Rits Jewellers vs Pr. CIT, Faridabad: Appeal on Revision Order Under Section 263 for AY 2014-15

Case Overview: Rits Jewellers Pvt Ltd vs Pr. CIT, Faridabad

Case Number: ITA 6226/DEL/2019

Appellant: Rits Jewellers Pvt Ltd, Faridabad

Respondent: Pr. CIT, Faridabad

Assessment Year: 2014-15

Case Filed On: 2019-07-22

Order Type: Final Tribunal Order

Date of Order: 2022-09-02

Pronounced On: 2022-09-02

Introduction

The case of Rits Jewellers Pvt Ltd vs Pr. CIT, Faridabad pertains to an appeal filed by Rits Jewellers Pvt Ltd against the revisionary order passed under Section 263 of the Income Tax Act, 1961 by the Principal Commissioner of Income Tax (Pr. CIT), Faridabad. The revision order sought to declare the assessment order dated 19/04/2016 as erroneous and prejudicial to the interests of revenue. The Income Tax Appellate Tribunal (ITAT) ruled in favor of the appellant, setting aside the revision order.

Background of the Case

Rits Jewellers Pvt Ltd, engaged in the business of trading various jewelry items, filed its return of income for the assessment year 2014-15, declaring an income of Rs. 3,64,150/-. The return was processed under Section 143(1) of the Income Tax Act, and the case was later selected for limited scrutiny through the Computer Assisted Scrutiny Selection (CASS) system. The Assessing Officer (AO) issued notices under Sections 143(2) and 142(1) of the Act, and the assessment was completed on 19/04/2016 after due verification.

The Principal Commissioner of Income Tax, Faridabad, issued a notice under Section 263 of the Income Tax Act, challenging the assessment order. The Pr. CIT contended that the AO had failed to make proper inquiries, particularly regarding the creditworthiness of creditors and the verification of transactions conducted by the assessee. As a result, the Pr. CIT declared the assessment order as erroneous and prejudicial to the interests of revenue and directed the AO to pass a fresh assessment order after conducting proper inquiries.

Appellant’s Arguments

The appellant, represented by Sh. Rajeev Saxena, Ms. Sumangla Saxena, and Sh. Shyam Sunder, Advocates, argued that the Pr. CIT had erred in assuming jurisdiction under Section 263 of the Act. They contended that the AO had made detailed inquiries during the assessment proceedings, including issuing notices under Section 133(6) to the firms with which the assessee had transactions. The AO had verified the creditworthiness of the creditors and accepted the transactions based on the evidence provided by the assessee.

The appellant argued that the Pr. CIT had failed to establish that the assessment order was erroneous or prejudicial to the interests of revenue. They asserted that the AO had taken a judicial view based on the material available on record, and the Pr. CIT’s order was based on mere suspicion and assumptions.

Respondent’s Arguments

The respondent, represented by Sh. Atiq Ahmed, Senior Departmental Representative (DR), defended the Pr. CIT’s order, arguing that the AO had not conducted adequate inquiries during the assessment proceedings. The DR contended that the revisionary powers under Section 263 were rightly invoked by the Pr. CIT to protect the interests of revenue.

Tribunal’s Decision

The ITAT bench, comprising Accountant Member Shri B. R. R. Kumar and Judicial Member Shri Yogesh Kumar U.S., reviewed the case and found that the AO had conducted proper inquiries during the assessment proceedings. The bench observed that the AO had issued notices under Section 133(6) to the creditors and had obtained and verified the necessary documents, including balance sheets, ledgers, and income tax returns. The ITAT noted that the AO had considered all the relevant material and had arrived at a reasoned conclusion while passing the assessment order.

The ITAT held that the Pr. CIT had failed to demonstrate that the assessment order was erroneous or prejudicial to the interests of revenue. The bench emphasized that the revisionary powers under Section 263 could not be invoked merely because the Pr. CIT held a different opinion. The ITAT cited the Supreme Court’s ruling in the case of Malabar Industrial Co. Ltd. vs CIT and CIT vs Max India Ltd, stating that where two views are possible and the AO has adopted one of the views, the order cannot be treated as erroneous.

The ITAT concluded that the Pr. CIT had acted beyond his jurisdiction by directing a fresh assessment without providing sufficient grounds to establish that the original assessment was flawed. As a result, the ITAT set aside the order passed under Section 263 of the Act and allowed the appeal in favor of Rits Jewellers Pvt Ltd.

Conclusion

The case of Rits Jewellers Pvt Ltd vs Pr. CIT, Faridabad underscores the importance of adhering to the principles of natural justice and the legal framework governing the revisionary powers under Section 263 of the Income Tax Act. The ITAT’s ruling reaffirms that an assessment order, once passed after due inquiry and verification, cannot be disturbed unless it is demonstrated that the order is both erroneous and prejudicial to the interests of revenue.

The decision serves as a reminder that the revisionary authority must exercise its powers judiciously and not interfere with assessments merely based on differing opinions or assumptions. The outcome of this case highlights the safeguards in place to ensure that taxpayers are not subjected to arbitrary or unjustified revisionary actions.

Order Pronounced in the Open Court on 2nd September, 2022.

Accountant Member: B. R. R. Kumar

Judicial Member: Yogesh Kumar U.S.

Rits Jewellers vs Pr. CIT, Faridabad: Appeal on Revision Order Under Section 263 for AY 2014-15