1981 (9) TMI 190 - AT - Income Tax

Appellate Tribunal overturns CIT decision in IT Act appeal, upholds assessee's income return.

DEVANDAS PATASHEMAL. Versus INCOME TAX OFFICER.

DEVANDAS PATASHEMAL. Versus INCOME TAX OFFICER. - TTJ 013, 307, Issues: Challenge to CIT order under s. 263 of the IT Act regarding capital accumulation and lack of proper inquiries by the ITO.In this case, the assessee challenged the CIT's order under section 263 of the IT Act, which focused on the capital accumulation between the financial years 1965-66 to 1974-75. The CIT observed that there was a lack of proper evidence regarding the sources of funds, such as the sale of cycles, income from salary, and sale proceeds of a shop. The CIT also noted that the ITO did not conduct thorough inquiries into these aspects. Additionally, the CIT raised concerns about the low household expenses shown by the assessee. Consequently, the CIT initiated proceedings under section 263, deeming the ITO's order erroneous and prejudicial to the revenue due to insufficient inquiries. The assessee contended that adequate evidence supporting the various sources of funds was provided, including income from the wife's tailoring business.The CIT held that the ITO's failure to conduct proper inquiries regarding the sources of funds led to an erroneous assessment order. Therefore, the CIT set aside the assessment order and directed the ITO to conduct a fresh assessment. The assessee argued that the ITO did make inquiries during the original assessment, submitting written explanations in response to queries raised. The assessee provided copies of the ITO's letters and their replies as evidence. The assessee maintained that all necessary information was furnished, and they were willing to provide further evidence if required. The assessee contended that the CIT did not adequately consider their submissions, urging the setting aside of the CIT's order.The Revenue, represented by the Departmental Representative, supported the CIT's order, highlighting the ITO's failure to conduct proper inquiries into various aspects, particularly capital formation. The Revenue argued that the ITO's reliance on statements without thorough investigation rendered the assessment order erroneous and prejudicial to the revenue. Reference was made to a relevant case law to support this position.Upon considering the arguments from both sides and reviewing the CIT's order and the documents provided by the assessee, the Appellate Tribunal noted that the ITO had indeed made inquiries on multiple occasions, to which the assessee responded with relevant information. The Tribunal found that the ITO's assessment order, dated March 10, 1978, acknowledged the details provided by the assessee and accepted the income returned after necessary verification. The Tribunal disagreed with the CIT's doubts regarding the assessee's ability to possess the claimed capital formation. Ultimately, the Tribunal concluded that there was no justification for the CIT to invoke the powers under section 263 of the IT Act in this case, leading to the allowance of the assessee's appeal.