2019 (7) TMI 79 - AT - Income Tax

Revision u/s 263 - scope of Explanation (2) inserted u/s 263 by the Finance Act, 2015 w.e.f. 01-06-2015 - proper enquiries / verifications - unexplained in investment in land - AO accepted investment after enquiry and even issuing summons u/s. 131 and obtaining confirmations and affidavits - HELD THAT - It is also a well settled law that where the enquiries have been made by the Assessing Officer even though they are inadequate, the provisions of section 263 cannot be invoked. Lack of enquiry and inadequate enquiries are on different pedestal. All the lenders are closely related to the assessee and have supported the assessee by filing confirmations and affidavits. The AO after conducting enquiries came to the conclusion that the source of investment in land has been duly explained by the assessee and hence, no addition was made. The order of AO may be prejudicial to the interest of revenue but the same is not erroneous as the AO has taken a possible view after conducting prudent enquiries and examining the documents on record. In so far as the contention of the Department that since the impugned order has been passed after the amendment, therefore, amended provisions of section 263 would apply, we do not find favour with this contention. The amendment to section 263 by the Finance Act, 2015 is effective from 01-06-2015 and does not operate retrospectively. Thus, the amended provisions of section 263 would have no bearing on the assessment year under appeal i.e. assessment year 2010-11. Merely for the reason that the order u/s. 263 has been passed after the amendment would not bring the assessment year 2010-11 within the ambit of amended provisions of section 263. The Mumbai Bench of Tribunal in the case of Reliance Money Infrastructure Ltd. Vs. Pr. CIT 2017 (10) TMI 630 - ITAT MUMBAI while dealing with the issue on retrospective applicability of section 263 in turn has relied on the Tribunal decision in the case of Narayan Tatu Rane V/s. ITO 2016 (5) TMI 1162 - ITAT MUMBAI and has held the provisions of section 263 amended by Finance Act, 2015 does not operate retrospectively. Similar view has been taken by the Delhi Bench of Tribunal in the case of M/s. Arun Kumar Garg HUF Vs. Pr. Commissioner of Income Tax 2019 (4) TMI 400 - ITAT DELHI Thus, in view of the facts of the case and decisions discussed above, we hold that the Pr. CIT exceeded his jurisdiction in invoking revisional powers. - Decided in favour of assessee.

Summary

Issues:
1. Revisional jurisdiction under section 263 - Erroneous order and prejudicial to revenue.
2. Proper enquiries by Assessing Officer for source of funds for land purchase.
3. Applicability of amendment to section 263 post Finance Act, 2015.

Analysis:

Issue 1: Revisional jurisdiction under section 263 - Erroneous order and prejudicial to revenue
The appeal challenged the order of the Principal Commissioner of Income Tax-1 passed under section 263 of the Income Tax Act, 1961. The Assessee contended that the Assessing Officer conducted proper inquiries, and the Principal Commissioner of Income Tax was attempting to substitute the Assessing Officer's opinion with his own. The Assessee argued that the order was not erroneous but a case of a change in opinion. The Department, however, claimed that the assessment order was erroneous and prejudicial to revenue due to inadequate inquiries by the Assessing Officer. The Department highlighted the amendment to section 263 by the Finance Act, 2015, and its applicability.

Issue 2: Proper enquiries by Assessing Officer for source of funds for land purchase
The Assessing Officer had issued a notice to the Assessee based on AIR information regarding the purchase of agricultural land. The Assessee explained the source of funds for the land purchase, stating that the money was borrowed from closely related individuals. The Assessing Officer conducted inquiries, issued summons to the lenders, and recorded their statements. After examining the source of funds, the Assessing Officer accepted the Assessee's contentions, and no addition was made to the income returned. The Assessee argued that the Assessing Officer had conducted adequate inquiries, and the order was not erroneous.

Issue 3: Applicability of amendment to section 263 post Finance Act, 2015
The Assessee contended that the amendment to section 263 would not apply to the assessment year under appeal, as it was prospective and effective from 01-06-2015. The Assessee cited relevant case laws to support this argument. The Tribunal agreed that the amended provisions of section 263 would not apply to the assessment year 2010-11 and held that the Principal Commissioner of Income Tax exceeded his jurisdiction in invoking revisional powers. The Tribunal set aside the impugned order and allowed the Assessee's appeal.

In conclusion, the Tribunal held that the Principal Commissioner of Income Tax had exceeded his jurisdiction in invoking revisional powers as the Assessing Officer had conducted reasonable inquiries. The impugned order was set aside, and the Assessee's appeal was allowed.