2019 (12) TMI 1255 - AT - Income Tax

Revision u/s 263 - whether the AO has made enquiries about cash deposit capital gains bonds and land investment? - HELD THAT - AO had not made detailed enquiries and with applying his mind accepted the claim cash deposit, capital gains bonds and investment. The perusal of the assessment order shows that it is very short and does not demonstrate or show that any enquiry were made and taken to logical end. Therefore, we find that twin conditions are satisfied for invoking the jurisdiction under section 263 of the Act. Therefore, in absence of the same the ld. CIT was correct in exercise the jurisdiction under section 263 of the Act and setting aside the assessment to be made afresh after giving proper due opportunity that the assessee. Accordingly, we upheld the order passed us 263 of the Act. Accordingly, the appeal of the assessee is dismissed.

Issues Involved:
1. Lack of inquiry by the Assessing Officer (AO) regarding the nature of business, verification of construction business, and loans.
2. Verification of cash deposits and withdrawals.
3. Verification of loans given and received, particularly interest-free loans.
4. Examination of booking and cancellation of property transactions.

Detailed Analysis:

1. Lack of Inquiry by the AO:
The primary grievance of the assessee was that the Principal Commissioner of Income-Tax (PCIT) erred in holding that the assessment order passed by the AO was erroneous and prejudicial to the interest of the revenue due to a lack of inquiry. The AO failed to verify the correctness of the construction business, the nature of business, and loans given to the assessee's wife and Neer Developers. The PCIT observed that the AO did not call for any proof of business, such as government licenses or registration, and failed to conduct basic inquiries.

2. Verification of Cash Deposits and Withdrawals:
The PCIT noted that the assessment was reopened because the assessee had deposited ?41,06,000 in cash in his bank account. The AO failed to verify the correctness of the construction business bills, which were all below ?20,000 and were computer printouts. Additionally, the AO did not verify the cash book entries showing cash deposits and withdrawals, which were in the nature of booking advances by cash and cheque.

3. Verification of Loans Given and Received:
The AO did not verify the credit of ?9,95,000 received from Neer Developers and the genuineness of the ?22,32,000 loan given to the assessee's wife, Smt. Anita Panchal. The AO failed to verify why Neer Developers provided an interest-free loan and did not call for any bank account or proof of the loan given to the wife during the assessment proceedings. The PCIT emphasized that these aspects were not examined, rendering the assessment order erroneous and prejudicial to the interest of the revenue.

4. Examination of Booking and Cancellation of Property Transactions:
The AO did not call for details regarding the booking and cancellation of property transactions. The assessee submitted ledger copies of the construction account, and the AO verified transactions by calling for information under section 133(6). However, the PCIT noted that these inquiries were not made during the assessment year under consideration.

Tribunal's Findings:
The Tribunal upheld the PCIT's order, noting that the AO's assessment order did not demonstrate that necessary inquiries were carried out. The Tribunal emphasized that the AO's failure to verify critical aspects, such as the nature of business, loans, and property transactions, made the assessment order erroneous and prejudicial to the interest of the revenue. The Tribunal cited various judicial precedents, including the Hon'ble Supreme Court's decision in Malabar Industrial Co. Ltd. v. CIT, which established that an order is erroneous if it is based on an incorrect assumption of facts or law and is prejudicial to the revenue.

Conclusion:
The Tribunal concluded that the AO had not made detailed inquiries and had accepted the assessee's claims without proper verification. Therefore, the PCIT was correct in exercising jurisdiction under section 263 of the Income Tax Act, setting aside the assessment order, and directing the AO to conduct a fresh assessment after making proper inquiries. The appeal of the assessee was dismissed.

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