MUNNUSWAMY RAJESH CHINTAKUNTA,HYDERABAD V. ACIT, CENTRAL CIRCLE-2(2), HYDERABAD

ITA 344/HYD/2023

AI Insights

The case revolves around an appeal by Munnuswamy Rajesh Chintakunta against the order of the Principal Commissioner of Income Tax (Central), Hyderabad, which set aside the assessment order under Section 153A of the Income Tax Act, 1961. The original assessment was based on a return filed by the assessee following a search and seizure operation. The PCIT later deemed this assessment erroneous and prejudicial to the interests of the Revenue, leading to a revision under Section 263. The Tribunal, however, found that the Assessing Officer had adequately examined all relevant issues, including the source of funds for a significant loan repayment, and that the differences in opinion between the PCIT and the Assessing Officer did not warrant a revision under Section 263.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 46492 (ITAT-HYDERABAD)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-02-2025
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: DB-A
• Assessment Year: 2016-2017
• Other Referred Cases: Malabar Industrial Co. Ltd. [2000] 243 ITR 83 (SC), CIT vs. Max India Ltd., reported in 295 ITR 282(SC), Srinivasa Hatcheries (P.) Ltd. vs. DCIT [2002] 81 ITD 36(Hyd)
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: B.BALAKRISHNA
• Assessee Lawyers: P. MURALI MOHAN RAO
• Keywords: Set aside; Difference of opinion; Search and seizure; Source of fund
• Section: 143(3); 263; 132; 153A

