AO Made No Enquiries In Respect Of Large Investment Made By Assessee Without Any Cash: Ahmedabad ITAT Upholds Revision U/s 263

As per the Explanation 2 to section 263 of the Income tax Act, the order passed by the AO shall be deemed to be erroneous and pre-judicial to the interest of revenue if the order is passed without making inquiries or verifications which should have been made or where the order is passed allowing any relief without enquiring into the claim.

The Division Bench of T.R. Senthil Kumar (Judicial Member) and Narendra Prasad Sinha (Accountant Member) observed that “non application of mind or wrong assumption of facts or incorrect application of law by the AO will make the order erroneous and pre-judicial to the interest of revenue”.

Facts of the case

The assesse filed its return declaring income of Rs.2,03,730/-, and the case was selected for scrutiny under CASS for verification of “Large investment in property (AIR) as compared to total income”. The assessment was however completed u/s 143(3) by accepting the returned income. Subsequently, the assessment record was called for by the Pr. CIT, wherein it was noticed that the source of investment in property was not properly examined by the AO. The PCIT, therefore, passed an order u/s 263 and set aside the assessment order with a direction to the AO to make requisite enquiries and proper verification and, thereafter, to complete the assessment de novo.

Observation of the Tribunal

Referring to the provision of Section 263, the Bench observed that the PCIT is empowered to call far and examine the record of any proceeding under the Income tax Act.

Accordingly, the Bench found that the PCIT had called for the record of the case, examined the assessment order and after such examination he formed an opinion that the order of the AO was erroneous and prejudicial to the interest of revenue.

The circumstances under which an order can be held as erroneous and prejudicial to the interest of revenue is specified in Explanation 2 to section 263 of the Act, added the Bench.

The Bench noted that the case was selected for scrutiny to verify the large investment in property made by the assessee as compared to the total income as disclosed by him.

The Bench also noted that the AO did make enquiries in respect of investment in the property, which comprises of sale of an agricultural land, and for which, payments were made through cheque.

The Bench however found very unusual that the sale deed was executed and the property was transferred in the name of the assessee without encashment of any of the cheques issued by the assessee and this fact should have raised the suspicion of the AO to verify the matter further.

Further, from the bank statement, the Bench found that the cheques were not encashed by the seller of the property but the cash was withdrawn by the assessee himself, and this fact also should have been taken note by the AO to make further enquiry in the matter.

No enquiry was made from the assessee as to why the cash was withdrawn through these three cheques almost after a month, when these cheques were drawn in favour of the seller towards the purchase consideration, added the Bench.

Hence, while upholding the order of the Pr. CIT, the ITAT dismissed the Assessee's appeal.

Counsel for Appellant/ Assessee: S. N. Soparkar & Parin Shah

Counsel for Respondent/ Revenue: Sudhendu Das

Case title: Navin Kalidas Patel versus PCIT

Case Number: I.T.A. No. 109/Ahd/2021

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