Introduction

The case of Sangram Keshari Samantaray vs. Principal Commissioner of Income Tax-2, Bhubaneswar adjudicated by the Income Tax Appellate Tribunal, Cuttack Bench on October 28, 2021, revolves around the exercise of revisional powers under Section 263 of the Income Tax Act, 1961. The appellant, Mr. Samantaray, challenged the revisionary proceedings initiated by the Principal Commissioner of Income Tax (Pr. CIT) which set aside the assessing officer's (AO) order for the assessment year 2012-2013. The crux of the dispute lay in whether the Pr. CIT had the authority to overturn the AO's assessment based solely on internal audit observations without conducting an independent enquiry.

Summary of the Judgment

The Tribunal examined the appellant's challenge against the Pr. CIT's revision under Section 263. It was noted that the Pr. CIT set aside the AO's assessment claiming it was erroneous and prejudicial to the revenue's interests, primarily based on internal audit observations. However, the Tribunal found that the Pr. CIT failed to conduct an independent enquiry before exercising the revisional power. Consequently, the Tribunal quashed the Pr. CIT's order, restored the AO's original assessment, and allowed the appellant's appeal.

Analysis

Precedents Cited

The Judgment extensively referenced several precedents to bolster its findings:

• CIT v. Nirav Modi [2016] 71 Taxmann 272 (Bombay High Court) – Highlighting the necessity for Pr. CIT to establish that an AO's order is erroneous and prejudicial.
• Jyoti Foundation (Delhi High Court) – Emphasizing that revisional authority must conduct independent enquiries before setting aside AO's assessments.
• DG Housing Projects Ltd. (Delhi High Court) – Reinforcing that Pr. CIT cannot remand cases without conclusive evidence of error.
• Surekha Builders & Developers Pvt. Ltd. vs. Pr. CIT [ITA No.207/CTK/2018] – Underscoring the need for independent verification by revisional authorities.
• Additional cases from Madhya Pradesh, Himachal Pradesh, and Delhi High Courts further solidified the Tribunal's stance on the limitations of Section 263.

Legal Reasoning

The Tribunal delved into the statutory provisions of Section 263, particularly focusing on the twin requirements: (1) The AO's order must be erroneous, and (2) It must prejudice the revenue's interests.

The Judgment stressed that "erroneous" entails that the AO's order is contrary to law. It further clarified that Section 263 empowers the Pr. CIT to revise an AO's order only after conducting an independent enquiry and providing the assessee an opportunity to be heard. Merely disagreeing with the AO's view or finding it as another permissible opinion does not suffice for invoking Section 263.

In this case, the Pr. CIT did not perform an independent enquiry but relied solely on internal audit observations, which were not substantiated with additional evidence or investigations. The Tribunal found this approach inadequate, thereby rendering the revisionary order invalid.

Impact

This Judgment reinforces the stringent requirements for revisional authorities under Section 263. It sets a clear precedent that revisory powers cannot be exercised arbitrarily or based solely on audit observations without independent verification. Future cases will likely reference this Judgment to ensure that revisional authorities adhere strictly to procedural mandates, thereby protecting the rights of assessee and ensuring fair assessments.

Complex Concepts Simplified

Conclusion

The Tribunal's decision in Sangram Keshari Samantaray vs. Pr. CIT-2, Bhubaneswar underscores the critical importance of adhering to procedural norms when exercising revisional powers under Section 263. It clarifies that revisional authorities must not overstep by overturning AO's decisions without independent verification and adequate inquiry. This ensures a balanced approach, safeguarding both the revenue's interests and the taxpayer's rights, thereby promoting fairness and accountability within the tax assessment framework.