2018 (7) TMI 1323 - HC - Income Tax

CIT s power of revision u/s 263 - fulfillment of two conditions on the material available on record to exercise power under Section 263 - Held that - It is clear that suo motu power under Section 263 of the Act can be exercised by the Commissioner if two conditions; firstly the assessment order passed is erroneous; and secondly the order is prejudicial to the interest of Revenue are satisfied. Commissioner, while exercising power under Section 263 in the present case was of the opinion that the assessee did not properly explain the transactions of ₹ 1,70,00,000/- for which the partners gave cheques, but the cheques were not encashed and cheques were given by the family members to partners for amount of ₹ 1,09,00,000/-. A.O. after looking into the accounts of the assessee was satisfied by the explanation offered and we do not find any illegality in accounting entries made in the books of account of the assessee in respect of these transactions. Therefore, we affirm the order passed by the Tribunal. - Decided against revenue

Summary

Issues:
1. Whether the Income Tax Appellate Tribunal was justified in holding that the CIT lacked the power of revision under Section 263 of the Income Tax Act?
2. Whether the Income Tax Appellate Tribunal was justified in deleting specific additions made by the CIT?

Analysis:
1. The case involved a show-cause notice issued by the Commissioner, Income Tax, under Section 263 of the Income Tax Act to the assessee, challenging the assessment order passed by the Assessing Officer. The notice highlighted discrepancies in the capital accounts of partners and unexplained cash credits. The CIT subsequently added significant amounts as unexplained cash credits, leading to a revised assessed income for the assessee.

2. The assessee appealed to the Income Tax Appellate Tribunal, challenging the CIT's order. The Tribunal emphasized that the CIT's power of revision under Section 263 is not arbitrary but requires fulfillment of specific criteria. It noted that the AO had thoroughly examined the case, sought explanations, and reviewed the evidence provided by the assessee. The Tribunal concluded that the CIT could not exercise suo motu power solely based on a different opinion from the AO.

3. Regarding the additions made by the CIT, the Tribunal found that the assessee had adequately explained the transactions related to partner's capital accounts and unsecured loans. The Tribunal accepted the explanations provided by the assessee, such as the reversal of entries due to unrealized cheques and the anticipation of future resources. It highlighted that the relevant accounting entries supported the explanations given by the assessee.

4. The High Court upheld the Tribunal's decision, emphasizing that the CIT must have sufficient material to demonstrate that the assessment order is both erroneous and prejudicial to the revenue's interest to exercise power under Section 263. In this case, the Court found that the AO had properly examined the transactions, and the accounting entries made by the assessee were lawful. Therefore, the Court dismissed the appeal and affirmed the Tribunal's order, stating that the CIT lacked adequate grounds to revise the assessment.