Loading judgment…
Facts
The assessee did not file his return of income, prompting the AO to reopen assessment u/s 148 based on information about a Rs. 56.55 lakh bank deposit. The assessee subsequently filed an ITR, which the AO accepted in the assessment order u/s 143(3). However, the CIT initiated revision proceedings u/s 263, alleging that the AO failed to conduct proper inquiries into the source of the significant cash deposit, including a claimed friendly loan of Rs. 50 lakhs, and the legibility of bank statements.
Held
The Tribunal affirmed the CIT's decision, holding that the AO had not conducted adequate inquiries into the source of the cash deposit. The AO's quick acceptance of the assessee's explanation and declared income without proper verification, especially regarding a large friendly loan and illegible bank statements, rendered the assessment order erroneous and prejudicial to the revenue. Thus, the CIT was justified in invoking Section 263 to set aside the assessment and direct a fresh one.
Key Issues
Whether the Commissioner of Income Tax was justified in exercising powers under Section 263 to set aside an assessment order due to the Assessing Officer's failure to conduct proper inquiries into the source of a large cash deposit.
Sections Cited
263, 147, 148, 143(3), 142(1), 144A, 120, 129
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, DIVISION BENCH, ‘A’ CHANDIGARH
Before: SHRI RAJPAL YADAV & SHRI KRINWANT SAHAY
PHYSICAL HEARING O R D E R PER RAJ PAL YADAV, VP The assessee is in appeal against the order of the ld. Commissioner of Income Tax [in short ‘the CIT’] dated 26.03.2024 passed u/s 263 of the Income Tax Act, 1961 in assessment year 2011-12.
The solitary grievance of the assessee is that ld. CIT has erred in taking cognizance u/s 263 of the Act and thereby A.Y.2011-12 2 setting aside the assessment order dated 10.12.2018 passed u/s 143(3) read with Section 147 of the Income Tax Act and directing the AO to pass a fresh assessment order denovo.
The brief facts of the case are that according to the AO, assessee did not file his return of income. The AO received an information that assessee has deposited a sum of Rs.56.55 lacs in his bank account maintained with HDFC Bank. Thus, assessment of the assessee was reopened and a notice u/s 148 was issued and served upon the assessee on 28.03.2018. According to the AO, the assessee has filed his return of income on 28.11.2018 declaring income of Rs.2,15,080/- as profit & gains of the business and Rs.56,750/- as Short Term Capital Gain. The assessee also declared ‘other income’ at Rs.24,894/-. The AO, thereafter, issued a notice on 28.11.2018 u/s 143(3) and 142(1) of the Act. He passed the assessment order on 10.12.2018 and accepted the declared income.
The ld. counsel for the assessee, while impugning order of ld. ld. CIT u/s 263 took us through copy of the questionnaire dated 28.11.2018 available on Page No. 14 and 15. In A.Y.2011-12 3 response to this questionnaire, assessee has filed a reply on 28.11.2018 explaining the source of cash deposit. Copy of reply is available on page No. 16 to 31. Therefore, ld. Commissioner has erred in taking cognizance u/s 263 of the Income Tax Act.
The ld. Ld. CIT DR, on the other hand, pointed out that AO has not conducted any enquiry demonstrating the source of cash available with the assessee for depositing in the bank account. Thus, the ld. CIT has rightly exercised the powers.
We have duly considered the rival contentions and gone through the record carefully. Before we embark upon an enquiry on the facts and issues agitated before us to find out whether the action u/s 263 of the Act deserves to be taken against the assessee or not, it is pertinent to take note of this Section. It reads as under:- “263(1) The Commissioner may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by the Assessing Officer is erroneous in so far as it is prejudicial to the interest of the revenue, he may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including an order A.Y.2011-12 4 enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment.
[Explanation.- For the removal of doubts, it is hereby declared that, for the purposes of this sub-section,-
(a) an order passed on or before or after the 1st day of June, 1988 by the Assessing Officer shall include-
(i) an order of assessment made by the Assistant Commissioner or Deputy Commissioner or the Income Tax Officer on the basis of the directions issued by the Joint Commissioner under section 144A;
(ii) an order made by the Joint Commissioner in exercise of the powers or in the performance of the functions of an Assessing Officer conferred on, or assigned to, him under the orders or directions issued by the Board or by the Chief Commissioner or Director General or Commissioner authorized by the Board in this behalf under section 120;
(b) “record shall include and shall be deemed always to have included all records relating to any proceeding under this Act available at the time of examination by the Commissioner;
(c) where any order referred to in this sub-section and passed by the Assessing Officer had been the subject matter of any appeal filed on or before or after the 1st day of June, 1988, the powers of the Commissioner under this sub-section shall extend and shall be deemed always to have extended to such matters as had not been considered and decided in such appeal. A.Y.2011-12 5 (2) No order shall be made under sub-section (1) after the expiry of two years from the end of the financial year in which the order sought to be revised was passed.
(3) Notwithstanding anything contained in sub-section (2), an order in revision under this section may be passed at any time in the case of an order which has been passed in consequence of, or to give effect to, any finding or direction contained in an order of the Appellate Tribunal, National Tax Tribunal, the High Court or the Supreme Court. Explanation.- In computing the period of limitation for the purposes of sub-section (2), the time taken in giving an opportunity to the assessee to be reheard under the proviso to section 129 and any period during which any proceeding under this section is stayed by an order or injunction of any court shall be excluded.”
