2023 (9) TMI 103 - AT - Income Tax

Revision u/s 263 - undisclosed bank account - CIT setting aside the assessment with the direction to frame the assessment after making inquires in regard to cash deposits and other credit entries made in the bank account of the assessee - HELD THAT - We note that that bank account was not disclosed by the assessee in his return of income, however, the said bank account number was disclosed by the assessee during the scrutiny assessment proceedings before the assessing officer. The assessee has explained each entry of said bank account number before the assessing officer. Therefore, during the assessment stage, the assessing officer has examined the said bank account. Besides, the majority of credit entries of substantial amounts appearing in this account which were received from Shri Hanuman S. Purohit, M/s. Pushpak Electronics, M/s. Rajgharana Developers and Shree Arihant developers, were explained to the assessing officer, during the assessment stage. Hence in these circumstances, it can be said that assessing officer conducted adequate enquiry. The view taken by the A.O. was one of the possible views and the assessment order passed by him could not be held to be erroneous and prejudicial to the interests of revenue. C.I.T. on the same set of facts and evidences on record was of the opinion that the A.O. should have rejected the regrouping of debit and credit entries as explained above and he should have taken the stand which the Ld. Pr. C.I.T. hinted in the impugned order u/s 263 of the Act. This is not permissible under law. Decided in favour of assessee.

Summary

Issues Involved:
1. Whether the assessment order passed under section 143(3) was erroneous and prejudicial to the interest of the revenue.
2. Whether the Principal Commissioner of Income-Tax (PCIT) was justified in invoking jurisdiction under section 263 of the Income-Tax Act, 1961.
3. Validity of the notice issued under section 143(2) of the Income-Tax Act.

Summary:

Issue 1: Erroneous and Prejudicial Assessment Order
The assessee challenged the order passed by the Principal Commissioner of Income-Tax (PCIT) under section 263, arguing that the original assessment order under section 143(3) was neither erroneous nor prejudicial to the interest of the revenue. The PCIT had set aside the assessment due to the failure of the Assessing Officer (AO) to properly investigate cash deposits and credit entries in the assessee's bank account, which were not disclosed in the return of income. The Tribunal noted that the AO had issued a notice under section 142(1) and the assessee had provided explanations and documents during the assessment proceedings, which the AO had considered before passing the order.

Issue 2: Justification of Jurisdiction under Section 263
The Tribunal examined whether the PCIT was justified in invoking section 263. The PCIT argued that the AO had not conducted a thorough inquiry into the undisclosed bank account and the substantial credit entries. However, the Tribunal found that the AO had indeed examined the bank account and the transactions during the assessment proceedings. The Tribunal held that it is the prerogative of the AO to decide the extent of inquiry required, and if the AO is satisfied with the explanations provided, further inquiry is not mandatory. The Tribunal cited the Supreme Court's ruling in Malabar Industrial Co. Ltd. vs. CIT, stating that if the AO adopts one of the possible views, the order cannot be deemed erroneous or prejudicial to the revenue.

Issue 3: Validity of Notice under Section 143(2)
The assessee contended that the notice under section 143(2) was issued beyond the statutory time limit, rendering the assessment invalid. The Department argued that the notice was issued within the time limit and that the assessee had participated in the proceedings, invoking section 292BB, which precludes the assessee from challenging the notice's validity. The Tribunal did not find merit in the assessee's argument regarding the invalidity of the notice and focused on the substantive issue of whether the AO had conducted an adequate inquiry.

Conclusion:
The Tribunal concluded that the AO had conducted an adequate inquiry and that the PCIT's invocation of section 263 was not justified. The Tribunal quashed the order passed by the PCIT under section 263, thereby allowing the appeal of the assessee.

Order Pronounced:
The appeal of the assessee was allowed, and the order was pronounced on 28/08/2023 in the open court.