Friday, April 6, 2012

S. 263 Revision: CIT must give finding on merits & cannot simply remand to AO

The assessee purchased property for Rs.69.63 lacs in 1997, yielding a rent of Rs.2.05 lacs per month, and sold it for Rs.70 lacs in 2003. The assessee claimed indexation loss which was accepted by the AO. The CIT passed an order u/s 263 holding that a high-yielding asset could not be disposed off at such a low value and that the assessment order was erroneous & prejudicial to the interests of the revenue as the AO had not examined the aspect of full value of consideration receivable by the assessee. The Tribunal reversed the CIT on the ground that he had not come to the conclusion that the actual receipt of consideration was more than what was declared in the return. On appeal by the department to the High Court, HELD dismissing the appeal:

While the AO is both an investigator and an adjudicator, a distinction has to be drawn between a case where the AO has not conducted any enquiry or examined any evidence whatsoever (“lack of inquiry”) from one (i) where there is enquiry but the findings are erroneous; and (ii) where there is failure to make proper or full verification or enquiry (“inadequate inquiry”). The fact that the assessment order does not give any reasons for allowing the claim is not by itself indicative of the fact that the AO has not applied his mindon the issue. All the circumstances have to be seen. A case of lack of enquiry would by itself render the order being erroneous and prejudicial to the interest of the Revenue. In a case where there is inquiry by the AO, even if inadequate, the CIT would not be entitled to revise u/s 263 on the ground that he has a different opinion in the matter. Also, in a case where the AO has formed a wrong opinion or finding on merits, the CIT has to come to the conclusion and himself decide that the order is erroneous, by conducting necessary enquiry before passing the s. 263 order. The CIT is entitled to collect new material to show how the order of the AO is erroneous. The CIT cannot remand the matter to the AO for further enquiries or to decide whether the findings recorded are erroneous without a finding that the order is erroneous and how that is so. A mere remand to the AO implies that the CIT has not decided whether the order is erroneous but has directed the AO to decide the aspect which is not permissible. On facts, as the CIT had doubts about the valuation and sale consideration received, he ought to have examined the said aspect himself and given a finding on the merits on how the consideration was understated (Gee Vee Enterprises 99 ITR 375 (Del), Sunbeam Auto 332 ITR 167 (Del) & Gabriel 203 ITR 108 (Bom) followed).