Income Tax Commissioners Must Not Routinely Remand Matters Just Because Assessing Officer Could Not Find Additions: Supreme Court

The Supreme Court recently advised that the Commissioners of Income Tax should not randomly remand matters in exercise of their revisional powers under Section 263 of the Income Tax Act, 1961, merely by saying that the Assessing Officer was required to do more inquiries.The Court said that to remand matters on the ground of inadequate inquiry by the AO, the Commissioner must record “abject failure and lapse on the part of the Assessing Officer to establish both the error and prejudice caused to revenue” is necessary.A bench comprising Chief Justice of India Sanjiv Khanna, Justice Sanjay Kumar and Justice KV Viswanathan was hearing a petition filed by the Principal Commissioner of Income Tax-Chandigarh against an order of the Punjab and Haryana High Court which upheld the ITAT's decision quashing the remand order.The Court observed that if the Assessing Officer could not find additions to income, then it can be taken that the assessee's stand was correct."The assessee does not have control over the pen of the Assessing Officer. Once the Assessing Officer carries out the investigation but does not make any addition, it can be taken that he accepts the plea and stand of the assessee," the Court stated.In such cases, the revenue is not remediless and can invoke the revisional power of the Commissioner under Section 263, the Court said. Explanation 2(a) to Section 263 covers the cases in which “the order is passed without making inquiries or verifications which should have been made”.The Commissioner can exercise the revisional power by going into the merits and making additions. The revisional power cannot be exercised to remand the matter, claiming that there was a failure to investigate."The power under Section 263 of the Income Tax Act, 1961, can be exercised by the Commissioner of Income Tax, but by going into the merits and making an addition, and not by way of a remand, recording that there was failure to investigate. There is a distinction between the failure or absence of investigation and a wrong decision/conclusion. A wrong decision/conclusion can be corrected by the Commissioner of Income Tax with a decision on merits and by making an addition or disallowance."The Court added that in cases where there was a total lack of investigation, the Commissioner can remand the matter; however, there has to be a recording to that effect."There may be cases where the Assessing Officer undertakes a superficial and random investigation that may justify a remit, albeit the Commissioner of Income Tax must record the abject failure and lapse on the part of the Assessing Officer to establish both the error and the prejudice caused to the Revenue."In this case, the Income Tax Appellate Tribunal had noted that the Commissioner could not specifically point out in the order what further enquiries were required to be made. Affirming the ITAT order, the High Court said, “Simply by holding that the AO was required to make 'more' inquiries would not be a valid ground for treating the order of the AO as erroneous and prejudicial to the interests of the revenue”. Case : Principal Commissioner of Income Tax-1 Chandigarh vs V-Con Integrated Solutions Pvt LtdCitation : 2025 LiveLaw (SC) 435Click here to read the order

Income Tax Commissioners Must Not Routinely Remand Matters Just Because Assessing Officer Could Not Find Additions: Supreme Court

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If the Assessing Officer could not find additions to income, then it can be taken that the assessee's stand was correct.

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