The Ahmedabad Bench of Income Tax Appellate Tribunal(ITAT) ruled that the Principal Commissioner of Income Tax (PCIT) cannot substitute the Assessing Officer’s (AO) view in proceedings under Section 263 unless the AO’s decision is wholly unsustainable in law.
Mrugesh Jitendrabhai Shah,appellant-assessee, engaged in a share trading business under the name M/s. M. J. Marketing. He filed a return showing an income of Rs. 2,28,870/- for the assessment year. The assessment was reopened under Section 147, and an additional Rs. 4,79,700/- was added for unexplained investment.
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The PCIT found that the reassessment was based on information about a cash payment of Rs. 20,82,500/- for “on-money” to Kushal Industrial Park by M/s. Kushal Infrastructure Pvt. Ltd.
The PCIT noted that while the AO had checked the document value of the property (Rs. 14,79,700/-), he did not verify the cash payment. As a result, the PCIT considered the AO’s order incorrect and harmful to the Revenue.
The assessee aggrieved by the order of PCIT appealed before the tribunal.
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The assessee’s counsel stated that the AO had properly investigated the case before issuing the assessment order. The AO’s order, dated 28.03.2022, mentioned a cash payment of Rs. 20,82,500/- for property purchase. The counsel pointed out that the AO had discussed this in the assessment order and issued notices for verification.
The counsel also referred to the assessee’s reply, stating no cash payment was made, and the property was bought for Rs. 14,10,500/- through bank transactions. After reviewing all details, the AO disallowed Rs. 4,79,700/- as unexplained investment. The counsel argued that the assessment order was not erroneous or prejudicial to the Revenue’s interest.
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The tribunal reviewed the case and found that the AO had properly investigated the matter. The AO had addressed the cash payment of Rs. 20,82,500/-, and the assessee had clarified that no cash payment was made, providing supporting documents like a bank statement. Based on this, the AO disallowed Rs. 4,79,700/- as unexplained investment. The Tribunal concluded that the AO had carried out the necessary inquiries.
The appellate tribunal referred to legal rulings, including one from the Punjab & Haryana High Court, which stated that Section 263 only applies if the order is both erroneous and harmful to the Revenue. It also cited the Delhi High Court, which stated that the Commissioner cannot replace the AO’s decision unless it is clearly wrong.
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The two member bench comprising Siddhartha Nautiyal(Judicial Member) and Makarand V.Mahadeokar(Accountant Member) found that the Principal Commissioner (PCIT) had not shown any reason to overturn the AO’s decision. Therefore, it ruled that the assessment order was not erroneous or prejudicial to the Revenue.
In short the appeal filed by the assessee was allowed.
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