AO's failure to verify Nature and Source of Income: ITAT upholds Revision Order of Pr. CIT [Read Order]

The Raipur branch of the Income Tax Appellate Tribunal (ITAT) upheld the revision order issued by the Principal Commissioner of Income Tax (Pr. CIT) under Section 263 of Income Tax Act, 1961 on grounds that the Assessing Officer neglected to confirm the nature and source of the income during the reassessment proceedings.

The case of the assessee was reopened for bringing to tax the cash deposits of Rs.15 lacs and Rs.18 lacs in the assessee’s bank account during the year under consideration, which the Assessing Officer was of the belief was the assessee’s income that had escaped assessment.

The Commissioner of Income (CIT) Tax observed that the case of the assessee was reopened for the reason of bringing within the tax net the cash deposits aggregating to Rs.43 lacs which had escaped assessment, but the Assessing Officer without carrying out necessary verifications had accepted the assessee’s returned income as such.

The Authorized Representative submitted that no cash deposit aggregating to Rs.28 lac (supra) was made by the assessee in his bank account and the case of the assessee was in itself reopened on the basis of misconceived and wrong facts, therefore, the assessment framed under Sections 143(3)/147 of the Income Tax Act could not be sustained and was liable to be struck down on the said count itself.

It was further submitted that now when the assessment framed under Sections 143(3)/147 of the Income Tax Act was in itself invalid and non-est, therefore, the same could not have been revised by the Commissioner of Income Tax under Section 263 of the Income Tax Act.

The Departmental Representative relied on the orders of the lower authorities. It was submitted that the Assessing Officer had pathetically failed to carry out any verification as regards the cash deposits of Rs.15 lacs and Rs.28 lacs made in the assessee’s bank account during the year under consideration, which in fact had formed the very basis for initiating proceedings under Section 147 of the Income Tax Act, therefore, the CIT had rightly stepped in and revised the order in exercise of powers vested with him under Section 263 of the Income Tax Act.

The Two-member bench comprising of Ravish Sood (Judicial member) and Arun Khodpia (Accountant member) held that there was a gross failure on the part of the Assessing Officer to verify the nature and source of the cash deposits aggregating to Rs.43 lacs, which in itself had formed the very basis for reopening of the assessee’s case under Section 147 of the Income Tax Act.

Therefore, the PCIT in the exercise of the powers vested with him as per “Explanation 2” of Section 263 of the Income Tax Act had rightly set aside his order with a direction to reframe the assessment after carrying out necessary verifications. Thus, the appeal of the assessee was dismissed.

To Read the full text of the Order CLICK HERE

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