2023 (1) TMI 1007 - AT - Income Tax

Tribunal Upholds PCIT's Order, Emphasizes Thorough Investigation

The Tribunal upheld the Principal Commissioner of Income Tax's Revision order under Section 263, finding the Assessing Officer's failure to adequately ... Revision u/s 263 by CIT - cash deposits in saving bank account - as per CIT A.O. also has not made any enquiry as to how such huge amount of Rs. 12,00,000/- is deposited in the bank account of the assessee - HELD THAT:- It is seen from the assessment order passed by the Assessing Officer is without any details and no information about the claim of agricultural land. When the sale of two lands amounting to Rs. 31,55,000/- and Rs. 30,27,000/- respectively. The Assessing Officer has not raised any question about agricultural income derived from the above lands by the assessee. The assessing officer has also not verified the nature of cultivation from the above lands in the previous assessment years, population of the village and distance from the nearest Municipality. Thus in our considered opinion, the Assessing Officer has not made necessary enquiries before allowing the claim u/s. 2(14) of the Act. Similarly the cash deposits in Bank accounts is not verified by the A.O. with proper enquiry. PCIT has rightly invoked the provision of Section 263, wherein the assessment order passed by the Assessing Officer is on account of inadequate enquiry and non-application of mind to the facts of the case presented by the assessee. Therefore the Ld. PCIT set aside the erroneous assessment order passed by the Assessing Officer, with a direction to examine the issues afresh and determine the appropriate tax liability by giving adequate opportunity to the assessee. We do not find any infirmity in the order passed by the Ld. PCIT. - Decided against assessee. Issues Involved:1. Legitimacy of the Revision order under Section 263 of the Income Tax Act, 1961.2. Adequacy of the Assessing Officer's (A.O.) inquiry into the assessee's cash deposits and capital gains from the sale of agricultural land.3. Validity of the assessee's filing of the Return of Income in Form ITR-1.4. Whether the A.O.'s assessment order was erroneous and prejudicial to the interest of the Revenue.Issue-wise Detailed Analysis:1. Legitimacy of the Revision Order under Section 263 of the Income Tax Act, 1961:The appeal was filed by the assessee against the Revision order dated 07.03.2022 passed by the Principal Commissioner of Income Tax (PCIT), Indore-1, under Section 263 of the Income Tax Act, 1961, for the Assessment Year (A.Y) 2017-18. The PCIT invoked Section 263, stating that the assessment order dated 28.11.2019 was erroneous and prejudicial to the interest of the Revenue. The PCIT noted that the A.O. had failed to make necessary inquiries regarding the cash deposits of Rs. 12,00,000/- and the capital gains from the sale of agricultural land, thus warranting revision.2. Adequacy of the Assessing Officer's Inquiry:The PCIT observed that the A.O. did not adequately verify the source of the cash deposits in the assessee's bank account and the claim of exemption under Section 2(14) for the sale of agricultural land. The PCIT held that the A.O. accepted the assessee's explanations without proper verification. The assessee claimed the cash deposits were from a money lending business, but the PCIT found discrepancies in the interest income reported and noted that the assessee did not provide a cash book for examination. Additionally, the PCIT found that the A.O. did not verify the nature of the land sold and whether it qualified for exemption under Section 2(14).3. Validity of the Assessee's Filing of the Return of Income in Form ITR-1:The PCIT noted that the assessee filed the Return of Income in Form ITR-1, which is meant for individuals with income from salary/pension, one house property, and other sources. However, the assessee claimed to be engaged in a money lending business, which disqualifies the use of Form ITR-1. This discrepancy indicated that the assessee was not engaged in the money lending business as claimed.4. Whether the A.O.'s Assessment Order was Erroneous and Prejudicial to the Interest of the Revenue:The PCIT concluded that the assessment order was erroneous and prejudicial to the interest of the Revenue because the A.O. did not make necessary inquiries or verifications regarding the cash deposits and the capital gains from the sale of agricultural land. The PCIT relied on various case laws to support the revision under Section 263, emphasizing that the A.O.'s failure to conduct proper inquiries and verify the claims made the assessment order erroneous.Tribunal's Decision:The Tribunal upheld the PCIT's order, agreeing that the A.O. failed to make necessary inquiries and verifications. The Tribunal noted that the A.O. did not question the agricultural income derived from the land or verify the nature of cultivation, population of the village, and distance from the nearest municipality. The Tribunal cited the Hon'ble Supreme Court and various High Court judgments, emphasizing that an A.O. must act as both an adjudicator and an investigator. The Tribunal concluded that the PCIT rightly invoked Section 263, as the assessment order was passed without adequate inquiry and application of mind, making it erroneous and prejudicial to the interest of the Revenue.Conclusion:The Tribunal dismissed the appeal filed by the assessee, affirming the PCIT's Revision order under Section 263. The Tribunal found no infirmity in the PCIT's decision to set aside the assessment order and direct a fresh examination of the issues, ensuring proper verification and determination of the tax liability.