Facts of the Case

M.R. Apparels Private Limited, the appellant-assessee, sold an immovable property during the Financial Year 2014-15 for a total consideration of ₹6.50 crore. A sale deed was executed on 17.03.2015, stamp duty of ₹32.50 lakh was paid by the purchaser, and TDS of ₹6.50 lakh (1%) was deducted.

Out of the total consideration, the assessee received ₹5.05 crore. The balance amount of ₹1.45 crore was stated to have been paid through two post-dated cheques, which were later dishonoured. The assessee claimed that, due to dishonour of cheques, the transaction remained inchoate and therefore did not offer capital gains to tax for Assessment Year 2015-16.

The Assessing Officer passed an assessment order under Section 143(3) on 04.05.2017, accepting the returned income without examining the issue of dishonoured cheques.

The Principal Commissioner of Income Tax (PCIT) invoked Section 263, holding that the assessment order was erroneous and prejudicial to the interests of the Revenue for lack of proper enquiry. The revision order dated 18.11.2019 was upheld by the Income Tax Appellate Tribunal. Aggrieved, the assessee filed an appeal before the Delhi High Court under Section 260A.

 

Issues Involved

Whether the assessment order passed under Section 143(3) was erroneous and prejudicial to the interests of the Revenue within the meaning of Section 263.

Whether failure of the Assessing Officer to verify dishonour of cheques and taxability of sale consideration amounts to lack of enquiry under Explanation 2(a) to Section 263.

Whether any substantial question of law arose for consideration under Section 260A.

 

Petitioner’s Arguments

The appellant contended that:

All relevant documents and material were available before the Assessing Officer at the time of assessment.

The Assessing Officer had applied his mind and taken a plausible view.

Explanation 2 to Section 263 was not attracted, as the case did not involve complete absence of enquiry.

The revision order amounted to a change of opinion.

 

Respondent’s Arguments

The Revenue argued that:

The Assessing Officer failed to conduct any enquiry into the dishonour of cheques amounting to ₹1.45 crore.

The audit report relied upon by the assessee was dated 04.09.2015, whereas the cheques were post-dated (15.09.2015 and 15.03.2016), making reliance on the audit report factually untenable.

The assessment order was passed without verification of crucial facts, squarely attracting Explanation 2(a) to Section 263.

 

Court Order / Findings

The Delhi High Court dismissed the appeal and held that:

The assessment order did not indicate that the Assessing Officer had conducted any enquiry into the alleged dishonour of cheques.

The audit report could not have commented on dishonour of cheques as it was issued prior to the dates of the cheques.

Acceptance of the audit report without further verification amounted to lack of enquiry.

In terms of Explanation 2(a) to Section 263, an order passed without making enquiries or verification which should have been made is deemed to be erroneous and prejudicial to the interests of the Revenue.

The Principal Commissioner was justified in invoking revisional jurisdiction.

No substantial question of law arose for consideration under Section 260A.

 

Important Clarification

The Court clarified that:

The scope of Section 263 extends to cases where the Assessing Officer fails to conduct necessary enquiries, even if some material is available on record.

Mere availability of documents does not absolve the Assessing Officer from the duty of verification.

Explanation 2 to Section 263 statutorily deems such assessment orders to be erroneous and prejudicial to the Revenue.

 

Final Outcome

Appeal Dismissed
 Revision Order Passed under Section 263 Upheld
 Assessment Order Held Erroneous and Prejudicial to the Interests of the Revenue
 No Substantial Question of Law Found

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