Revision of order u/s 263 – if AO failed to apply his mind and conduct proper inquiry
Revision of order u/s 263 can be made if AO failed to apply his mind and conduct proper inquiry while accepting revised return
In case of Virbhadra Singh (HUF) vs. Prin. Commissioner of Income Tax, HC upheld revision u/s. 263 in case AO failed to apply his mind and conduct proper inquiry while accepting assessee’s revised return.
Virbhadra Singh (HUF)
Prin. Commissioner of Income Tax
5th October 2017
- The assessee filed a return of income for disclosing agricultural income of R5 lakh which was enhanced to R2.81 crore by filing a revised return. The revised return was filed pursuant to notice u/s. 143(2) for assessment. Assessee’s return was accepted in the scrutiny assessment proceedings u/s. 143(3). CIT held that AO erred in accepting the revised return regarding agricultural income and invoked provisions of Section 263. The agricultural income was thereafter treated as undisclosed income u/s. 68. CIT(A) and ITAT ruled in favour of Revenue.
- Aggrieved, assessee filed an appeal against ITAT order before HC.
- HC observed that assessee made investments in LIC policies which were in excess of income declared. HC noted that the AO did not examine as to whether gross mismatch in the income was on account of any bonafide omission or a mistake which caused the filing of revised income. The order was conspicuously silent on this aspect. The entire receipt of agriculture income of R2.81 crore was in cash. Agricultural income was disproportionately high only in the year under consideration and not in preceding and following years. The validity of the return, fulfilling the condition prescribed under Section 139(5) was not examined, more so in the factual backdrop when the revised return came to be filed only after issuance of notice for scrutiny.
- HC held that order passed by AO was without application of mind and resulted in loss of revenue, thus was erroneous and prejudicial to the interest of Revenue. HC thus affirmed invoking of Section 263 by the CIT.
- HC observed that ITAT didn’t err in accepting the additional evidence placed on record by the Revenue. HC observed that CIT’s powers u/s. 263 are wide enough to modify, cancel or direct fresh assessment in case of ‘no inquiry’ and that the AO should have conducted complete and proper inquiry of assessee’s return which declared an income of 1872% higher than original income.
- On the issue of whether the ITAT was right in accepting documents submitted by Revenue as additional evidence, HC observed that when the matter was being adjourned for about one and a half year, Revenue made certain submissions before ITAT which were accepted as additional evidence. HC noted that the additional evidence was accepted to support CIT’s view. HC stated that additional evidence can be accepted on record in view of SC ruling in K. Venkataramaiah [AIR 1963 SC 1526], wherein it was held additional evidence can be taken on record in order to pronounce judgment in a more satisfactory manner.
- HC concluded that CIT’s powers u/s. 263 are wide enough to modify, cancel or direct fresh assessment in case of ‘no inquiry’. HC stated that AO should have conducted complete and proper inquiry of assessee’s return which declared an income of 1872% higher than original income.
- HC further observed that the definition of term record u/s. 263(1)(b) is inclusive and it would include all records relating to any proceeding under the Act, be that of the Assessee or a third party, available at the time of examination by the Commissioner. The record need not pertain to the proceedings of the Assessee alone, be it for the relevant year or assessments pertaining to other years. It can also pertain to any other assessee. In fact, record of any proceedings under this Act available at the time of examination can be considered. Such record need not be placed by the parties. He has power to call for and examine the record of any proceedings under this Act.
- Thus, HC ruled in favour of Revenue.