2023 (2) TMI 408 - AT - Income Tax

Revision u/s 263 by CIT - bifurcation of cash deposits of SBNs in two periods and accepting the explanation of the assessee for the period from 09/11/2016 to 16/11/2016 without inquiring into the merits of the claim - HELD THAT - It is trite law that in order to invoke section 263, the assessment order must be erroneous and also prejudicial to revenue and if one of them is absent, i.e., if the order of the Income-tax Officer is erroneous but is not prejudicial to Revenue or if it is not erroneous but is prejudicial to Revenue, recourse cannot be had to section 263 - Therefore, as one of the limbs is absent in respect of the addition made by the AO under section 69A of the Act, the impugned revision order passed under section 263 of the Act is set aside to this extent. As regards the amount deposited in cash in SBN from 09/11/2016 to 16/11/2016, which has been allowed by the AO without making enquiries or examinations/verification of the source of cash deposit, we are of the considered view that the assessment order to this extent is erroneous insofar as it is prejudicial to the interest of Revenue in view of the Explanation 2 to section 263 of the Act. Accordingly, the impugned order passed by the learned CIT to this extent is upheld. As a result, ground no.2 raised in assessee s appeal is partly allowed. Allowance of deduction under section 11(1)(d) - Even after rejecting the claim of exemption under section 11 of the Act, the AO allowed assessee s claim of corpus donation under section 11(1)(d) - HELD THAT - As is evident from the record, the AO on the basis that Form No. 10B was not filed before the due date under section 139(1) rejected the claim of exemption under section 11 - on the contrary, while computing the total income of the assessee, the AO allowed the exemption under section 11(1)(d), and therefore, on this issue, the learned CIT, inter-alia, invoked the provisions of section 263 of the Act. Thus CIT has rightly invoked the provisions of section 263 of the Act on this issue, as once the AO has held the assessee to be not eligible for exemption under section 11 of the Act, the allowance of exemption under section 11(1)(d) of the Act is contradictory to its own finding in the order, which is not only erroneous but is also prejudicial to the interest of the Revenue. It is the plea of the assessee that the amount allowed under section 11(1)(d) vide assessment order passed under section 143(3) was disallowed vide rectification order passed under section 154 of the Act and thus no prejudice is caused to the Revenue. In view of the above, we deem it appropriate to direct the AO to examine the aforesaid plea of the assessee while passing the consequential order and if the disallowance has already been made then there should be no double disallowance. The direction of the learned CIT vide impugned order on this issue is accordingly modified. Appeal of assessee partly allowed.

Summary

Issues Involved:
1. Whether the assessment order was erroneous and prejudicial to the interest of revenue.
2. Whether the CIT had the power to direct fresh verification of cash deposits in Specified Bank Notes (SBN) already under appeal.
3. Whether the CIT had the power to direct fresh verification of the allowance of deduction under section 11(1)(d) of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Erroneous and Prejudicial Assessment Order:
The assessee challenged the order passed under section 263 of the Income Tax Act, 1961 by the Commissioner of Income Tax (Exemptions), Mumbai (CIT), claiming it was erroneous and prejudicial to the interest of revenue. The Tribunal noted that the revision proceedings under section 263 were initiated on two grounds: bifurcation of cash deposits of SBNs and allowance of corpus donation under section 11(1)(d) despite rejecting the exemption under section 11. The Tribunal found that the assessment order was erroneous insofar as it was prejudicial to the interest of revenue regarding the cash deposits allowed without proper inquiry and the contradictory allowance of exemption under section 11(1)(d).

2. Fresh Verification of Cash Deposits in SBN:
The assessee argued that the CIT lacked the power to direct fresh verification of cash deposits in SBNs, as this issue was already under appeal before the Commissioner of Income Tax (Appeals). The Tribunal examined the grounds of appeal filed before the CIT(A) and found that the assessee's grievance was restricted to the addition of Rs.56,92,000 as unexplained money under section 69A. The Tribunal held that the assessment order to the extent of this addition could not be prejudicial to the interest of revenue. However, the Tribunal upheld the CIT's order for fresh verification of the cash deposits of Rs.53,48,950 made from 09/11/2016 to 16/11/2016, as the AO allowed these without proper inquiry, making the order erroneous and prejudicial to the interest of revenue.

3. Fresh Verification of Allowance of Deduction under Section 11(1)(d):
The CIT directed the reversal of the allowance of deduction under section 11(1)(d) amounting to Rs.3,20,11,780. The Tribunal noted that the AO had rejected the exemption under section 11 but allowed the deduction under section 11(1)(d), which was contradictory. The assessee cited various decisions to argue that late filing of Form No. 10B should not lead to disallowance under section 11(1)(d). However, the Tribunal held that the CIT rightly invoked section 263 as the AO's contradictory stance was erroneous and prejudicial to revenue. The Tribunal directed the AO to examine if the disallowance had already been made to avoid double disallowance.

Conclusion:
The Tribunal partly allowed the assessee's appeal, setting aside the CIT's order regarding the addition of Rs.56,92,000 under section 69A but upheld the CIT's directions for fresh verification of cash deposits from 09/11/2016 to 16/11/2016 and the reversal of deduction under section 11(1)(d). The Tribunal modified the CIT's direction to ensure no double disallowance occurs.