Judgement Text

"आयकर अपीलीय अधिकरण, हैदराबाद पीठ में IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES “A”, HYDERABAD BEFORE SHRI MANJUNATHA. G, ACCOUNTANT MEMBER & SHRI K. NARASIMHA CHARY, JUDICIAL MEMBER आ.अपी.सं / ITA No. 344/Hyd/2023 (निर्धारण वर्ा / Assessment Year: 2016-17) Munnuswamy Rajesh Chintakunta Hyderabad [PAN : ABTPC8391G] Vs. Asst.Commissioner of Income Tax Central Circle-2(1) Hyderabad अपीलधर्थी / Appellant प्रत्‍ यर्थी / Respondent निर्धाररती‍द्वधरध/Assessee by: Shri P.Murali Mohan Rao, AR रधजस्‍ व‍द्वधरध/Revenue by: Shri B.Bala Krishna, CIT-DR सुिवधई‍की‍तधरीख/Date of hearing: 02/01/2025 घोर्णध की‍तधरीख/Pronouncement on: 18 /02/2025 आदेश / ORDER PER K. NARASIMHA CHARY, J.M: Aggrieved by the orders dated 30/5/2023 passed by the learned Principal Commissioner of Income Tax (Central), Hyderabad (“learned PCIT”), in the case of Munnuswamy Rajesh Chintakunta (“the assessee”), assessee preferred this appeal. 2. Brief facts of the case are that pursuant to the search and seizure operations under section 132 of the Income Tax Act, 1961 (for short “the Act”) conducted in the case of Rithwik group on 12/10/2018 and notice under section 153A of the Act, assessee filed the return of income on 25/7/2019 admitting total income of Rs.69,84,690/-. Order under section 153A was passed on 02/06/2021 accepting the same. Subsequently learned PCIT, by order dated 30/05/2023 passed under section 263 of the Act and held that the order passed under section 143(3) read with section 153A of the Act was erroneous and prejudicial to the interest of Revenue, and therefore, while setting aside the same for examination of the cash flow statement of the assessee to ascertain the source for investments made, expenditure incurred and various other outgoings, including the cash payment of Rs.18,53,000/- made to Smt. Sailaja and for taking appropriate action as per law. 3. Aggrieved assessee filed this appeal. Learned AR submitted that the assessment under Section 153A of the Act has been concluded only after thorough examination of all the facts, relevant to conclude the assessment by the learned Assessing Officer, the learned Assessing Officer applied all the relevant provisions of law to reach a plausible view, and there are no errors or shortcomings in the process. He further submitted that the learned Assessing Officer verified all the relevant facts that required examination to conclude the assessment, and the learned PCIT cannot invoke Section 263 of the Act to revise these issues which have already been considered and decided. According to him, the learned Assessing Officer was not required to record every issue examined in the assessment order or order sheet and any omission in recording some details does not mean that such an issue was not examined. He also submitted that the Revision of the assessment order in this case is nothing but a mere difference of opinion by the learned PCIT, which is not permissible in law, and therefore, the revisionary power exercised by the learned PCIT in this matter is beyond his jurisdiction. 4. Learned AR placed reliance on the decision of the Hon’ble Apex Court in the case of Malabar Industrial Co. Ltd. [2000] 243 ITR 83 (SC) for the principle that, for Section 263 to be invoked, the assessment order must be both \"erroneous\" and \"prejudicial to the interests of revenue”, and in a case where two views are possible, and the learned Assessing Officer adopts one such pleasurable view, it cannot be deemed erroneous merely because the DCIT disagrees. He also placed reliance on the decisions in CIT vs. Max India Ltd., reported in 295 ITR 282(SC., and Srinivasa Hatcheries (P.) Ltd. vs. DCIT [2002] 81 ITD 36(Hyd) in support of his argument that a difference of opinion does not justify invoking Section 263, and the view taken by the learned Assessing Officer in adopting one of the permissible views cannot be considered prejudicial to the revenue. 5. It is his further argument that the learned Assessing Officer thoroughly examined the payment of Rs. 18,53,000/- to Smt. Sailaja, and the assessee explained that the payment was made from his own accumulated funds, and such payment was scrutinized during the assessment proceedings, and the learned Assessing Officer found no issue with its source; that the assessee’s financial standing is evident from the filed returns, which show sufficient funds to cover the payment; that the learned Assessing Officer applied the correct provisions of law and accepted the assessee's return; and that, therefore, the proposed revision under Section 263 of the Act on this matter is not justified, in view of the fact that the learned Assessing Officer already scrutinized and accepted the explanation regarding the source of funds. 6. Basing on all these facts, learned AR submitted that the learned Assessing Officer conducted a thorough examination of all issues during the assessment proceedings, assessment order is neither erroneous nor prejudicial to the revenue and therefore, the invocation of Section 263 of the Act by the learned PCIT is not warranted. 7. Per contra, learned DR submitted that though the assessee was requested vide notice dated 25/11/2020 by the learned Assessing Officer to furnish a cash flow statement, the assessee never issued any such statement, but the learned Assessing Officer completed the assessment without examining the same. He further submitted that in the confirmation letter dated 3/6/2021 the assessee did not explain the sources for the cash of Rs.18.53 lakhs but simply stated that it was paid out of his own funds and such a fact is not supported by any cash flow statement. He submitted that on the face of this fact is not open for the assessee to contend that the learned Assessing Officer examined all the issues extensively and took a view as per law and therefore, learned CIT(A) rightly rejected the contentions of the assessee and set aside the issue to the file of the learned Assessing Officer for examination of the cash flow statement to ascertain the sources for the investments made, expenditure incurred and various other outgoings including the cash payment of Rs.18.53 lakhs to Smt. Sailaja. 8. We have gone through the record in the light of the submissions made on either side. The impugned order under Section 263 of the Act expressly focuses on the repayment of a loan by the assessee to Smt. Sailaja in the amount of Rs.18,53,000/-. Concern expressed by the learned PCIT that the learned Assessing Officer did not examine the cash flow statement of the assessee while assessing the source of funds for this loan repayment. In the order, the learned PCIT outlines the steps taken under Section 142(1), which mandates the issuance of a notice to the learned Assessing Officer to submit a cash flow statement of the assessee. This request was made in light of the fact that the assessee failed to provide necessary documentation regarding the source of funds for the loan repayment. 9. Looking at the noncompliance of this direction, learned PCIT pointed out that it was incumbent upon the learned Assessing Officer to make further inquiries to identify the source of the repayment funds. According to the learned PCIT, learned Assessing Officer should investigate the source of funds to satisfy himself about the genuineness of the transaction, particularly a loan repayment. Learned PCIT emphasized that the learned Assessing Officer failed in this regard, as no further inquiry was undertaken to verify the assessee's financial capacity or to scrutinize the source of the repayment amount. 10. Basing on this, learned PCIT held that the assessment was erroneous and prejudicial to the interests of the Revenue. On this premise, learned PCIT proceeded to exercise powers under Section 263 of the Act, which allows for a Revision of the order in cases where an assessment is found to be erroneous and also prejudicial to the interests of Revenue. Therefore, the learned PCIT set aside the assessment order and ordered a fresh assessment, directing the learned Assessing Officer to verify the source of funds for the loan repayment. 