2022 (10) TMI 821 - AT - Income Tax

Tribunal validates revision order under Income Tax Act finding assessment errors

Shri Rajinder Singh Versus Pr. CIT-1 Chandigarh

The Tribunal upheld the validity of the order passed under section 263 of the Income Tax Act, 1961, finding that the Principal Commissioner of Income Tax ... Revision u/s 263 by CIT - Addition u/s 68 - unaccounted gift received from own son - HELD THAT:- A prima facie finding has been recorded by the ld PCIT based on perusal of the assessment records that the Assessing officer has failed to verify the creditworthiness of the donor and the order so passed by the AO has been held to be erroneous in so far as prejudicial to the interest of the Revenue. In light of the same, merely the fact that the proposal was send by the AO on 20/02/2021 and the show-cause u/s 263 was issued on the same date doesn’t in any way reflect non-application of mind on part of the PCIT in assumption of jurisdiction by the PCIT. We therefore do not find any infirminity in the assumption of the jurisdiction by the ld PCIT u/s 263 of the Act and the contention so raised by the ld AR in this regard cannot be accepted. It’s a case of limited scrutiny to examine the increase in share capital and as per the assessee, the increase in share capital is on account of gift - received from his son who is based out of Melbourne, Australia. As per well established jurisprudence on the subject, the identity of the person giving the gift, relationship of such person with the assessee, financial capacity or creditworthiness of the person making the gift, the occasion to make such a gift or the circumstances to show natural love and affection and all these taken together to prove the genuineness of the gift transaction was required to be examined by the AO. In the instant case, we find that the AO has accepted the genuineness of the gift transaction on the basis of submission made by the assessee that an amount has been received as gift from his son who is in Melbourne, Australia through NEFT from Commonwealth Bank on 24/11/2015 and 04/12/2015 and in support, copy of the bank statement of the assessee, the copy of passport of his son and a confirmation from his son was also submitted. The passport do reflect the relationship of father and son, however, the question is what are the circumstances which necessitated such transaction of sending money by way of gift from Melbourne on two different occasions. The so called confirmation letter which is undated, handwritten and the contents thereof only talks about transfer of money by a son to his father from the Commonwealth Bank account on two different dates and the amount of transfer doesn’t inspire much confidence and in any way doesn’t establish the nature of such transfer as gift by son to his father. The fact that the AO has accepted the same on face value shows clearly non-application of mind by the AO. The limited queries which were raised by the AO and responded to by the assessee during the course of assessment proceedings nowhere demonstrate that the matter relating to creditworthiness were even intended to be examined by the AO. The AO having failed to examine the creditworthiness of the donor and the circumstances leading to such transfer of funds to the assessee shows that the AO has failed to act in accordance with the law and well-established judicial principles and jurisprudence laid down by the Courts from time to time. Where the ld PCIT is highlighting the said inaction on part of the AO, he is well within his right and jurisdiction and it is clearly not a question of arriving at a different conclusion by the ld PCIT than what has been arrived at by the AO. No doubt the AO has mentioned about this transaction in the assessment order, however, merely stating that he has examined the transaction and being satisfied, he didn’t drawn any adverse inference, doesn’t debar the ld PCIT from highlighting the fact that the order so passed by the AO is not in accordance with law having failed to examine one of the essential ingredients being the creditworthiness of the donor. It is not the mode and manner of examination by the AO which is being highlighted by the ld PCIT rather the ld PCIT is highlighting what is an essential attribute of the transaction which require examination as per established legal principles and the non-examination thereof leading to the passing of the erroneous order by the AO. Decided against the assessee. Issues Involved:1. Validity of the order passed under section 263 of the Income Tax Act, 1961.2. Justification for setting aside the assessment order for fresh examination.3. Adequacy of inquiries made by the Assessing Officer (AO) regarding the substantial increase in capital.Detailed Analysis:Issue 1: Validity of the Order Passed Under Section 263The assessee contended that the Principal Commissioner of Income Tax (Pr. CIT) failed to demonstrate how the assessment order was erroneous and prejudicial to the interest of the Revenue. The Pr. CIT initiated revision proceedings under section 263 based on a proposal from the AO, which the assessee argued vitiated the process. However, the Tribunal referenced the decision of the Hon'ble Calcutta High Court in Smt. Sumitra Devi Khirwal Vs. CIT and the Hon'ble Allahabad High Court in CIT Vs. Bhagat Shyam And Co., asserting that the Commissioner can act on records placed before him by subordinates if he applies his mind to the material. The Tribunal found that the Pr. CIT had indeed applied his mind to the assessment records and discrepancies noted, thus validating the initiation of proceedings under section 263.Issue 2: Justification for Setting Aside the Assessment OrderThe Pr. CIT set aside the assessment order due to the AO's failure to verify the creditworthiness of the donor (assessee's son) and the genuineness of the gift transaction. The Tribunal noted that the AO accepted the gift transaction based on minimal documentation: a bank statement, a passport copy, and a handwritten confirmation letter. The Pr. CIT highlighted the AO's omission to verify the son's financial capacity, bank statements, ITR, and relationship evidence, which are crucial as per established jurisprudence. The Tribunal agreed with the Pr. CIT that the AO's lack of thorough inquiry rendered the original assessment order erroneous and prejudicial to the Revenue's interest.Issue 3: Adequacy of Inquiries Made by the AOThe Tribunal scrutinized whether the AO conducted adequate inquiries regarding the substantial increase in the assessee's capital. The AO had raised limited queries and accepted the assessee's explanation without verifying the donor's financial capacity or the circumstances of the gift. The Tribunal emphasized that the AO's acceptance of the transaction on face value, without examining the creditworthiness of the donor or the genuineness of the gift, constituted a failure to act in accordance with legal principles. The Tribunal cited multiple judicial precedents underscoring the necessity of verifying the financial capacity and genuineness of such transactions.Conclusion:The Tribunal concluded that the Pr. CIT was justified in setting aside the assessment order and directing a fresh examination. The AO's failure to conduct adequate inquiries into the substantial increase in capital, specifically the genuineness of the gift transaction and the creditworthiness of the donor, rendered the original assessment order erroneous and prejudicial to the interest of the Revenue. Consequently, the appeal of the assessee was dismissed, and the matter was decided in favor of the Revenue.