Section 68 is about satisfaction of AO not CIT us 263 to sit on the judgment of Assessing Officer. Revision order can not be made merely on audit objection basis-ITAT
ABCAUS Case Law Citation:
1030 (2016) (10) ITAT
Important case Laws cited:
CIT v. Sohana Woollen Mills – High Court of Punjab and Haryana
Jaswinder Singh v. CIT – ITAT Chandigarh
ITO v. D. G. Housing Projects Ltd. – Delhi High Court
CIT vs. Shiv Dhooti Pearls & Investments Ltd. Delhi HC
Brief Facts of the Case:
The appellant assessee was a proprietor. His return of income which was processed u/s 143(1) of the Income Tax Act, 1961 was later on selected for scrutiny through CASS as per CBDT’s guidelines. A notice u/s 143(2) was issued along-with questionnaire. In response thereto, the proceedings duly took place and the case was discussed with the Assessing Officer (AO) and necessary details as called for from time to time were furnished. Thereafter, the assessment was completed making various additions vide order passed u/s 143(3).
Thereafter, a notice was issued to the assessee by the AO regarding the audit objection raised, whereby the assessee was asked to explain the source of cash deposited in his bank account. In reply to the said notice, assessee submitted stating that the said amount was a loan received from his wife which has been duly accounted for in the books of accounts and the details regarding the same were submitted to the AO during the course of assessment proceedings.
However, the Commissioner of Income Tax (CIT) disregarded the submissions of the assessee and issued notice u/s 263(1) to show cause why the assessment not be cancelled. The assessee stated that the details regarding the unsecured loans received during the year were duly submitted to the AO in the original assessment proceedings u/s. 143(1). However, CIT ignored the explanation offered and set aside the assessment order by directing the AO to make fresh assessment.
Against the order u/s 263(1) passed by the CIT, the assessee was in appeal before the Tribunal.
Contentions of the assessee:
The assessee stated that complete details regarding the unsecured loans were already submitted during the assessment proceedings. Thus, the AO during assessment proceeding had examined this issue and on being satisfied accepted the contention of the assessee. Thus It was not the case of no enquiry at all or lack of enquiry. Inadequate enquiry cannot be a subject matter for invoking the jurisdiction u/s 263.
It was also contended that issue was a cash credit and under section 68 the satisfaction must be of the AO not CIT. It was further stated that under section 68 the assessee was required to establish the source of cash credit and was not required to prove source of source. He further stated that it was a case where creditors had duly reflected the transactions in their ITRs and had confirmed the amount advanced to the assessee. Thus No adverse inference could be drawn against the assessee on the ground that assessee had failed to prove source of source.
Observations made by the ITAT:
The audit objection raised cannot be a basis of revision of assessment orders u/s 263
The Tribunal observed that the CIT had only relied upon the objection raised in the audit which indicated the non- application of mind to the facts of the case before issuing the show cause notice u/s 263. The audit objection raised cannot be a basis of revision of assessment orders. Therefore, the revision proceedings as initiated by the Ld. CIT are invalid, bad in law and liable to be quashed
Section 68 is about satisfaction of AO. CIT cannot sit on the judgment of AO to review the order u/s 263.
The Tribunal opined that the AO during assessment proceeding had examined the issue and it was not a case where AO had not applied his mind. The AO, after obtaining the details and other evidences, was satisfied and hence accepted the contention of the assessee. Inadequate enquiry cannot be a basis or trigger for invoking the provisions of section 263. CIT in 263 proceedings cannot substitute his view upon the view of AO. Section 68 is about the satisfaction of AO. The AO being satisfied with the explanation given by the assessee, CIT cannot substitute his view.
Pre-conditions for invoking jurisdiction u/s 263
The ITAT relied on High Court judgment(s) in pointing out that in the absence of the finding of the order being erroneous and prejudicial to the interest of revenue, exercise of jurisdiction under section 263 is not sustainable. The jurisdictional preconditions stipulated is that the Commissioner must come to the conclusion that the order is erroneous and is unsustainable in law.
Under section 68, assessee is not required to prove source of source
The ITAT noted that under section 68, the assessee was required to establish the source of cash credit. Assessee is not required to prove source of source. In the present case assessee had established the source. Whereas what CIT was trying to do in 263 proceedings, was to ask assessee to establish source of source, which is not required under section 68. Moreover the issue which is arising is at best against the creditors and not against the assessee. The creditors having accepted and confirmed the deposit, having filed the return of income declaring capital gain in the year under consideration and being assessed under the same ward and has been accepted, no adverse view can be taken against the assessee.
ITAT quashed the order passed by the CIT u/s 263 as being without jurisdiction and not sustainable in the eyes of law.