The Delhi bench of the Income Tax Appellate Tribunal (ITAT) has held that the revisionary jurisdiction under section 263 of the Income Tax Act, 1961 can be exercised in a very gross case of inadequacy in inquiry by Assessing Officer subject to the pre-requirements provided in the provision.
Assessee is a company engaged in the business of mining of iron ore and making steel. Assessee electronically filed its return of income for A.Y. 2015-16 on 26.09.2016 declaring total income of Rs.7,78,490/-. The case was selected for limited scrutiny under CASS and thereafter assessment was framed u/s 143(3) of the I.T. Act determining the total income at Rs.7,78,490/-, being the income declared by the assessee. PCIT thereafter on examination of the assessment records was of the view that the order passed by AO u/s 143(3) on 29.08.2017 was erroneous and prejudicial to the interest of the Revenue as according to him during the year, assessee had made investment in unlisted equity shares of closely held companies and issue of fair market value of investment as per Section 56(2)(viia) of the Act was not examined by the AO for determination of the fair market value of share.
The assessee challenged the order before the Tribunal contending that the pre-requisite conditions specified u/s 263 of the Act have not been satisfied and therefore, the proceedings shall be quashed.
The Two-Member bench comprising Judicial Member Mr. K Narasimha Chary and Accountant Member Mr. Anil Chaturvedi observed 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.
“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. In view of the aforesaid facts, we are of the view that in the present case, Ld. PCIT was not justified in invoking the provisions of Section 263 of the Act to set aside the assessment order passed by AO u/s 143(3) of the Act. We therefore setaside the order of PCIT,” the bench said.
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