2019 (10) TMI 117 - AT - Income Tax

Revision u/s 263 - unaccounted cash - Surveillance team found cash in possession of assessee - HELD THAT - In this case, during the course of vehicle surveillance by the flying squad set up for election purpose in Madurai Central Assembly Constituency, a sum of ₹ 18.10 lakhs was found on 19/08/2016 in the possession of the assessee and Sri Tharagala Lakshmana Rao. When they have been asked for the source, it was submitted by the assessee that ₹ 10.10 lakhs belonging to him and the remaining balance of ₹ 8.00 belongs to Sri Tharagala Lakshmana Rao. The Surveillance team not satisfied with the explanation given by the assessee and the amounts seized from both the parties and handed over to the District Treasury, Madhurai. Subsequently, the ADIT (Inv.), Unit I II has transferred the case to the DGIT (Inv.), AP Telangana, who made enquiries in this case and reported that sources have been verified and found to be correct and seizure of cash is not warranted. Subsequently, case was transferred to the Assessing Officer for taking necessary action. AO selected this case manually for scrutiny after obtaining permission from the Pr.CIT. The Assessing Officer made detailed enquiries and called the assessee to explain the source and after considering the explanation, he made the addition of ₹ 7.00 lakhs and the same is brought to tax in the hands of the assessee. Therefore, in our opinion, the order passed by the AO neither erroneous nor prejudicial to the interest of the Revenue. It is further noted that as per the order passed by the Pr.CIT, the order of the Assessing Officer is void ab initio and not maintainable. If the order of the Assessing Officer is prima facie invalid, the Pr.CIT cannot exercise the powers conferred in u/sec. 263, therefore on this count also, the order passed by the Pr.CIT is not valid - Decided in favour of assessee.

Summary

Issues:
Appeals against orders of Principal Commissioner of Income Tax for Assessment Year 2016-17 - Seizure of cash during vehicle surveillance - Source of cash - Assessment made under section 143(3) - Pr.CIT issued notice under section 263 - Errors in assessment order - Application of sections 69A and 115BBE - Verification of sources for acquisition of vehicles under section 142(1)(iii) proviso (b).

Analysis:
The appeals were against separate orders of the Principal Commissioner of Income Tax for the Assessment Year 2016-17, involving the seizure of cash during vehicle surveillance. The case was selected for scrutiny manually, and the Assessing Officer noted the cash found in possession of the assessee and another individual. The sources of the cash were questioned, leading to the seizure of the amount. The Assessing Officer completed the assessment under section 143(3) after the assessee failed to substantiate the source of cash. Subsequently, the Principal Commissioner issued a notice under section 263, citing errors in the assessment order. These errors included not invoking section 69A for unexplained money and not applying section 115BBE for special tax rates. Additionally, the verification of sources for vehicle acquisition was questioned under section 142(1)(iii) proviso (b).

The Assessing Officer had made detailed enquiries and additions to the total income of the assessee based on the seized cash. However, the Tribunal found that the order passed by the Assessing Officer was neither erroneous nor prejudicial to the interest of the Revenue. The Tribunal also noted that the order of the Assessing Officer being void ab initio rendered the notice issued by the Principal Commissioner under section 263 invalid. Consequently, the Tribunal canceled the order passed by the Principal Commissioner and allowed the appeal of the assessee in ITA No. 353/VIZ/2018.

In ITA No. 354/VIZ/2018, the facts and circumstances were similar to ITA No. 353/VIZ/2018, leading to the Tribunal's decision to apply the same reasoning. As a result, both appeals filed by the assessees were allowed, and the orders were pronounced in open court on August 7, 2019.