2025 (3) TMI 209 - AT - Income Tax

Revision u/s 263 - A notice u/s 148 as issued to the assessee on the basis of an information that the assessee had deposited cash in his bank account during the year under consideration - HELD THAT - We have examined and perused the document i.e agreement to sell dt. 01/06/2011 and receipt dt. 11/06/2011 while it is true that basis land mentioned therein transaction of Rs. 4.5 lakh took place on 01/06/2011 and later got cancelled on 11/06/2011 can be no basis to dub the amount of Rs. 4.5 lakh as bogus entry to manipulate the availability of funds in order to explain the cash deposit made by the assessee in his bank account on 09/06/2011. AO did not try to conduct any enquiries to ascertain the identity of Shri Sukhwinder Singh his credit worthiness and genuineness of the given transaction; as the amount was returned by the assessee. The need to conduct enquiries would have arisen had the amount of Rs. 4.5 lakh would not have been returned by the assessee. The Ld. PCIT therefore has erred in law as in cash flow the result is NIL. In the premises after examining the record papers and proceedings of the impugned order as well as the original assessment order dt. 03/06/2019 passed under section 143(3) r.w.s 147/148 we are of the considered view that there is no legal infirmities in the order of Ld. AO dt. 03/06/2019. We hold that due process of law with all rigorous were duly followed by the Ld. AO; appropriate notice(s) u/s 147/148 143(2) and 142(1) were duly given and were received by the assessee. The return of income was filed as an agriculturist on 25/04/2019 declaring net income as agriculture income. Detailed questionnaire were issued on 01/05/2019 for 15.05.2019 which were properly replied to by the assessee. Assessee attended the assessment proceedings and it is recorded that AR furnished all requisite information / documents called for during the course of assessment proceedings the Ld. AR furnished detailed reply alongwith documentary evidences of cash deposited in bank during the period under consideration which were duly examined and were placed on record. Further upon many queries raised a yet another reply is on record dt. 22/05/2019 wherein it was highlighted that actual cash deposit is Rs. 16, 91, 000/- not Rs. 32, 41, 000/- as alleged in notice(s). It is expressly stated in the assessment order dt. 03/06/2019 that during the course of the assessment proceedings reply as well documents filed were examined. Queries were raised and were duly answered with supporting. The bank statement were verified and that after detailed examination of the case the income was assessed at returned income of Rs. 6710/- Rs. 7, 80, 000/- as agriculture income. We see no infirmities with the assessment order of Ld. Ao dt. 03/06/2019. The order is well merited and all due process of law has been followed. We therefore hold that such an assessment order cannot be called erroneous and prejudicial within the meaning of Section 263 Explanation 2 as due process was followed and all necessary verification and examination of documents in plausible and reasonable manner were done so. We do not see any unreasonableness and arbitrariness in the original assessment order impugned under section 263 and that the same cannot be clothed with erroneous and prejudicial charge by Ld. PCIT. Decided in favour of assessee.

Summary

ISSUES PRESENTED and CONSIDERED

The core legal issues considered in this judgment revolve around the invocation of Section 263 of the Income Tax Act, 1961, by the Principal Commissioner of Income Tax (PCIT). The primary questions are:

• Whether the original assessment order dated 03/06/2019, passed under Section 143(3) read with Section 147, was erroneous and prejudicial to the interest of the revenue, justifying the revision under Section 263.
• Whether the PCIT correctly assumed jurisdiction under Section 263 by treating the original assessment order as erroneous and prejudicial to the revenue's interest.
• Whether the Assessing Officer (AO) conducted adequate inquiries and applied due diligence during the original assessment proceedings.

ISSUE-WISE DETAILED ANALYSIS

1. Invocation of Section 263 by PCIT

• Relevant Legal Framework and Precedents: Section 263 of the Income Tax Act empowers the PCIT to revise an assessment order if it is considered erroneous and prejudicial to the interest of the revenue. The legal precedents establish that for invoking Section 263, there must be a clear lack of inquiry or application of mind by the AO.
• Court's Interpretation and Reasoning: The Tribunal examined whether the AO conducted the assessment with due diligence and whether the PCIT's invocation of Section 263 was justified. The Tribunal emphasized the importance of the AO's discretion and the adequacy of the inquiry conducted during the original assessment.
• Key Evidence and Findings: The Tribunal found that the AO had issued notices under Sections 143(2), 142(1), and 147/148, and the assessee provided detailed replies with supporting documents. The AO assessed the income based on these submissions, indicating due application of mind.
• Application of Law to Facts: The Tribunal applied the legal standards for invoking Section 263 and found that the AO had conducted a reasonable inquiry, and the assessment order was neither erroneous nor prejudicial to the interest of the revenue.
• Treatment of Competing Arguments: The Tribunal considered the arguments by both the assessee and the revenue, ultimately siding with the assessee's contention that the original assessment was conducted properly.
• Conclusions: The Tribunal concluded that the PCIT's invocation of Section 263 was not justified, as the original assessment order was not erroneous or prejudicial to the revenue.

2. Adequacy of Inquiry by AO

• Relevant Legal Framework and Precedents: The legal framework requires that an AO must conduct a diligent inquiry and apply a reasonable degree of scrutiny to the facts and documents presented during the assessment.
• Court's Interpretation and Reasoning: The Tribunal found that the AO had conducted a thorough inquiry by issuing notices and receiving detailed replies from the assessee, which included various documents substantiating the agricultural income and cash deposits.
• Key Evidence and Findings: Evidence included bank statements, agricultural income certificates, and land ownership documents. The Tribunal noted that these documents were sufficient for the AO to make a reasonable assessment.
• Application of Law to Facts: The Tribunal applied the principle that an AO's order cannot be deemed erroneous if it is based on a plausible view and adequate inquiry, even if the PCIT holds a different opinion.
• Treatment of Competing Arguments: The Tribunal evaluated the PCIT's claims of inadequate inquiry and found them unsupported by the evidence of the AO's actions during the assessment.
• Conclusions: The Tribunal concluded that the AO's inquiry was adequate and the assessment order was not erroneous.

SIGNIFICANT HOLDINGS

• Preserve verbatim quotes of crucial legal reasoning: The Tribunal held, "The original assessment order... has accepted the return of income filed by the assessee... after a proper inquiry and that the due process of law was followed in an appropriate manner."
• Core principles established: The Tribunal reaffirmed that for Section 263 to be invoked, there must be a clear lack of inquiry or application of mind by the AO. An assessment order cannot be revised merely because the PCIT holds a different opinion.
• Final determinations on each issue: The Tribunal determined that the original assessment order was neither erroneous nor prejudicial to the interest of the revenue, and the PCIT's invocation of Section 263 was not justified.