2022 (8) TMI 1312 - AT - Income Tax

Revision u/s 263 - unexplained cash deposits and cash credits - assessee s return was selected for verification of Large increase in capital during the year - HELD THAT - We are not we may clarify thereby suggesting an addition for a higher sum but only highlighting the issues that arise for determination and consideration. It is in view of these difficulties that the law deems the sum/asset unexplained as its source as income for the current year which legal fiction unless rebutted on facts is to be adopted taking it to its logical end (CIT vs. Vadilal Lallubhai 1972 (8) TMI 134 - SUPREME COURT - Ignoring the special provisions which expressly apply in the facts of the case or at least prima facie so i.e. for the excess stock of Rs. 118 lacs without anything more would surely make the assessment order erroneous and prejudicial to the interests of the Revenue. Reference in this regard be made to the decision in M.B. Abdulla 1990 (3) TMI 1 - SUPREME COURT Further the objection by the ld. CIT-DR before us i.e. the survey cases in terms of Board Instruction necessarily require being subject to a comprehensive scrutiny cannot be countenanced as even so notice u/s. 143(2) issued in the instant case is as a matter of fact for limited scrutiny. We accordingly uphold the revision under reference. The AO shall in the set aside proceedings adjudicate on this aspect of the matter after allowing the assessee a reasonable opportunity of being heard in accordance with law and by issuing definite findings of fact. As explained in Anantharam Veerasinghaiah Co. 1980 (4) TMI 2 - SUPREME COURT the Tribunal has to consider from an overall consideration of all the relevant facts and circumstances whether the unexplained cash deposits and cash credits could be reasonably attributed to the pre-existing fund of concealed income or they were reasonably explained by reference to the concealed income earned in the relevant year. Decided against assessee.

Summary

Issues Involved:
1. Competence of the Principal Commissioner of Income Tax (Pr. CIT) to direct the Assessing Officer (AO) to make enquiries beyond the scope of limited scrutiny.
2. Examination of whether the AO conducted proper enquiries during the assessment proceedings.
3. Applicability and binding nature of Board Instructions on the AO and their impact on the revisionary power under section 263.
4. Specific case analyses for the two appellants regarding the scope of enquiries and the nature of income assessed.

Issue-wise Detailed Analysis:

1. Competence of the Principal Commissioner of Income Tax (Pr. CIT) to Direct Enquiries Beyond Limited Scrutiny:
The primary issue was whether the Pr. CIT could direct the AO to make enquiries beyond the areas specified in the limited scrutiny notice under section 143(2). The tribunal examined section 263 of the Income Tax Act, which allows the Pr. CIT to revise any order passed by the AO if it is erroneous and prejudicial to the interests of the revenue. The tribunal referred to the case of Nitin Sharma v. Pr. CIT, which established that an absence of proper enquiry by the AO could render an order erroneous. The tribunal concluded that there is no legal restriction on the Pr. CIT's power to extend the scope of enquiry if circumstances warrant it.

2. Examination of Whether the AO Conducted Proper Enquiries During the Assessment Proceedings:
The tribunal analyzed whether the AO conducted proper enquiries in the cases of the two appellants. It was noted that in the case of Alankar, the AO did not enquire into the excess stock found during a survey, which was surrendered by the assessee. The tribunal held that the AO should have examined whether this stock should be taxed under section 69A as undisclosed assets, subject to a higher tax rate under section 115BBE. In the case of Vinod Rajput, the AO failed to enquire into the decline in gross profit rate and the high raw material expenditure. The tribunal found that these issues warranted further enquiry by the AO.

3. Applicability and Binding Nature of Board Instructions on the AO and Their Impact on the Revisionary Power Under Section 263:
The tribunal discussed the binding nature of Board Instructions issued under section 119, which regulate the scope of limited scrutiny assessments. It was noted that while these instructions are binding on the AO, they do not limit the Pr. CIT's revisionary power under section 263. The tribunal emphasized that the AO is duty-bound to assess the total income of the assessee and cannot remain passive in the face of returns that call for further enquiry. The tribunal also referred to the case of Mahendra Singh Dhankar (HUF) v. Asst. CIT, which held that the AO should seek approval for comprehensive scrutiny if warranted.

4. Specific Case Analyses for the Two Appellants:
- Alankar (ITA No. 22/Jab/2022): The tribunal upheld the Pr. CIT's revisionary order, directing the AO to examine the excess stock found during the survey, which was surrendered by the assessee. The AO failed to enquire whether this stock should be taxed under section 69A, leading to an erroneous and prejudicial assessment order.
- Vinod Rajput (ITA No. 15/JAB/2021): The tribunal found that the AO did not properly enquire into the decline in gross profit rate and high raw material expenditure. However, it did not find any infirmity in the AO's non-enquiry regarding sections 40A(3) and 194C/194I, as these were covered in the tax audit report. The tribunal modified the Pr. CIT's order accordingly, allowing the AO to examine these aspects if they arise during the assessment of profitability.

Conclusion:
The tribunal concluded that the Pr. CIT was within his rights to direct the AO to make further enquiries beyond the scope of limited scrutiny if circumstances warranted it. The AO's failure to conduct proper enquiries rendered the assessment orders erroneous and prejudicial to the interests of the revenue. The tribunal upheld the Pr. CIT's revisionary orders in both cases, with modifications in the case of Vinod Rajput. The appeals were dismissed in part and allowed in part, respectively.