Facts of the Case

The assessee, M/s Kesarwani Zarda Bhandar, is a registered partnership firm engaged in the manufacture and sale of chewing tobacco. For Assessment Year 2017-18, the assessee filed its return of income declaring total income of ₹3,34,12,470. The case was selected for complete scrutiny and assessment was completed under Section 143(3) of the Income Tax Act after issuance of notices under Sections 143(2) and 142(1) and after detailed verification of books of account and submissions made by the assessee.

Subsequently, the Principal Commissioner of Income Tax invoked revisionary jurisdiction under Section 263 of the Act and passed an order dated 22.03.2022, setting aside the assessment order dated 07.11.2019 on the ground that the Assessing Officer had allegedly failed to properly examine the allowability of expenditure claimed under the head “Bhola Nath Kesarwani Memorial Expenses”.

Issues Involved

  1. Whether the assessment order passed under Section 143(3) was erroneous and prejudicial to the interests of revenue.
  2. Whether revision under Section 263 is permissible where the Assessing Officer has conducted enquiries and adopted a plausible view.
  3. Whether the Principal CIT can invoke Section 263 merely because he holds a different opinion on the same set of facts.

Petitioner’s (Assessee’s) Arguments

The assessee contended that the Assessing Officer had issued detailed questionnaires and conducted thorough enquiries during the assessment proceedings. All relevant details, explanations, and documentary evidence were duly examined before allowing the expenditure.

It was further submitted that the expenditure in question had been consistently allowed in earlier and subsequent assessment years. The assessee argued that the Principal CIT failed to consider the detailed submissions made during the Section 263 proceedings and passed a non-speaking order in violation of principles of natural justice. It was emphasized that the view taken by the Assessing Officer was one of the possible views permissible in law.

Respondent’s (Revenue’s) Arguments

The Departmental Representative supported the revisionary order passed by the Principal CIT and submitted that the Assessing Officer had failed to apply his mind properly while allowing the expenditure, thereby rendering the assessment order erroneous and prejudicial to the interests of revenue.

Court Order / Findings

The ITAT observed that the Assessing Officer had conducted detailed enquiries through notices issued under Section 142(1) and had examined the explanations and documents furnished by the assessee. The Tribunal noted that the Principal CIT, while acknowledging that enquiries were made, failed to demonstrate how the assessment order was erroneous in law or on facts.

The Tribunal held that merely because the Principal CIT disagreed with the conclusion drawn by the Assessing Officer, the assessment order could not be revised under Section 263. The view taken by the Assessing Officer was a plausible view and had been consistently accepted in earlier and subsequent years.

Accordingly, the ITAT set aside the revision order passed under Section 263 and restored the original assessment order dated 07.11.2019. The appeal of the assessee was allowed.

Important Clarification / Legal Principle

For invoking revisionary jurisdiction under Section 263, the twin conditions of the order being erroneous and prejudicial to the interests of revenue must be satisfied. Where the Assessing Officer has conducted due enquiries and adopted a plausible view, the assessment order cannot be revised merely because the Principal CIT holds a different opinion.

Link to download the order -  https://www.mytaxexpert.co.in/uploads/1770871179_KESARWANIZARDABHANDARALLAHABADVS.PR.CITALLAHABAD.pdf  

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