2022 (2) TMI 751 - AT - Income Tax

Revision u/s 263 by CIT - unrecorded advances found during the course of survey and taxability thereof - HELD THAT - This matter was enquired by the AO and specific queries have been raised in respect of documents found during the course of survey as part of notice u/s 142(1) the reply submitted by the assessee has been duly examined by the AO including the statement of the assessee recorded during the course of survey where there is clear mention about rotation of funds and how the final figures has been arrived at, the findings of the survey team, the surrender made by the assessee and additional income offered in the return of income. It is therefore not a case where the AO has merely gone by the surrender made and additional income offered by the assessee in the return of income rather the AO has examined the whole gamut of documentation found during the course of survey and thereafter has accepted the additional income so offered by the assessee towards the discrepancies found during the course of survey. Thus, it cannot be said that there is failure on part of the AO to make proper enquiries and verifications which should have been made in respect of these transactions found during the course of survey. Agreement for purchase of property and payment therefore - AO has raised a specific query as part of initial notice u/s 142(1) dated 24.07.2018 and in response to the same, the assessee has submitted that he has made a payment of ₹ 36 lacs towards purchase of a residential house and a part of which has been funded through bank borrowing amounting to ₹ 27 lacs from the OBC Bank duly reflected in the financial statements. We therefore find that the matter has been duly examined by the AO and after taking into consideration the submission of the assessee including the source of payment towards the purchase of residential house, the same has been accepted and no adverse finding has been recorded. Thus, it cannot be said that there is failure on part of the Assessing officer to make proper enquiries and verifications which should have been made in respect of the said transaction. There is no basis to hold that the order passed by the Assessing officer is erroneous is so far as prejudicial to the interest of the Revenue - Decided in favour of assessee.

Issues Involved:
1. Whether the assessment order was erroneous and prejudicial to the interest of the Revenue due to lack of proper inquiries and verification regarding unrecorded advances.
2. Whether the assessment order was erroneous and prejudicial to the interest of the Revenue due to lack of proper verification of the payment for the purchase of property.

Issue-wise Detailed Analysis:

1. Unrecorded Advances:
The primary issue raised by the Principal Commissioner of Income Tax (PCIT) was that the assessment order did not properly verify the unrecorded advances found during the survey proceedings. The assessee had surrendered an income of ?43,00,935/- during the survey, which included advances given out of books to two individuals. The PCIT noted that the advances to these individuals during three financial years amounted to ?21,63,310/- and ?16,26,405/-, but the surrender was made at ?8,00,000/- and ?9,00,000/- respectively.

The assessee argued that during the survey and assessment proceedings, detailed examination of these documents was made, and the income taken was more than what was determined based on these documents. The assessee's representative highlighted that the advances given were from the sale proceeds of agricultural produce sold on behalf of farmers, and thus, there was no investment by the assessee. The amounts of ?8,00,000/- and ?9,00,000/- were determined during the survey after considering the interest element and were included in the return of income.

The Tribunal noted that the Assessing Officer (AO) had examined the issue during the assessment proceedings, including the statements recorded during the survey, and had accepted the additional income offered by the assessee. The AO had treated the surrendered income as unexplained investment under section 69, liable for taxation at 30% under section 115BBE. The Tribunal concluded that the AO had made proper inquiries and verifications, and thus, the assessment order could not be said to be erroneous or prejudicial to the interest of the Revenue on this issue.

2. Purchase of Property:
The second issue raised by the PCIT was regarding the verification of the payment of ?36,00,000/- made for the purchase of a property. The PCIT observed that the AO failed to verify whether the registered deed was executed or not. The assessee submitted that the payment was verifiable from the bank statement and the books of accounts, and the balance payment was made in the next financial year. The details of the bank loan taken for the purchase were also furnished.

The Tribunal found that the AO had raised specific queries regarding the payment for the property during the assessment proceedings. The assessee had submitted details of the payment, including the bank borrowing, which were reflected in the financial statements. The AO had examined these details and accepted the submission without recording any adverse findings. Therefore, the Tribunal concluded that the AO had made proper inquiries and verifications regarding the transaction, and the assessment order could not be said to be erroneous or prejudicial to the interest of the Revenue on this issue.

Conclusion:
The Tribunal held that the order passed by the AO was not erroneous or prejudicial to the interest of the Revenue. The directions contained in the PCIT's order were set aside, and the assessment order was sustained. The appeal filed by the assessee was allowed.

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