2016 (1) TMI 1103 - AT - Income Tax

Revision u/s 263 - whether in the present case the AO made the necessary enquiry with regard to the money received by the assessee from prospective buyers of the developed land? - Held that - O had conducted inquiries with regard to the money receipt by the assessee from prospective buyers of developed land. The CIT therefore could not have invoked the jurisdiction u/s 263 of the Act on the ground that there was lack of inquiry on the part of the AO - Decided in favour of assessee.

Summary

Issues:
1. Jurisdiction of CIT under section 263 of the Income Tax Act, 1961.
2. Proper inquiry by the Assessing Officer regarding funds received from prospective buyers of land.

Issue 1: Jurisdiction of CIT under section 263 of the Income Tax Act, 1961:
The case involved an appeal by the assessee against the CIT's order under section 263 of the Income Tax Act, 1961 for the assessment year 2007-08. The CIT contended that the previous year was the first year of business for the assessee and raised concerns about the source of funds invested in land purchase and development. The CIT found the AO's order erroneous and prejudicial to revenue due to lack of inquiry into the liabilities shown against plot holders. The CIT issued a show cause notice under section 263 of the Act, prompting the assessee to defend the assessment conducted by the AO, citing proper examination of accounts and reliance on legal precedents.

Issue 2: Proper inquiry by the Assessing Officer regarding funds received from prospective buyers of land:
The CIT set aside the assessment order and directed a thorough investigation into the source of funds claimed as advance by the assessee from prospective plot purchasers. The CIT highlighted discrepancies in the investment made by the assessee and the available funds, questioning the plausibility of receiving advances from plot holders before actual land purchase. The CIT emphasized the need to verify the identity, creditworthiness, and genuineness of the transactions. However, the Tribunal observed that the AO had conducted extensive inquiries during the assessment proceedings, including issuing notices, examining agreements, and verifying details with relevant authorities. The Tribunal referenced legal precedents emphasizing that the CIT's jurisdiction under section 263 is invoked only in cases of lack of inquiry by the AO, not inadequate inquiry. Based on the record of inquiries made by the AO, the Tribunal concluded that the CIT could not invoke jurisdiction under section 263 due to lack of inquiry. Consequently, the Tribunal quashed the order under section 263 and allowed the appeal of the assessee.

In conclusion, the Tribunal ruled in favor of the assessee, highlighting the importance of proper inquiry by the Assessing Officer and emphasizing that the CIT's jurisdiction under section 263 is limited to cases of lack of inquiry rather than inadequate inquiry. The Tribunal's decision focused on the extensive inquiries conducted by the AO, leading to the quashing of the CIT's order and the allowance of the assessee's appeal.