2022 (8) TMI 1351 - AT - Income Tax

Revision u/s 263 - As per CIT assessee has deposited cash into its bank account during demonetization period but AO has not properly examined this issue - HELD THAT - AO has called for various details during the course of assessment proceedings with regard to the cash deposits made during the demonetization period through various notices issued both u/s 131 of the Act and u/s 142(1) - AO has called for various details such as, copies of cash book, bank book, stock details, purchases details, sales details, Explanations for increase in cash deposits, comparison of sales of the current year with past year etc. A.R took us to the replies given by the assessee to the AO to the various queries raised by him. Thus, we notice that the AO has examined the issue of cash deposits from various angles and hence his enquiries or verifications, in our view, cannot be considered to be inadequate or not up to the required standard. Accordingly, we are of the view that the clause (a) to Explanation-2 to sec. 263 shall not apply to the facts of the present case. There is no dispute with regard to the fact that the impugned cash deposits have been made out of cash balance available in the books of accounts. The said cash balance has been accumulated out of past cash balance and sales made by the assessee. The quantity details of purchases and sales have been accepted and hence sales made by the assessee cannot be doubted with. We also notice that the said books of accounts have not been rejected. Under these set of facts, the sources of cash deposits would get stand explained by the books of accounts itself. Hence the AO has taken the view that no addition in respect of cash deposits is warranted in the facts and circumstances of the case. Hence the view so taken by the AO is a possible view in this matter. PCIT has expressed the view that the AO has neither made any addition nor has applied his mind, meaning thereby, it is the view of the Learned PCIT that the AO should have made addition to the total income in respect of cash deposits. In our opinion, the view so entertained by learned PCIT cannot be the basis for initiating revision proceedings. - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of the revision order passed by the PCIT under section 263 of the Income-tax Act.
2. Adequacy of the Assessing Officer's (AO) enquiry regarding cash deposits during the demonetization period.
3. Application of Explanation 2(a) to section 263 of the Income-tax Act.

Detailed Analysis:

1. Validity of the Revision Order Passed by PCIT:
The assessee challenged the revision order dated 28.03.2022, passed by the PCIT, which set aside the assessment order dated 19.12.2019. The PCIT initiated revision proceedings under section 263 of the Income-tax Act, arguing that the AO's assessment was erroneous and prejudicial to the interests of the Revenue due to inadequate examination of cash deposits amounting to Rs.1,03,50,000/- during the demonetization period. The PCIT directed the AO to re-examine the sources of these cash deposits. The assessee contended that the AO had conducted extensive enquiries and had taken a possible view, thus the revision proceedings should be dropped.

2. Adequacy of the AO's Enquiry Regarding Cash Deposits:
The assessee provided a detailed account of the AO's enquiries, which included multiple summons and notices under sections 131 and 142(1) of the Act. The AO requested various details such as cash book, bank book, financial statements, purchase and sales registers, stock details, and explanations for abnormal cash deposits. The AO also compared sales figures across different years. The assessee argued that these extensive enquiries demonstrated that the AO had applied his mind and taken a possible view. The PCIT, however, believed that the AO had not acted diligently and had not made any additions or applied relevant case law, implying that the AO should have added the cash deposits to the total income.

3. Application of Explanation 2(a) to Section 263:
The PCIT invoked Explanation 2(a) to section 263, suggesting that the AO did not conduct the necessary enquiries or verification. The Tribunal noted that for Explanation 2(a) to apply, it must be shown that the AO's enquiries were below the standard of a reasonable and prudent officer. The Tribunal referred to various case laws, including Narayan Tatu Rane vs. ITO, which emphasized that the AO's enquiries should be comprehensive and judicious. The Tribunal concluded that the AO had indeed conducted detailed enquiries, and the PCIT's invocation of Explanation 2(a) was not justified.

Conclusion:
The Tribunal held that the AO had conducted proper enquiries and applied his mind regarding the cash deposits during the demonetization period. The AO's view was deemed a possible view, and the revision order by the PCIT was found to be unsustainable in law. The Tribunal quashed the revision order and allowed the appeal filed by the assessee. The judgment emphasized that merely having a different opinion does not grant the PCIT the jurisdiction to revise the AO's order under section 263 of the Income-tax Act.

Order Pronounced:
The appeal filed by the assessee was allowed, and the revision order passed by the PCIT was quashed. The judgment was pronounced in the open court on 12.08.2022.