AO's inadequate investigation into property investment loan sources upheld revision u/s 263 for insufficient verification

ITAT Ahmedabad upheld CIT's revision u/s 263 regarding property investment source verification. AO failed to conduct proper enquiries into loan transactions for property acquisition, accepting documents without verification. AO did not examine interest payments, TDS deductions, or genuineness of loans from lenders. Bank statements showed assessee lacked personal funds for payments. CIT correctly found AO's order erroneous and prejudicial to revenue interest due to inadequate investigation and non-application of mind. Appeal decided against assessee.

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Issues Involved:
1. Jurisdiction under Section 263 of the Income Tax Act.
2. Erroneous and prejudicial nature of the Assessing Officer's (AO) order.
3. Examination of the source of investment in property.
4. Compliance with notices issued under Section 263.
5. Application of judicial precedents.

Issue-wise Detailed Analysis:

1. Jurisdiction under Section 263 of the Income Tax Act:
The Principal Commissioner of Income Tax (Pr. CIT) exercised revisionary power under Section 263 of the Income Tax Act, 1961, to revise the assessment order for the Assessment Year 2015-16. The Pr. CIT held that the AO's order was erroneous and prejudicial to the interest of revenue due to inadequate examination of the source of investment in property.

2. Erroneous and Prejudicial Nature of the AO's Order:
The Pr. CIT deemed the AO's order erroneous and prejudicial to the interest of revenue because the AO did not properly examine the source of the large investment made in the property by the assessee. The AO accepted the returned income without making necessary inquiries or verifications, particularly regarding the source of the Rs. 9.30 Crores used for purchasing agricultural land.

3. Examination of the Source of Investment in Property:
The AO failed to verify the source of Rs. 9.29 Crores paid by the assessee through 12 cheques dated 13.02.2015. The bank statement revealed that these cheques were not encashed by the seller but were withdrawn by the assessee as cash, which should have raised suspicion and warranted further inquiry. Additionally, the AO did not verify the creditworthiness and genuineness of the loans taken from "Infinity International" and "Horizon Finvest" for the purchase.

4. Compliance with Notices Issued under Section 263:
The assessee did not comply with the notices issued by the Pr. CIT under Section 263. Although the assessee claimed to have filed a reply on 24th March 2021, no acknowledgment of this letter was provided. The Pr. CIT made specific inquiries regarding the source of Rs. 9.30 Crores, creditworthiness of lenders, and details of interest and loan repayment, but no compliance was made.

5. Application of Judicial Precedents:
The decisions cited by the assessee's counsel, such as CIT vs. Kamal Galani and CIT vs. Ranchhod Jivabhai Nakhava, were found to be distinct on facts and not applicable to this case. The Tribunal emphasized that non-application of mind, wrong assumption of facts, or incorrect application of law by the AO makes the order erroneous and prejudicial to the interest of revenue. The Tribunal upheld the Pr. CIT's order, agreeing that the AO's order was erroneous and prejudicial to the interest of revenue due to the lack of proper inquiries and verification.

Conclusion:
The Tribunal dismissed the appeal filed by the assessee, upholding the Pr. CIT's order under Section 263 of the Income Tax Act. The AO's failure to make necessary inquiries and verifications regarding the source of investment in property rendered the assessment order erroneous and prejudicial to the interest of revenue. The Tribunal found no fault with the Pr. CIT's assumption of jurisdiction under Section 263 and dismissed all grounds of appeal raised by the assessee.

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