2023 (5) TMI 909 - AT - Income Tax

Tribunal affirms tax assessment error due to inadequate verification, emphasizing importance of thorough investigations

The Tribunal upheld the Principal Commissioner of Income Tax's order, finding the Assessing Officer's failure to conduct proper inquiries and ... Revision u/s 263 - As per CIT-A no question was raised by the AO for exempt income from sale of script u/s 10(38) - HELD THAT:- Admittedly, the case was selected under scrutiny on account of exemption claimed on the purchase and sale of the scripts u/s10(38) - But the AO has not verified the exempt income from sale of script of Lifeline Drugs & Pharma Ltd and TVS motors u/s 10(38) - case of the assessee was selected under complete scrutiny, but the AO has not verified the source of investment in immovable property and interest income/ interest expense. Accordingly, we hold that the verification has not been done by the AO during the assessment proceedings with respect to exempt income on sale of script of Lifeline Drugs & Pharma Ltd and TVS motors u/s 10(38) of the Act, purchase of immovable property, and interest income/expense. It is a settled position of law that non-verification of the AO renders the assessment order as erroneous in so far prejudicial to the interest of revenue. See MALABAR INDUSTRIAL CO. LTD. case [2000 (2) TMI 10 - SUPREME COURT]. No infirmity in the order framed u/s 263 - Decided against assessee. Issues Involved:1. Whether the assessment order framed under section 143(3) of the Income Tax Act was erroneous and prejudicial to the interest of revenue under section 263 of the Act.Summary:1. Exemption under Section 10(38):The Principal Commissioner of Income Tax (PCIT) found that the Assessing Officer (AO) allowed an exemption of Rs. 18,81,848/- under section 10(38) of the Income Tax Act for income from the sale of shares of Lifeline Drugs & Pharma Ltd and TVS Motors without conducting proper inquiries. The AO did not verify the genuineness of the purchase and sale of shares or the reasons for the significant increase in share prices within a short span. The PCIT held that the AO's failure to make these inquiries rendered the assessment order erroneous and prejudicial to the interest of the revenue.2. Source of Investment in Immovable Properties:The PCIT observed that the AO did not verify the source of investment for the purchase of two immovable properties worth Rs. 6 lakhs and Rs. 9 lakhs. The AO failed to call for complete details or examine the source of investment, making the assessment order erroneous and prejudicial to the interest of the revenue.3. Verification of Interest Income:The PCIT noted that the AO did not verify the interest income of Rs. 3,07,515/- declared by the assessee. The absence of such verification contributed to the assessment order being erroneous and prejudicial to the interest of the revenue.4. Interest Expenses against Rental Income:The AO allowed interest expenses of Rs. 1,66,427/- against rental income of Rs. 1,92,000/- without verifying the necessary details. The PCIT held that the lack of verification of these expenses rendered the assessment order erroneous and prejudicial to the interest of the revenue.Conclusion:The Tribunal upheld the PCIT's order, holding that the AO's failure to conduct proper inquiries and verification rendered the assessment order erroneous and prejudicial to the interest of the revenue. The appeal filed by the assessee was dismissed, and the AO was directed to make a fresh assessment after conducting in-depth investigations into the genuineness of the transactions and the sources of investments and expenses. The Tribunal relied on the judgment of the Hon'ble Supreme Court in Malabar Industrial Co. Ltd. v. Commissioner of Income-tax, which supports the view that non-verification by the AO constitutes an erroneous order prejudicial to the interest of the revenue.