2023 (1) TMI 1313 - AT - Income Tax

Revision u/s 263 - Inadequate v/s lack of enquiry - CIT held that the assessment framed u/s 143(3)/147 is erroneous insofar prejudicial to the interest of Revenue - Unexplained cash deposits in bank account as joint holder with his son - HELD THAT - An inquiry made by the AO, considered inadequate by the CIT, cannot make the order of the AO erroneous. In our view, the order can be erroneous if the Assessing Officer fails to apply the law rightly on the facts of the case. As far as adequacy of inquiry is considered, there is no law which provides the extent of inquiries to be made by the AO. It is AO s prerogative to make inquiry to the extent he feels proper. CIT by invoking revisionary powers under section 263 of the Act cannot impose his own understanding of the extent of inquiry. There were a number of judgments by various Hon ble High Courts in this regard. Delhi High Court in the case of CIT Vs. Sunbeam Auto 2009 (9) TMI 633 - DELHI HIGH COURT made a distinction between lack of inquiry and inadequate inquiry. The Hon ble court held that where the AO has made inquiry prior to the completion of assessment, the same cannot be set aside u/s 263 of the Act on the ground of inadequate inquiry. As decided in Shree Gayatri Associates 2019 (6) TMI 888 - SC ORDER Tribunal has in the impugned judgment referred to the detailed correspondence between Assessing Officer and the assessee during the course of assessment proceedings to come to a conclusion that the Assessing Officer had carried out detailed inquiries which includes assessee's on-money transactions. It was on account of these findings that the Tribunal was prompted to reverse the order of revision. No question of law arises. Principle which emerges is that the phrase 'prejudicial to the interests of the revenue' has to be read in conjunction with an erroneous order passed by the Assessing Officer. Every loss of revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interests of the revenue. In the present case it is not the case that the AO has not made any enquiry. Indeed, the ld. Pr. CIT initiated proceedings under section 263 of the Act on the ground that the AO has not made enquiries or verification which should have been made in respect of cash deposited during the year under consideration. It is not the case of the ld. Pr. CIT that the Ld. AO did not apply his mind to the issue on hand or he had omitted to make enquiries altogether. In the instant set of facts, the AO had made enquiries and after consideration of materials placed on record accepted the genuineness of the claim of the assessee. Thus, we hold that there is no error in the assessment framed by the AO under section 143(3)/147 of the Act causing prejudice to the interest of revenue. Decided in favour of assessee.

Summary

Issues Involved:
1. Whether the assessment order framed under section 143(3)/147 of the Income Tax Act, 1961 was erroneous and prejudicial to the interests of the Revenue, justifying revision under section 263 of the Act.

Detailed Analysis:

1. Assessment Order under Section 143(3)/147:
The assessee, a retired bank employee, filed a return declaring an income of Rs. 4,22,240/-. The case was reopened under section 147 due to a cash deposit of Rs. 21,57,400/- in a joint savings bank account with his son. The AO framed the assessment under section 143(3) read with section 147, accepting the returned income.

2. Principal CIT's Revision under Section 263:
The Principal CIT found that the AO did not verify the cash deposit during the assessment proceedings, leading to the initiation of section 263 proceedings. The assessee explained that the cash was deposited by his son and provided a breakdown of the cash sources, including withdrawals and opening balances. The assessee argued that the AO had made appropriate inquiries and verified the cash deposits.

3. Principal CIT's Findings:
The Principal CIT held that the AO did not conduct necessary verification, making the assessment order erroneous and prejudicial to the Revenue. The Principal CIT cited various judicial decisions to support the need for proper inquiries by the AO and set aside the assessment order for fresh assessment on the issue of cash deposits.

4. Assessee's Appeal:
The assessee appealed, arguing that the AO had made detailed inquiries during the assessment proceedings, including issuing notices under section 142(1) and considering the responses. The assessee contended that the assessment order was not erroneous or prejudicial to the Revenue.

5. Tribunal's Analysis:
The Tribunal examined whether the AO's inquiries were adequate. It noted that an inquiry considered inadequate by the Principal CIT does not make the AO's order erroneous. The Tribunal emphasized that the AO has the prerogative to determine the extent of inquiry. The Tribunal referred to several judicial precedents distinguishing between lack of inquiry and inadequate inquiry.

6. Judicial Precedents:
- Delhi High Court in CIT Vs. Sunbeam Auto: Distinguished between lack of inquiry and inadequate inquiry, stating that an order cannot be set aside under section 263 for inadequate inquiry.
- Bombay High Court in Gabriel India Ltd.: Held that the Commissioner cannot initiate proceedings for fishing and roving inquiries in concluded matters.
- Supreme Court in Shree Gayatri Associates: Upheld that detailed inquiries by the AO cannot be revised under section 263.
- Supreme Court in Canara Bank Securities Ltd.: Stated that plausible views taken by the AO cannot be revised under section 263.

7. Tribunal's Conclusion:
The Tribunal found that the AO had made inquiries and considered the materials on record before framing the assessment. The Principal CIT's order under section 263 was based on the view that further inquiries should have been made, which is not a valid ground for revision. The Tribunal also noted that the Principal CIT invoked Explanation 2 of section 263 without mentioning it in the show cause notice, denying the assessee an opportunity to respond.

8. Final Decision:
The Tribunal held that the assessment order was not erroneous or prejudicial to the Revenue's interests. The revision order under section 263 was quashed, and the assessee's appeal was allowed.

Conclusion:
The Tribunal allowed the appeal, quashing the Principal CIT's revision order under section 263, and upheld the original assessment order framed under section 143(3)/147. The decision emphasized the importance of distinguishing between lack of inquiry and inadequate inquiry and upheld the AO's discretion in determining the extent of inquiries.