2024 (8) TMI 1509 - AT - Income Tax

Revision u/s 263 - gift received by the assessee from his grandmother - distinction between lack of inquiry and inadequate inquiry - amount received was required to be brought to tax u/s 68 as unexplained cash credit and was required to be taxed under section 115BBE but AO failed to make the above addition though assessee failed to prove creditworthiness and genuineness of the transactions - HELD THAT - Grievance of the PCIT is that the AO should have made further inquiry in respect of the impugned gift in the light of provisions of section 68 rather than accepting the assessee s explanation. Therefore, it could not be said that it was the case of lack of inquiry . There is a distinction between lack of inquiry and inadequate inquiry . If there was any inquiry, even inadequate, that could not, by itself, give occasion to the Ld. PCIT to pass order u/s 263 of the Act merely because he has different opinion in the matter In this case the assessee has received gift from his grandmother for which he has supplied affidavit, gift deed, bank statement of both donor and donee, ledger statement of Muthooth Finance etc. The assessee had also given a reply dated 12.04.2021 to the specific show cause notice issued by the AO The said amount is reflected in assessee s account with Indusind Bank . Bond ledger statement from Muthooth Finance Ltd. with their cheque dated 20.03.2017 also given. The account payee cheque has been signed by the authorized signatory for Muthooth Finance Ltd. These facts clearly established that the grandmother of the assessee has given Rs. 30,00,000/- through banking channel which has been duly reflected in the bank statement of the assessee. Therefore, the explanation of the assessee was found acceptable by AO and he made no addition. He has taken a possible view which cannot be considered as perverse. Even the Ld. PCIT has not given any reason as to why the explanation of assessee is not acceptable. The facts of the present case are similar to the case of Nirav Modi 2016 (6) TMI 1004 - BOMBAY HIGH COURT and we find no reasons to deviate from the finding of Hon ble Bombay High Court. Order of the Ld. PCIT is not sustainable - Decided in favour of assessee.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment are:

• Whether the Principal Commissioner of Income Tax (PCIT) was justified in invoking revisional powers under Section 263 of the Income-tax Act to revise the assessment order passed by the Assessing Officer (AO).
• Whether the assessment order passed by the AO was erroneous and prejudicial to the interests of the revenue, justifying revision under Section 263.
• Whether the AO conducted adequate inquiries regarding the gift of Rs. 30,00,000 received by the assessee from his grandmother, and whether the AO's acceptance of the assessee's explanation was a possible view.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Justification of PCIT's Invocation of Section 263

• Relevant Legal Framework and Precedents: Section 263 of the Income-tax Act allows the PCIT to revise an order if it is erroneous and prejudicial to the interests of the revenue. The Supreme Court in Malabar Industries Ltd. vs. CIT established that both conditions must be satisfied for revision.
• Court's Interpretation and Reasoning: The Tribunal analyzed whether the AO's order was erroneous and prejudicial. The PCIT believed the AO failed to adequately verify the gift transaction.
• Key Evidence and Findings: The AO had inquired about the gift through various notices and received supporting documents from the assessee, including a gift deed and bank statements.
• Application of Law to Facts: The Tribunal found that the AO had conducted inquiries and formed a view based on the evidence provided, which constituted a possible view.
• Treatment of Competing Arguments: The assessee argued that the AO had conducted sufficient inquiries, while the PCIT argued for further verification.
• Conclusions: The Tribunal concluded that the AO's order was not erroneous or prejudicial, as the AO had taken a possible view after due inquiry.

Issue 2: Adequacy of AO's Inquiries

• Relevant Legal Framework and Precedents: The distinction between "lack of inquiry" and "inadequate inquiry" was highlighted, with precedent from CIT vs. Sunbean Auto Ltd. and Nirav Modi.
• Court's Interpretation and Reasoning: The Tribunal emphasized that an AO's order cannot be revised merely because a different view is possible, provided the AO conducted some inquiry.
• Key Evidence and Findings: The AO had issued multiple notices and received detailed responses from the assessee, including an affidavit from the donor and bank statements.
• Application of Law to Facts: The Tribunal found that the AO had applied his mind and made a considered decision based on the evidence, thus not warranting revision under Section 263.
• Treatment of Competing Arguments: The PCIT's argument for further inquiry was countered by the Tribunal's view that the AO's inquiry was adequate.
• Conclusions: The Tribunal held that the AO's inquiries were sufficient and that the PCIT's invocation of Section 263 was unwarranted.

3. SIGNIFICANT HOLDINGS

• Preserve Verbatim Quotes of Crucial Legal Reasoning: "The jurisdiction under Section 263 can be exercised only when both the following conditions are satisfied i.e., (i) the order of the Assessing Officer should be erroneous and (ii) it should be prejudicial to the interests of revenue."
• Core Principles Established: An AO's order should not be interfered with under Section 263 if the AO has taken a possible view after conducting inquiries, even if another view is possible.
• Final Determinations on Each Issue: The Tribunal set aside the PCIT's order under Section 263, concluding that the AO's order was neither erroneous nor prejudicial to the interests of the revenue.

The appeal of the assessee was allowed, and the Tribunal's decision emphasized the importance of the AO's discretion in forming views based on evidence and the limitations on the PCIT's revisional powers under Section 263.