The Delhi bench of the Income Tax Appellate Tribunal (ITAT) has held that the revisional jurisdiction under section 263 of the Income Tax Act, 1961 can be invoked in a very gross case of inadequacy in the inquiry.
The Assessing Officer, while processing the return of income filed by the assessee, Mr. Narendra Agarwal, for the year under consideration made inquiries on four issues including the Short-Term Capital Gain u/s 111 of the Act. After considering the explanations of the assessee, the AO completed the proceedings and accepted the contentions of the assessee and had made no addition on that count. The Commissioner invoked the provisions of section 263 of the Income Tax Act, 1961 to invalidate the order passed by the AO.
The Tribunal bench comprising Sh. Anil Chaturvedi, Accountant Member and Sh. Kuldip Singh, Judicial Member observed that “the reading of the above provision (Section 263) makes it very clear that the power of suo motu revision u/s 263(1) is in the nature of supervisory jurisdiction and the same can be exercised only if the circumstances specified therein exist. Two circumstances must exist to enable the Commissioner to exercise power of revision u/s 263, namely (i) the order is erroneous (ii) by virtue of being erroneous, prejudice has been caused to the interests of the Revenue.”
The bench further added that “On the issue of the order of AO being cryptic and therefore the order being passed by non application of mind resulting into justification of the invocation of powers u/s 263 being justified, we are of the view that if a query is raised during the assessment proceedings and responded to by the assessee, the mere fact that it is not dealt with in the assessment order would not lead to a conclusion that no mind had been applied to it.”
In concluding the order, the Tribunal held that “As far as the invocation of Explanation 2 to Section 263 by PCIT in the present case is concerned, we are of the view that only in a very gross case of inadequacy in inquiry or where inquiry is per se mandated on the basis of record available before the AO and such inquiry was not conducted, the revisional power so conferred can be exercised to invalidate the action of AO.”
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