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2016 (10) TMI 967 - AT - Income TaxRevision u/s 263 - addition u/s 68 - Held that - Under section 68 assessee is required to establish the source of cash credit. Assessee is not required to prove source of source. In the present case assessee has established the source. What CIT is trying to do in 263 proceedings, is to ask assessee to establish source of source, which is not required under section 68. Moreover the issue which is arising is at best against the creditors and not against the assessee. The creditors having accepted and confirmed the deposit, having filed the return of income declaring capital gain in the year under consideration and being assessed under the same ward and has been accepted, no adverse view can be taken against the assessee. Further CIT in 263 proceedings cannot substitute his view upon the view of AO. Section 68 is about the satisfaction of AO. The AO being satisfied with the explanation given by the assessee, CIT cannot substitute his view. It is a case where creditors have duly reflected the transactions in their ITRs and has confirmed the amount advanced to the assessee. No adverse inference can be drawn against the assessee on the ground that assessee has failed to prove source of source. Assessee can t be asked to prove source of source. Thus we hold that the impugned order passed by the learned CIT u/s.263 of the I.T. Act is without jurisdiction and not sustainable in the eyes of law. - Decided in favour of assessee.
Issues Involved:
1. Validity of the order passed by the Commissioner of Income Tax (CIT) under Section 263 of the Income Tax Act, 1961. 2. Conditions for invoking powers under Section 263. 3. Examination of the assessment order's alleged erroneous nature and its prejudicial impact on the Revenue. 4. Adequacy of the enquiry conducted by the Assessing Officer (AO). 5. Jurisdictional validity of the CIT’s revisionary powers under Section 263. Issue-wise Detailed Analysis: 1. Validity of the order passed by the CIT under Section 263: The Assessee contended that the order passed by the CIT under Section 263 was invalid as it did not meet the jurisdictional requirements. The Tribunal noted that the CIT's order was based on an audit objection and non-application of mind. The Tribunal emphasized that the CIT's reliance on the audit objection without independently verifying the facts rendered the revision proceedings invalid. The Tribunal quashed the CIT's order, holding it without jurisdiction and not sustainable in law. 2. Conditions for invoking powers under Section 263: The Tribunal highlighted that for invoking Section 263, both conditions must be satisfied: the assessment order must be erroneous and prejudicial to the interest of the Revenue. The Tribunal referred to various judgments, including the Hon'ble Supreme Court's decision in Malabar Industrial Co. Ltd. vs. CIT, which emphasized that an erroneous order must be due to a failure to make necessary enquiries or investigations. The Tribunal concluded that the CIT did not establish how the AO's order was erroneous and prejudicial to the Revenue, thus failing to meet the jurisdictional requirements. 3. Examination of the assessment order's alleged erroneous nature and its prejudicial impact on the Revenue: The Tribunal examined the assessment records and found that the AO had conducted a thorough enquiry regarding the unsecured loans received by the Assessee. The AO had obtained necessary details, affidavits, and documentary evidence from the Assessee's wife, who had provided the loan. The Tribunal noted that the AO was satisfied with the explanations provided and had accepted the Assessee's contention. The Tribunal emphasized that the CIT could not substitute his judgment for that of the AO, especially when the AO had conducted an adequate enquiry. 4. Adequacy of the enquiry conducted by the AO: The Tribunal observed that the AO had issued a detailed questionnaire and obtained comprehensive responses from the Assessee. The AO had verified the source of the funds, including the capital gains declared by the Assessee's wife. The Tribunal emphasized that the AO had applied his mind and conducted a proper enquiry. The Tribunal rejected the CIT's contention that the enquiry was inadequate, stating that inadequate enquiry could not be a ground for invoking Section 263. 5. Jurisdictional validity of the CIT’s revisionary powers under Section 263: The Tribunal referred to various judicial precedents, including the Hon'ble Delhi High Court's decision in ITO vs. DG Housing Projects Ltd., which clarified that the CIT must record reasons why the assessment order is erroneous and prejudicial to the Revenue. The Tribunal emphasized that the CIT could not initiate revisionary proceedings based solely on audit objections. The Tribunal concluded that the CIT's order lacked jurisdictional validity as it was based on non-application of mind and audit objections, making it unsustainable in law. Conclusion: The Tribunal quashed the CIT's order passed under Section 263, holding it invalid and without jurisdiction. The Tribunal allowed the Assessee's appeal, emphasizing that the AO had conducted a proper enquiry and that the CIT could not substitute his judgment for that of the AO. The Tribunal's decision was based on a thorough examination of the facts, legal principles, and judicial precedents, ensuring that the Assessee's rights were protected and the CIT's powers were exercised within the legal framework.
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