2021 (12) TMI 1456 - AT - Income Tax

Revision u/s 263 - validity of scrutiny assessment u/s 143(3) - AO while passing the assessment order u/s 143(3) did not enquire about discrepancy in turnover shown in ITR and cash deposit in bank A/c - HELD THAT - As in the present case we note that the Ld. PCIT has alleged lack of enquiry on the part of the AO in respect of scrutiny of the CASS item discrepancy in turnover shown in ITR and cash deposit in bank A/c . We note that the assessee is running petrol pump business. From the perusal of the assessment order, we note that the AO had called for the documents/records from the assessee and has made the specific finding of fact that pursuant to his notices, the assessee had furnished the same as well as the reconciliation in respect of the discrepancy in turnover shown in ITR and cash deposit in bank account. AO has made a finding after calling for relevant documents to scrutinize the CASS issue that the assessee has been able to explain the discrepancy by filing the reconciliation. Since the AO has made a categorical finding on the issue on which the Ld. PCIT found fault with and when this fact has been brought to the notice of the PCIT during the revisional proceedings, PCIT after taking note that A.O has made enquiry on the issue, then if he is still not satisfied with the enquiry conducted by the AO on that issue, then according to us the Ld PCIT ought to have conducted enquiry himself and demonstrated how the AO erred in accepting the reconciliation/explanation given by the assessee while explaining/reconciling the discrepancy. According to us, without doing such an exercise in the light of the AO s finding that the assessee has explained/reconciled the discrepancy in turnover shown in ITR and cash deposit in bank a/c, the action of Ld PCIT to find fault with the AO s action as erroneous for lack of enquiry cannot be countenenced. Therefore, we cannot agree with the Ld. PCIT that AO s scrutiny assessment u/s 143(3) is erroneous for non-enquiry. Therefore, the Ld. PCIT erred in assuming jurisdiction u/s 263 - Appeal of the assessee is allowed.

Summary

Issues:
1. Jurisdictional issue of invoking revisional powers under section 263 of the Income Tax Act.
2. Validity of the AO's assessment order regarding the discrepancy in turnover shown in ITR and cash deposit in bank A/c.
3. Interpretation of the term "prejudicial to the interest of the revenue" in the context of assessing officer's actions.

Jurisdictional Issue:
The appeal involved a challenge against the order of the Ld. Principal CIT invoking revisional powers under section 263 of the Income Tax Act. The key contention was whether the Assessing Officer's order was erroneous and prejudicial to the interest of the Revenue, as required for the Principal CIT to exercise revisional jurisdiction. The legal precedent from Malabar Industries Ltd. vs. CIT [2000] 243 ITR 83(SC) established the conditions for invoking revisional powers, emphasizing the need for the AO's order to be erroneous and prejudicial to revenue.

Validity of AO's Assessment Order:
The core issue revolved around the discrepancy in turnover shown in the Income Tax Return (ITR) and cash deposit in the bank account. The Ld. PCIT raised concerns about the lack of proper enquiry by the AO regarding this discrepancy, leading to the cancellation of the AO's order. However, upon review, it was found that the AO had indeed called for relevant documents and reconciled the discrepancy. The AO's examination of the issue and acceptance of the reconciliation provided by the assessee indicated that due diligence was conducted, contrary to the Ld. PCIT's assertion of non-enquiry. The Tribunal concluded that the AO's scrutiny assessment was not erroneous for lack of enquiry, thereby quashing the jurisdiction assumed by the Ld. PCIT under section 263.

Interpretation of "Prejudicial to the Interest of the Revenue":
The Tribunal analyzed the term "prejudicial to the interest of the revenue" in light of the AO's actions. It was highlighted that mere loss of revenue due to an AO's decision does not necessarily render it prejudicial unless the decision is unsustainable in law. The Tribunal emphasized the importance of the AO's findings and the need for substantial evidence to challenge the AO's conclusions. In this case, the Tribunal found that the AO's actions were not prejudicial to revenue, as proper enquiry had been conducted, and the discrepancy was adequately addressed.

In conclusion, the Tribunal allowed the appeal of the assessee, quashing the assumed jurisdiction under section 263 of the Income Tax Act. The detailed analysis of the jurisdictional issue, validity of the AO's assessment order, and interpretation of prejudicial actions towards revenue provided a comprehensive understanding of the legal complexities involved in the case.