PAVIT PAL SINGH,SIRHIND V. PR.CIT, PATIALA

ITA 43/CHANDI/2021

AI Insights

The case involves an appeal by Sh. Pavit Pal Singh against the order of the Principal Commissioner of Income Tax, Patiala, which invoked section 263 of the Income Tax Act, 1961, to set aside the assessment order for the year 2017-18. The original assessment had accepted the returned income without additions, despite the presence of substantial credits in the capital account, including a forfeited advance of Rs. 1,50,00,000 and a gift of Rs. 46,65,000. The Pr. CIT found that these issues were not adequately examined by the Assessing Officer, leading to the invocation of section 263. The Tribunal agreed with the Pr. CIT's decision, emphasizing the need for a thorough examination of such significant entries to ensure compliance with tax laws.

• Duration Of Justice: 4 year(s) 11 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-03-2026
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: Chandigarh
• Assessment Year: 2017-2018
• Appeal Filed On: 23-04-2021
• Other Referred Cases: Veena Shah Vs PCIT, MTSMCW Charitable Trust vs. CIT
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: VIVEK AGGARWAL
• Assessee Lawyers: GUNJEET SINGH SYAL
• Keywords: Set aside; Gift; Principle of natural justice; Source of fund; Assessment record; Charitable institution; Revision of order
• Section: 143(3); 142(1); 263; 56; 68

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL, CHANDIGARH BENCH “B”, CHANDIGARH HEARING THROUGH: PHYSICAL MODE BEFORE: SHRI. LALIET KUMAR, JM & SHRI. KRINWANT SAHAY, AM आयकर अपील सं./ ITA No. 43/Chd/ 2021 िनधाŊरण वषŊ / Assessment Year : 2017-18 Sh. Pavit Pal Singh C/o Ms. Patiala Bus Service(P) Ltd., Sirhind, C/o S. Prem Singh, Advocate, Syal House, 470, Lajpat Nagar Market, Jalandhar बनाम The PCIT, Patiala ˕ायी लेखा सं./PAN NO: AGFPS2794E अपीलाथŎ/Appellant ŮȑथŎ/Respondent िनधाŊįरती की ओर से/Assessee by : Sh. Gunjeet Singh Syal, Advocate राजˢ की ओर से/ Revenue by : Shri Vivek Aggarwal, CIT DR सुनवाई की तारीख/Date of Hearing : 23.03.2026 उदघोषणा की तारीख/Date of Pronouncement : 24.03.2026 आदेश/Order PER LALIET KUMAR, J.M: This appeal filed by the assessee is directed against the order passed by the Ld. Principal Commissioner of Income Tax, Patiala under section 263 of the Income Tax Act, 1961 dated 28.03.2021 for the assessment year 2017-18. 2. The facts, in brief, are that the assessee filed his return of income on 31.01.2018 declaring total income of Rs. 39,72,180/-. The case was selected for scrutiny and notices under sections 143(2) and 142(1) of the Act were Printed from counselvise.com 2 43/Chd/2021 issued. The assessee furnished replies along with documentary evidences from time to time. The Assessing Officer completed the assessment under section 143(3) of the Act on 28.03.2019 accepting the returned income without making any additions. 3. Subsequently, on examination of the assessment records, the Ld. Pr. CIT noticed that certain material issues had not been examined by the Assessing Officer, namely, (i) taxability of forfeiture of advance of Rs.1,50,00,000/-, (ii) discrepancy in capital account, (iii) genuineness and source of gift of Rs.46,65,000/-, (iv) verification of loan transaction, and (v) examination of investment in mutual funds. Accordingly, a show cause notice under section 263 dated 12.02.2021 was issued to the assessee. 4. The assessee filed detailed submissions contending that all the issues had been examined during the course of assessment proceedings and that the Assessing Officer had taken a plausible view. However, the Ld. Pr. CIT was not satisfied with the explanation and held that the Assessing Officer had failed to conduct proper enquiries and verification. Invoking Explanation 2 to section 263, the Ld. Pr. CIT held the assessment order to be erroneous insofar as it is prejudicial to the interest of the Revenue and set aside the same with a direction to the Assessing Officer to pass a fresh order after conducting necessary enquiries. 5. The Ld. Authorised Representative reiterated the submissions made before the lower authorities and contended that the assumption of Printed from counselvise.com 3 43/Chd/2021 jurisdiction under section 263 is bad in law. It was submitted that during the course of assessment proceedings, the Assessing Officer had issued specific notices under section 142(1) calling for explanation of credit and debit entries in the capital account and the assessee had furnished detailed replies along with documentary evidences including capital accounts, ledger accounts, bank statements, confirmations and affidavits. It was contended that all the issues raised by the Ld. Pr. CIT were duly examined by the Assessing Officer and after due application of mind, the returned income was accepted. It was further submitted that this is not a case of lack of enquiry and therefore the provisions of section 263 cannot be invoked. 6. The Ld. Authorised Representative further contended that, insofar as the issue relating to the forfeiture of advance is concerned, the same pertains to earlier years and therefore cannot be brought to tax in the year under consideration. 