2022 (4) TMI 177 - AT - Income Tax

Revision u/s 263 by CIT - Unexplained cash advance payment to tax as unexplained expenditure u/s 69C - whether the order passed by the assessing officer u/s 153A r.w.s. 143(3) can be said to be erroneous and prejudicial to the interest of the revenue? - HELD THAT - We find that, pursuant to incriminating material, certain specific queries were raised by the Ld AO with respect to cash payment to Mr Subbha Rao which were claimed to have been made as advance against labour wages and claimed to have appropriated as expenditure in the immediately succeeding year, however no tangible deprecative evidential material were placed in dislodging the findings of the Ld AO. In-spite of conclusive findings emanated from the incriminating material placed on records, Ld AO merely left the elephant in the room unattended and framed the assessment losing the sight to bring such cash advance payment to tax as an unexplained expenditure u/s 69C of the Act, this is nothing but a clear, apparent grievous error vis- -vis incorrect computation on the part of Ld AO, which undoubtedly falls within the sweep of section 263(1) of the Act, and such a case does finds a place within the ration laid by the Hon ble lordship in a celebrated case of Malabar Industrial Co Ltd. 2000 (2) TMI 10 - SUPREME COURT PCIT during the revisionary proceedings made a categorical findings that, the Ld AO after conducting the necessary inquiry in the light of evidential material constituting incriminating seized material, reached the conclusion however has lost the sight while passing the impugned order of assessment without figuring the impugned advance cash payment as unexplained expenditure u/s 69C hence in our considered opinion the conclusion drawn by the Ld PCIT is irresistible. The action of Ld PCIT is perfectly sustainable in law, to the effect holding the order of assessment as erroneous prejudicial to the interest of revenue - Assessee appeal dismissed.

Summary

Issues Involved:
1. Whether the order passed by the assessing officer under section 153A read with section 143(3) was erroneous and prejudicial to the interest of the revenue within the purview of section 263 of the Income-tax Act, 1961.

Issue-wise Detailed Analysis:

1. Erroneous and Prejudicial Order under Section 263:
The appellant assessee challenged the revisionary order dated 25/05/2018 issued by the Principal Commissioner of Income Tax (PCIT) under section 263 of the Income-tax Act, 1961 for the assessment year 2014-2015. The core issue was whether the order passed by the assessing officer (AO) under section 153A read with section 143(3) was erroneous and prejudicial to the interest of the revenue within the meaning of section 263.

2. Grounds of Appeal:
The appellant raised four grounds, all revolving around the assumption of revisionary jurisdiction by the PCIT. The grounds included:
- The order under section 263 was bad in law as the payment made to Mr. Subbarao of ?1,00,000/- was not considered unexplained expenditure by the AO.
- The PCIT erred in observing non-appearance after a request for adjournment.
- The expenditure of ?1,00,000/- was claimed in the subsequent year and not during the year under consideration.
- The order under section 263 was without application of mind and jurisdiction.

3. Facts of the Case:
The assessee, a private limited company, filed its return of income for AY 2014-2015, which was processed under section 143(1). A search and seizure action under section 132 was conducted, leading to the invocation of section 153A. The AO assessed a total income of ?8,44,43,450/- with multiple additions, including unexplained cash expenditure and unrecorded cash receipts totaling ?3,17,69,610/-. The PCIT, invoking section 263, directed the AO to reframe the assessment, including an advance cash payment of ?1,00,000/- as unexplained expenditure under section 69C.

4. Revisionary Jurisdiction under Section 263:
The Tribunal noted that for the PCIT to invoke section 263, the order of the AO must be both erroneous and prejudicial to the interests of the revenue. The Tribunal emphasized that an incorrect assumption of facts or application of law, or passing an order without application of mind, could render the order erroneous. The Tribunal also highlighted the necessity of following the principles of natural justice and conducting a detailed inquiry.

5. Analysis of the PCIT's Findings:
The Tribunal observed that the AO had failed to bring to tax the amount of ?1,00,000/- advanced to Mr. Subbarao as unexplained expenditure under section 69C, despite conclusive findings from incriminating material. This omission constituted a clear and apparent error, making the order erroneous and prejudicial to the interest of the revenue. The Tribunal upheld the PCIT's invocation of section 263, finding the revisionary action justified.

6. Conclusion:
The Tribunal concluded that the PCIT's order under section 263 was sustainable in law. The AO's failure to include the cash advance payment as unexplained expenditure was a grievous error. The Tribunal dismissed the appellant's appeal, affirming the PCIT's direction to reframe the assessment.

Order Pronouncement:
The appeal of the appellant was dismissed with no order as to cost. The order was pronounced on 01st April 2022.