Section 263 — Without examining detailed records submitted by assessee and in absence of finding of any factual mistake or any legal error or any instance which could have shown as to how the order of AO was erroneous and prejudicial to interest of Revenue, the proceedings initiated by Commissioner u/s.263 were not justified.

Section 263 — Without examining detailed records submitted by assessee and in absence of finding of any factual mistake or any legal error or any instance which could have shown as to how the order of  ao was erroneous and prejudicial to interest of revenue, the proceedings initiated by Commissioner u/s.263 were not justified.

The assessee was an individual deriving income from manufacturing and export of gems and jewellery. Order of assessment was passed by the Assessing Officer (‘AO’) u/s.143(3). Taking into consideration the past history of the assessee, the deduction u/s.10B was allowed. Thereafter, the successor AO sent a proposal u/s.263 to the Additional Commissioner. Notice u/s.263(1) was thus issued to the assessee. The assessee filed detailed replies to notice. The Commissioner, in exercise of his power u/s.263, set aside the assessment order passed by the AO mainly on ground that while completing assessment, the AO had not raised any queries and details, which were suo moto filed by assessee, were not examined by the AO and no investigation was made. Accordingly, order of the AO was held erroneous and prejudicial to interest of the Revenue and hence was set aside. The assessee appealed before the Tribunal.

Held:

While completing the assessment, the AO though he had not discussed the issue in detail but had clearly mentioned that the case was discussed and various details filed by the assessee were test-checked and were found correct. Taking into consideration the past history, deduction u/s.10B was also allowed. It is not necessary that the AO should write a lengthy order discussing all the details but the necessity is that he should have applied his mind. In reply to the notice issued by the Commissioner, the assessee explained each and every query through detailed reply. However, the Commissioner didn’t comment as to how these explanations and details were not acceptable. The Commissioner set aside the order of the AO to make de novo assessment. The approach of the Commissioner was not legally well-founded. The order of the Commissioner could not be sustained as it could not point out as to how the order of the AO was erroneous and prejudicial to interest of the Revenue or it could not point out any specific defect in the details filed before the AO and again before the Commissioner or how any addition can be sustained. Without pointing out any defect, mere setting aside the order of the AO, just to make fresh investigation in a manner suggested by the Commissioner is not permissible under law. Resultantly, the appeal of the assessee was allowed. The error envisaged by section 263 is not one which depends on possibility or guesswork, but it should be actually an error either of fact or law. The phrase ‘prejudicial to interests of Revenue’ has to be read in conjunction with an erroneous order passed by the AO.