7. It was submitted that the advance was received and forfeited in earlier years and therefore cannot be taxed in the year under consideration. It was also contended that the issue is debatable in nature and hence outside the scope of revision under section 263. It was further argued that Explanation 2 to section 263 has been invoked in the impugned order without being mentioned in the show cause notice, thereby violating principles of natural justice. 8. Ld. AR submitted that the assessee, in response to the notices issued during the course of assessment proceedings, furnished detailed replies Printed from counselvise.com 4 43/Chd/2021 along with supporting documentary evidence, which are placed in the paper book. It was submitted that the first reply dated 24.01.2019 (pages 7 to 26 of the paper book) was filed enclosing, inter alia, the partner’s capital account of the assessee in M/s Punjab UP Roadways, a copy of which is available at page 19 of the paper book. Subsequently, the Assessing Officer issued notice under section 142(1) dated 04.02.2019 calling upon the assessee to explain the credit entries appearing in his capital account and to produce the relevant books of account. In compliance thereto, the assessee furnished a comprehensive reply dated 08.02.2019 along with voluminous annexures (pages 27 to 176 of the paper book). The capital account of the assessee was again placed on record at page 27 of the paper book, forming the basis of the explanation of various credits. 9. With regard to the credit on account of forfeiture of advances against property amounting to Rs. 1,50,00,000/-, it was submitted that the said amount pertained to advances received during the financial year 2009-10, which were subsequently forfeited. In support of the same, the assessee placed on record the ledger account of advances against property (page 52 of the paper book), the assessment order passed under section 143(3) for Assessment Year 2010-11 (pages 54-55), and copies of replies filed during the assessment proceedings for Assessment Year 2010-11 (pages 85 onwards, including translated copies at pages 194 and 216-217). These documents were relied upon to demonstrate that the transaction of receipt of advance had already been subjected to scrutiny in the earlier year and, therefore, the subsequent forfeiture could not be treated as unexplained. Printed from counselvise.com 5 43/Chd/2021 10. The assessee also explained the difference in the closing balance of the capital account by placing reliance on the balance sheet for the financial year 2016-17 (page 183 of the paper book), reconciling the figures appearing therein with the capital account under consideration. 11. Further, with respect to the credit entry of Rs. 46,55,000/- claimed to have been received as a gift from the assessee’s father, Shri Kesar Singh, the assessee furnished detailed evidence to establish the identity, creditworthiness and genuineness of the transaction. The documentary evidences included the ledger account of Shri Kesar Singh (pages 82-83), his income tax return and balance sheet for the financial year 2016-17 (pages 218-220), his bank account statements (pages 221-225), cash book (pages 226-229), and an affidavit confirming the gift (pages 230-232 of the paper book). It was contended that these documents cumulatively discharged the onus cast upon the assessee in respect of the impugned credit. 12. Thus, from the sequence of events and material placed on record, it was submitted by Ld. AR that the assessee had duly complied with the notices issued by the Assessing Officer and had furnished exhaustive explanations along with corroborative evidence in respect of each of the credit entries appearing in the capital account. 13. The Ld. Departmental Representative supported the order of the Ld. Pr. CIT and submitted that the assessment order was passed without proper verification of crucial issues. It was argued that the Assessing Officer failed to examine material aspects having direct bearing on taxable income, and Printed from counselvise.com 6 43/Chd/2021 therefore, the order was rightly disallowed under section 263. The Ld.DR relied upon the decision of the jurisdictional High Court in the case of Veena Shah Vs PCIT in ITA No. 153/2024 dated 13.2.2025 whereby the Hon’ble High Court had held that once the order giving effect was passed by the Assessing Officer pursuant to the order passed u/s 263 and the appeal had been preferred against that 263 order before the Tribunal after passing the order, the appeal against the 263 order is not maintainable. 14. In rebuttal to the reliance placed on the decision in the case of Veena Shah, the learned Authorised Representative placed reliance on the order of the coordinate Bench in ITA No. 36/Chd/2021 in the case of MTSMCW Charitable Trust vs. CIT. It was submitted that the coordinate Bench, in the said decision, had distinguished the judgment of the Hon’ble High Court, and our attention was specifically invited to paragraph 10 thereof in support of the said contention. 