2014 (12) TMI 140 - AT - Income Tax

Jurisdiction of CIT for invoking section 263 Search and seizure assessment made u/s 153A AO properly applied his mind or not - Held that - A search and seizure operation was carried out on 24.9.2010 upon the assessee at Choudhary Charan Singh Airport, Amausi, Lucknow where it was found that Shri. Mehtab Alam and his wife, Smt. Nausheen Farah Lari were carrying cash of ₹ 1 crore each in their two bags - during the course of search operation, the statement of the assessee i.e. Shri. Mehtab Alam was recorded u/s 131 of the Act and in his statement it was categorically stated by the assessee that he was carrying cash of ₹ 2 crores for purchase of raw hides from Kolkata - while completing the assessment not only in the case of the assessees but also in the case of other assessees, to whom the cash was claimed to relate, were thoroughly examined by the Assessing Officers in their respective hands by making detailed enquiries/investigations and once the AO was convinced with the explanations with regard to the source of cash of ₹ 2 crores found from the assessee during the course of search, no addition was made by the AO either in the hands of the assessee or in the hands of the respective parties to whom the cash of ₹ 2 crores relate - the assessment order cannot be set aside or revised for inadequate enquiry by the CIT u/s 263. These assessments are framed u/s 153A of the Act consequent to the search operation upon the assessees in which cash of ₹ 2 crores were found - While framing the assessments, questionnaires were issued with regard to the availability of cash and source and the same were duly replied by the assessees - according to the assessees, this cash belongs to certain other parties/concerns in whose cases assessments were also framed u/s 153C of the Act - it cannot be said that the AO has not applied his mind to the factum of seizure of cash during the course of search operation CIT cannot invoke jurisdiction u/s 263 of the Act for setting aside the assessment order if he does not agree with the conclusion of the AO on a particular issue - since the factum of seizure of cash during the course of search operation was duly examined by the AO, invocation of provisions of section 263 of the Act for setting aside the assessment order is not valid and is to be set aside Decided in favour of assessee.

Issues Involved:

1. Jurisdiction of the CIT under section 263 of the Income-tax Act, 1961.
2. Whether the assessment order passed by the ITO under section 153A read with section 143(3) was erroneous and prejudicial to the interest of revenue.
3. Adequacy of the inquiry conducted by the Assessing Officer.
4. Validity of the combined notice issued under section 263 for multiple assessment years.
5. Examination of the source of cash seized during the search operation.

Issue-wise Detailed Analysis:

1. Jurisdiction of the CIT under section 263 of the Income-tax Act, 1961:

The assessees argued that the CIT (Central) lacked jurisdiction to pass the order under section 263. They contended that the approval of the JCIT under section 153D implied application of mind, merging the AO's order with that of the JCIT, thereby ceasing the CIT's power under section 263. The Tribunal, referencing various judicial pronouncements, concluded that the CIT cannot invoke section 263 merely for inadequate inquiry if the AO had applied his mind and conducted necessary inquiries.

2. Whether the assessment order passed by the ITO under section 153A read with section 143(3) was erroneous and prejudicial to the interest of revenue:

The CIT held that the AO's order was erroneous and prejudicial to the revenue's interest as the AO failed to consider certain facts, such as the source of the Rs. 2 crores cash seized, details of house property construction, and household expenses. The Tribunal, however, found that the AO had indeed conducted inquiries and obtained explanations regarding the source of the cash, satisfying the requirement of section 263 that both conditions of being erroneous and prejudicial must coexist.

3. Adequacy of the inquiry conducted by the Assessing Officer:

The Tribunal noted that the AO had issued detailed questionnaires and received comprehensive replies from the assessees regarding the source of the cash. The AO had also obtained the JCIT's approval, indicating that the necessary inquiries were made. The Tribunal cited several judgments, including CIT vs. Vikas Polymers and CIT vs. Sunbeam Auto Ltd., to affirm that an assessment order cannot be revised under section 263 for inadequate inquiry if some inquiry was indeed conducted.

4. Validity of the combined notice issued under section 263 for multiple assessment years:

The assessees argued that the combined notice for multiple assessment years was void ab initio. The Tribunal referenced the jurisdictional High Court's judgment in Mohd. Ayub vs. ITO, which held that combined notices for reopening assessments are invalid. While acknowledging this, the Tribunal primarily focused on the merit of the case, concluding that the CIT's order under section 263 was invalid due to the AO's adequate inquiry.

5. Examination of the source of cash seized during the search operation:

The Tribunal reviewed the detailed explanations provided by the assessees regarding the source of the Rs. 2 crores cash, which was claimed to belong to various entities. The AO had accepted these explanations after thorough inquiries, including examining the cash books and bank statements of the entities involved. The Tribunal found that the CIT's assertion of the cash being unexplained was not justified as the AO had applied his mind and conducted necessary inquiries.

Conclusion:

The Tribunal concluded that the CIT's invocation of section 263 was not valid as the AO had conducted adequate inquiries and obtained the JCIT's approval before finalizing the assessment. The Tribunal quashed the CIT's orders under section 263, allowing the assessees' appeals.

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