2022 (11) TMI 66 - AT - Income Tax

Revision u/s 263 by CIT - AR submitted that the assessee has furnished the details required by the Ld. AO with respect to cash deposits in response to the notice u/s.142(1) - HELD THAT - Confirmation letters from the assessee s Mother-in law and from her mother s sister who has gifted aggregating Rs.15.25 lakhs to the assessee out of their income earned from the agricultural activities and savings. As seen from the paper book the assessee s husband Mr. Akula Satyanarayana has also gifted Rs. 16 lakhs which is also substantiated from the sources available from his personal return of income and savings. AO after considering all these evidences has passed the assessment order accepting the income returned by the assessee. We find that there was a specific question raised in Notice u/s 142(1) and detailed reply submitted by the assessee during the assessment proceedings. CIT has subjected the assessment order to revision proceedings on the ground that the AO has passed the assessment order without making any further enquiry and concluded that in the absence of any specific enquiry made by the AO / recording reasons for accepting the assessee s submissions without any appropriate evidence shall be considered as erroneous or prejudicial to the interests of the Revenue - It is a settled principle that when the assessee has produced appropriate evidence before the AO and where the AO has not recorded the reasons for accepting the explanation of the assessee cannot render the order of the Ld. AO prejudicial to the interests of the Revenue. AO accepting the explanation of the assessee cannot be faulted merely because it could have been lawful to make more detailed inquiries or because he did not write specific reasons of accepting the explanation cannot be a reason to invoke the powers u/s. 263 - we hereby vacate the impugned revision order and restore the order of the Ld. AO. Appeal of the assessee is allowed.

Issues:
1. Jurisdiction of Principal Commissioner under Section 263 of the Income Tax Act, 1961.
2. Verification of creditworthiness of donors and agricultural proceeds.
3. Examination of share application money refund and creditworthiness of the company.
4. Adequacy of inquiry conducted by the Assessing Officer.
5. Compliance with legal principles in invoking Section 263.

Analysis:

Issue 1: Jurisdiction of Principal Commissioner under Section 263
The appeal challenged the Principal Commissioner's exercise of jurisdiction under Section 263, claiming the assessment order was not erroneous or prejudicial to revenue. The Principal Commissioner directed further inquiry based on alleged failures in verifying creditworthiness and transaction details. The Tribunal examined the submissions made by the assessee in response to the notices and found that the Assessing Officer had conducted an adequate inquiry, accepting the explanations and evidence provided by the assessee. The Tribunal held that lack of detailed inquiry by the Assessing Officer did not render the order erroneous, especially when the assessee had substantiated the transactions with evidence.

Issue 2: Verification of creditworthiness of donors and agricultural proceeds
The Principal Commissioner raised concerns regarding the creditworthiness of donors and agricultural proceeds. The assessee provided detailed evidence, including bank statements, confirmation letters, and sources of funds, to support the cash deposits made. The Tribunal noted that the Assessing Officer had considered these submissions and accepted the income returned by the assessee. It emphasized that when an assessee provides appropriate evidence and the Assessing Officer accepts it in good faith, the order cannot be deemed prejudicial to revenue solely due to lack of further inquiry.

Issue 3: Examination of share application money refund and creditworthiness of the company
The Principal Commissioner questioned the share application money refund and creditworthiness of the company. The Tribunal reviewed the transactions related to share application money and observed that the amount paid by the assessee was returned after the share application was canceled, making the creditworthiness issue irrelevant. Citing legal precedents, the Tribunal emphasized that the Assessing Officer's decision to accept explanations in good faith, without detailed inquiry, was a permissible course of action. It held that the Principal Commissioner's conclusion on creditworthiness was unfounded.

Issue 4: Adequacy of inquiry conducted by the Assessing Officer
The Tribunal scrutinized the adequacy of the inquiry conducted by the Assessing Officer. It noted that the assessee had responded to detailed questionnaires and provided supporting documents during the assessment proceedings. The Tribunal found that the Assessing Officer had appropriately considered the submissions and evidence presented by the assessee. It emphasized that the absence of specific reasons for accepting the assessee's explanations did not render the assessment order erroneous or prejudicial to revenue.

Issue 5: Compliance with legal principles in invoking Section 263
In considering the application of Section 263, the Tribunal reiterated legal principles governing the invocation of such powers. It emphasized the need for a valid reason to deem an order erroneous and prejudicial to revenue. The Tribunal highlighted that the Assessing Officer's decision to accept explanations supported by evidence, without detailed inquiry, did not warrant the Principal Commissioner's intervention under Section 263. Citing legal precedents, the Tribunal concluded that the Principal Commissioner's revision order was unwarranted, and the original assessment order was upheld.

In conclusion, the Tribunal allowed the appeal, vacated the revision order, and restored the Assessing Officer's original order, emphasizing the importance of assessing officers acting in good faith based on the evidence presented by the assessee.

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