15. We have heard the rival submissions and perused the material available on record. It is an undisputed position that the assessment order passed by the Assessing Officer is a brief and cryptic order which does not reflect any application of mind on the issues which have been specifically identified by the Ld. Pr. CIT. The order merely records that the returned income is accepted without discussing or examining the material issues arising from the record. Though the assessee has contended that details were furnished during the assessment proceedings, there is nothing on record to demonstrate that the Assessing Officer had carried out any Printed from counselvise.com 7 43/Chd/2021 meaningful enquiry or verification of such details. In the assessment order, it was recorded as under:- “ASSESSMENT ORDER Return in this case was filed on 31.01.2018 electronically vide acknowledgement No. 380866880310118 declaring an income of Rs.39,72,180/-. Subsequently, the case was selected for scrutiny under CASS. Notice u/s 143(2) of the Income Tax Act, 1961 dated 08.08.2018 was issued and served upon the assessee. Thereafter, notice u/s 142(1) of the Income Tax, Act 1961 along with - the questionnaire dated 10.01.2019 was issued and served upon the assessee. 2. In response to said notices, the assessee company submitted its reply electronically in E-proceedings on 27.03.2019. The reply of the assessee has been reconciled with the issues mentioned in the CASS for scrutiny and found in order: After verification returned income is accepted.” 16. At the outset, it is observed that though the assessee had filed replies dated 24.01.2019 and 08.02.2019 along with certain annexures, the mere furnishing of documents, in the absence of any meaningful inquiry or verification by the Assessing Officer, cannot be regarded as sufficient compliance so as to oust the revisional jurisdiction under section 263. A perusal of the reply placed at page 85 of the paper book, filed in continuation to the letter dated 08.02.2019, reveals that the assessee has taken a stand that advances were received from M/s Evergreen Realcon Pvt. Ltd. during the financial year 2009-10 and that the Assessing Officer, in the assessment proceedings for Assessment Year 2010-11, had examined the identity, creditworthiness and genuineness of the said transaction. In Printed from counselvise.com 8 43/Chd/2021 support thereof, reliance has also been placed on the reply dated 21.12.2012 filed during the assessment proceedings for Assessment Year 2010-11. 17. However, a careful reading of the reply dated 21.12.2012 shows that the assessee had, in fact, requested the Assessing Officer to issue a summons to M/s Evergreen Realcon Pvt. Ltd. for verification of the transaction. This, in itself, demonstrates that the transaction verification was not carried out at that stage. When the said reply is read along with the subsequent reply dated 08.02.2019, it becomes evident that there is nothing on record to indicate that the identity, creditworthiness and genuineness of the transaction with M/s Evergreen Realcon Pvt. Ltd. were ever examined either in Assessment Year 2010-11 or in the year under consideration i.e. Assessment Year 2017-18. The contention of the assessee that the issue stood examined in the earlier year is, therefore, not borne out from the record. 18. There is yet another aspect which lends credence to the concerns raised by the learned Principal Commissioner of Income Tax. The agreement to sell of the plot, placed at page 216 of the paper book, indicates that an amount of Rs. 1,50,00,000/- was received in cash by the assessee from M/s Evergreen Realcon Pvt. Ltd. Admittedly, the payer is a company. However, no material has been brought on record either to demonstrate the availability of such substantial cash in the hands of the said company or to evidence any authorisation, such as a board resolution, permitting the company to enter into such a transaction in cash. These glaring deficiencies, Printed from counselvise.com 9 43/Chd/2021 which go to the root of the transaction, have remained wholly unexamined by the Assessing Officer. 19. In view of the above, we find that the issue was not subjected to any meaningful inquiry either in the earlier assessment year or in the year under consideration, thereby justifying the conclusion drawn by the learned Principal Commissioner of Income Tax that the assessment order suffers from a lack of inquiry and non-application of mind. The above-mentioned aspects clearly show that the assessment order (reproduced above) does not reflect any application of mind by the Assessing Officer to the issues arising from the substantial credit entries in the capital account. There is no discussion, much less any reasoned finding, in respect of the nature and source of such credits. 20. Furthermore, the stand of the assessee that the credit of Rs. 1,50,00,000/- on account of forfeiture of advances against property is concerned, the assessee has relied upon the ledger account and certain documents pertaining to Assessment Year 2010-11 to contend that the advance was received in an earlier year and had already been subjected to scrutiny. However, the relevant aspect which required examination by the Assessing Officer was the taxability and treatment of the forfeiture of such an advance in the year under consideration. There is nothing on record to indicate that the Assessing Officer examined whether the forfeiture constituted income chargeable to tax in the impugned year, nor is there any inquiry as to the nature of the original transaction, the identity of the parties from whom advances were received, or the circumstances leading to such Printed from counselvise.com 10 43/Chd/2021 forfeiture. The mere reference to earlier assessment proceedings does not absolve the Assessing Officer from examining the tax implications arising in the year under appeal. 