2015 (1) TMI 1356 - AT - Income Tax

Revision u/s 263 - Unexplained credit - bogus sales - Held that - A perusal of the assessment order reveals that the AO had given a categorical finding that the total credit in the assessee s various bank accounts was amounting to ₹ 2122,27,57,495/- out of this a sum of ₹ 856,64,49,533/- had been treated as bogus sales for which sales bills were found and were duly impounded. However, the remaining sum of ₹ 1388,09,01,411/- had remained unexplained in spite of various opportunities given to the assessee. The AO had treated the same as unexplained income of the assessee and decided to bring it into tax in various assessment years. He also worked out the additions for different assessment years. However, he made the said additions on protective basis observing that the assessee had not been able to establish the source of these credits. He, however, made the addition of 5% of the said amount as commission income of the assessee on substantive basis. A perusal of the above findings itself reveals that the order of the AO was erroneous. In the absence of any evidence on the file as to source of the credits of the amount in question in the various bank accounts of the assessee, the AO had treated the said amount as unexplained income of the assessee. Once the AO had treated so, the AO was required to make the addition of this amount on substantive basis. Even without making the addition of the amount in question on substantive basis in any other persons account, the AO could not have made the addition of the amount on protective basis in the assessee s account.CIT was justified in holding that the order of the AO was not only erroneous but also prejudicial to the interest of the Revenue. - Decided against the assessee.

Summary

Issues involved:
1. Revision of assessment order under section 263 of the Income Tax Act.
2. Treatment of unexplained income in various bank accounts.
3. Protective assessment vs. substantive assessment.
4. Application of provisions of section 263 of the Income Tax Act.

Issue 1: Revision of assessment order under section 263 of the Income Tax Act:
The appeals involved associated assessees contesting the order of the Commissioner of Income Tax (CIT) revising the assessment order passed by the Assessing Officer (AO) under section 143(3) read with section 153A of the Income Tax Act. The CIT found that the AO had not given a finding on whose hands the unexplained bank credits should be taxed on a substantive basis, leading to the invocation of section 263. The CIT concluded that the assessment order was erroneous and prejudicial to revenue, as the AO had not established the source of the deposits, identity of account holders, or creditworthiness, resulting in the unexplained bank deposits being deemed the income of the assessee.

Issue 2: Treatment of unexplained income in various bank accounts:
The AO had found unexplained credits in the assessee's bank accounts, which remained unexplained despite opportunities given. The AO treated this amount as unexplained income and made additions on a protective basis. However, the CIT directed that the unexplained amount should be taxed in the hands of the assessee on a substantive basis, as the AO failed to establish the source of the credits. The CIT emphasized the need for substantive assessment based on evidence, rather than protective basis without identifying specific account holders.

Issue 3: Protective assessment vs. substantive assessment:
The AO had made additions on a protective basis without attributing the unexplained income to any specific person, leading to the CIT's intervention under section 263. The CIT directed that the unexplained income should be taxed in the hands of the assessee on a substantive basis, as the burden of proof regarding the source of deposits was not met. The CIT differentiated between protective and substantive assessments, highlighting the necessity of substantive assessment based on evidence and proof.

Issue 4: Application of provisions of section 263 of the Income Tax Act:
The CIT invoked section 263 based on the AO's failure to conduct a substantive assessment of unexplained bank deposits, leading to the conclusion that the assessment order was erroneous and prejudicial to revenue. The CIT directed the AO to make fresh assessments, taxing the unexplained income in the assessee's hands on a substantive basis. The CIT's decision was upheld in the appeals, dismissing the assessees' contentions regarding the validity of the original assessment order.

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