2022 (2) TMI 1181 - AT - Income Tax

Revision u/s 263 by CIT - As a result of search the documents pertaining to the assessee were found and therefore proceedings u/s 153C of the Act were initiated - CIT on perusal of the case records found that the assessee was engaged in providing accommodation entries - HELD THAT - Admittedly, the search was conducted at the third party dated 10/03/2015 i.e. prior to amendment brought u/s 153C of the Act i.e. 01/06/2015. Under the old provision, proceedings u/s 153C of the Act, can only be initiated if any incriminating document found belonging to the assessee during the search carried out under section 132 of the Act at the premises of the 3rd party. However, in this connection we find that the AO in his satisfaction recorded has given categorical finding that the documents found pertain to the assessee. There remains no ambiguity to the fact that there was no document found from the search premises belonging to the assessee. Therefore the assessment in itself is bad in law. Thus we hold that the assessment framed under section 153C read with section 143(3) of the Act is not sustainable. Once the assessment in itself is invalid then the same cannot be revised under the provisions of section 263. Whether the assessment framed under section 143(3) read with section 153C of the Act can be challenged in the proceedings under section 263? - The proceeding under section 263 is collateral proceeding to original. Thus the validity of the original assessment can be challenged along the proceeding of section 263 Whether the assessment framed by the AO under section 153C read with section 143(3) of the Act is barred by limitation as provided under the provisions of section 153B? - The time-limit for completing the assessment in the case of other person shall be either two years from the end of the financial year in which the last of the authorisations for search under section 132 of the Act was executed or one year from the end of the financial year in which books of accounts or documents seized handed over under section 153C of the Act to the AO having jurisdiction over such other person whichever is later. The position of the law is unambiguous and there is no mention that in the case of common AO of the search as well as the other person the time limit as provided under section 153B(1) (a) or (b) will be applicable. When a search is conducted the documents are looked into by the AO during the proceedings, if he/she finds that any documents belongs to/pertains to the other persons then he/she can initiate proceedings against such other persons after recording the satisfaction to that effect. Now at what stage the AO will come to know during the proceedings that any of the documents found at the premises of searched person belongs/pertain to the other persons? This fact is not known and therefore the lawmakers have given extended time limit for framing the assessment of the other persons. Thus there will not be any change in the provisions of law despite the fact that there was the common AO of the searched as well as other party. Thus we disagree with the contention of the learned AR and accordingly reject the same by holding that the assessment order was not barred by time. Whether AO has made the assessment after making necessary enquiries? - The issue of the peak credit of the amount lying in the bank account has been duly verified by the AO during the assessment proceedings. Furthermore, it is also a fact on record that the income computed based on peak credit balance in the bank account in aggregate for the 6 years was less than the income offered by the assessee in the income tax return filed in response to the notice under section 153C of the Act for all the 6 years under consideration. Accordingly, the AO has chosen to tax the income of the assessee declared in the return of income. Thus the view taken by the AO was one of the possible view and therefore the same cannot be disturbed in the proceedings under section 263 . We hold that there was no error in the order passed by the AO causing prejudice to the interest of Revenue. Therefore, the same cannot be revised by initiating the proceedings under section 263. Appeal of assessee allowed.

Issues Involved:
1. Jurisdiction under Section 263 of the Income Tax Act.
2. Validity of assessment under Section 153C.
3. Application of peak credit theory.
4. Double taxation concerns.
5. Limitation period for assessment under Section 153C.
6. Examination of interest income and its source.

Issue-wise Detailed Analysis:

1. Jurisdiction under Section 263 of the Income Tax Act:
The primary issue raised by the assessee was that the Principal Commissioner of Income Tax (PCIT) erred in invoking jurisdiction under Section 263 of the Income Tax Act and directing the Assessing Officer (AO) to pass a fresh assessment order. The PCIT believed that the AO's assessment order was erroneous and prejudicial to the interest of revenue. However, the tribunal found that the AO had taken one of the possible views, which cannot be disturbed under Section 263. The tribunal emphasized that the AO had conducted necessary inquiries and accepted the income declared by the assessee, which was more than the proposed peak addition.

2. Validity of assessment under Section 153C:
The tribunal noted that the search was conducted prior to the amendment effective from 01/06/2015, and under the old provisions, proceedings under Section 153C could only be initiated if incriminating documents belonging to the assessee were found during the search. The tribunal found that the AO recorded that the documents "pertain to" the assessee, not "belong to" the assessee, making the assessment under Section 153C invalid.

3. Application of peak credit theory:
The PCIT directed the AO to adopt the peak credit theory for determining unaccounted income, arguing that the AO should have added the peak amount of the bank balance for accommodation entries and commission in each year. However, the tribunal found that the AO had duly verified the issue of peak credit balance and accepted the income declared by the assessee, which was more than the proposed peak addition. The tribunal held that the AO's view was one of the possible views and could not be revised under Section 263.

4. Double taxation concerns:
The assessee argued that the proposed peak addition was already included in the total income of another individual, and adding it again would result in double taxation. The tribunal agreed, noting that the AO had consciously decided not to make the peak addition to avoid double taxation, which was a valid and reasonable decision.

5. Limitation period for assessment under Section 153C:
The assessee contended that the assessment under Section 153C was barred by limitation. The tribunal clarified that the time limit for completing the assessment in the case of other persons is either two years from the end of the financial year in which the last of the authorizations for search was executed or one year from the end of the financial year in which the documents were handed over to the AO, whichever is later. The tribunal rejected the assessee's contention, stating that the assessment was not barred by time.

6. Examination of interest income and its source:
The PCIT argued that the AO did not verify the nature of interest income shown by the assessee. However, the tribunal found that the AO had conducted necessary inquiries and accepted the interest income declared by the assessee. The tribunal held that the AO's decision was one of the possible views and could not be revised under Section 263.

Conclusion:
The tribunal allowed the appeals filed by the assessee, quashing the orders passed by the PCIT under Section 263. The tribunal held that the assessments framed under Section 153C read with Section 143(3) were invalid and could not be revised under Section 263. The tribunal emphasized that the AO had taken one of the possible views, conducted necessary inquiries, and accepted the income declared by the assessee, which was more than the proposed peak addition.

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