Tribunal Partially Upheld CIT's Order, Allows Assessee to Prove Actual Income

The Tribunal partly allowed the appeal, upholding the CIT's order under Section 263 but allowing the assessee to prove the actual income from the on-money receipt. The Tribunal emphasized the duty to correct errors in lower authorities' orders.

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Issues Involved:
1. Invocation of Section 263 of the Income Tax Act, 1961.
2. Determination of the order as erroneous and prejudicial to the interest of revenue.
3. Direction to consider the entire on-money as income of the assessee.

Issue-wise Detailed Analysis:

1. Invocation of Section 263 of the Income Tax Act, 1961:
The appellant contested the invocation of Section 263 by the Commissioner of Income Tax (CIT), arguing that the Assessing Officer (AO) had duly applied his mind while passing the order under Section 143(3) read with Section 147. The CIT issued a show-cause notice under Section 263, highlighting that the AO's assessment included only Rs. 60,31,047 as additional income, whereas the on-money received was Rs. 1,65,62,330. The CIT deemed the AO's assessment order erroneous and prejudicial to the interest of revenue, as the AO did not verify the correctness and adequacy of the income disclosed before the Settlement Commission.

2. Determination of the order as erroneous and prejudicial to the interest of revenue:
The CIT held that the AO's order was erroneous and prejudicial to the interest of revenue because the AO accepted only 12% of the turnover as undisclosed income without making necessary inquiries or referring to the impounded materials during the survey. The CIT noted that the Settlement Commission had not accepted the disclosure made by the assessee for the assessment year 2004-05 as genuine. The AO failed to bring any material on record to justify reducing the on-money received from Rs. 1,65,62,330 to Rs. 60,31,047.

3. Direction to consider the entire on-money as income of the assessee:
The CIT directed the AO to pass a fresh assessment order after considering the entire on-money received of Rs. 1,65,62,330 as income. The assessee argued that the AO had adopted a profit rate of 12% on the total sale consideration, including the on-money component, which was accepted by the Settlement Commission for the assessment year 2005-06. However, the CIT rejected this contention, stating that the AO's acceptance of the additional income at Rs. 60,31,047 was erroneous and prejudicial to the interest of revenue.

Tribunal's Findings:
The Tribunal noted that the AO did not conduct any inquiry or refer to the Settlement Commission's order while accepting the return of Rs. 60,31,047. The Tribunal agreed with the CIT that the AO's order was erroneous and prejudicial to the interest of revenue. However, the Tribunal modified the CIT's direction, allowing the assessee to prove by cogent means that the actual income out of the on-money receipt was only Rs. 60,31,047. The Tribunal upheld the CIT's order with this partial modification, emphasizing the duty of the appellate authority to correct errors in the orders of the authorities below.

Conclusion:
The appeal by the assessee was partly allowed, with the Tribunal upholding the CIT's order under Section 263, subject to the modification that the assessee could prove the actual income out of the on-money receipt. The order was pronounced in the open court on 05.04.2018.

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