11. Assessee challenges the impugned order and argues that the learned Assessing Officer had indeed examined the issue of the assessee’s ability to repay the loan, and therefore, no issue was overlooked in the assessment. Assessee contends that the learned Assessing Officer was satisfied with the source of funds available to the assessee for the repayment of Rs.18,53,000/-. To support this claim, the appellant provided evidence of the assessee’s returned income, including the Gross income of Rs.72,00,000 from salary, as reflected in the assessee's Return of income, net taxable income of Rs.1,32,185/- from profits of business, and the net income of Rs.1,25,000/- from other sources. 12. Basing on this learned AR vehemently submits that the assessee’s total known income amounted to Rs.73,00,000/-, far exceeding the amount required for the repayment of the loan, which was only Rs.18,53,000/-. Learned AR contended that, based on this declared income, the learned Assessing Officer should have accepted that the assessee had sufficient funds to meet the repayment obligation. The contention was that, under the circumstances, there was no deficiency in examining the assessee’s source of funds for the loan repayment, as the learned Assessing Officer had already done so adequately by verifying the available income and the supporting documents. 13. It is the settled principle of law that if the learned Assessing Officer made a thorough and appropriate enquiry, such assessment cannot be said to be erroneous merely because a difference of opinion exists regarding the sufficiency of the inquiry at the end of the learned PCIT. Assessee pleaded that the learned Assessing Officer examined the relevant issue in the case and that no significant aspect is ignored. According to the learned AR, the impugned order revolves around the question whether the learned Assessing Officer had made a proper and thorough inquiry into the source of funds for the loan repayment. Assessee submitted that the learned Assessing Officer satisfied himself regarding the assessee’s capacity to repay the loan, based on the verification of the assessee’s financial position and basing on the declared sources. 14. Specifically of the assessee is that he is total declared income from salary, business profits, and income from other sources, amounted to a total of Rs.73,00,000/- is more than the money required to repay the loan of Rs.18,53,000/-. Learned AR vehemently argued that the learned Assessing Officer had conducted a thorough assessment based on the returns of income of the assessee and did not doubt the capacity of the assessee to repay the loan. Sum and substance of the argument of the learned AR, therefore, is that the learned Assessing Officer thoroughly examined the facts and the capacity of the assessee to repay the loan, this was not a case of failure to investigate, but only a case of difference of opinion as to on the appraisal of evidence on record, and it is not a ground to set aside the assessment under Section 263 of the Act. 15. It is an undisputed fact that the assessment in this case is done under Section 153A of the Act pursuant to the search and seizure operations, and in terms of Section 153A of the Act assessments, the learned Assessing Officer is required to base the assessment or the opinion as to the financial capacity of the assessee to repay the loan, on the material found during the search. 16. In this case, though the learned Assessing Officer order did not explicitly record every detail of the investigation, this will not automatically mean that the learned Assessing Officer ignored any of the vital issue or there is deficiency of enquiry. Assessment order has to be read contextually. There are no legal impediments to accept the learned Assessing Officer’s decision to proceed with the assessment without detailing every aspect of the inquiry. Suffice it for the learned Assessing Officer to form a reasonable satisfaction on the issues that are central to the assessment. Therefore, the learned Assessing Officer’s satisfaction with the capacity of the assessee to repay the loan based on other materials in the form of the returns of income need not be dubbed as falling short enquiry. 17. Coming to the decision of the learned PCIT’s to set aside the assessment under Section 263 of the Act, view of the learned PCIT is based on a difference of opinion with the learned Assessing Officer regarding the sufficiency of the investigation. Learned PCIT, in exercise of his Revisionary jurisdiction opined that the learned Assessing Officer failed to make a proper investigation into the source of funds for the loan repayment, whereas the assessee agitates that the learned Assessing Officer did examine all relevant financial details and had sufficient grounds to conclude that the loan was repaid from legitimate sources. 18. It is the settled principle of law that the suo-motu Revisionary under Section 263 of the Act cannot be exercised merely because of differences in opinion between the learned PCIT and learned Assessing Officer. Section 263 of the Act provides for the Revision of an order of assessment only where it is found to be erroneous insofar it is prejudicial to the interest of Revenue, but such a jurisdiction is not meant to be exercised where there is a difference of opinion between the learned PCIT and learned Assessing Officer in the interpretation of facts. A difference of opinion regarding the sufficiency of evidence does not automatically warrant the exercise of revisionary power by the learned PCIT. 19. At the same time, power under Section 263 of the Act is not intended for making further inquiries into the matter or to conduct qualitative improvements in the order of assessment. Proceedings under section 263 of the Act must be based on a clear and unambiguous error in the assessment, which directly affects the interests of the Revenue, and it shall not be taken as an opportunity to second-guess the judgment of the learned Assessing Officer, especially when the learned Assessing Officer obviously based his decision on the returns of income filed in respect of the capacity of the assessee to repay the loan. 20. In this case, there is sufficient indication from the record that the learned Assessing Officer took cognizance of the issue of the sources of funds to repay the loan to Smt. Sailaja while asking for the cash/funds flow statement from the assessee, and there is also sufficient indication to believe that the learned Assessing Officer based his opinion in respect of the capacity of the assessee to repay the loan to Smt. Sailaja on the returns of income filed by the assessee. Merely because the learned Assessing Officer did not wait for the statements required, it need not readily be inferred that there is want of enquiry. Since there was no error or omission on the part of the learned Assessing Officer's in conduct of the assessment, the learned PCIT’s decision to set aside the order based on a difference of opinion cannot be sustained. Grounds are answered accordingly. 21. In the result, appeal of the assessee is allowed. Order pronounced in the open court on this the 18th February, 2025. Sd/- Sd/- (MANJUNATHA. G) (K. NARASIMHA CHARY) ACCOUNTANT MEMBER JUDICIAL MEMBER Hyderabad, Dated: 18 /02/2025 Copy forwarded to: 1. Shri Munnuswamy Rajesh Chintakunta, C/o P.Murali & Co., Char- tered Accountants, 6-3-655/2/3, Somajiguda, Hyderabad 2. The ACIT, Central Circle-2(2), Hyderabad 3. The Pr.CIT (Central), Hyderabad 4. The DR, ITAT, Hyderabad 5. GUARD File TRUE COPY ASSISTANT REGISTRAR ITAT, HYDERABAD "