Facts of the Case

  • A search and seizure operation was conducted on 16.10.2007 at the establishment of Shri Dwarka Das Aggarwal (TNG Group).
  • Notice under Section 142(1) of the Income Tax Act was issued to the assessee and jurisdiction was subsequently transferred to ACIT, Central Circle IX.
  • The assessee filed its return declaring income of ₹2,94,87,060/-.
  • During assessment proceedings, the Assessing Officer observed shortage of finished goods stock amounting to ₹86,25,505/- and excess stock of raw materials amounting to ₹3,64,696/- as compared to books of account.
  • An addition of ₹11,94,982/- was made on account of unaccounted sales and assessment was completed on 31.12.2009.
  • The Commissioner subsequently initiated proceedings under Section 263 on the ground that the assessment order was erroneous and prejudicial to the interests of Revenue due to incomplete information and inadequate inquiry.
  • The ITAT set aside the revisional order passed by the Commissioner.
  • The Revenue challenged the ITAT order before the Delhi High Court.

Issues Involved

  1. Whether the Tribunal committed an error in setting aside the Commissioner’s order passed under Section 263 of the Income Tax Act?
  2. Whether the assessment order could be considered erroneous and prejudicial to the interests of Revenue where complete information sought by the Assessing Officer was not furnished?
  3. Whether the Commissioner exceeded jurisdiction by directing reconsideration of assessment proceedings?

Petitioner’s Arguments (Revenue)

  • The Revenue argued that the assessment order was erroneous because the Assessing Officer finalized assessment without obtaining complete information and confirmations from parties.
  • The Commissioner rightly exercised revisional jurisdiction under Section 263 because the incomplete inquiry caused prejudice to Revenue interests.
  • The office note attached to the assessment order itself showed that the assessment was finalized despite pending verification due to time constraints.

Respondent’s Arguments (Assessee)

  • The assessee contended that all information and documents sought by the Assessing Officer had already been furnished.
  • It was argued that the assessment order had been passed after considering all materials available on record.
  • The assessee further submitted that the Commissioner was merely attempting to conduct fishing and roving inquiries without any material evidence.

Court Findings / Order

The Delhi High Court held that:

  • Exercise of powers under Section 263 requires independent satisfaction of the Commissioner that the order of the Assessing Officer is erroneous and prejudicial to Revenue.
  • Completion of assessment without obtaining complete information sought by the Assessing Officer constituted a serious procedural error causing prejudice to Revenue.
  • The Commissioner was not directing fishing or roving inquiry but merely requiring complete information before taking a proper view.
  • The Tribunal committed a serious error in interfering with the revisional order of the Commissioner.
  • The order of the ITAT was set aside and the appeal was allowed in favor of Revenue.

Important Clarification

This judgment clarifies that where the Assessing Officer himself records the need for additional verification but still concludes assessment proceedings without obtaining complete information, such an assessment order becomes susceptible to revision under Section 263.

The Court further clarified:

  • Lack of inquiry and inadequate inquiry can render an assessment order erroneous and prejudicial to Revenue.
  • Revisional jurisdiction under Section 263 cannot be termed a fishing or roving inquiry where the Commissioner merely seeks completion of incomplete investigation.
  • Section 263 can be invoked when procedural lapses materially affect Revenue interests.

Sections Involved

  • Section 263 – Revision of orders prejudicial to Revenue
  • Section 142(1) – Inquiry before assessment
  • Section 143(2) – Scrutiny assessment
  • Section 68 – Unexplained cash credits

Link to download the order -https://delhihighcourt.nic.in/app/case_number_pdf/2014:DHC:2020-DB/SRB16042014ITA5112013.pdf

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