By TIOL News Service

CHANDIGARH, DEC 31, 2018: THE ISSUE IS - Whether Revisionary powers are to be invoked even in the case where there is inadequate inquiry. NO is the answer.

Facts of the case

The assessee company, had filed return for relevant AY. The assessment was completed. Later on CIT noted that Sundry Creditors Rs. 1,37,20,42,484/- were not properly examined by the AO. The CIT held that no documentary evidence to prove the genuineness of the advances were filed. During the course of assessment proceedings, the AO did not make necessary enquiries regarding creditworthiness of the creditors and genuineness of transactions. Hence, order was passed u/s 263 on this issue. The CIT ordered for re-examination of matter. Aggrieved assessee filed appeal before the Tribunal.

On appeal, Tribunal held that,

++ it is a settled position in law that powers u/s 263 can be exercised by the CIT on satisfaction of twin conditions viz. the assessment order should be erroneous and prejudicial to the Revenue. By erroneous is meant contrary to law. Thus where there are two possible views and the AO has taken one of the possible views, no occasion to exercise powers of revision can arise. Nor can revisional power be exercised for directing a fuller inquiry to find out if the view taken is erroneous, when a view has already been taken after inquiry;

++ regarding the advances from customers namely the Akash Cooperative Housing Society Ltd. of Rs. 44.36 Crores and the Dastkar Cooperative Housing Society of Rs. 37.21 Crores it was found that these societies are registered in the year 1999 and have huge chunk of land which was acquired by these societies to colonize and allot the same to its members at cost to cost basis hence members of both the societies offered their respective ownership of land to the assessee company and transfer the required funds for further acquisition of land for the development of the same in the residential plots and later on to allot the same to the members of the society as per the list given by the respective societies. Hence no reason was seen to examine the land cost and the sources obtained from these two societies. However, regarding the other individuals in the instant case, the AO has not conducted absolutely any enquiry pertaining to the advances received of Rs. 37,38,17,271/- which gives rise to situation where the assessment was done without any enquiry. The Assessing Officer is not only an adjudicator but also an investigator. He cannot remain passive on the face of a return which is apparently in order but calls for further enquiry. If there is a failure to make such an enquiry the order is erroneous and prejudicial to the Revenue. This is not a case where a decision has already taken by the Assessing Officer and where a particular view taken by the Assessing Officer has been nullified by the PCIT by taking a different view possible on the similar set of facts. The Assessing Officer performs the quasi judicial function and the reason for his conclusion and findings should be forthcoming in the order;

++ there is no such activity conducted by the Assessing Officer in the instant case. This proposition has been held by the High Court of Karnataka in the case of CIT Vs. Infosys Technologies Ltd. Similarly in the case of Malabar Industrial Co. Ltd, the Supreme Court held that an incorrect assumption of facts or an incorrect application of law will satisfy the requirement of the order being erroneous. In the instant case the AO has presumed without any basic enquiry that the details filed or in order, to that extent the order of the AO can be treated as erroneous and the action of the PCIT referring the matter for re-examination can be well accepted.

(See 2018-TIOL-2519-ITAT-CHD)