The Chennai Bench of the Income Tax Appellate Tribunal (ITAT), observed that the Revisional Jurisdiction under Section 263 of the Income Tax Act, 1961 cannot be Invoked for “Inadequate Enquiry”.
The assessee,M/s. Jakhau Salt Co. Pvt Ltd, filed its return of income for the AY 2017-18 declaring a net loss of Rs.72 crores. The case was selected for scrutiny and the assessment has been completed under Section 143(3) of the Income Tax Act, 1961 and assessed total income of Rs.NIL by making additions towards disallowance of advances written off and capital loss.
The Assessing Officer, while completing the assessment under Section 143(3) of the Act, not examined the issue of loss on investment debited to P and L A/c. Since, above loss on sale of investment is a capital loss, the same is required to be added back to the business income, but the AO has failed to do so.
Therefore, the PCIT opined that the assessment order passed by the AO is erroneous in so far as it is prejudicial to the interest of the Revenue and thus, called upon the assessee to explain ‘as to why’ the assessment order passed by the AO under Section 143(3) of the Act, shall not be revised under Section 263 of the Act.
The Counsel for the assessee submitted that the PCIT erred in setting aside the assessment order passed by the AO by exercising his power conferred under Section 263 of the Act, without appreciating the fact that assumption of jurisdiction under Section 263 of the Act was wrong and not sustainable in law.
The DR, on the other hand, supporting the order of the CIT(A) submitted that the assessment order passed by the AO is erroneous in so far as it is prejudicial to the interest of the Revenue for the simple reason that the AO did not make any proper enquiry.
The Coram comprising Mahavir Singh, Vice President and Manjunatha G, Accountant Member observed that “The amount advanced by the assessee to various industries were towards working capital and real character of transaction was those akin to loan and not equity investment. In this case, as held by us, it is not a case of lack of enquiry, but it can be at best considered as inadequate enquiry and for this purpose, the powers under Section 263 of the Act, cannot be exercised. “
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