2018 (3) TMI 1906 - AT - Income Tax

Revision u/s 263 - proof of inadequate inquiry - distinction between lack of inquiry and inadequate inquiry - HELD THAT - In the instant case, the error of lack of necessary inquiry made out by the Commissioner is based on the cash summary/statements prepared by him after procuring the copies of the bank statements, etc., a material which was not available on record of the proceedings at the time of initiation of proceedings u/s 263 of the Act. At the relevant time of initiation of Sec. 263 of the Act, what was available on record were the communication of the Assessing Officer dated 03.01.2013 seeking remedial action u/s 263 of the Act and this too was contradictory to the earlier communication of the Assessing Officer dated 26.06.2012, which we have referred in the earlier part of this order. Such examination of the record, in our view, even prima facie, would not establish the fulfilment of the twin conditions contained in Sec. 263(1) of the Act. Therefore, in our view, the initiation of proceedings by the Commissioner u/s 263(1) of the Act is legally infirm and beyond jurisdiction. The Hon'ble Delhi High Court in the case of New Delhi Television Ltd. 2013 (10) TMI 428 - DELHI HIGH COURT by referring to its earlier decision in the case of CIT vs Sunbeam Auto Ltd., 2009 (9) TMI 633 - DELHI HIGH COURT noted the distinction between purported no verification by the Assessing Officer and incomplete or inadequate verification . The Hon'ble High Court emphasised the distinction between lack of inquiry and inadequate inquiry. According to it, if there was an inquiry, even inadequate, that would by itself not give an occasion for the Commissioner to invoke Sec. 263 of the Act merely because he has a difference of opinion in the matter. Insofar as the present case is concerned, in our considered opinion, even the charge of inadequate inquiry by the Commissioner is not based on his examination of the record of proceedings, but on his subjective analysis of the records called for by him subsequent to initiation of the proceedings u/s 263(1) of the Act. - Decided in favour of assessee.

Issues Involved:
1. Legitimacy of the Commissioner's invocation of Section 263 of the Income Tax Act, 1961.
2. Adequacy of inquiries made by the Assessing Officer (AO) during the assessment.
3. Examination and verification of cash deposits in the assessee's bank accounts.
4. Justification for the Commissioner's conclusion that the assessment order was erroneous and prejudicial to the interests of the Revenue.

Detailed Analysis:

1. Legitimacy of the Commissioner's Invocation of Section 263:

The Commissioner invoked Section 263 of the Income Tax Act, 1961, to set aside the assessment order dated 08.06.2011, directing the AO to reassess after allowing proper opportunity to the assessee. The Commissioner based his action on a report from ACIT-26(1) dated 03.01.2013, which recommended remedial action under Section 263. The Commissioner issued a show cause notice under Section 263, questioning the AO's acceptance of the assessee's explanation for cash deposits without making necessary inquiries.

2. Adequacy of Inquiries Made by the AO:

The assessee argued that the AO had made full inquiries by issuing notices under Section 142(1), calling for details, and discussing issues over several hearings. The Commissioner, however, found that the AO did not verify the veracity of the assessee's claim regarding the source of cash deposits, which was based on balance sheets and cash summaries not on record before the assessment. The Commissioner concluded that the AO failed to make necessary inquiries to verify the assessee's claim of cash in hand.

3. Examination and Verification of Cash Deposits:

The Commissioner noted discrepancies in the cash summaries prepared by the assessee and found that the AO accepted the assessee's explanation without proper verification. The Commissioner observed that the claimed opening cash balance as on 01.04.2008 was significantly higher than the actual cash available, leading to a difference of ?23,46,948/- which remained unexplained. The Commissioner also noted that the assessee's reason for maintaining cash in hand for his parents' treatment was not justified, and the Wealth Tax returns filed after the assessment did not substantiate the claimed cash balance.

4. Justification for the Commissioner's Conclusion:

The Commissioner concluded that the AO's assessment was erroneous and prejudicial to the interests of the Revenue due to the lack of necessary inquiries. The Commissioner directed the AO to examine all bank transactions and make necessary inquiries to ascertain the true nature of the transactions. The Tribunal, however, found that the initiation of proceedings under Section 263 was based on a proposal from the AO, which was inconsistent with the requirement that the Commissioner himself should call for and examine the record. The Tribunal also noted that the Commissioner's conclusion was based on material obtained after initiating the proceedings, which was not permissible.

Conclusion:

The Tribunal held that the initiation of proceedings under Section 263 by the Commissioner was legally infirm and beyond jurisdiction. The Tribunal emphasized that the Commissioner must base his decision on the record available at the time of initiation and not on subsequent inquiries. The Tribunal set aside the Commissioner's order and allowed the assessee's appeal, concluding that the AO had made adequate inquiries during the assessment, and the Commissioner's action was not justified.

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