Order of AO not become erroneous merely because PCIT feels that further inquiry should have been made

M/s Amira Enterprises Ltd. Vs. The Pr. C.I.T. (ITAT Delhi)

The assessee had filed various replies to the ld. PCIT in response to notice u/s of the Act 263 of the Act stating that all the issues raised by the PCIT have been examined by the AO during the course of assessment. The PCIT has ignored the replies of the assessee. He merely states that the reply has been filed by the assessee but he nowhere discusses the contentions raised by the assessee and why he does not agree with the contentions of the assessee. The ld. PCIT has merely remitted the matter back to the AO without making any enquiry himself. The ld. PCIT has mentioned that the opening stock has not been verified by the AO, whereas the total opening stock was pledged with the bank. The ld. PCIT has not considered the contentions of the assessee. Similarly, the other replies of the assessee filed during the course of assessment and in response to notice u/s 263 of the Act have been totally ignored. No inquiry has been made by the PCIT. It was incumbent for the PCIT to make some minimum independent inquiry to reach to the conclusion that the order of the AO is erroneous and prejudicial to the interest of revenue. The reliance is rightly placed on the decisions of Delhi High Court in PCIT v. Delhi Airport Metro Express Pvt. Ltd. (supra) and Income Tax Officer v. DG Housing Projects Limited (supra).

The ld. PCIT has not referred to Explanation 2 of section 263 which has been inserted with effect from 01.06.2015 however we agree with the finding of the coordinate bench in the case of Narayan Tatu Rane (supra), wherein it has been held that Explanation cannot said to have overridden the law as interpreted by the various High Courts, where the High Courts have held that before reaching a conclusion that the order of the AO is erroneous and prejudicial to the interest of revenue, the Commissioner himself has to undertake some inquiry to establish that the assessment order is erroneous and prejudicial to the interest of revenue. In the case of Narayan Rane a doubt is also expressed regarding the applicability of Explanation 2, which was inserted by Finance Act 2015 w.e.f. 01.06.2015, the bench also observed that if the Explanation is interpreted to have overridden the law as laid down by various High Courts, then the same would empower the Pr. CIT to find fault with each and every assessment order and also to force the AO to conduct inquiries in the manner preferred by the Pr. CIT, thus prejudicing the mind of the AO, however, the intention of the legislature behind the explanation could not have been so as the same would lead to unending litigation and no finality in the legal proceedings. Accordingly, in view of our detailed discussion, we allow the grounds of appeal raised by the assessee.

Full Text of the ITAT Order is as follows:-

This appeal filed by the assessee is directed against the order dated 17.02.2017 passed by the CIT(A)- Central, Gurgaon, for the A.Y. 2014- 15 u/s 263 of the Income Tax Act, 1961 (hereinafter, referred to as ‘the Act’ for short).

Please become a Premium member. If you are already a Premium member, login here to access the full content.