2025 (5) TMI 11 - AT - Income Tax

Revision u/s 263 - PCIT noticed from the capital account of the assessee that the assessee had credited an amount under the head 24CT Gold Bar and CIT was of the view that since there was no explanation on record to suggest that were capital receipts and in absence of any details/explanation with supporting evidences the said receipt was required to be treated as unexplained revenue receipts in the hands of the assessee HELD THAT - We are of the considered view that this is not a fit case for initiating proceedings under section 263 of the Act. This for the reason that so far as receipt of gold bars is concerned the mother of the assessee was the promoter and owner of Palitana Sugar Mills Private Limited and in Financial Year 2006-07 she had sold shares and the capital gains on sale of shares was duly offered by her return of income for that year. From the amount so received the mother of the assessee had made investments from time to time and created wealth and required assets/property. These facts were also duly noted by Principal CIT. Therefore it is evident that the mother of the assessee was having substantial wealth with her she was also filing her Wealth tax returns and the only reason why principal CIT was of the view that the assessment order was prejudicial to the interests of the revenue was on the ground that since as per the Will executed by the mother assessee was entitled to 33.33% share therefore the amount of Rs.41.80 lakhs towards 24CT gold bar exceeded the limit as prescribed in the Will. Further assessee has been able to give a detailed explanation for rest amount duly supported by ledger accounts maintained by the assessee with respect to transactions between the assessee and his mother and accordingly looking into the instant facts in our considered view there is no prejudice caused to the interest of the Revenue. This is also in light of the fact that all the transactions had taken place through banking channels and no specific infirmity was pointed out by Principal CIT in the explanation provided by the assessee. Appeal of the assessee is allowed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Tribunal were:

(a) Whether the order passed by the Principal Commissioner of Income Tax (PCIT) under section 263 of the Income-tax Act, 1961, setting aside the original assessment order and directing a fresh assessment, was valid and lawful.

(b) Whether the receipt of Rs. 41,10,889/- credited under the head "24CT Gold Bar" in the assessee's capital account, purportedly received from the mother under a Will, was liable to be treated as unexplained income due to the discrepancy in the share of assets as per the Will.

(c) Whether the unsecured loan amounting to Rs. 6.15 crore, squared up during the year, and specifically Rs. 1.75 crore portion thereof, was liable to be treated as unexplained cash credits under section 68 of the Income-tax Act, given the absence of documentary evidence and verification by the Assessing Officer.

(d) Whether the Principal CIT erred in initiating proceedings under section 263 without proper opportunity and on presumptions unsupported by cogent material.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (a): Validity of the PCIT's Order under Section 263

The relevant legal framework is section 263 of the Income-tax Act, which empowers the Principal Commissioner or Commissioner to revise an assessment order if it is found to be erroneous in so far as it is prejudicial to the interests of the Revenue. The power under section 263 is discretionary and must be exercised judiciously, with the prerequisite that the original order is indeed erroneous and prejudicial.

The Court examined whether the PCIT's order met this threshold. The PCIT had set aside the assessment order mainly on two grounds: the treatment of Rs. 41,10,889/- credited as capital receipt and the treatment of Rs. 1.75 crore as unexplained cash credits.

The Tribunal noted that the PCIT's reasoning on the gold bar receipt was based on the Will's terms, which entitled the assessee only to 33.33% share of assets, whereas the entire amount was credited. The PCIT treated this discrepancy as a presumption that the amount was unexplained income. However, the Tribunal found this to be a speculative assumption unsupported by evidence or any challenge to the genuineness of the Will itself.

Regarding the Rs. 1.75 crore, the PCIT observed that the amount was shown as receivable/payable in ledger accounts but was not supported by authenticated balance sheets or legal authority. The PCIT held that the AO failed to verify this, rendering the assessment erroneous and prejudicial.

The Tribunal found that the assessee had submitted detailed ledger accounts, bank statements, gift deeds, and documentary evidence showing the genuineness of transactions, including the source of funds from the mother's investments and gifts. The transactions were routed through banking channels, and the AO had verified creditworthiness during original assessment. Thus, the Tribunal concluded that no prejudice was caused to the Revenue and the PCIT's order was unwarranted.

