2023 (12) TMI 1292 - AT - Income Tax

Revision u/s 263 against reassessment order passed u/s 147 - taxability of capital gain arising out of the sale of the said land - as per CIT AO has accepted the source of cash deposit but did not investigate the nature of land alleged to be sold as agricultural land - assessee stated that AO could not have gone beyond the reasons recorded for reopening the assessment - HELD THAT - On a perusal of the notice PCIT himself has referred to the sale deed relating to sale of agricultural land. This very document was examined by the AO as mentioned in his assessment order when he was examining the source of cash deposited in the Savings Bank account. These facts go on to show that specific queries were raised to which specific reply was filed. Therefore, it cannot be said that the AO did not make any enquiry. Moreover, assessment was reopened with specific reasons for reopening and those specific reasons have been duly examined by the AO before completing assessment. In our considered opinion, for exercise of power u/s 263 of the Act, it is mandatory that the order passed by the Assessing Officer should be erroneous and prejudicial to the interest of the Revenue. A perusal of the assessment order shows that the returned income was accepted by the AO and no addition was made for reasons recorded at the time of issue of notice u/s 148 of the Act. This is an undisputed fact that the issues which prompted the AO to reopen the assessment were duly considered and reply of the assessee was accepted and no addition was made. This fact has also not been disturbed by the PCIT in his order u/s 263 of the Act. In our considered opinion, the AO could not have made the addition on the issues raised by the PCIT in his order as no addition was made on account of reasons recorded for reopening the assessment. No hesitation in setting aside the order of the PCIT and restore that of the Assessing Officer - Decided against revenue.

Summary

Issues Involved:
1. Jurisdiction under Section 263 of the Income Tax Act.
2. Validity of reassessment order dated 06-08-2019.
3. Compliance with principles of natural justice.
4. Examination of cash deposits and source of income.

Summary:

Jurisdiction under Section 263 of the Income Tax Act:
The assessee contended that the Principal Commissioner of Income Tax (Pr.CIT) erred in assuming jurisdiction under Section 263 of the Income Tax Act, 1961. The Pr.CIT held the reassessment order dated 06-08-2019 as erroneous and prejudicial to the interest of revenue. The Tribunal noted that for the exercise of power under Section 263, it is mandatory that the order passed by the Assessing Officer (AO) should be erroneous and prejudicial to the interest of the Revenue. The Tribunal found that the AO had duly considered the source of cash deposits and examined the necessary documents during the reassessment proceedings.

Validity of Reassessment Order Dated 06-08-2019:
The reassessment was initiated based on the reasons recorded for reopening under Section 147 of the Act, which included verification of the source of cash deposits and interest earned on savings accounts. The Tribunal observed that the AO had thoroughly scrutinized the return of income and the source of cash deposits, and no addition was made for the reasons recorded at the time of issue of notice under Section 148. The Tribunal cited the Hon'ble High Court of Delhi's decision in CIT Vs. Software Consultants, which held that if no addition is made on the reasons for reopening, the AO cannot make an addition on other issues raised subsequently.

Compliance with Principles of Natural Justice:
The assessee argued that the Pr.CIT's order was in violation of the principles of natural justice. The Tribunal noted that specific queries were raised by the AO, to which specific replies were filed by the assessee. The AO had examined the sale transaction documents related to the cash deposits, indicating compliance with the principles of natural justice.

Examination of Cash Deposits and Source of Income:
The AO had considered the source of cash deposits in the savings bank accounts and examined the related sale transaction documents. The Tribunal found that the AO had duly examined the source of cash deposits and the taxability of capital gains arising from the sale of land. The Tribunal held that the reassessment order was neither erroneous nor prejudicial to the interest of the Revenue, as the AO had acted within his jurisdiction and made necessary inquiries.

Conclusion:
The Tribunal set aside the order of the Pr.CIT dated 17.02.2022 and restored the reassessment order dated 06.08.2019 passed by the AO. The appeal of the assessee was allowed. The order was pronounced in the open court on 01.12.2023.