The Delhi bench of the Income Tax Appellate Tribunal (ITAT) held that if due to an erroneous order of the AO, the revenue is losing tax lawfully payable by a person, it will certainly be prejudicial to the interest of the revenue.
The assessment was completed by PCIT-1, Meerut under section 143(3) r.w.s. 147 of the Act vide order dated 29.12.2019, wherein the A.O. accepted the returned income at Rs.40,87,730/-. The PCIT on examination of the assessment records issued a show cause notice under Section 263 of the Income Tax Act vide notice dated 04.03.2022.
On receipt of the show cause notice the assessee gave reply on the above issue. The PCIT on not satisfying with the reply given by the Assessee, observed that Assessee is involved in infamous NRHM scam and was raided by CBI and the key persons of the assessee company namely were made accused.
According to the PCIT, the original assessment was completed on 28.03.2014 under Section 143(3) of the Income Tax Act making addition of Rs.16,573/- on account of unverified sundry creditors and disallowed expenditure of Rs.4,74,445/-. Later on, examining the records of the case along with detailed report received from DDIT (Investigation) Unit-1, Meerut, the AO had reason to believe that there was a difference of Rs.12,98,24,582/- between turnover and credit in the bank account, which are not reconciled during the original assessment proceedings.
Information was also received from Investigation wing regarding the non-production of books of accounts and vouchers, despite specific and repeated requests, serious allegations and charge sheets, which are also relevant for the year under consideration in view of modus operandi adopted and huge difference in credits and other adverse materials and findings. In view of this, the AO reopened the assessment by issuing a notice under section 148 of the Act on 30.3.2019 with due permission from PCIT Meerut.
According to the PCIT, during the course of reassessment, the AO did not enquire the issues properly and there was lack of enquiry on the part of AO resulted the proceedings in erroneous as well as prejudicial to the interest of revenue. Further, the PCIT had taken note of the decision of Hon’ble Allahabad High Court in the case of Daffodils Pharmaceuticals Vs. State of UP in case No.8071/2015 dated 24.04.2017, wherein the writ petition of the assessee has been dismissed.
The assessee had claimed cash expenses as a deduction in P&L account for which no supporting evidence has been furnished.
After hearing both the parties, the two member bench of the tribunal consisting of N.K Billaiya (Accountant member) and Yogesh Kumar U.S (Judicial member) held that the pre-requisite condition to exercise jurisdiction by PCIT suo-motu condition is not satisfied. Since the PCIT has to be satisfy 2 conditions namely (i) the order of AO sought to be revised is erroneous (ii) it is prejudicial to the interest of the revenue. If one of them is absent, even if the order of the AO is erroneous, but is not prejudicial to the interest of the revenue or if it is not erroneous but it is prejudicial to the interest of revenue, recourse cannot be taken under Section 263(1) of the Income Tax Act. If due to an erroneous order of the AO, the revenue is losing tax lawfully payable by a person, it will certainly be prejudicial to the interest of the revenue.
The assessment framed by AO under section 143(3) r.w.s. 147 of the Act and the A.O. had recorded various reasons for reopening assessment and went on framing the assessment on the said basis and collected the information with reference to the reasons so recorded for reopening of the assessment and the A.O. was satisfied with the explanation given by the assessee regarding various issues raised by him. Now the PCIT cannot find fault with the action of the AO and direct A.O. to carry out further enquiry on the materials or judgments of the High Court which are not part of the assessment records. Accordingly, there is no merit in the issues raised by the PCIT in the order passed under Section 263 of the Income Tax Act. Accordingly, the order passed under section 263 of the Act by the PCIT was quashed.
Thus the appeal was allowed.
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