Nagesh Knitwears P. Ltd. (Supra) and the judgment in the case of CIT Vs. Sunbeam Auto Ltd.(Supra) and ITO Vs. DG Housing Projects Ltd. (2012) 343 ITR 329 (Delhi) held that in the cases where the bare reading of the order passed by the Commissioner showed that the order passed by the Assessing Officer was erroneous and prejudicial to the interest of Revenue then the Tribunal was wrong in holding that the order passed by the Commissioner u/s 263 of the Act was passed in contrary to the provisions of the Act.
The order of the AO which is apparently very precise and cryptic, was not passed after due examination and verification of certain or issue and therefore, there was an error on the part of AO which leads to a correct conclusion of the CIT that assessment order is not only erroneous or also prejudicial to the interest of Revenue.
ITAT upheld the order u/s 263.