CIT cannot direct additions under section 263 without establishing assessee's ownership of alleged bank accounts

The ITAT Kolkata quashed revision orders under section 263 where the CIT directed additions at 8% of alleged gross turnover based on information from Sales Tax Authorities. The assessee claimed identity theft and filed an FIR, asserting unknown persons misused his IDs for transactions. The Tribunal held that neither the AO nor CIT properly investigated whether the bank accounts actually belonged to the assessee. The CIT failed to independently apply his mind and merely reproduced proposals without categorical findings on the assessee's plea. The Tribunal emphasized that revenue authorities must first establish account ownership before imposing tax liability, and the matter was already pending before CIT(Appeals) with co-terminus powers.

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Issues Involved:
1. Whether the impugned order passed by the Commissioner u/s 263 of the Income Tax Act in each year is sustainable or notRs.

Summary:

Issue 1: Validity of the Order u/s 263 of the Income Tax Act

The assessee challenged the orders of the Principal Commissioner of Income Tax, Kolkata-13, dated 14.12.2023 and 15.12.2023, passed u/s 263 of the Income Tax Act for the A.Ys. 2015-16 and 2016-17. The central issue was whether the orders passed by the Commissioner u/s 263 were sustainable.

The assessee, engaged in trading cloth, filed returns under the presumptive taxation scheme u/s 44AD, declaring total incomes of Rs. 3,41,700/- and Rs. 4,15,530/- for A.Y. 2015-16 and 2016-17, respectively. The Assessing Officer (AO) received information from the Bureau of Investigation, Commercial Taxes, West Bengal, indicating that the assessee had allegedly opened seven bank accounts under five proprietorship concerns, receiving Rs. 112,41,47,898/- over the years. The AO reopened the assessments, treating these amounts as unaccounted sales and estimating profits at 8%, resulting in significant additions to the assessee's income.

The Additional Commissioner proposed initiating proceedings u/s 263, arguing that the AO erred in treating the credits as gross turnover instead of unexplained cash credits. The Commissioner issued a notice u/s 263, and despite the assessee's explanation that the accounts were fraudulently opened using his identity, the Commissioner was unsatisfied and directed the AO to recompute the income based on the entire receipts in the bank accounts.

The assessee contended that the AO had taken a plausible view by treating the amounts as turnover and estimating profits at 8%, which should not have been disturbed by the Commissioner. The assessee also argued that the assessment order was neither erroneous nor prejudicial to the revenue's interest, as the AO had conducted necessary inquiries and taken a possible view.

The Tribunal observed that the Commissioner failed to independently verify the facts and relied heavily on the Additional Commissioner's proposal. The Tribunal emphasized that the Commissioner should have first determined whether the bank accounts genuinely belonged to the assessee. The Tribunal also noted that the issue of whether these accounts belonged to the assessee was pending before the CIT(A), and thus, the revisionary powers u/s 263 should not have been invoked.

Ultimately, the Tribunal quashed the orders passed u/s 263 for both assessment years, allowing the assessee's appeals and emphasizing that the findings were confined to the legality of the orders u/s 263, without expressing any opinion on the merits of the issue regarding unexplained sales turnovers.

Order pronounced in the open Court on 12/06/2024.

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