PCIT Cannot Invoke Revisionary Powers u/s 263 where AO took a Plausible View after Due Enquiry: ITAT favours City Union Bank [Read Order]

The Chennai Bench of the Income Tax Appellate Tribunal ( ITAT ) has held that revisionary powers under Section 263 of theIncome Tax Act, 1961 cannot be exercised merely because the Principal Commissioner holds a different view, when the Assessing Officer has completed the assessment after conducting enquiries and adopting one of the legally permissible views.

City Union Bank, a scheduled banking company, filed an appeal against the order passed by the Principal Commissioner of Income Tax, for the assessment year 2018-19, whereby the assessment was set aside on the ground of alleged lack of enquiry.

The assessee had filed its return of income declaring total income of ₹596.87 crore under the normal provisions and ₹783.96 crore under Section 115JB. During scrutiny, the Assessing Officer issued notices under Sections 143(2) and 142(1) highlighting details relating to deductions claimed under Sections 36(1)(vii), 36(1)(viia), ESOS expenditure and other issues. The Assessing Officer proceeded to complete the assessment by making certain additions and allowing the remaining claims.

Subsequently, the Principal Commissioner invoked revisionary jurisdiction under Section 263, and alleged that the AO had failed to conduct proper enquiries in respect of non-rural bad debts written off, excess deduction claimed, ESOS expenditure allowed, and provision for non-performing assets claimed. The assessment order was thereby set aside with a direction to pass a fresh order after verification.

The assessee contended that all the issues raised by the Principal Commissioner had been examined during the assessment proceedings and it was found that similar issues had already been decided in its favour by coordinate benches of the Tribunal in earlier assessment years. It was argued that the Assessing Officer had adopted a plausible view supported by judicial precedents, and therefore the twin conditions of “error” and “prejudice to the interest of revenue” were not satisfied.

The Tribunal, comprising Aby T. Varkey (Judicial Member) and S. R. Raghunatha (Accountant Member) examined the assessment records. It was noted that the Assessing Officer had raised queries, to which, the assessee had furnished detailed replies along with supporting documents. The Bench observed that this was not a case of “lack of enquiry” but, one of alleged “inadequate enquiry”, which does not justify invocation of Section 263.

Placing reliance on the Supreme Court decisions in Malabar Industrial Co. Ltd. v. CIT and CIT v. Max India Ltd., as well as recent judgments including PCIT v. V-Con Integrated Solutions Pvt. Ltd., the Tribunal reiterated that where two views are possible and the Assessing Officer adopts one permissible view, the Commissioner cannot substitute his opinion through revisionary proceedings.

The Tribunal also found that the Principal Commissioner had not recorded any specific findings to substantiate how the assessment order was erroneous in law and merely remanded the matter for re-verification. This is violative of Section 263.

The bench finally held that the invocation of Section 263 was unsustainable. Accordingly, the impugned revisionary order was set aside and the appeal filed by the assessee was allowed.

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