2024 (12) TMI 118 - AT - Income Tax

Revision u/s 263 - as per CIT transactions in the demat account transactions in the bank account and receipts as per 26AS vis- -vis receipts as per the ITR were not examined/enquired/investigated by the AO though he should have carried out adequate examinations /enquiries/ investigations to come to a logical conclusion HELD THAT - The words used in provision to section 263 of the Act are if the order is passed with making inquiries or verification which should have been done . The expression which should have been done suggests an objective test to be applied so as to highlight necessity of making appropriate inquiry for assessing the correct income and absence of which may cause prejudice to the revenue. The impugned order passed by the Ld. PCIT demonstrates that he has examined the record and has found certain issues as detailed in the impugned order that the AO has not examined/enquired/investigated certain issues which should have been made. In the present case the PCIT has clearly mentioned that the 26AS of the appellant/assessee showed receipt of Rs. 5, 71, 044/- from National Aviation Company of India Ltd. and Air India Ltd. whereas the ITR showed Rs. 2, 22, 540/-. PCIT has also held that transactions of demat accounts and bank account were not examined/enquired/investigated and consequentially dealt in the assessment order. This finding of the Ld. PCIT has not been categorically rebutted by the appellant/assessee though the factum of inquiry is always verifiable with reference to record. PCIT has amply demonstrated in the impugned order that three issues; transactions in the demat account transactions in the bank account and receipts as per 26AS vis- -vis receipts as per the ITR were not examined/enquired/investigated by the AO though he should have carried out adequate examinations /enquiries/ investigations to come to a logical conclusion. Further neither any reply/document nor any notice under section 142(1) of the Act demonstrating the fact that these issues had been examined by the AO was brought on the record which may substantiate the claim of the appellant/assessee that it is a case of change in opinion. In view of the facts in entirety and above discussions/observations we are of the considered opinion that the Ld. PCIT has rightly exercised her jurisdiction under section 263 - Decided against assessee.

Summary

Issues Involved:

1. Jurisdiction of the Principal Commissioner of Income Tax (PCIT) under Section 263 of the Income Tax Act, 1961.
2. Examination of cash deposits and credit entries in the bank accounts.
3. Investigation of discrepancies between income reported in the Income Tax Return (ITR) and Form 26AS.
4. Inquiry into undisclosed commodity transactions and demat accounts.
5. Compliance with the Principles of Natural Justice in the proceedings.

Issue-wise Detailed Analysis:

1. Jurisdiction of the PCIT under Section 263:

The primary issue was whether the PCIT was justified in assuming jurisdiction under Section 263 of the Income Tax Act, 1961. The appellant argued that the PCIT erred in invoking Section 263 since the assessment order dated 18.12.2018 was neither erroneous nor prejudicial to the interests of the Revenue. The PCIT, however, concluded that the assessment order was erroneous due to a lack of proper inquiry by the Assessing Officer (AO) into several crucial aspects, thereby justifying the invocation of Section 263.

2. Examination of Cash Deposits and Credit Entries:

The PCIT observed that the AO failed to adequately investigate cash deposits and other credit entries in the assessee's bank accounts. Specifically, out of total credits of Rs. 162.55 lakhs, Rs. 51.33 lakhs were cash deposits, with Rs. 5.75 lakhs deposited during the relevant year. The AO had added only Rs. 6.11 lakhs to the total income without proper verification of the remaining credits. This lack of thorough examination was deemed erroneous and prejudicial to the Revenue's interests.

3. Discrepancies between ITR and Form 26AS:

The PCIT highlighted discrepancies between the income reported in the ITR (Rs. 2,22,640) and the total receipts as per Form 26AS (Rs. 5,71,044). The AO did not reconcile these differences during the assessment proceedings. The PCIT considered this oversight as a failure to conduct necessary inquiries, thus rendering the assessment order erroneous.

4. Undisclosed Commodity Transactions and Demat Accounts:

The PCIT noted that the assessee had two demat accounts and commodity transactions that were neither disclosed by the assessee nor examined by the AO. This omission was another critical factor leading to the conclusion that the assessment order was erroneous and prejudicial to the Revenue.

5. Principles of Natural Justice:

The appellant contended that the PCIT's order violated the Principles of Natural Justice, as the appellant was not given a fair opportunity to respond. However, the PCIT provided reasonable opportunities for the assessee to be heard, which the assessee did not utilize. Consequently, the PCIT proceeded with the order to avoid being barred by limitation.

Conclusion:

The Tribunal upheld the PCIT's decision to annul the assessment order under Section 263, as the AO's failure to conduct proper inquiries and verification rendered the order erroneous and prejudicial to the Revenue. The Tribunal dismissed the appeal, affirming the PCIT's directive to the AO to re-examine the case, focusing on cash deposits, credit receipts, commodity transactions, and discrepancies in receipts as per Form 26AS.