2022 (4) TMI 1378 - AT - Income Tax

Revision u/s 263 - assessee has made investments in two properties in the year under consideration and source of the same was explained from the withdrawal of the partnership firm however the AO has not cross verified from the accounts of the partnership firm assessee has received unsecured loan from several parties which were accepted by the AO in the assessment proceedings without examining the genuineness of the loan as well as creditworthiness of the parties and there was a gift from the father of the assessee and payment towards the stamp duty registration charges but the same were not examined by the AO during the assessment proceedings - HELD THAT - The principle which emerges is that the phrase prejudicial to the interests of the revenue has to be read in conjunction with an erroneous order passed by the AO. Every loss of revenue as a consequence of an order of the AO cannot be treated as prejudicial to the interests of the revenue for example when an AO adopts one of the course permissible in law and it has resulted in loss of revenue; or where two views are possible and the AO has taken one view with which the CIT does not agree it cannot be treated as an erroneous order prejudicial to the interests of the Revenue unless the view taken by the AO is unsustainable in law or the AO has completely omitted to make any enquiry altogether or the order demonstrates non-application of mind. Now in the facts before us the case of the assessee was selected through CASS selection for Scrutiny where the purpose of assessment was to scrutinize the substantial investment in the property in the captioned year. During the course of assessment proceedings the Ld. AO made detailed enquiries on this issue and after consideration of time-to-time written submissions filed by the assessee and documents/evidence placed on record the Ld. AO framed assessment under section 143(3) after making additions to the tune of 8, 085/- representing interest income. CIT initiated proceedings under section 263 of the Act on the ground that the AO has not made enquiries or verification which should have been made in respect of sources of investment in property unsecured loan gift from assessee s father and stamp duty charges. It is not the case of the Pr. CIT that the Ld. AO did not apply his mind to the issue on hand or he had omitted to make enquiries altogether. In the instant set of facts the Ld. AO had made detailed enquiries and after consideration of material placed on record accepted the genuineness of the investment unsecured loan and gift from father except the payment of the stamp duty which needs to be verified. We thus find no error in the order of Ld. AO so as to justify initiation of 263 proceedings by the Ld. Pr. CIT except the payment of the stamp duty which needs to be verified. The ground of appeal raised by the assessee is thus partly allowed.

Issues Involved:
1. Whether the assessment framed by the AO was erroneous and prejudicial to the interest of revenue under section 263 of the Income Tax Act, 1961.
2. Examination of the source of investments in properties.
3. Verification of unsecured loans received by the assessee.
4. Scrutiny of a gift received from the assessee's father.
5. Review of the payment towards stamp duty and registration charges.

Detailed Analysis:

1. Erroneous Assessment Under Section 263:
The Principal Commissioner of Income Tax (CIT) held that the assessment order passed by the Assessing Officer (AO) was erroneous and prejudicial to the interest of revenue under section 263 of the Act. The CIT's decision was based on the lack of necessary inquiries and verifications by the AO regarding specific items, including investments in properties, unsecured loans, a gift from the assessee's father, and stamp duty payments.

2. Source of Investments in Properties:
The CIT found that the AO did not cross-verify the source of investments in two properties made by the assessee. The investments were claimed to be sourced from withdrawals from a partnership firm, M/s. Jay Corporation, which directly paid the vendors. However, the AO failed to verify these transactions from the partnership firm's accounts.

3. Verification of Unsecured Loans:
The CIT noted that the AO accepted unsecured loans from several parties without examining the genuineness and creditworthiness of the lenders. The CIT deemed this lack of verification as a significant oversight.

4. Gift from Assessee's Father:
The CIT highlighted that the AO did not scrutinize the gift of ?2.5 lakhs received from the assessee's father. The bank account of the father showed cash deposits used for the gift, which required further investigation.

5. Stamp Duty and Registration Charges:
The CIT observed that the AO did not examine the payment towards stamp duty and registration charges during the assessment proceedings, which was necessary to ensure the correctness of the claimed expenses.

Tribunal's Observations and Rulings:

Inadequate vs. Lack of Inquiry:
The Tribunal emphasized the distinction between inadequate inquiry and lack of inquiry, citing various judicial precedents. It held that an order cannot be deemed erroneous merely because the inquiry was inadequate. The AO's prerogative to decide the extent of inquiry was upheld, and the CIT cannot impose his understanding of the extent of inquiry required.

Judicial Precedents:
The Tribunal referred to several judgments, including the Delhi High Court's ruling in CIT Vs. Sunbeam Auto, which clarified that an order cannot be set aside under section 263 merely due to inadequate inquiry if some inquiry had been made. The Bombay High Court in Gabriel India Ltd. and the Supreme Court in Principal Commissioner of Income-tax 2 v. Shree Gayatri Associates and Principal Commissioner of Income-tax-2, Meerut v. Canara Bank Securities Ltd. supported the principle that the AO's order should not be revised unless it is shown that the AO completely omitted necessary inquiries or the order demonstrated non-application of mind.

Assessment Proceedings:
The Tribunal reviewed the detailed submissions and documents provided by the assessee during the assessment proceedings. The AO had made inquiries regarding the investment in properties, unsecured loans, and the gift from the father. The AO had considered the materials and framed the assessment order after due application of mind, except for the payment of stamp duty, which was not adequately verified.

Conclusion:
The Tribunal concluded that the AO had made detailed inquiries and considered the evidences placed on record before framing the assessment order. It found no error in the AO's order that would justify the initiation of proceedings under section 263 by the CIT, except for the verification of stamp duty payments. Consequently, the Tribunal partly allowed the appeal filed by the assessee, directing the AO to verify the payment of stamp duty.

Final Judgment:
The appeal filed by the assessee was partly allowed, with the Tribunal directing the AO to verify the payment of stamp duty and registration charges. The order was pronounced in the Court on 13/04/2022 at Ahmedabad.

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