1988 (4) TMI 123 - AT - Income Tax

Summary

Issues Involved:
1. Validity of jurisdiction assumed under Section 263 of the IT Act.
2. Merits of the unexplained investment of Rs. 3,21,551.

Detailed Analysis:

1. Validity of Jurisdiction Assumed Under Section 263 of the IT Act:
The Commissioner issued a show cause notice under Section 263 of the IT Act, proposing to add Rs. 3,21,551 as unexplained income. The assessee contended that the Commissioner did not apply his mind and was influenced by the prima facie observations of his predecessor under Section 132(12). The Tribunal noted that the Commissioner issued the show cause notice based on the prima facie observations from the Section 132(12) proceedings and did not properly appreciate the materials placed before the ITO, especially Annexure 'H'. The Tribunal held that no prima facie case was made out by the Commissioner that the order of the ITO suffered from an error prejudicial to the interests of the Revenue. Therefore, the Commissioner had not validly assumed jurisdiction under Section 263.

2. Merits of the Unexplained Investment of Rs. 3,21,551:
The assessee submitted several statements, including Annexure 'D', which explained the daily cash balance and sources of funds. The Tribunal observed that the ITO had considered Annexure 'H', a summarised statement of the daily cash availability, while completing the assessment under Section 143(3). The Tribunal found that the detailed explanations in Annexure 'D' were consistent with the summarised information in Annexure 'H'. The Tribunal also noted that the cash balances in the books of M/s K. Nagavendra Rao & Others were sufficient to explain the investment, and the absence of entries for the withdrawal of the amount on 29th Aug., 1981, did not invalidate the explanation. The Tribunal concluded that the investment of Rs. 3,21,551 was properly explained and no case was made out against the assessee on merits.

Conclusion:
The Tribunal set aside the order of the Commissioner under Section 263, holding that the Commissioner had not validly assumed jurisdiction and that the investment of Rs. 3,21,551 was properly explained by the assessee. The appeal was allowed.