Narayan Tatu Rane vs. ITO (ITAT Mumbai)

DATE: May 6, 2016 (Date of pronouncement)
DATE: May 20, 2016 (Date of publication)
AY: 2007-08, 2008-09
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S. 263: There is doubt whether Explanation 2(a) to s. 263, inserted by FA 2015 w.e.f. 01.04.2015 has retrospective effect. The said Explanation does not override the law that the CIT cannot fault an assessment order without conducting his own inquiry or verification to establish that the assessment order is not sustainable in law

(i) The law interpreted by the High Courts makes it clear that the 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 CIT should have shown that the view taken by the AO is unsustainable in law. In the instant case, the 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 CIT is not in accordance with the mandate of the provisions of sec. 263 of the Act. The CIT has taken support of the newly inserted Explanation 2(a) to sec. 263 of the Act. Even though there is a doubt as to whether the said explanation, which was inserted by Finance Act 2015 w.e.f. 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 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 AO to conduct the enquiries in the manner preferred by CIT, thus prejudicing the independent application of mind of the AO. Definitely, that could not be the intention of the legislature in inserting Explanation 2 to sec. 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 Vs. ITO (1977) (106 ITR 1) 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.

(ii) 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 provison 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 CIT cannot be taken as final one, without scrutinising the nature of enquiry or verification carried out by the AO vis-à-vis its reasonableness in the facts and circumstances of the case. Hence, in our considered view, what is relevant for clause (a) of Explanation 2 to sec. 263 is whether the AO 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 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 CIT to show that the enquiries or verification conducted by the AO was not in accordance with the enquries 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.

(i) CIT Vs. Gabriel India Ltd 9203 ITR 108)(Bom)
(ii) CIT Vs. Sunbeam Auto Ltd (332 ITR 167)(Delhi)
(iii) CIT Vs. Vikas Polymers (341 ITR 537)(Delhi)
(iv) CIT Vs. Arvind Jeweller (259 ITR 502)(Guj)
(v) Grasim Industries Ltd. V CIT (321 ITR 92)
(vi) CIT Vs. Amalgamations Ltd (238 ITR 963)
(vii) Malabar Industrial Co. (2000) 243 ITR 83
(viii) Nagesh Knitwears P Ltd (2012)(345 ITR 135),

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