2019 (10) TMI 1423 - AT - Income Tax

Revision u/s 263 - case of the assessee was selected for framing scrutiny assessment u/s 143(3) by CASS for farming limited scrutiny - Substantial increase in capital in a year - HELD THAT - The assessee has duly explained all the increase in the capital as well investments during the course of assessment proceedings conducted by the AO. These investments were all made in earlier years and were brought in the books of accounts of the assessee for the impugned assessment year as the same were not reflected by assessee in his balance sheet of the earlier years. The assessee has duly explained the sources of such investments made in the earlier years before the AO which has been duly recorded in Para No.4 of the Assessment Order passed by the AO. The AO also made inquiries with M/s. Avanti Leathers Ltd. which confirmed the transactions and balances and on such inquiries the AO had found that the same was in order. The relevant portion of assessment order is reproduced in para 2.2 of this order. Thus it is only after making necessary verifications and inquiries the AO framed assessment order. PCIT has not brought on record anything incriminating which warrant invocation of extra-ordinary revisionary powers as are enshrined u/s 263 of the 1961 Act. On the other hand the learned PCIT is seeking to tax both sides of entries in the Balance Sheet viz. capital introduced on the liability side as well corresponding investments reflected out of said capital introduced which is incompressible and further all these capital introduced and investments made were of the earlier years but the same were not reflected in the Balance Sheet for those years. Merely because the item of investments of earlier years were not added in the Balance Sheet of that years will not give rise to its taxability unless it is shown that it is out of undisclosed sources . The assessee has explained its sources before the AO as well learned PCIT. There is no allegation as to the investments being made out of undisclosed or undeclared sources. Thus in our considered view no case is made out by learned PCIT for invoking extra-ordinary revisionary powers as are enshrined in the provisions of Section 263 of the 1961 Act as the assessment order passed by the AO cannot be termed as erroneous so far as prejudicial to the interest of Revenue. In this case proper inquiries and verifications had been made by the AO and after such inquiries and verifications made the AO accepted the contentions of the assessee and in our considered view . the revisionary order dated 03.01.2019 passed by ld.PCIT u/s 263 of the 1961 Act is not sustainable in the eyes of law as the assessment order dated 23.12.2016 passed by the AO u/s 143(3) cannot be termed as erroneous in so far as prejudicial to the interest of the Revenue. In these circumstances we allow the appeal of the assessee and quash the revisionary order passed by ld.PCIT. The assessee succeeds in its appeal.

Summary

Issues Involved:
1. Substantial increase in capital in a year.
2. Sale consideration of the property in ITR is less than the sale consideration of property reported in AIR.
3. Validity of the revisionary order under Section 263 of the Income-tax Act, 1961.
4. Condonation of delay in filing the appeal.

Detailed Analysis:

1. Substantial Increase in Capital in a Year:
The assessee's return of income showed a substantial increase in capital from Rs. 2,23,80,395/- in AY 2013-14 to Rs. 5,26,72,289/- in AY 2014-15, a difference of Rs. 3,02,91,894/-. The assessee explained that this increase was due to book entries reflecting earlier investments in Avanti Leathers Ltd., funded mainly by agricultural income, salary savings, and a gift received in 2007-08. The Assessing Officer (AO) verified the explanation and supporting documents, including board resolutions and ledger accounts, and concluded that the increase in capital was properly explained.

2. Sale Consideration of Property in ITR Less Than in AIR:
Although this was one of the reasons for the limited scrutiny, the Principal Commissioner of Income Tax (PCIT) did not raise this issue while invoking revisionary powers under Section 263. Hence, it was not discussed further in the judgment.

3. Validity of the Revisionary Order Under Section 263:
The PCIT issued a notice under Section 263, stating that the AO's order was erroneous and prejudicial to the interests of the Revenue because the AO did not properly verify the substantial increase in capital and investments. The assessee responded with detailed explanations and supporting documents, arguing that the increase in capital and investments were rectification entries for investments made in earlier years. The tribunal found that the AO had made proper inquiries and verifications before passing the assessment order. The tribunal held that the PCIT's invocation of Section 263 was not justified as the AO's order was neither erroneous nor prejudicial to the interests of the Revenue. The tribunal emphasized that the correct income for the correct assessment year should be brought to tax, and the investments made in earlier years could not be taxed in the year under consideration unless shown to be from undisclosed sources.

4. Condonation of Delay in Filing the Appeal:
The assessee's appeal was filed 84 days late. The delay was attributed to the death of the assessee and the subsequent lack of awareness by his wife, who was impleaded as the legal heir. The tribunal condoned the delay, noting that the delay was not willful and that substantial justice should prevail over technicalities. The tribunal accepted the explanation provided in the affidavit and admitted the appeal.

Conclusion:
The tribunal allowed the appeal, quashing the revisionary order under Section 263. The tribunal concluded that the AO had conducted proper inquiries and verifications, and the assessment order was not erroneous or prejudicial to the interests of the Revenue. The appeal was allowed, and the revisionary order was quashed.