The Tribunal held that the PCIT's action was based on assumptions and failed to appreciate the evidence on record, rendering the exercise of revision under section 263 improper.

Issue (b): Treatment of Rs. 41,10,889/- Gold Bar Receipt

The legal question was whether the amount credited to the assessee's capital account as gold bars received from the mother under the Will was taxable as unexplained income due to the discrepancy with the Will's share allocation.

The Tribunal examined the facts that the mother was a promoter and owner of a sugar mill, had substantial wealth, and had sold shares in FY 2006-07 with capital gains duly declared. The mother's wealth creation and investments were well documented, and the Will was executed on 11-01-2020.

The PCIT's concern was that the assessee credited the entire amount of gold bars exceeding his 33.33% share under the Will. However, the Tribunal observed that the PCIT did not challenge the genuineness of the Will or the fact that the amount was received from the mother. The PCIT's conclusion was based on a mere presumption without any supporting evidence.

The Tribunal emphasized that since the amount was undeniably received from the mother and supported by ledger accounts, the PCIT's presumption of unexplained income was not justified. The transaction was considered a capital receipt and not taxable as income.

Issue (c): Treatment of Rs. 1.75 Crore Portion of Unsecured Loan

The issue was whether the Rs. 1.75 crore, part of the Rs. 6.15 crore unsecured loan squared up during the year, was liable to be treated as unexplained cash credits under section 68 due to lack of documentary proof and verification.

The assessee submitted that the total Rs. 6.15 crore comprised an opening balance of Rs. 1.65 crore and a gift of Rs. 4.50 crore from the mother, supported by a gift deed and bank statements. The gift was out of previous investments in LIC and Mutual Funds, with redemption statements and capital gains offered in the mother's return.

The assessee maintained two ledger accounts: one for receivables and another for payables with the mother, which were merged. Payments made to the mother for maintenance were shown as advances receivable. The transactions were through banking channels with no cash payments involved.

The PCIT found that the balance sheet of the mother was not authenticated and the Will did not mention liabilities, thus disallowing the set-off of advances against inheritance. The PCIT held the Rs. 1.75 crore as unexplained cash credits.

The Tribunal, however, accepted the detailed explanation, documentary evidence, and banking channel transactions, finding no infirmity or failure by the AO in verifying the genuineness. The Tribunal concluded that no addition under section 68 was warranted.

Issue (d): Procedural Fairness and Opportunity

The assessee contended that the PCIT passed the order without giving proper opportunity and acted on farfetched imagination without cogent material.

The Tribunal noted that the PCIT's order was based on assumptions and did not point to any specific failure by the AO apart from the alleged non-verification of the Rs. 1.75 crore. The assessee had submitted extensive evidence during assessment proceedings and in response to show-cause notices.

The Tribunal found no merit in the contention that the PCIT acted without proper opportunity or on whims. However, since the PCIT's conclusions were not supported by evidence, the revision was unwarranted.

3. SIGNIFICANT HOLDINGS

The Tribunal held:

"This is not a fit case for initiating proceedings under section 263 of the Act."

"The mother of the assessee was having substantial wealth with her, she was also filing her Wealth tax returns and the only reason why principal CIT was of the view that the assessment order was prejudicial to the interests of the revenue was on the ground that since as per the Will executed by the mother, assessee was entitled to 33.33% share, therefore the amount of Rs.41.80 lakhs towards 24CT gold bar exceeded the limit as prescribed in the Will."

"Looking into the instant facts in our considered view, there is no prejudice caused to the interest of the Revenue. This is also in light of the fact that all the transactions had taken place through banking channels and no specific infirmity was pointed out by Principal CIT in the explanation provided by the assessee."

The Tribunal established the principle that revision under section 263 must be based on cogent evidence that the original assessment order is erroneous and prejudicial, and mere assumptions or presumptions without supporting material cannot justify such revision.

Final determinations were that the PCIT's order under section 263 was invalid; the receipt of gold bars was a capital receipt not taxable as unexplained income; the Rs. 1.75 crore was satisfactorily explained and not liable to be treated as unexplained cash credits; and the assessment order was not erroneous or prejudicial to the Revenue.