2019 (6) TMI 1122 - AT - Income Tax

Tribunal quashes Section 263 order, finding PCIT's 'source of source' inquiry impermissible.

The Tribunal quashed the revision order under Section 263, finding that the Principal Commissioner of Income Tax wrongly invoked the revisionary powers. ... Revision u/s 263 by CIT - A.O. has not framed the impugned order u/s 143(3) after making proper enquiry - capital account of a partner need to brought to tax as income of the assessee u/s 68 - HELD THAT:- PCIT has essentially exercised revisionary power u/s 263 of the Act to examine the source of source of partner which is not permissible in the eyes of law. In fact during the course of hearing before us, it was brought to our notice that notice u/s 148 of the Act has been issued in case of Shri Shaleen Vajpayee and, therefore, revenue is otherwise not without any legal recourse of examining such investment in the firm. Acceptance of capital introduction from the partner on the evidence placed on record by the Assessing Officer is a possible view and, not an unsustainable view and, therefore, even otherwise invocation of section 263 is not in accordance with law. In CIT vs. DLF Ltd. [2012 (9) TMI 626 - DELHI HIGH COURT] applying the mandate of Malabar Industrial Co. Ltd. vs. CIT [2000 (2) TMI 10 - SUPREME COURT] and CIT vs. Max India Ltd. [2007 (11) TMI 12 - SUPREME COURT] has held that it is not mere prejudicial to revenue or a mere erroneous view which can be revised but there must be an element of unsustainability which clothes the Commissioner with the jurisdiction u/s 263 of the Act. Also in the case of ITO vs. D.G. Housing Project Ltd [2012 (3) TMI 227 - DELHI HIGH COURT] held that in case of inadequate enquiry it is incumbent for the Commissioner to conduct enquiry and not merely remit the matter to the Assessing Officer without conducting any verification/enquiry. Also DELHI AIRPORT METRO EXPRESS PVT. LTD. [2017 (9) TMI 529 - DELHI HIGH COURT] . We have no hesitation in holding that the Ld. Pr.CIT had wrongly invoked the revisionary powers u/s 263 of the Act and we have no option but to quash the same. - Decided in favour of assessee. Issues Involved:1. Validity of the revision order under Section 263 of the Income Tax Act, 1961.2. Examination of the source of capital introduced by the partner.3. Adequacy of the Assessing Officer's (AO) enquiry during the scrutiny assessment.Issue-wise Analysis:1. Validity of the Revision Order under Section 263 of the Income Tax Act, 1961:The primary issue was whether the Principal Commissioner of Income Tax (PCIT) correctly invoked Section 263 of the Income Tax Act, claiming the assessment order was erroneous and prejudicial to the interest of the revenue. The PCIT contended that the AO did not thoroughly examine the source of the capital introduced by the partner, Shri Shaleen Vajpayee, amounting to Rs. 9,02,09,297/-. The Tribunal found that the AO had indeed made inquiries and accepted the explanations provided by the assessee, supported by documentary evidence. The Tribunal emphasized that the PCIT's action to examine the 'source of the source' was not permissible under the law, citing various judicial precedents, including the Hon'ble Jharkhand High Court in Prayag Tendu Leaves Processing Co. v. CIT. Consequently, the Tribunal held that the PCIT had wrongly invoked Section 263, making the revision order invalid.2. Examination of the Source of Capital Introduced by the Partner:The capital was introduced by partner Shri Shaleen Vajpayee, who had declared a modest income of Rs. 37,205/- in his return for the assessment year 2013-14. The source of the capital was explained as withdrawals from M/s Jagdish Data Systems Pvt. Ltd. and M/s Jet Tech Systems. The PCIT argued that the figures provided in different replies were inconsistent and that the AO did not obtain the balance sheet or statement of affairs of Shri Shaleen Vajpayee for the last three years. However, the Tribunal noted that the AO had accepted the explanation and supporting documents during the assessment proceedings. The Tribunal reiterated that under Section 68, the AO could inquire into the source of income of the partnership firm but could not go into the 'source of the source.'3. Adequacy of the Assessing Officer's Enquiry During the Scrutiny Assessment:The Tribunal reviewed the AO's actions during the scrutiny assessment, noting that the AO had raised queries regarding the capital introduction and received detailed explanations and supporting evidence from the assessee. The AO's acceptance of the capital introduction based on the evidence provided was deemed a 'possible view' and not an unsustainable one. The Tribunal cited the Hon'ble Delhi High Court in CIT vs. DLF Ltd. and ITO vs. D.G. Housing Project Ltd., emphasizing that mere inadequacy of enquiry does not justify revision under Section 263 unless the PCIT conducts an enquiry and demonstrates unsustainability in the AO's view. The Tribunal concluded that the AO had made a proper enquiry, and the PCIT's direction for a de-novo assessment was not warranted.Conclusion:The Tribunal quashed the revision order under Section 263, holding that the PCIT had wrongly invoked revisionary powers. The Tribunal found that the AO had conducted a proper enquiry and accepted the assessee's explanation and evidence regarding the capital introduction. The appeal of the assessee was allowed, and the directions under Section 263 were declared void.