Nirav Chandrakantbhai Bhalani vs. The Pr. Cit, Ahmedabad - (Income Tax Appellate Tribunal) (06 Aug 2024)

Validity of a notice issued under Section 263 of IT Act based on incorrect grounds or unsupported evidence can be questioned

MANU/IB/0348/2024

Direct Taxation

Present appeal is filed by the Assessee as against the order passed by the Principal Commissioner of Income Tax, in exercise of his revisionary jurisdiction under Section 263 of the Income Tax Act, 1961 for the Assessment Year (AY) 2016-2017. Assessee argued that, the decision of the Learned PCIT to review the order of the AO in exercise of his jurisdiction under Section 263 of Act is not valid.

The AO issued notices under Sections 143(2) and 142(1) of the Act and made specific inquiries relating to purchase of immovable property along with other aspects of assessee's financial statements. The assessee responded to these inquiries, providing some documents including purchase deed.

Section 263 of the Act empowers the Learned PCIT to revise any order passed by the AO if it is erroneous and prejudicial to the interests of the revenue. An order can be considered erroneous if it is passed without proper verification, inquiry, or based on incorrect facts or law and it is prejudicial to the interests of the revenue if it results in the loss of revenue or incorrect computation of taxable income.

In the present case, it is evident that even after persistent requests by the assessee, the AO could not provide the documentary evidence based on which the assessment was reopened and passed order under Section 147 read with Section 144 of the Act. It is only the case where the evidence available with the Learned PCIT gave rise to suspicion about its veracity that further scrutiny is called for. The circumstances can certainly be termed as inadequate inquiry. Therefore, the Learned PCIT is not wrong in assuming jurisdiction under Section 263 of the Act.

The validity of a notice issued under Section 263 of the Act based on incorrect grounds or unsupported evidence can be questioned. If the reasons cited in the notice are factually incorrect or legally unsustainable, the notice can be challenged as invalid. The Learned PCIT must have sufficient evidence to support the claim that the order is erroneous and prejudicial to the interests of the revenue. Mere suspicion or conjecture is not sufficient.

It is evident that for the Learned PCIT to invoke Section 263 of the Act, it must be conclusively proven that the AO's order is both erroneous and prejudicial to the interests of the revenue. In present case, the AO made inadequate inquiries, during the proceedings; the AO could not provide any documentary evidence that formed the basis for reopening the assessment. This lack of evidence supports the conclusion that the Learned PCIT's action of setting aside the order of AO and directing him to pass a fresh order is unwarranted. The order passed by the Learned PCIT under Section 263 is set aside. The appeal of the Assessee is partly allowed.

Tags : ASSESSMENT REVIEW JURISDICTION