2018 (4) TMI 558 - AT - Income Tax

Revision u/s 263 - additional income out of the on-money component - identical sum as offered for taxation before the Assessing Officer was offered before the Settlement Commission - Held that - Assessing Officer has not done any enquiry whatsoever. There is no material on record to show that the settlement commission s order was there before him. The Assessing Officer has not enquired as to how the sum of ₹ 60,31,047/- was offered as against the larger amount offered at the time of survey. Moreover, as rightly been pointed out by the ld. Departmental Representative, for assessment year 2005-06, the Settlement Commission has accepted the plea that income out of on-money, should be considered @ 20.14% which is totally different from approx 12% rate offered in the present case for the assessment year. Hence, it is clear that by no stretch of imagination, it can be said that the Assessing Officer has made an application of mind on the issue at hand or that he had referred to the Settlement commission order. In these circumstances, in our considered opinion, acceptance of the return by the Assessing Officer at a figure of ₹ 60,31,047/- as against on money receipt of ₹ 1,65,62,330/- is erroneous so as to be prejudicial to the interest of the Revenue. CIT has observed that there are no details available about the unaccounted expenditure by the assessee in earning on money receipt - there is lack of clarity in the final direction given by the ld. Commissioner of Income Tax. The ld. Commissioner of Income Tax has directed the Assessing Officer to pass the order afresh after affording reasonable opportunity of being heard to the assessee and after taking into consideration the entire on-money receipt of ₹ 1,65,62,330/- as income by the assessee. Here we find that a confusion can arise as to whether the ld. Commissioner of Income Tax is directing that no opportunity should be given to the assessee to prove that the actual income out of ₹ 1,65,62,300/- is only ₹ 60,31,047/-. Hence, in order to remove any such ambiguity, we modify the order of the ld. Commissioner of Income Tax and direct that while considering on money receipt of ₹ 1,65,62,330/- it will be open to the assessee to prove by cogent means that the actual income out of it was only ₹ 60,31,047/-. - Appeal by the assessee stands partly allowed.

Issues Involved:
1. Invocation of Section 263 of the Income Tax Act, 1961.
2. Determination of the order as erroneous and prejudicial to the interest of revenue.
3. Direction to consider the entire on-money as income of the assessee.

Issue-wise Detailed Analysis:

1. Invocation of Section 263 of the Income Tax Act, 1961:
The appellant contested the invocation of Section 263 by the Commissioner of Income Tax (CIT), arguing that the Assessing Officer (AO) had duly applied his mind while passing the order under Section 143(3) read with Section 147. The CIT issued a show-cause notice under Section 263, highlighting that the AO's assessment included only ?60,31,047 as additional income, whereas the on-money received was ?1,65,62,330. The CIT deemed the AO's assessment order erroneous and prejudicial to the interest of revenue, as the AO did not verify the correctness and adequacy of the income disclosed before the Settlement Commission.

2. Determination of the order as erroneous and prejudicial to the interest of revenue:
The CIT held that the AO's order was erroneous and prejudicial to the interest of revenue because the AO accepted only 12% of the turnover as undisclosed income without making necessary inquiries or referring to the impounded materials during the survey. The CIT noted that the Settlement Commission had not accepted the disclosure made by the assessee for the assessment year 2004-05 as genuine. The AO failed to bring any material on record to justify reducing the on-money received from ?1,65,62,330 to ?60,31,047.

3. Direction to consider the entire on-money as income of the assessee:
The CIT directed the AO to pass a fresh assessment order after considering the entire on-money received of ?1,65,62,330 as income. The assessee argued that the AO had adopted a profit rate of 12% on the total sale consideration, including the on-money component, which was accepted by the Settlement Commission for the assessment year 2005-06. However, the CIT rejected this contention, stating that the AO's acceptance of the additional income at ?60,31,047 was erroneous and prejudicial to the interest of revenue.

Tribunal's Findings:
The Tribunal noted that the AO did not conduct any inquiry or refer to the Settlement Commission's order while accepting the return of ?60,31,047. The Tribunal agreed with the CIT that the AO's order was erroneous and prejudicial to the interest of revenue. However, the Tribunal modified the CIT's direction, allowing the assessee to prove by cogent means that the actual income out of the on-money receipt was only ?60,31,047. The Tribunal upheld the CIT's order with this partial modification, emphasizing the duty of the appellate authority to correct errors in the orders of the authorities below.

Conclusion:
The appeal by the assessee was partly allowed, with the Tribunal upholding the CIT's order under Section 263, subject to the modification that the assessee could prove the actual income out of the on-money receipt. The order was pronounced in the open court on 05.04.2018.

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