2016 (9) TMI 1206 - AT - Income Tax

Unexplained investments - revision u/s 263 - Held that - It is not disputed by the assessee that agreement for sale dated 09.01.2007 did mention an advance of ₹ 40 lakhs as paid by the assessee on that date. It is also not disputed that assessee had in a statement recorded from him on 27.04.2012 admitted such sum to be a part of his unexplained business income. The AO after going through the submissions of assessee had held that assessee had disclosed only ₹ 17.5 lakhs in his return of income for the impugned assessment year against the unexplained investments of ₹ 40 lakhs. The AO had considered in detail claim of assessee that a sum of ₹ 22.5 lakhs was received from Mr.P.Murugesan as a part of joint venture. However, he refused to accept this claim. Nevertheless, while completing the assessment he did not make any addition mentioning that the unexplained investment of ₹ 22.5 lakhs would be considered for addition in assessment year 2008-09. No doubt, it is true that the said amount was considered in the assessment done for assessment year 2008-09. The Tribunal had an assessee s appeal cancelled the said addition for a reason that the income did not belong to assessment year 2008-09, and the addition was based on confession given by the assessee. However, a reading of the assessment done for the impugned assessment year show that the AO after reaching a clear finding that the sum of 22.5 lakhs represented unexplained investments had for no plausible reason shifted the assessment of the said amount to the next year. Such shifting of income without spelling out the reasons rendered it erroneous insofar as it was prejudicial to the interests of the Revenue. Just because on the date when PCIT passed his order u/s.263 of the Act, the addition made by the AO in the very next assessment year, stood confirmed by the CIT(A), we cannot say that the amount which really pertained to assessment year 2007-08 could not be considered in the said assessment year. However, at the same time what we find is that the PCIT had tied hands of AO by directing him to treat the sum of ₹ 22.5 lakhs as an unexplained investment for impugned assessment year without giving an open hand. Thus, while confirming the order of PCIT, we modify it to the extent that the AO shall proceed untrammeled by the direction of PCIT and shall complete the assessment in accordance with law. - Decided partly in favour of assessee

Summary

Issues:
1. Whether the addition of ?22.5 lakhs made by the AO for assessment year 2007-08 was justified?
2. Whether the PCIT's decision to revise the assessment under section 263 of the Income Tax Act was valid?

Analysis:

Issue 1:
The appeal involved the question of the validity of the addition of ?22.5 lakhs made by the Assessing Officer (AO) for assessment year 2007-08. The AO had considered this amount as unexplained investment of the assessee. However, the Tribunal in a previous appeal for assessment year 2008-09 had held that such addition could not be sustained as it was based on a confession given by the assessee. The Tribunal emphasized that only undisclosed investments in the relevant assessment year could be taxed. The AO had shifted the assessment of the amount to the next year without providing sufficient reasons, rendering the assessment erroneous and prejudicial to the Revenue's interests. The Tribunal modified the PCIT's direction, allowing the AO to proceed independently and complete the assessment in accordance with the law.

Issue 2:
The PCIT issued a notice to the assessee to explain why the assessment for the impugned assessment year should not be revised under section 263 of the Income Tax Act. The PCIT believed that the AO's failure to include the ?22.5 lakhs in the assessment order for the impugned year was a serious error. The assessee argued that the AO had consciously decided to tax the amount in the succeeding assessment year, and taxing it again for the impugned year would lead to double taxation. However, the PCIT disagreed, stating that the Revenue could make the addition in the correct assessment year, even if the amount had been considered in a subsequent year. The PCIT set aside the assessment order and directed the AO to tax the ?22.5 lakhs as unexplained investment for the impugned assessment year.

This detailed analysis of the judgment highlights the key issues, arguments presented by both parties, and the Tribunal's decision on each issue, providing a comprehensive understanding of the legal aspects involved in the case.