Gouri Shankar Goyal v. PCIT [ITA No. 517/Kol/2019,
dt. 12-6-2020] : 2020 TaxPub(DT) 2488 (Kol-Trib.)
Explanation 2 to section 263 scope explained.
Facts
Assessee's assessment for assessment year 2014-15 was
completed under scrutiny mode. The same was reassessed by Principal CIT
alleging that the assessing officer had not inquired certain facts on capital
infusion etc thus was erroneous and prejudicial to the interests of the revenue
by invoking section 263. Hearing case sheets all pointed to proper inquiry by
assessing officer on the doubted topics of Pr. CIT. The Pr. CIT claimed
applying retrospective application of explanation 2 to section 263 inserted
vide Finance Act, 2015 with effect from 1-4-2015 to reassess the income. On
higher appeal to ITAT by the assessee.
Held by the ITAT in favour of the assessee.
The said explanation 2 inserted does not confer unfettered
powers to CIT to invoke section 263 as if such was the intent of law then there
would be no finality to assessment proceedings. Though it is a procedural
explanation section applicable to assessments which are made after the
insertion of the said date, It still has to make good the twin rules of the
assessment order requiring to be erroneous and prejudicial to the interests of
the revenue.
Applied : Shri
Narayan Tatu Rane v. ITO in ITA Nos. 2690 & 2691/Mum/2016 for assessment
year 2007-08 follows wherein it was held as --
"19. The law interpreted by
the High Courts makes it clear that the learned Pr. CIT, before holding an
order to be erroneous, should have conducted necessary enquiries or
verification in order to show that the finding given by the assessing officer
is erroneous, the learned Pr. CIT should have shown that the view taken by the
assessing officer is unsustainable in law. In the instant case, the learned Pr.
CIT has failed to do so and has simply expressed the view that the assessing
officer should have conducted enquiry in a particular manner as desired by him.
Such a course of action of the learned Pr. CIT is not in accordance with the
mandate of the provisions of section 263 of the Act. The learned Pr. CIT has
taken support of the newly inserted Explanation 2(a) to section 263 of the Act.
Even though there is a doubt as to whether the said explanation, which was
inserted by Finance Act, 2015 with effect from 1-4-2015, would be applicable to
the year under consideration, yet we are of the view that the said Explanation
cannot be said to have over ridden the law interpreted by Hon'ble Delhi High
Court, referred above. If that be the case, then the learned Pr. CIT can find
fault with each and every assessment order, without conducting any enquiry or
verification in order to establish that the assessment order is not sustainable
in law and order for revision. He can also force the assessing officer to
conduct the enquiries in the manner preferred by learned Pr. CIT, thus
prejudicing the independent application o f mind of the assessing officer.
Definitely, that could not be the intention of the legislature in inserting
Explanation 2 to section 263 of the Act, since it would lead to unending
litigations and there would not be any point of finality in the legal
proceedings. The Hon'ble Supreme Court has held in the case of Parashuram
Pottery Works Co. Ltd. v. ITO (1977) 106 ITR 1 (SC) : 1977 TaxPub(DT)
0725 (SC) that there must be a point of finality in all legal proceedings
and the stale issues should not be reactivitated beyond a particular stage and
the lapse of time must induce repose in and set at rest judicial and quasi
judicial controversies as it must in other spheres of human activity.
20. Further clause (a) of
Explanation states that an order shall be deemed to be erroneous, if it has
been passed without making enquiries or verification, which should have been
made. In our considered view, this provision shall apply, if the order has been
passed without making enquiries or verification which a reasonable and prudent
officer shall have carried out in such cases, which means that the opinion
formed by learned Pr. CIT cannot be taken as final one, without scrutinizing
the nature of enquiry or verification carried out by the assessing officer
vis-a-case. Hence, in our co vis its reasonableness in the facts and
circumstances of the considered view, what is relevant for clause (a) of Explanation
2 to section 263 is whether the assessing officer has passed the order after
carrying our enquiries or verification, which a reasonable and prudent officer
would have carried out or not. It does not authorise or give unfettered powers
to the learned Pr. CIT to revise each and every order, if in his opinion, the
same has been passed without making enquiries or verification which should have
been made. In our view, it is the responsibility of the learned Pr. CIT to show
that the enquiries or verification conducted by the assessing officer was not
in accordance with the enquiries or verification that would have been carried
out by a prudent officer. Hence, in our view, the question as to whether the
amendment brought in by way of Explanation 2(a) shall have retrospective or
prospective application shall not be relevant."
M/s. Amira Pure Foods Pvt. Ltd. v. PCIT in ITA No.
3205/Del/2017 for assessment year 2014-15, dated 29-11-2017 (Del-ITAT) held as follows :--
"18. The learned counsel
for the assessee submitted that even though there has been an amendment in the
provisions of section 263 of the Act by which Explanation 2 is inserted, with
effect from 1-4-2015 but the same does not give unfettered powers to the
Commissioner to assume jurisdiction under section 263 of the Act to revise
every order of the assessing officer to re-examine the issues already examined
during the course of assessment proceedings. The Hon'ble Mumbai ITAT has dealt
with Explanation 2 as inserted by the Finance Act, 2015 in the case of Narayan
Tatu Rane v. Income Tax Officer (2016) 70 taxmann.com 227 to hold that the
said Explanation cannot be said to have overridden the law as interpreted by
the Hon'ble Delhi High Court, according to which the Commissioner has to
conduct an enquiry and verification to establish and show that the assessment
order is unsustainable in law. The Tribunal has further held that the intention
of the legislature could not have been to enable the learned PCIT to find fault
with each and every assessment order, without conducting any enquiry or
verification in order to establish that the assessment order is not sustainable
in law, since such an interpretation will lead to unending litigation and there
would not be any point of finality in the legal proceedings. The opinion of the
Commissioner referred to in section 263 of the Act has to be understood as
legal and judicious opinion and not arbitrary opinion."
Editorial Note: the time
tested principles held in Malabar Industrial Co. Ltd. v. CIT (2000) 243 ITR
83 (SC) : 2000 TaxPub(DT) 1227 (SC) and reiterated in CIT v. Max
India Ltd. (2007) 295 ITR 282 (SC) : 2007 TaxPub(DT) 1548 (SC) for
invoking section 263 do not get diluted by any means due to this explanation 2;
except that it empowers in genuine cases where proper/diligent inquiry was not
done for CIT to invoke section 263 or for further aspects enumerated in the
said explanation.
To quote Malabar Industrial case --
"The phrase "prejudicial to the interests of the
Revenue" has to be read in conjunction with an erroneous order passed by
the assessing officer. Every loss of revenue as a consequence of an order of
the assessing officer, cannot be treated as prejudicial to the interests of the
Revenue, for example, when an Income Tax Officer adopted one of the courses permissible
in law and it has resulted in loss of revenue, or where two views are possible
and the Income Tax Officer has taken one view with which the Commissioner does
not agree, it cannot be treated as an erroneous order prejudicial to the
interests of the Revenue unless the view taken by the Income Tax Officer is
unsustainable in law".