2014 (3) TMI 215 - AT - Income Tax

Validity of order u/s 263 of the Act Proper verifications not made - Held that - All the authorities have considered the issues wrongly - AO should have verified various credits and debits both cash and cheque in the course of scrutiny and could have examined whether any unaccounted income was earned by way of credits or investments etc., so as to consider invoking the provisions of section 68, 69, 69A which are applicable - AO examined only the outstanding amounts at the end of the year and made the addition on the reason that assessee could not furnish necessary confirmations - CIT(A) also erred in not accepting the additional evidence when sufficient opportunity was not given by A.O. and assessee was in a position to substantiate his transactions - the order set aside and the entire issue of examination of receipts and payments/ deposits in bank and other accounts are required to be examined afresh thus, the matter remitted back to the AO for fresh adjudication Decided in favour of Assessee.

Summary

Issues:
1. Addition of unsecured loans and advances as income.
2. Invocation of provisions of section 263 for under assessment of cash deposits.

Analysis:
1. Issue 1: Addition of unsecured loans and advances as income
The appeals for the assessment year 2007-2008 arose from separate proceedings initiated by the Assessing Officer (AO) and Commissioner of Income Tax (CIT). The AO added the total amount of unsecured loans and advances received by the assessee as income due to lack of details provided by the assessee. The CIT(A) upheld the addition, refusing to admit additional evidence. The assessee challenged this addition, arguing that the amounts were cheque payments received. The Tribunal found that the AO and CIT(A) erred in not examining all credits and debits, both cash and cheque, to determine unaccounted income under relevant sections. The Tribunal set aside the orders, directing a fresh examination by the AO, allowing the assessee to provide necessary evidence.

2. Issue 2: Invocation of provisions of section 263 for under assessment of cash deposits
The CIT-III invoked section 263 due to the AO's failure to examine cash deposits in banks and chit funds, directing a re-verification of sources after considering peak cash deposits. The assessee contended that the AO had already examined the issue, and there was no deficit cash as claimed by the CIT. The Tribunal noted discrepancies in the CIT's direction to factor in the addition made on cheque receipts while examining cash deposits. Despite the AO's own calculation of a higher net peak cash deposit, a lower net addition was made. The Tribunal held that the orders of all authorities were flawed, setting them aside for a fresh assessment by the AO, allowing the assessee to present evidence. The appeals were allowed for statistical purposes.

In conclusion, the Tribunal found errors in the assessment of unsecured loans, advances as income, and under assessment of cash deposits, directing a fresh examination by the AO with the opportunity for the assessee to provide necessary evidence.