A bare perusal of the sub section-1 would reveal that powers of revision granted by section 263 to the learned Commissioner have four compartments. In the first place, the learned Commissioner may call for and examine the records of any proceedings under this Act. For calling of the record and examination, the learned Commissioner was not required to show any reason. It is a part of his administrative control to call for the records and examine them. The second feature would come when he will judge an order passed by an Assessing Officer on culmination of any proceedings or during A.Y.2011-12 6 the pendency of those proceedings. On an analysis of the record and of the order passed by the Assessing Officer, he formed an opinion that such an order is erroneous in so far as it is prejudicial to the interests of the Revenue. By this stage the learned Commissioner was not required the assistance of the assessee. Thereafter the third stage would come. The learned Commissioner would issue a show-cause notice pointing out the reasons for the formation of his belief that action u/s 263 is required on a particular order of the Assessing Officer. At this stage the opportunity to the assessee would be given. The learned Commissioner has to conduct an inquiry as he may deem fit. After hearing the assessee, he will pass the order. This is the 4th compartment of this section. The learned Commissioner may annul the order of the Assessing Officer. He may enhance the assessed income by modifying the order. He may set aside the order and direct the Assessing Officer to pass a fresh order.
A perusal of sub-clause
(c) of the above would contemplate that if any order, which is subject matter for revision under section 263 is challenged in appeal, then, on the items which are subject matter of appeal, no power under A.Y.2011-12 7 section 263 could be exercised by the ld. Commissioner. We may elaborate further, for example- an assessment order was passed, it contains five issues, which were challenged before the ld. CIT(A), but ld. Assessing Officer failed to look into few issues, which may arise from the record, then inspite of the assessment order being challenged before the ld. CIT(A), the ld. Commissioner would have jurisdiction on such items, which are not subject matter of appeal in that assessment order.
At this stage, before considering the multi-fold contentions of the ld. Representatives, we deem it pertinent to take note of the fundamental tests propounded in various judgments relevant for judging the action of the CIT taken u/s 263. The ITAT in the case of Mrs. Khatiza S. Oomerbhoy Vs. ITO, Mumbai, 101 TTJ 1095, analyzed in detail various authoritative pronouncements including the decision of Hon’ble Supreme Court in the case of Malabar Industries 243 ITR 83 and has propounded the following broader principle to judge the action of CIT taken under Section 263 :
(i) The CIT must record satisfaction that the order of the AO is erroneous and prejudicial to the interest A.Y.2011-12 8 of the Revenue. Both the conditions must be fulfilled.
(ii) Sec. 263 cannot be invoked to correct each and every type of mistake or error committed by the AO and it was only when an order is erroneous that the section will be attracted.
(iii) An incorrect assumption of facts or an incorrect application of law will suffice the requirement of order being erroneous.
(iv) If the order is passed without application of mind, such order will fall under the category of erroneous order.
(v) Every loss of revenue cannot be treated as prejudicial to the interests of the Revenue and if the AO has adopted one of the courses permissible under law or where two views are possible and the AO has taken one view with which the CIT does not agree. If cannot be treated as an erroneous order, unless the view taken by the AO is unsustainable under law.
(vi) If while making the assessment, the AO examines the accounts, makes enquiries, applies his mind to the facts and circumstances of the case and determine the income, the CIT, while exercising his power under s. 263 is not permitted to substitute A.Y.2011-12 9 his estimate of income in place of the income estimated by the AO.
(vii) The AO exercises quasi-judicial power vested in him and if he exercises such power in accordance with law and arrive at a conclusion, such conclusion cannot be termed to be erroneous simply because the CIT does not fee stratified with the conclusion.
(viii) The CIT, before exercising his jurisdiction under s. 263 must have material on record to arrive at a satisfaction.
(ix) If the AO has made enquiries during the course of assessment proceedings on the relevant issues and the assessee has given detailed explanation by a letter in writing and the AO allows the claim on being satisfied with the explanation of the assessee, the decision of the AO cannot be held to be erroneous simply because in his order he does not make an elaborate discussion in that regard.
In the light of above, if we examine the facts of present case, then it would reveal that firstly AO has erred in waiting for the return of the assessee and not setting the assessment machinery in motion. The notice u/s 148 was issued on 28.03.2018. The assessee has filed his return on 28.11.2018 and only thereafter, he has issued a notice u/s 143(2) and A.Y.2011-12 10 142(1). The AO was not dependent upon the assessee that one fine day, assessee would submit his return and then he would set the assessment machinery in motion. The return was filed on 28.11.2018. He has issued notice and collected the information within 11 days and passed the assessment order on 10.12.2018. It indicates that no enquiry was conducted by him. According to the assessee, he has filed information in his reply dated 29.11.2018 and 30.11.2018, but in the reply to the AO, assessee has submitted that he has taken a friendly loan of Rs.50 lacs from one Shri Bharat Bhushan of Chandigarh. The AO has not issued any Show Cause Notice to Shri Bharat Bhushan. He has not made any analysis of his bank statement. The copy of the bank statement has been annexed before us also at page No. 17 but it is not legible. It is not discernible to whom this account belongs to. Similarly, its entries are also not legible. Therefore, we are of the view that ld. CIT has rightly exercised the powers and rightly set aside the assessment order. The case law submitted by the ld. counsel for the assessee before us in a Paper Book from page No. 1 to 78 are not applicable on the given facts before us. We have already made an A.Y.2011-12 11 analysis of different case laws and propounded the tests required to be applied for judging the action of ld. CIT u/s 263. Therefore, we do not find any merit in this appeal. It is dismissed.
In the result, appeal is dismissed.