2022 (8) TMI 804 - HC - Income Tax

Revision u/s 263 - violation of the provisions of Section 13(1) (c) - monies for purchase of the land was sourced from the said society, however, the aspect of violation of Section 14(1) (c) was not raised by the AO, while completing the assessment of the aforesaid society - HELD THAT - We are of the view that no substantial question of law arises for our consideration in the present appeal. The order passed by the PCIT under Section 263 as well as the order passed by the Tribunal are completely justified in the facts of the case. In fact, we are shocked to see the manner in which the AO dealt with the case after issuance of notices under Section 143(2) 142(1) of the Income Tax Act along with questionnaire to the assessee. The least that the AO was called upon to do was to require the assessee to make good his claim that the amount was sourced from Kulwant Kaur Kukreja Educational Society. The violation of Section 13(1) (c) of the Income Tax Act also required examination after examination of the first aspect as aforesaid. We also fail to appreciate / understand as to what is the reason for the assessee to avoid the inquiry and scrutiny with regard to the source of funds through which the land was purchased by the assessee. We, therefore, dismiss this appeal and we also direct the Principal Commissioner of Income Tax, Dehradun to administratively examine whether any action is called for against the AO in the light of the manner in which he has conducted himself while dealing with the proceedings after issuance of the notices under Section 143(2) and Section 142(1) of the Income Tax Act.

Summary

Issues:
1. Appeal against the order of the Income Tax Appellate Tribunal.
2. Assessment of income tax return for the assessment year 2016-17.
3. Examination of source of investment made by the assessee.
4. Violation of Section 13(1)(c) of the Income Tax Act.
5. Revision of assessment order under Section 263 of the Income Tax Act.
6. Justification of the PCIT's decision in revising the assessment.
7. Adequacy of inquiry by the Assessing Officer.
8. Source of funds for the purchase of properties.
9. Administrative action against the Assessing Officer.

Analysis:
1. The appeal was filed against the order of the Income Tax Appellate Tribunal, which rejected the appeal under Section 263 of the Income Tax Act related to the assessment year 2016-17. The Tribunal upheld the decision of the Principal Commissioner of Income Tax (PCIT) to revise the assessment order due to perceived errors prejudicial to revenue.

2. The assessee, an individual running a hostel, filed an income tax return for the assessment year 2016-17, showing a total income of Rs.10,02,000. The case was selected for scrutiny to examine the disclosure of invested income related to properties. The Assessing Officer (AO) accepted the returned income without thoroughly examining the source of a significant investment made by the assessee.

3. The PCIT found the AO's order erroneous as the source of investment of Rs.8,64,15,000 in properties was not adequately verified. The assessee claimed the funds were from a society but failed to provide substantial evidence. The PCIT issued a show-cause notice and eventually cancelled the assessment order, directing a fresh assessment after proper verification.

4. The violation of Section 13(1)(c) of the Income Tax Act, which prohibits diverting income for the benefit of specific persons, was a key concern. The PCIT emphasized the lack of documentary evidence supporting the claim that the property belonged to the society, as well as the failure to examine the issue by the AO.

5. The Tribunal dismissed the appeal against the PCIT's decision, highlighting the failure to provide bank statements or documents confirming the source of funds for property purchases. The inadequacy of the AO's inquiry and the erroneous assessment were key factors in upholding the revision under Section 263 of the Income Tax Act.

6. The High Court upheld the Tribunal's decision, emphasizing the justified nature of the PCIT's revision and the necessity for a thorough examination of the source of funds. The Court expressed concerns over the AO's handling of the case and directed administrative scrutiny of the AO's conduct post-issuance of notices under the Income Tax Act.

7. The Court found no substantial legal question in the appeal, supporting the PCIT's revision and the Tribunal's decision. The failure to adequately address the source of funds and the violation of tax provisions warranted the revision of the assessment order, underscoring the importance of thorough verification in such cases.