PCIT Vs NYA International (Supreme Court of India)
Factual Background and Proceedings Before the High Court
M/s. Nya International filed its return of income for Assessment Year 2012-13 on 16.08.2012 declaring total income as NIL. The case was selected for scrutiny and an assessment order was passed under Section 143(3) of the Income Tax Act, 1961 on 25.03.2015. Information was subsequently received from DDIT (Ivn) Unit-7(2), Mumbai that the assessee maintained bank account no. 550011032480 with ING Vysya Bank containing credit entries of Rs.70,13,43,319/-, which had not been disclosed in the return. The assessee had also claimed exemption under Section 10AA of Rs.87,21,44,414/-. The case was reopened under Section 147 by issuing notice under Section 148, and an order was passed on 31.12.2019 making a disallowance of Rs.87,21,44,414/-.
Read HC Judgment in this case: Subjective Difference Insufficient for Section 263 Revision: Gujarat HC
The Principal CIT (Surat), exercising powers under Section 263, noticed that the assessee maintained three bank accounts, two with Allahabad Bank and one with ING Vysya Bank, which were not disclosed in the ITR for AY 2012-13. The Principal CIT considered that the Assessing Officer had not made the necessary inquiry and treated the assessment order as erroneous insofar as it was prejudicial to the interests of the Revenue. After issuing a show cause notice, the order dated 31.12.2019 was set aside with a direction to the Assessing Officer to reframe the assessment. The assessee challenged the revisional order dated 18.02.2022 before the Tribunal.
High Court Reasoning and Ruling
The Income Tax Appellate Tribunal, Surat held that the Assessing Officer had examined the two issues raised in the reopening under Section 147, namely the credit entry of Rs.70,13,43,319/- in the ING Vysya Bank account and the disallowance of deduction under Section 10AA of Rs.87,21,44,414/-. It found that the Assessing Officer had the bank statement when reopening the assessment, had examined the entries, considered the assessee’s reply and applied his mind while framing the assessment. The Tribunal therefore quashed the Section 263 order.
The Gujarat High Court, considering the Tribunal’s order and the findings of the Principal CIT, held that the Assessing Officer had conducted sufficient inquiry and examined the eligibility to claim deduction under Section 10AA. It held that this was not a case of “no inquiry” or “lack of inquiry”. The Court observed that when an opinion is formed as a result of inquiries falling within the exclusive domain of the Assessing Officer, the revisional authority could not arrive at conclusions merely on the basis of a subjective exercise. The High Court accordingly held that no substantial question of law arose, much less any question of law, and dismissed the Revenue’s appeal.
Challenge Before the Supreme Court and Its Decision
The Revenue challenged the High Court’s decision before the Supreme Court. The Supreme Court noted that the notice under Section 148 referred to two reasons: non-declaration of the ING Vysya Bank account having credit of ₹70,13,43,319/- and the claim of deduction under Section 10AA. It was accepted that a reassessment order under Section 148 read with Section 143(3) had been passed and that no addition was made for the first reason.
The Supreme Court held that the Revenue’s assertion that inquiry and verification concerning the bank account had not been made was ex-facie incorrect. It distinguished between a case of failure to investigate and a case where, after inquiry and verification, the Revenue contends that the conclusion was wrong. According to the Court, the present matter was not a case of “no inquiry and verification”, but, as made out by the Revenue, a case of “wrong conclusion”.
The Supreme Court held that, in such circumstances, for exercising jurisdiction under Section 263, the Commissioner of Income Tax should have examined the merits and reached a finding that the reassessment order was erroneous and prejudicial to the interests of the Revenue before making an addition. The Court therefore held that the High Court was right in dismissing the Revenue’s appeal.
The Supreme Court condoned the delay but dismissed the special leave petition in the above terms, with pending applications, if any, standing disposed of. Thus, the Supreme Court’s decision left the Gujarat High Court’s dismissal of the Revenue’s appeal undisturbed and upheld the outcome that the Section 263 revision could not proceed on the basis asserted where the material showed inquiry and verification rather than “no inquiry and verification”.
FULL TEXT OF THE SUPREME COURT JUDGMENT/ORDER
Delay condoned.
This special leave petition is misconceived and is completely contrary to the law pertaining to Section 263 of the Income Tax Act, 1961.1
The notice under Section 148 of the 1961 Act referred to two reasons. The first reason was with regard to non-declaration of the account in ING Vysya Bank with a credit of ₹70,13,43,319/- (Rupees SLP(C) Diary No. 1845/2025 seventy crores thirteen lakhs forty three thousand three hundred and nineteen only). The second reason was with regard to the claim of deduction under Section 10AA of the 1961 Act.
It is accepted that a reassessment order under Section 148 read with Section 143(3) of the 1961 Act was passed. Addition was not made for the first reason.
In the given facts, the assertion by the Revenue that inquiry and verification in re the bank account was not made is ex-facie incorrect. This being the position, this is not a case of failure to investigate, but as no addition was made, the Revenue can argue that it is a case of wrong conclusion and decision in the reassessment proceedings. Therefore, to exercise jurisdiction under Section 263 of the 1961 Act, the Commissioner of Income Tax should have examined the merits and only on reaching a finding that the re-assessment order was erroneous and prejudicial to the interest of the Revenue made an addition.
This is not a case of ‘no inquiry and verification’, but as made out by the Revenue, a case of wrong conclusion. The difference between the two situations is clear and has different consequences.
This being the position, the High Court was right in dismissing the appeal preferred by the Revenue.
The special leave petition is dismissed in the above terms. Pending application(s), if any, shall stand disposed of.
Notes:
1 “1961 Act”, for short.
