Non verification of source of investment made in mutual funds rendered assessment order erroneous and prejudicial to the interest of the Revenue – ITAT
ABCAUS Case Law Citation:
ABCAUS 3778 (2023) (07) ITAT
Important Case Laws relied upon:
Infinity Infotech Parks Ltd vs. DCIT
Narayan Tatu Rane vs. ITO
In the instant case, the assessee had challenged the revisonary order passed u/s 263 by the Principal Commissioner of Income Tax (PCIT) of the Income Tax Act, 1961 (the Act).
The appellant assessee filed e-return beyond the specified date and was declared invalid return, the same could not be processed u/s 143(1). Subsequently, the case was reopened u/s 147. The Assessing Officer thereafter issued statutory notices u/s 143(2) and 142(1) to which the assessee appeared before the Assessing Officer from time to time and filed certain details.
The Assessing Officer completed the assessment u/s 143(3) r.w.s. 147 by making addition being disallowances of expenses @ 5% and for the difference in 26AS.
Later, the PCIT examined the record and noted that as per Form 26AS, the assessee had made a large investment in mutual funds but has not disclosed the same in his balance sheet for the year under consideration.
He further noted that an amount of were credited as mutual fund redemptions and dividends. Since there was redemption of units and also receipt of dividend income against those securities or units, section 94(7) of the Act was applicable.
Since, there were no details of the dividend or income of such securities or units received and the details of such exemption claimed on the dividend brought on record by the Assessing Officer, the PCIT was of the opinion that the taxability of the capital gain that arose remained unverified. He was of the opinion that the order passed by the Assessing Officer has become erroneous and prejudicial to the interest of the Revenue on account of non-verification of the investment and taxability on the capital gain.
A show cause notice u/s 263 of the Act was issued. Rejecting the various explanation given by the assessee, the PCIT set aside the order passed by the Assessing Officer u/s 143(3)/147 with a direction to re-do the same as per law after due verification.
Before the Tribunal, the assesse referring to the copies of the Bank accounts submitted that all the investments were through proper banking channel and there was no cash deposit in the bank.
The assessee submitted that Form 26AS was filed before the Assessing Officer and after examining the same, the Assessing Officer had made an addition on account of difference in 26AS. Referring to the statement of TDS reconciliation filed with the Assessing Officer and the statement of mutual funds filed before the Assessing Officer, it was submitted that the assessee had filed full details and the Assessing Officer after due verification has made certain disallowances and passed the order. Merely because the PCIT does not agree with the manner of inquiry conducted by the Assessing Officer, the same cannot be a ground for cancelling the order passed by the Assessing Officer by invoking the provisions of section 263 of the Act.
The Tribunal observed that although the assessee had made investment in Mutual Funds, however, the Assessing Officer had not verified the source of the investment in mutual funds. As per the submission filed before the Assessing Officer out of the total investment, the assessee explained that an amount of around 60% was on account of redemption of mutual fund. However, as per the bank statement although the said amounts were credited in the bank account, however, the assessee had neither shown such investment in the balance sheet under the head “investment”, nor had withdrawn the same for investment. Further, the assessee had only withdrawn from the capital account less than 50% of the investment which he explained the source of investment.
The Tribunal opined that the Assessing Officer completely lost his sight while accepting the explanation given by the assessee towards source of investment which not only made the assessment order erroneous but also is prejudicial to the interest of the Revenue. Under these circumstances, the order passed by the Pr. CIT cancelling the assessment order passed u/s 143(3), was fully justified.
The Tribunal stated that it is not a case of inadequate enquiry but in the instant case, the Assessing Officer failed to inquire about the source of the investment in mutual funds, etc., therefore, the order had not only become erroneous but also is prejudicial to the interest of the Revenue.
The Tribunal held that Pr. CIT was fully justified in setting aside the order passed by the Assessing Officer by invoking the revisional powers vested in him u/s 263 of the Act.
Accordingly, the grounds raised by the assessee were dismissed.
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