2021 (12) TMI 979 - AT - Income Tax

Revision u/s 263 by CIT - reopening of assessment u/s 147 - undisclosed income - Unexplained bank account deposits - HELD THAT - As assessee has himself stated that deposits in the bank account no.07371000041778 are out of undisclosed source of income. Moreover, the assessee has not retracted his statement later on, and in fact he agreed to pay the due taxes on the said undisclosed income. No doubt, the assessing officer has raised this issue during the reassessment proceedings, however, he reached on a wrong conclusion,wherein the assessing officer has discussed the issue of cash deposit to the tune of ₹ 11,65,300/-. The AR of the assessee explained that said cash of ₹ 11,65,300/- were receipt from the business carried out under section 44AE of the Act and the same has been reflected in the return of income to the tune of ₹ 84,000/-. In fact, said bank account was never disclosed by the assessee in the return of income and never reflected in return of income, therefore, assessing officer has reached on wrong conclusion to the effect that cash deposit of ₹ 11,65,300/- has been reflected in return of income, which is not sustainable in law, hence order passed by the assessing officer is erroneous. AO has made addition of ₹ 18,989/-, (vide para 6 of assessment order) being opening balance in bank account no.36612082001, instead of making addition to the tune of ₹ 11,65,300/- being cash deposited by the assessee during the assessment year under consideration, thus, assessing officer framed the assessment order with incorrect assumption of facts and without application of mind, therefore, order passed by the assessing officer is prejudicial to the interest of revenue. Just to discuss the issue in the assessment order is not enough, it is to be seen whether assessing officer has applied his mind or not. The order u/s 263 of the IT Act, is valid even if one of the several items dealt with therein is found prejudicial to the interest of revenue. Further, it is also important to mention here that the provisions of Section 263 can be invoked even where full facts are disclosed but the AO has not examined these details as per correct provisions of law. In support of this proposition, Ld PCIT relied on the decision of the Hon'ble Rajasthan High Court, in the case of CIT vs. Emery Stone Manufacturing Company, 1994 (7) TMI 36 - RAJASTHAN HIGH COURT - Based on the facts and circumstances narrated above, we note that ld PCIT has rightly exercised his jurisdiction under section 263 - Decided against assessee.

Summary

Issues Involved:
1. Validity of the reopening of assessment under section 148 of the Income Tax Act.
2. Legitimacy of the order passed by the Principal Commissioner of Income Tax (PCIT) under section 263 of the Income Tax Act.
3. Whether the assessment order was erroneous and prejudicial to the interest of revenue.

Detailed Analysis:

1. Validity of the reopening of assessment under section 148 of the Income Tax Act:
The assessee raised additional grounds challenging the validity of the reassessment proceedings under sections 147/148 of the Act. The Tribunal noted that these proceedings had concluded long back and whether they were challenged by the assessee was a matter of his choice. The Tribunal emphasized that the current appeal focused on the correctness of the order passed by the PCIT under section 263 of the Act. Consequently, the additional grounds raised by the assessee were dismissed as they had no bearing on the present proceedings.

2. Legitimacy of the order passed by the Principal Commissioner of Income Tax (PCIT) under section 263 of the Income Tax Act:
The main grievance raised by the assessee was that the order of the assessing officer was neither erroneous nor prejudicial to the interest of revenue. The Tribunal noted that the PCIT issued a notice under section 263 of the Act, proposing that the assessment order was erroneous and prejudicial to the interest of revenue. The PCIT highlighted that the assessing officer failed to make requisite inquiries regarding an undisclosed bank account and deposits therein. The PCIT concluded that the assessing officer's order was erroneous as it was based on incorrect assumptions and lacked proper investigation.

3. Whether the assessment order was erroneous and prejudicial to the interest of revenue:
The Tribunal reviewed the facts and submissions, noting that the assessee himself admitted that the deposits in the undisclosed bank account were from undisclosed sources of income. The assessing officer had incorrectly concluded that the cash deposits were part of the business turnover and reflected in the return of income. The Tribunal emphasized that the assessing officer is not only an adjudicator but also an investigator, and it was his duty to ascertain the truth of the facts stated in the return. The Tribunal cited the decision of the Hon'ble Delhi High Court in the case of Gee Vee Enterprises, which supports the view that failure to make necessary inquiries renders an order erroneous under section 263.

The Tribunal upheld the PCIT's order, stating that the assessing officer's order was based on incorrect assumptions and lacked proper inquiry, making it erroneous and prejudicial to the interest of revenue. The Tribunal also referenced the Hon'ble Supreme Court's decision in Malabar Industrial Company Ltd vs. CIT, which supports the contention that an order passed without applying the principles of natural justice or without application of mind is erroneous.

Conclusion:
The appeal of the assessee was dismissed, and the order of the PCIT under section 263 of the Income Tax Act was upheld. The Tribunal concluded that the PCIT rightly exercised his jurisdiction under section 263, as the assessment order was erroneous and prejudicial to the interest of revenue. The order was pronounced on 29/11/2021 by placing the result on the notice board.