2010 (1) TMI 864 - AT - Income Tax

Action u/s 263 - revision - Gifts - assessee were unable to produce the donors or the persons from whose bank accounts the drafts were issued - AO after analysis of the evidence produced by the assessee and examining the persons who have advanced loans or gave the gifts to his minor sons has accepted the genuineness - Against this stand of the AO the grievance of the Ld. Commissioner is that quality of inquiry is not as good as it ought to have been. His other observation is that notices issued to four persons who has advanced loans to the assessee received unserved. According to the AO assessee has filed confirmation their Permanent Account Number and produced those persons before the AO. The one of the observation of the Ld. Commissioner is that so many persons were maintaining bank account where balances are built up mostly by cash and taken out immediately by way of cheques and drafts, thus they are working as entry provider. The contention of the assessee before Ld. CIT qua this aspect is that is how these creditors are maintaining their affairs, is none of the assessee s concern Held that - Commissioner would not be justified to take action u/s 263, Commissioner is not justified in taking cognizance u/s 263 of the Income Tax Act. The appeal of the assessee is allowed and the order passed u/s 263 is quashed.

Summary

Issues Involved:
1. Legitimacy of action under Section 263 of the Income Tax Act.
2. Adequacy of inquiry conducted by the Assessing Officer (AO).
3. Genuineness of loans and gifts received by the assessee.
4. Quality and sufficiency of evidence evaluated by the AO.

Detailed Analysis:

1. Legitimacy of Action under Section 263 of the Income Tax Act:
The primary grievance of the assessee is that the Commissioner of Income Tax (CIT) erred in invoking Section 263 of the Income Tax Act. The CIT must demonstrate that the order of the AO is both "erroneous" and "prejudicial to the interest of the Revenue." The Tribunal referenced the broader principles established in the case of Malabar Industries (243 ITR 85) and other authoritative pronouncements, emphasizing that not every error qualifies for action under Section 263. The CIT must have material on record to justify his satisfaction.

2. Adequacy of Inquiry Conducted by the AO:
The CIT argued that the AO did not conduct a proper inquiry into several issues during the assessment. These included non-disclosure of adequate house property income, unexplained loan liabilities, unverified receipts, and unexamined capital account deposits. The AO had issued notices and called for detailed information, including statements from the creditors and donors, which were recorded and analyzed. The Tribunal noted that the AO had indeed made inquiries and applied his mind to the facts and circumstances of the case, thus fulfilling his quasi-judicial responsibilities.

3. Genuineness of Loans and Gifts Received by the Assessee:
The CIT questioned the genuineness of gifts and loans received by the assessee and his family members, suggesting that the AO accepted these without proper verification. The CIT pointed out that some creditors and donors had meager incomes, implying they might be entry providers. However, the Tribunal found that the AO had issued notices, recorded statements, and obtained confirmations, indicating that he did not accept the entries without scrutiny. The Tribunal emphasized that how creditors maintain their affairs is not the concern of the assessee.

4. Quality and Sufficiency of Evidence Evaluated by the AO:
The CIT's dissatisfaction stemmed from the perceived inadequacy of the AO's inquiry, suggesting that the quality of the investigation was not up to the mark. The Tribunal, however, highlighted that the AO had followed due process, issued notices, and conducted a thorough examination of the evidence presented. The Tribunal concluded that the difference in opinion between the CIT and the AO on the evaluation of evidence does not justify action under Section 263. The AO's conclusion, based on the evidence and inquiries conducted, cannot be termed erroneous merely because the CIT disagrees with it.

Conclusion:
The Tribunal found that the AO had conducted sufficient inquiry and applied his mind to the facts of the case. The CIT's action under Section 263 was deemed unjustified as it was based on a difference of opinion rather than concrete evidence of error or prejudice to the Revenue. Thus, the Tribunal quashed the order passed under Section 263 and allowed the appeal of the assessee.

Order:
The appeal of the assessee is allowed, and the order passed under Section 263 is quashed. Order pronounced in the open court on 22.1.10.