2014 (4) TMI 771 - AT - Income Tax

Tribunal upholds CIT's findings on income allocation, vacates decision on Section 54F deduction. Assessee granted opportunity for reassessment.

The Tribunal upheld the CIT's findings on the lack of inquiry into the applicability of Section 2(22)(e) and the allocation of income under different ... Validity of setting aside of assessment order u/s 263 of the Act – Applicability of section 2(22)(e) of the Act – Deemed dividend – Loan from company – Held that:- The decision in Commissioner of Income-tax Versus Vikas Polymers [2010 (8) TMI 745 - Delhi High Court] followed - the CIT cannot invoke his jurisdiction u/s 263 of the Act for inadequate inquiry - the assessment order can be said to be erroneous only when there is total lack of inquiry on any point - there was no inquiry conducted by the Assessing Officer with reference to the applicability of Section 2(22)(e) with regard to loan claimed to have been taken from ACIL - money received by the assessee prior to sale of shares would be loan to the assessee from the party - no material was placed before the AO and the AO has not at all examined the applicability of Section 2(22)(e) with reference to the loan taken by the assessee from ACIL - before the AO, the assessee denied to have taken any loan - It is only before the CIT that the assessee came with the explanation that the amount received from ACIL was against the sale proceeds of the shares – the AO has not at all examined the applicability of Section 2(22)(e) and, it is a case of lack of inquiry. Claim of deduction u/s 54F of the Act – Investment in residential house – Held that:- The AO did raise the query with reference to Section 54F and the assessee gave reply - the AO did raise the query in this regard and it cannot be said that there was no inquiry by the AO with reference to allowability of Section 54F to the assessee so as to empower the CIT for invoking his jurisdiction u/s 263. The order of learned CIT modified partly - His finding with regard to no inquiry u/s 2(22)(e) and the difference between the net profit as per profit & loss account and the net profit shown under various heads in the computation of income is upheld and the CIT’s finding with regard to Section 54F of the Act is vacated because the AO did make necessary inquiry with regard to deduction u/s 54F claimed by the assessee - the order u/s 263 is partly modified and the AO is directed for fresh adjudication and to inquire into and re-adjudicate the applicability of Section 2(22)(e) and also the allocation of income under the various heads by the assessee in the computation of income – Decided partly in favour of Assessee. Issues Involved:1. Applicability of Section 2(22)(e) concerning the alleged loan from M/s Ankush Credit India Ltd. (ACIL).2. Claim of deduction under Section 54F for investment in a residential house.3. Allocation of income under various heads to claim benefits under Sections 54F, 111A, and 88E.Issue-wise Detailed Analysis:1. Applicability of Section 2(22)(e):The CIT set aside the assessment order on the grounds that the Assessing Officer (AO) did not conduct any inquiry regarding the applicability of Section 2(22)(e). The assessee argued that the AO raised queries about unsecured loans, sundry creditors, and the sale of shares, and provided detailed responses, including the sale of shares to ACIL. However, the CIT found that the AO did not inquire into the loan from ACIL, and the assessee initially denied receiving any loan except from her husband. The Tribunal agreed with the CIT, noting that the AO failed to examine the applicability of Section 2(22)(e) and that the assessee's explanation about the loan being advance payment for shares was only presented to the CIT, not the AO. Thus, the Tribunal upheld the CIT's finding of a lack of inquiry by the AO concerning Section 2(22)(e).2. Claim of Deduction under Section 54F:The CIT contended that the AO did not apply his mind to the deduction claimed under Section 54F. The assessee provided evidence that the AO queried the conditions under Section 54F and received detailed explanations. The Tribunal found that the AO did raise queries and received responses regarding the Section 54F deduction, indicating that there was an inquiry. Consequently, the Tribunal vacated the CIT's finding on this issue, ruling that the AO did make necessary inquiries regarding the Section 54F deduction.3. Allocation of Income under Various Heads:The CIT argued that the AO did not examine the allocation of income under different heads, which affected the deductions claimed under Sections 54F, 111A, and 88E. The assessee's profit and loss account showed combined income, but the computation of income allocated profits under various heads. The Tribunal noted discrepancies in the net profit figures and found no evidence that the AO raised specific queries about the allocation of income. Therefore, the Tribunal upheld the CIT's finding that the AO did not apply his mind or conduct any inquiry regarding the allocation of income under different heads.Conclusion:The Tribunal partly modified the CIT's order. It upheld the CIT's findings regarding the lack of inquiry on the applicability of Section 2(22)(e) and the allocation of income under various heads. However, it vacated the CIT's finding on the Section 54F deduction, as the AO did make necessary inquiries. The AO was directed to re-examine the applicability of Section 2(22)(e) and the allocation of income under various heads, allowing the assessee adequate opportunity to present her case. The appeal was partly allowed, and the decision was pronounced on 21st March 2014.