2022 (6) TMI 63 - AT - Income Tax

Revision u/s 263 - assessment u/s 147 - whether no enquiry was made by the AO in the reassessment proceedings in respect of the substantial difference between the fair market value and the stated purchase consideration (as per sale deed), to examine the source of investment in which the reassessment proceedings had been initiated? - HELD THAT - The first thing that strikes one on a mere browse of the facts of the case is as to why would one, much less a practising lawyer, who is well aware of the intricacies of law, as well as the practical problems one could face on not stating the truth in the registered documents, which have evidentiary value in law, agree to be a name lender of an immovable property (IP)? And to state that he did it for a sum of Rs.10,000 by entering into an agreement in that behalf two years hence? This is as farcical as it could get. No reasonable person could be expected to be agree thereto, and it is in this context that we asked Sh. Agrawal about the education profile of RS. Rather, if the entire consideration was indeed paid-up and, in any case, to be paid by RS, the transaction becomes even more intriguing and inexplicable. There is no explanation at any stage, including before us, for this, and which we regard as incongruent and, rather, anomalous. What purpose, one may ask, does the same, i.e., name lending, serve? Could a transaction, much less the one at hand, being in respect of acquisition of IP, be entered into without any reason or purpose? The assessment order abysmally fails on the ground of lack of enquiry which, inasmuch as it reflects non-application of mind, is one of the infirmities that renders an order as erroneous and prejudicial to the interest of the Revenue and, thus, liable for revision u/s. 263, even as explained in Malabar Industries Co. Ltd. v. CIT 2000 (2) TMI 10 - SUPREME COURT the other three being wrong assumption of facts; incorrect application of law; and omission to observe the principles of natural justice. The case law in the matter is legion, with a series of decisions by the Apex Court, both before and after Malabar Industries Co. Ltd. (supra). The same has been (by Finance Act, 2015, w.e.f. 01/6/2015) incorporated as one of the ingredients leading to the invocation of sec. 263, in the provision itself. One can understand where an explanation stands rendered, found acceptable by the AO, though not by the revisional authority, but as noted hereinbefore, the assessee's case is sans any explanation and the assessment order without any basis. Couple this with the admitted fact that the promised consideration of Rs. 6 lacs on 12/08/2009, i.e., the basis on which the sale deed was executed, failed, ought to have put the AO on further enquiry. The acceptance of the assessee's version under the circumstances makes the non-application of mind total. There is, to continue further, no enquiry about the creditworthiness; the returned income, etc.RS, the stated and sole owner of the property. Why, he having initiated the assessment proceedings to enquire into the source of investment as well as about the huge difference between the fair market value and the stated consideration, the AO did not even venture on this, extremely relevant, aspect of the matter. Why would a seller, having executed the sale deed on the basis of the entire receipt by 12/8/2009, forego the same, and assume the risk of default of payment? The story of the cheque becoming unable to be presented and, therefore, payment made in cash in instalments - implying he did not have money to pay her upfront, is again too fantastic to be believed, and for the AO to have believed it upfront, facile. All that was necessary for him to verify the assessee's claim was to seek the bank account of RS; the balance wherein on 12/8/2009, i.e., the date of the cheque, would convey if he indeed intended to pay the balance amount through cheque or even had the resources to do so. Why, it may also throw light on how the sum of Rs. 5 lacs, paid through his bank account, came to be deposited therein, as indeed the source of payment of stamp duty at Rs. 3.11 lacs. The investment of the sale proceeds by the seller, if forthcoming, could also help enable establish the truth of the matter. Before parting with this order, we may, if only for the sake of completeness of our order, advert to one of the arguments raised by Sh. Agrawal, stating that there may be no dearth of inquires that could be raised in the matter, so that, going by such a consideration, every order adverse to the Revenue could possibly be regarded as erroneous insofar as it is prejudicial to the interest of the Revenue, liable for revision u/s. 263. True, an explanation could provoke another, and so on. Application of mind contemplates proper enquiry, which, by definition, would be one as warranted in the facts and circumstances of the case, so as to arrive at a reasonable satisfaction with regard thereto. The whole purpose of inquiry, it may be appreciated, is to ascertain the truth of the matter. Any inconsistency or incoherence in the explanation or the evidence adduced should therefore prompt further inquiry, which thus becomes prima facie warranted. The language employed by the statute (i.e., w.e.f. 01/6/2015) in this regard, i.e., 'an order passed without making further inquiries or verification which should have been made.' is apposite. It is the inquiry/verification by the AO that is relevant for the purpose, and not the explanation/s, if any, furnished before the appellate authority, much less that de hors the record. We do not consider it necessary to dilate further in the matter; the case law in the matter, rendered in different fact settings, being legion. The argument advanced is completely inapplicable in the facts of the instant case, which we have found to be of one of lack of inquiry on the most fundamental aspects of the transaction under examination and, thus, observed an absence of any basis to the AO's findings, and inasmuch as they confirm absence of any interest of the assessee in the property, consider the lack of further inquiry as de hors common-sense and logic. Each of the issues raised by the revisionary authority is pertinent, and unaddressed - Assessee appeal dismissed.

Summary

Issues:
Appeal against Order under section 263 of the Income Tax Act, 1961 for the Assessment Year 2010-11.

Analysis:
1. The assessee, along with another individual, purchased a property for a stated consideration significantly lower than its fair market value. The Assessing Officer (AO) did not investigate the source of investment adequately during reassessment proceedings, leading to the Principal CIT finding the inquiry deficient and remitting the matter back for verification.
2. The Principal CIT identified crucial issues not examined by the AO, such as the source of cash payment to the seller, possession of the property, disownment of ownership by the assessee, and verification of facts narrated by the assessee. The lack of inquiry by the AO was deemed erroneous and prejudicial to the Revenue's interest under section 263.
3. The Tribunal questioned the plausibility of an advocate agreeing to be a name lender for an immovable property for a nominal fee, highlighting the lack of logic and inquiry in the assessment order. The Tribunal emphasized the importance of proper inquiry, application of mind, and adherence to natural justice principles in tax assessments.
4. The Tribunal analyzed various aspects of the case, including the validity of the Power of Attorney, the seller's confirmation of payment, and the credibility of the cash payment narrative. The Tribunal concluded that the assessment order lacked a reasonable basis, failed to address critical issues, and warranted further investigation into the transaction.
5. The Tribunal dismissed the assessee's appeal, citing the absence of logical explanations, inadequate inquiry by the AO, and the need for a comprehensive verification of facts. The decision upheld the revisionary authority's concerns and emphasized the importance of thorough examination in tax assessments.