21. A specific contention raised before us relates to the trigger point of taxation in respect of the advance amount credited to the capital account. On perusal of the record, it is evident (page 52 – ledger account) that the assessee has credited the amount of advance to his capital account during the year under consideration by journal entry, thereby treating the same as his own funds. 22. In our considered view, the taxability of the impugned amount is attracted at the point of time when the assessee appropriates the sum to himself by treating it as his own in the books of account. The act of transferring and crediting the advance to the capital account is not a mere accounting entry but a clear and conscious act evidencing cessation of liability, i.e., forfeiture of the advance, coupled with appropriation of the corresponding benefit by the assessee. It is this decisive event which triggers the incidence of taxation in the year under consideration. 23. The assessee has sought to rely upon the reply dated 21.12.2012, along with an affidavit and certain evidence indicating his appearance before the Sub-Registrar for execution of the sale deed. However, we find that these documents were not subjected to any verification or examination by the Assessing Officer during the course of the assessment proceedings. Secondly, and more importantly, such evidences do not have any bearing on Printed from counselvise.com 11 43/Chd/2021 the determination of taxability arising from the subsequent forfeiture and conversion of the advance into capital. The mere fact that the assessee had, at an earlier point of time, expressed willingness to complete the transaction does not alter the legal character of the amount once it stood forfeited and appropriated. 24. It is also pertinent to note that no forfeiture of the advance is shown to have taken place pursuant to the affidavit or during Assessment Year 2010- 11. The material on record indicates that the forfeiture and corresponding appropriation occurred only in the year under consideration, when the amount was credited to the capital account. Therefore, the relevant taxable event squarely falls within the present assessment year and requires due examination by the Assessing Officer, which, however, has not been carried out. The write-back analogy is clearly applicable in such circumstances. It is a settled position that where a liability is written back in the books of account, the same becomes taxable in the year of such write-back. Similarly, in the present case, the conversion of an advance into capital through a book entry constitutes the event of taxation in the year under consideration. In our considered opinion, it was incumbent upon the Assessing Officer to examine this crucial issue at the time of framing the original assessment. The failure to do so constitutes a clear lapse, bringing the case squarely within the ambit of jurisdiction exercisable by the learned Principal Commissioner of Income Tax under section 263 of the Act. 25. Coming to the credit entry of Rs. 46,55,000/- claimed to be a gift from the assessee’s father, the assessee has furnished documents such as ledger Printed from counselvise.com 12 43/Chd/2021 account, income tax return, bank statements, cash book and affidavit of the donor. The submissions of the assessee in respect of the credit entry of Rs. 46,55,000/- claimed to have been received as gift from his father, Shri Kesar Singh, and we have perused the material placed on record, including the ledger account (pages 82-83), income tax return and balance sheet of the donor for the financial year 2016-17 (pages 218-220), bank statements (pages 221-225), cash book (pages 226-229), and the affidavit (pages 230- 232 of the paper book). At the threshold, it is observed that while the assessee has placed on record certain documentary evidence to substantiate the identity of the donor, the crucial aspects relating to the creditworthiness of the donor and the genuineness of the transaction have not been subjected to any meaningful examination by the Assessing Officer. The assessment order is completely silent as to whether the donor's financial capacity to make such a substantial gift was verified with reference to his income, cash flow, and sources reflected in the bank account and cash book. 26. A perusal of the documents further indicates that the transaction involves substantial movement of funds, which warranted a deeper scrutiny as to the real source of such funds in the hands of the donor and the surrounding circumstances under which the alleged gift was made. The mere filing of an affidavit and supporting documents, without any independent inquiry or verification by the Assessing Officer, cannot be said to have discharged the onus cast upon