While the AO is both an investigator and an adjudicator, a distinction has to be drawn between a case where the AO has not conducted any enquiry or examined any evidence whatsoever (“lack of inquiry”) from one (i) where there is enquiry but the findings are erroneous; and (ii) where there is failure to make proper or full verification or enquiry (“inadequate inquiry”). The fact that the assessment order does not give any reasons for allowing the claim is not by itself indicative of the fact that the AO has not applied his mind on the issue. All the circumstances have to be seen. A case of lack of enquiry would by itself render the order being erroneous and prejudicial to the interest of the Revenue. In a case where there is inquiry by the AO, even if inadequate, the CIT would not be entitled to revise u/s 263 on the ground that he has a different opinion in the matter. Also, in a case where the AO has formed a wrong opinion or finding on merits, the CIT has to come to the conclusion and himself decide that the order is erroneous, by conducting necessary enquiry before passing the s. 263 order. The CIT is entitled to collect new material to show how the order of the AO is erroneous. The CIT cannot remand the matter to the AO for further enquiries or to decide whether the findings recorded are erroneous without a finding that the order is erroneous and how that is so. A mere remand to the AO implies that the CIT has not decided whether the order is erroneous but has directed the AO to decide the aspect which is not permissible. On facts, as the CIT had doubts about the valuation and sale consideration received, he ought to have examined the said aspect himself and given a finding on the merits on how the consideration was understated (Gee Vee Enterprises 99 ITR 375 (Del), Sunbeam Auto 332 ITR 167 (Del) & Gabriel 203 ITR 108 (Bom) followed).

Whenever there are reasons to believe that the apparent is not real; then the taxing authorities are entitled to look into surrounding circumstances to find out the reality and applying the test of human probabilities. The judgement of the Supreme Court in Vodafone International vs. UOI makes it clear that a colourable device cannot be a part of tax planning. Where a transaction is sham and not genuine, it cannot be considered to be a part of tax planning or legitimate avoidance of tax liability. It was clarified that there is no conflict between McDowell 154 ITR 148 (SC), Azadi Bachao Andolan 263 ITR 706 (SC) & Mathuram Agarwal. On facts, as the purchase and sale of shares was found to be a sham, the loss cannot be allowed (Sumati Dayal 214 ITR 801 (SC) followed)

The CA’s explanation that the assessee had taken away the file and that he suffered a paralytic stroke does not inspire any confidence because the relevant documents and information were supplied to him. The assessee accepted the fact that the s. 80HHC claim was not maintainable during the assessment proceedings. Once it is established that no payment was received against the export, the certificate issued by the CA was false. It is a bogey raised by the CA that he has verified all the documents and only then issued the certificate. On the quantum of punishment, on the one hand, the CA pleads his sickness, has an otherwise unblemished practice of 21 years and the incident is old. On the other hand, the misconduct is of serious nature because submitting a false/bogus certificate to the client to enable him to make false claim of deduction under the Income-tax Act, is of serious offence. That the CA made an attempt to dupe the tax authorities and help the assessee to avoid the tax to that extent such a conduct has to be taken seriously. He accordingly cannot be let off merely by giving him reprimand. Some penalty needs to be imposed so that it acts as deterrent and such professional misconduct are not committed. Weighing the circumstances, the ends of justice would be subserved by removing his name from the Register of Members for a period of six months

S. 54F is a beneficial provision for promoting the construction of residential house & requires to be construed liberally for achieving that purpose. The intention of the Legislature was to encourage investments in the acquisition of a residential house and completion of construction or occupation is not the requirement of law. The words used in the section are ‘purchased’ or ‘constructed’. The condition precedent for claiming benefit u/s 54F is that the capital gain should be parted by the assessee and invested either in purchasing a residential house or in constructing a residential house. Merely because the sale deed had not been executed or that construction is not complete and it is not in a fit condition to be occupied does not disentitle the assessee to claim s. 54F relief (Sardarmal Kothari 302 ITR 286 (Mad) followed)

Jurisdiction under Section 263 can be exercised whenever it is found that the order of assessment was erroneous and prejudicial to the interest of the Revenue. Not holding such inquiry as is normal and not applying mind to relevant material would make the assessment ‘erroneous’ warranting exercise of revisional jurisdiction. An incorrect assumption of facts or an incorrect application of law will satisfy the requirement of the order being ‘erroneous’. Non application of mind and omission to follow natural justice is in same category. Daga Entrade 327 ITR 467 (Gau) lays down the correct law and is not in conflict with Rajendra Singh 1979 STC 10 (Gau)