2014 (7) TMI 635 - AT - Income Tax

Power of CIT u/s 263 - revision of order - Determination of capital gain Examination of sources of deposits Proper examination of facts - Held that - The value of consideration is attributable to each of the property is to be payable to the corresponding vendor - the basis of consideration of each property is not in accordance with the share of their property - there is error in offering capital gain by the assessee in respect of his share in the property - it is apparent that the AO in the course of assessment proceedings, though all the materials available on record, failed to cause enquiry regarding the share of assessee in the sale consideration - He just collected the data and without examining the same passed the assessment order, which makes the assessment order erroneous - Where there is under assessment of tax it causes prejudice to the interests of revenue. The AO has not at all examined as to whether only one view was possible or two or more views were possible and hence, the question of his adopting or choosing one view in preference to the other does not arise Relying upon Padmasundara Rao v. State of Tamil Nadu 2002 (3) TMI 44 - SUPREME Court - the AO has been entrusted the role of an investigator, prosecutor as well as adjudicator under the scheme of the Income-tax Act - the orders passed on an incorrect assumption of facts or incorrect application of law or without applying the principles of natural justice or without application of mind or without making requisite inquiries will satisfy the requirement of the order being erroneous and prejudicial to the interest of the revenue within the meaning of Section 263. The CIT having gone through the assessment record, found that the AO has not made proper enquiry and passed the order in a very cryptic manner by accepting the admitted income though the assessment was reopened to bring to tax capital gains without conducting further enquiry where the situation warrants enquiry - The AO having failed to gather necessary information regarding the share of each vendor in the sale consideration so as to bring right amount to tax, the CIT is justified in exercising his power u/s. 263 of the Act - it is incumbent upon the AO to come to an independent conclusion that the share in the sale consideration of each person is offered for taxation - the AO absolutely closed his eyes for the reasons best known to him and accepted the admitted income at the face of the return which necessitated the CIT to exercise his powers u/s. 263 of the Act thus, the order of the CIT is confirmed Decided against Assessee.

Summary

Issues Involved:
1. Delay in filing the appeal.
2. Error in the assessment order by the Income Tax Officer (ITO).
3. Examination of capital gains and source of deposits.
4. Completion of assessment without proper examination.
5. Setting aside of assessment by the Commissioner of Income Tax (CIT).

Detailed Analysis:

Delay in Filing the Appeal:
The appeal was filed with a delay of 376 days. The appellant argued that the delay was due to a bona-fide belief that the appeal should be filed against the assessment order passed consequent to the CIT's order under section 263 of the Income-tax Act, 1961. The appellant waited for the consequential order by the Assessing Officer (AO) and filed the appeal after being advised by his Chartered Accountant. The Tribunal condoned the delay, considering the reasons provided and the interest of justice.

Error in the Assessment Order by the ITO:
The CIT held that there was an error in the assessment order passed by the ITO under section 143(3) read with section 147 of the Income-tax Act. The CIT observed discrepancies in the assessment, particularly concerning the determination of capital gains and the sources of deposits made in Canara Bank. The CIT noted that the AO failed to examine the arrangement of paying Rs. 1.25 crores to one of the vendors and how the sale consideration was truncated from Rs. 52,94,117 to Rs. 8,33,000.

Examination of Capital Gains and Source of Deposits:
The CIT observed that the AO did not properly inquire into the capital gains and the sources of deposits. The AO failed to verify the genuineness of expenses claimed by the assessee, such as brokerage, commission, and cost of improvement. The AO also did not examine the sources of funds used for purchasing property and the transactions in the assessee's bank account. The CIT issued a notice under section 263, pointing out these deficiencies and the lack of evidence to support the assessee's claims.

Completion of Assessment without Proper Examination:
The CIT found that the AO completed the assessment without properly examining the facts and without making necessary inquiries. The CIT held that the assessment order was erroneous and prejudicial to the interests of revenue due to the substantial leakage of revenue. The CIT directed the AO to make thorough and exhaustive inquiries regarding the taxability of the transactions and the genuineness of the receipts.

Setting Aside of Assessment by the CIT:
The Tribunal upheld the CIT's order, agreeing that the AO failed to make proper inquiries and passed the assessment order in a cryptic manner. The Tribunal emphasized that the AO's role includes investigating and adjudicating, and he must analyze and evaluate the facts in light of relevant law. The Tribunal noted that the AO did not adopt a permissible course of law or take a possible view, as his order did not reflect proper application of mind. The Tribunal confirmed the CIT's exercise of revisional power under section 263, stating that the AO's failure to gather necessary information and conduct further inquiry warranted the CIT's intervention.

Conclusion:
The Tribunal dismissed the appeal, confirming the CIT's order setting aside the assessment and directing the AO to conduct further inquiries. The Tribunal emphasized the importance of proper examination and evaluation by the AO to ensure that the assessment is not erroneous and prejudicial to the interests of revenue.