2009 (7) TMI 1248 - AT - Income Tax

Tribunal quashes CIT's order under IT Act, citing lack of justification. AO's decision upheld.

PURANLAL AGRAWAL (HUF) Versus COMMISSIONER OF INCOME TAX

The tribunal quashed the CIT's order under Section 263 of the IT Act, holding that the CIT's action was not justified. It emphasized that the AO had ... - Issues Involved:1. Jurisdiction under Section 263 of the IT Act, 1961.2. Genuineness of the transaction of sale of jewellery.3. Application of the decision in the case of Smt. Sudha Agrawal.4. Validity of the CIT's action based on additional enquiry and report.Issue-wise Detailed Analysis:1. Jurisdiction under Section 263 of the IT Act, 1961:The assessee challenged the jurisdiction exercised by the CIT under Section 263 of the IT Act, 1961. The CIT had issued a notice under Section 263 based on findings from an additional enquiry conducted post-assessment. The tribunal noted that the CIT's action was based on a report from the Addl. Director of IT, Ahmedabad, which was obtained after the assessment was completed. The tribunal held that the CIT's action of initiating proceedings under Section 263 was void ab initio as the information obtained through the additional enquiry could not be considered as part of the 'record' for the purpose of Section 263. The tribunal emphasized that the CIT cannot disturb a concluded assessment merely to make roving and fishing enquiries, and the power under Section 263 is not unbridled and must be exercised with caution.2. Genuineness of the Transaction of Sale of Jewellery:The CIT questioned the genuineness of the sale transaction of jewellery amounting to Rs. 2,96,08,100 to M/s Arihant Jewellers, as the address provided by the assessee was found to be non-existent. The assessee provided various evidences, including an affidavit from Shri Paras Vaid, owner of M/s Arihant Jewellers, confirming the transaction and explaining that the business was conducted from Raipur and Ahmedabad. The tribunal noted that the AO had made due enquiries and accepted the transaction as genuine based on the documentary evidence provided by the assessee, including purchase memos, PAN details, and banking transactions. The tribunal held that the AO's order was not erroneous as the AO had reached a reasonable level of satisfaction after due application of mind.3. Application of the Decision in the Case of Smt. Sudha Agrawal:The assessee relied on the decision of the tribunal in the case of Smt. Sudha Agrawal, where similar transactions with M/s Arihant Jewellers were held as genuine. The CIT dismissed the applicability of this decision, stating that it was rendered in the context of Section 158BC, whereas the present case was under Section 153A. The tribunal disagreed with the CIT's reasoning, stating that the ratio of the decision regarding the genuineness of the transactions is applicable irrespective of the sections under which the assessment proceedings were concluded. The tribunal noted that the decision in Smt. Sudha Agrawal's case had been accepted by the Department by not filing further appeal, thus making the view taken by the AO a possible view in law.4. Validity of the CIT's Action Based on Additional Enquiry and Report:The tribunal scrutinized the CIT's action of obtaining a report from the Addl. Director of IT, Ahmedabad, after the completion of the assessment. The tribunal held that such an action was beyond the CIT's jurisdiction under Sections 131(1), 133(6), and 135 of the IT Act. The tribunal emphasized that the CIT's power to make enquiries is limited to pending proceedings and cannot be exercised to disturb the finality of a concluded assessment. The tribunal concluded that the CIT's action of initiating proceedings under Section 263 based on an additional enquiry was not justified and amounted to a change of opinion, which is not permissible under the law.Conclusion:The tribunal quashed the order of the CIT, holding that the CIT's action under Section 263 was not correct in law. The tribunal emphasized that the AO had made due enquiries and accepted the transaction as genuine based on the evidence provided by the assessee. The tribunal also held that the decision in the case of Smt. Sudha Agrawal was applicable and supported the genuineness of the transactions. The tribunal concluded that the CIT's action of obtaining additional information post-assessment was beyond his jurisdiction and amounted to a change of opinion, which is not permissible under Section 263. The assessee's appeal was allowed.