High Court upholds Revenue's decision against appellant, stresses income substantiation and tax compliance

Shri. Syed Abubacker Riyaz, Versus The Principal Commissioner Of Income Tax,

Shri. Syed Abubacker Riyaz, Versus The Principal Commissioner Of Income Tax, - [2018] 403 ITR 252 (Kar) Issues:
1. Interpretation of income assessed by the assessing officer based on peak profit for tax collection.
2. Alleged violation of amended provisions of Section 263 of the Income Tax Act, 1961.
3. Error in interference by the respondent and the Tribunal with the assessing officer's order based on investigation and enquiry.

Issue 1:
The appellant-assessee filed an appeal against the order passed by the Income Tax Appellate Tribunal, Panaji, regarding the assessment year 2010-11. The assessing officer accepted the income returned by the appellant in the revised return based on peak credit. However, the Principal Commissioner of Income Tax revised the order under Section 263 of the Act, enhancing the assessment amount. The appellant contended that the assessing officer's order was not erroneous as it was based on peak profit for tax collection. The appellant argued that the Commissioner wrongly exercised power under Section 263 without considering the source of deposits explained by the appellant. The appellant maintained that when two views are possible, the assessing officer's decision cannot be considered erroneous.

Issue 2:
The appellant challenged the impugned order, alleging a violation of the amended provisions of Section 263 of the Income Tax Act, 1961. The appellant's counsel argued that the Commissioner of Income Tax wrongly exercised power under Section 263 without proper inquiry or verification, as required by Explanation 2 to Section 263. The appellant contended that the assessing officer had verified the cash deposits made by the appellant and accepted the explanation provided regarding the sources of these deposits. The appellant claimed that the Commissioner and the Tribunal erred in interfering with the assessing officer's order based on investigation and enquiry.

Issue 3:
The appellant, engaged in the business of steel at Patil Galli, Belagavi, filed a revised return for the assessment year 2010-11, declaring additional income after scrutiny of cash deposits made in a bank. The assessing officer accepted the revised return based on peak credit. However, the Principal Commissioner revised the assessment amount under Section 263, leading to an appeal before the Tribunal, which upheld the decision. The Tribunal found that the appellant failed to substantiate the sources of the deposits made, indicating discrepancies in the business operations. The Tribunal concluded that the unexplained investments in bank deposits should be treated as income under Section 69 of the Act, supporting the Commissioner's decision.

In conclusion, the High Court of Karnataka dismissed the appeal, ruling in favor of the Revenue and against the appellant. The Court upheld the Tribunal's decision, emphasizing the importance of substantiating sources of income and complying with tax regulations to avoid discrepancies and potential tax liabilities.