2012 (1) TMI 249 - AT - Income Tax

Summary

Issues Involved:
1. Invocation of revisional jurisdiction u/s 263 of the Income-tax Act.
2. Examination of receivables, investment in property, and cash deposits by the AO.
3. Applicability of case laws and principles of natural justice.

Summary:

1. Invocation of Revisional Jurisdiction u/s 263:
The assessee challenged the CIT's invocation of revisional jurisdiction u/s 263, arguing that the assessment order passed by the AO u/s 143(3) was neither erroneous nor prejudicial to the interests of the revenue. The CIT had canceled the assessment order, directing the AO to reassess the case.

2. Examination of Receivables, Investment in Property, and Cash Deposits:
The CIT noted that the AO failed to examine several critical issues, including receivables shown in the balance sheet amounting to Rs. 8,15,800/-, the investment of Rs. 6,60,000/- in the purchase of SCF 59, Phase 9, Mohali, and cash deposits of Rs. 2,20,000/- in Union Bank of India. The CIT's show cause notice highlighted these lapses, leading to the cancellation of the assessment order and a directive for a denovo assessment.

3. Applicability of Case Laws and Principles of Natural Justice:
The assessee relied on various case laws, including CIT v. Vikas Polymers, Capital Estate v. CIT, and Baljees v. A.C.I.T., to argue against the applicability of section 263. However, the tribunal found these cases factually distinguishable from the present case. The tribunal emphasized that the AO had not made the necessary inquiries or applied his mind to the issues raised by the CIT, thus justifying the invocation of section 263.

The tribunal also referred to the Supreme Court's decision in Malabar Industrial Co. Ltd. V. CIT, which clarified that for section 263 to apply, the order must be both erroneous and prejudicial to the interests of the revenue. The tribunal concluded that the AO's failure to make inquiries and apply his mind constituted an erroneous order, thereby satisfying the conditions for invoking section 263.

Conclusion:
The tribunal upheld the CIT's findings, confirming that the AO's lack of inquiry and application of mind warranted the invocation of section 263. The appeal filed by the assessee was partly allowed, with the tribunal supporting the CIT's directive for a reassessment. The order was pronounced on 18th Jan., 2012.