2022 (10) TMI 819 - AT - Income Tax

Revision u/s 263 by CIT - lack of inquiry on the part of the AO - As per CIT, AO had completed the assessment without carrying out necessary and proper inquiries which he ought to have carried out and, therefore, the orders passed u/s 143(3) of the Act r.w.s. 147 were erroneous and prejudicial to the interest of the Revenue - Assessee received large amount of cash from the relatives on different dates but no cross-verification had been made by the AO in the case of the relatives to verify such cash receipts - HELD THAT - Assessees had submitted the documents with a view to justify their claims of having sufficient cash for the purpose of making the advance. That the assessees had share in Joint Family Land as well as had agricultural lands in their own names is also not under dispute. The assessees have also filed cash flow statements to justify the availability of cash and we have gone through them and we find no reason to take a view different from the view taken by the AO in this regard. AO had an opportunity to consider these very voluminous documents that which were before him to consider and it was only after having examined these documents, he reached a conclusion that the returned income of both the assessee s was to be accepted. Of course, the AO might not have given an elaborate description of the inquires he had conducted during the course of assessment proceedings, all the same, we do not agree with the view taken by the Ld. PCIT that the AO had not carried out any inquiries. The documents on record very well prove that the AO had duly required the assessees to file the relevant details and the assessees also had filed the same and it was only after due consideration and examination of these documents before him that the AO had reached the conclusion that the assessments had to be completed without making any addition. Thus, in our considered view, the AO had exercised due dil igence and had duly applied his mind to the facts of the cases before him and, therefore, the observation of the Ld. PCIT that since there was lack of inquiry on the part of the AO, the same had rendered the assessment proceedings as being erroneous and prejudicial to the interest of Revenue does not hold good. AO took one of the possible views that the assesses had sufficient funds to make the impugned advance and the action of the AO cannot be faulted with by the Ld. PCIT only because he might have had a different view. PCIT has not carried out any enquiry himself, therefore PCIT had wrongly invoked the revisionary powers u/s 263 of the Act in the case of both the assessees and further the cancellation of the assessment orders in both the cases was also bad in law - Appeal of assessee allowed.

Issues Involved:
1. Validity of the reopening of assessment under section 147/148 of the Income Tax Act.
2. Validity of the revisionary jurisdiction exercised under section 263 of the Income Tax Act.
3. Adequacy of the inquiries conducted by the Assessing Officer (AO).
4. Alleged procedural lapses, including the non-issuance of notice under section 143(2).
5. Delay in filing appeals due to the Covid-19 pandemic.

Detailed Analysis:

1. Validity of the Reopening of Assessment under Section 147/148:
The assessees challenged the reopening of their assessments under section 147/148 of the Act, arguing that the initiation was bad in law. They contended that the statutory notices under section 143(2) were not served, rendering the reopening invalid. The Tribunal noted that the objections to the reopening were not decided by the AO, which contrasted with the provisions of the Income Tax Act and the law laid down by the Hon'ble Apex Court in GKN Driveshafts (India) Limited Vs. ITO.

2. Validity of the Revisionary Jurisdiction Exercised under Section 263:
The assessees argued that the jurisdiction exercised under section 263 was illegal as the twin conditions of section 263 were not satisfied'i.e., neither the order was erroneous nor prejudicial to the interest of the Revenue. The Tribunal referred to the judgment in Malabar Industries vs. CIT, emphasizing that both conditions must be met for section 263 to be invoked. The Tribunal found that the AO had conducted due inquiries and applied his mind before accepting the returned income, thus the orders were not erroneous or prejudicial to the Revenue.

3. Adequacy of the Inquiries Conducted by the AO:
The Principal Commissioner of Income Tax (PCIT) alleged that the AO had not made proper inquiries regarding the source of cash advances. However, the Tribunal noted that the assessees had submitted voluminous documents, including cash flow statements, bank statements, and agricultural income records, which the AO had examined before accepting the returned income. The Tribunal concluded that the AO had exercised due diligence and the PCIT's claim of inadequate inquiry was unfounded.

4. Alleged Procedural Lapses:
The assessees contended that no notice under section 143(2) was issued before framing the assessment under section 143(3) read with section 147, which deprived the AO of the jurisdiction to make the assessment. The Tribunal did not find it necessary to adjudicate on this issue separately as it had already set aside the PCIT's orders under section 263.

5. Delay in Filing Appeals Due to the Covid-19 Pandemic:
The assessees explained that the delay in filing appeals was due to the Covid-19 pandemic and the resultant lockdown. The Tribunal condoned the delay, citing the binding nature of the Hon'ble Apex Court's order in Miscellaneous Application Number 665/2021, which directed the relaxation in limitation periods due to the pandemic.

Conclusion:
The Tribunal allowed the appeals of the assessees, setting aside the orders of the PCIT and restoring the assessment orders. The Tribunal found that the AO had conducted adequate inquiries and the PCIT's invocation of section 263 was not justified. The Tribunal did not find it necessary to address the alternate argument regarding the invalidity of the reassessments, as the primary issue had already been resolved. The stay application was dismissed as infructuous.

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