the assessee under the Act. There is nothing on record to demonstrate that the Assessing Officer examined the occasion, necessity or human probabilities surrounding the making of such Printed from counselvise.com 13 43/Chd/2021 a gift, which is an essential test to determine the genuineness of the transaction. In fact, more than Rs. 10,65,000/- was allegedly given in cash as a gift by Shri Kesar Singh to the assessee through his grandson, which the Assessing Officer was required to examine under section 56 of the Act. 27. In these facts, we find that the issue relating to the gift of Rs. 46,55,000/- has remained unexamined in the assessment proceedings. The failure of the Assessing Officer to conduct necessary inquiries on this material aspect renders the assessment order erroneous insofar as it is prejudicial to the interests of the Revenue. Accordingly, the action of the learned Principal Commissioner of Income Tax in invoking jurisdiction under section 263 on this issue is justified 28. However, it is a trite law that the onus under section 68 is not discharged merely by filing documentary evidence; the Assessing Officer is required to examine the identity, creditworthiness, and genuineness of the donor and the transaction in a meaningful manner. In the present case, there is nothing on record to suggest that the Assessing Officer conducted any inquiry into the financial capacity of the donor to make such a substantial gift, the source of funds in the hands of the donor, or the occasion and surrounding circumstances of the gift. The assessment order is conspicuously silent on these aspects, indicating a complete lack of inquiry. 29. Similarly, with regard to the alleged difference in the closing balance of the capital account, the assessee has placed reliance on the balance sheet Printed from counselvise.com 14 43/Chd/2021 for the financial year 2016-17. However, the assessment order is completely silent on this issue. There is no reconciliation recorded by the Assessing Officer nor any verification of the figures reflected in the financial statements. In the absence of any inquiry or finding, it cannot be said that the issue was examined by the Assessing Officer. 30. Therefore, the Assessing Officer was required to examine this crucial aspect during the assessment proceedings. The failure to do so clearly brings the case within the ambit of Explanation 2 to section 263. It is a settled legal position that for invoking section 263, the twin conditions must be satisfied, namely, the order of the Assessing Officer must be erroneous and it must be prejudicial to the interest of the Revenue. 31. It is well settled that where the Assessing Officer fails to make inquiries which are called for in the facts of the case, the order becomes erroneous insofar as it is prejudicial to the interests of the Revenue. In the present case, the issues involved pertain to substantial credit entries in the capital account, which clearly warranted a detailed examination. The failure of the Assessing Officer to conduct such an inquiry renders the assessment order both erroneous and prejudicial to the interests of the Revenue within the meaning of section 263. 32. In view of the above discussion, we find that the learned Principal Commissioner of Income Tax has rightly exercised the revisional jurisdiction under section 263. The order passed by the Assessing Officer suffers from lack of inquiry and non-application of mind on material issues. Accordingly, Printed from counselvise.com 15 43/Chd/2021 the order of the learned Principal Commissioner of Income Tax is upheld, and the grounds raised by the assessee are dismissed. 33. Though the learned Departmental Representative has placed reliance on the judgment of the Hon’ble Punjab & Haryana High Court in the case of Veena Shah (supra), we do not consider it necessary to delve into the said decision in the present proceedings. This is for the reason that we have already arrived at a categorical finding that there was a clear failure on the part of the Assessing Officer to conduct the requisite inquiries as mandated in law. Once such lack of inquiry is established, the assumption of jurisdiction under section 263 stands justified on that ground alone. 34. We, therefore, leave the question of applicability of the decision in the case of Veena Shah open to be examined, if so required, in appropriate proceedings in accordance with law. 35. In view of the above facts and circumstances, we hold that the assessment order passed by the Assessing Officer is erroneous insofar as it is prejudicial to the interest of the Revenue and the Ld. Pr. CIT has rightly exercised jurisdiction under section 263 of the Act. 36. In the result, Assessee’ appeal stands dismissed. Order Pronounced in the open Court on 24.03.2026. Sd/- Sd/- (KRINWANT SAHAY) (LALIET KUMAR) लेखा सद˟/ ACCOUNTANT MEMBER Ɋाियक सद˟ /JUDICIAL MEMBER Rkk Printed from counselvise.com 16 43/Chd/2021 आदेश की Ůितिलिप अŤेिषत/ Copy of the order forwarded to : 1. अपीलाथŎ/ The Appellant 2. ŮȑथŎ/ The Respondent 3. आयकर आयुƅ/ CIT 4. िवभागीय Ůितिनिध, आयकर अपीलीय आिधकरण, चǷीगढ़/ DR, ITAT, CHANDIGARH 5. गाडŊ फाईल/ Guard File सहायक पंजीकार/ Assistant Registrar Printed from counselvise.com "