2023 (2) TMI 1195 - AT - Income Tax

Revision u/s 263 - Reopening of assessment u/s 147 - credit entry in ING Vysya Bank Account and disallowance u/s 10AA - HELD THAT - For credit entry in ING Vysya Bank Account we note that assessee has submitted its reply before the assessing officer who after getting the reply of the assessee, has applied his mind and framed the assessment order. Therefore, such order passed by the assessing officer cannot be termed as erroneous and prejudicial to the interest of revenue. We also note that assessing officer had with him copy of said bank account at the time of reopening of assessment u/s 147 as the reasons were recorded by AO based on the copy of the said bank statement. Therefore, entries in the said bank statement were examined by the AO in the reassessment proceedings and AO has applied his mind also. AO s role while framing an assessment is not only an adjudicator. AO has a dual role to dispense with i.e. he is an investigator as well as an adjudicator; therefore, if he fails in any one of the role as afore-stated, his order will be termed as erroneous. We take note that it is not the case of ld. Principal CIT that AO failed to made any additions/disallowances, the AO conducted sufficient enquiry to examine the debit and credit in the bank statement and he also examined the eligibility to claim deduction under section 10AA of the Act and that is why he disallowed deduction under section 10AA . It is pertinent to mention here that there was as such no allegation of no enquiry or lack of enquiry or verification, because the Ld. Pr. C.I.T. himself found all the details/evidences in the assessment record, i.e. well within the A.O. s possession and what he alleged was about the plausible view taken by the A.O. as against his perception and understanding on the same set of facts and documents. Therefore, the notices issued for examination of the issues during the assessment proceedings and submission and verification of the same has not been shown to be fallacious. In this connection it is pertinent to mention here that the way in which assessment should be finalized falls in the exclusive domain of the Assessing Officer. Section 142(1) speaks of inquiry before assessment and gives immense power to the A.O. for conducting enquiry. Therefore, the A.O. u/s 142(1)(ii) (iii) can ask the assessee almost any information which he thinks necessary for passing assessment and even if Ld. Commissioner has such results of enquiries, the resultant order cannot be subjected to revision proceedings. Therefore, the very initiation of proceeding u/s. 263 of the Act by the Ld. Pr. C.I.T. is in violation of the settled position in law. When the conditions precedent for invoking revisional power u/s 263 of the Act on the facts and in the circumstances of the case are not fulfilled in the case of the assessee, the subsequent action in passing the order u/s. 263 on such invalid proceeding becomes null and void. Assumption of jurisdiction u/s. 263 by the Ld. Pr. C.I.T. and consequential direction to the A.O. to impose his own understanding on the issue in question resulted in almost no change in follow-up action by the A.O. Therefore, it goes to establish that the proceeding u/s 263 and order passed thereupon was totally uncalled for in the case of the assessee - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of the order passed under section 263 of the Income-tax Act, 1961.
2. Non-disclosure of bank accounts in the Income Tax Return.
3. Disallowance of deduction under section 10AA of the Income-tax Act, 1961.
4. Jurisdiction of the Principal Commissioner of Income-Tax (PCIT) under section 263.

Issue-wise Detailed Analysis:

1. Validity of the order passed under section 263 of the Income-tax Act, 1961:
The assessee challenged the correctness of the order dated 18.02.2022 passed by the Principal Commissioner of Income-Tax (PCIT) under section 263 of the Income-tax Act, 1961. The PCIT observed that the assessment order passed by the Assessing Officer (AO) was erroneous and prejudicial to the interest of the Revenue because the AO did not make necessary inquiries regarding the undisclosed bank accounts and the credits in those accounts. The PCIT issued a show-cause notice and, after considering the assessee's reply, concluded that the AO had failed to verify the credits in the bank accounts, making the assessment order erroneous and prejudicial to the Revenue.

2. Non-disclosure of bank accounts in the Income Tax Return:
The PCIT noted that the assessee had maintained three bank accounts, including an account with ING Vysya Bank having total credits of Rs.70,13,43,319/-, which was not disclosed in the Income Tax Return (ITR) for the assessment year 2012-13. The PCIT emphasized that it is mandatory to disclose all bank accounts in the ITR, and the failure to do so resulted in unexplained credits. The assessee argued that all bank accounts were reflected in the audited financial statements and produced before the AO during the assessment proceedings. However, the PCIT found that the AO did not make any inquiry regarding the credits in the ING Vysya Bank account, rendering the assessment order erroneous.

3. Disallowance of deduction under section 10AA of the Income-tax Act, 1961:
The assessee claimed a deduction under section 10AA amounting to Rs.87,21,44,414/-, which was disallowed by the AO in the reassessment proceedings. The PCIT observed that the AO disallowed the entire deduction under section 10AA but did not verify the credits in the ING Vysya Bank account. The assessee contended that the AO had considered the credits in the bank account while disallowing the deduction under section 10AA, and therefore, the assessment order was neither erroneous nor prejudicial to the Revenue. However, the PCIT found that the AO did not verify the credits in the bank account, making the assessment order erroneous.

4. Jurisdiction of the Principal Commissioner of Income-Tax (PCIT) under section 263:
The assessee argued that the issue of disallowance under section 10AA was already under appeal before the CIT(A), and therefore, the PCIT should not have exercised jurisdiction under section 263. The PCIT countered that appellate proceedings and revision proceedings under section 263 are distinct, and the PCIT can exercise jurisdiction on issues not examined during the assessment proceedings. The PCIT relied on the judgment of the Hon'ble Supreme Court in Malabar Industrial Co. Ltd. v. CIT, which held that an order passed without applying the principle of natural justice or without application of mind would attract the invocation of power under section 263.

Conclusion:
The Tribunal found that the AO had made adequate inquiries during the reassessment proceedings regarding the undisclosed bank account and the deduction under section 10AA. The Tribunal noted that the AO had issued show-cause notices and the assessee had submitted replies with relevant details. The Tribunal concluded that the AO had applied his mind and framed the assessment order based on the inquiries made. Therefore, the assessment order could not be termed erroneous and prejudicial to the interest of the Revenue. The Tribunal quashed the order passed by the PCIT under section 263 and allowed the appeal filed by the assessee.