2020 (3) TMI 625 - AT - Income Tax

Revision u/s 263 - Unexplained cash deposits - deposits shown to have been received by the corresponding broker was not probed by the AO - whether the Pr.CIT was justified in setting aside the assessment order where source of cash deposits from unidentified people have been accepted summarily without any tangible inquiry in this regard? - HELD THAT - A perusal of the questionnaires issued and replies made by the assessee thereon clearly show that no relevant or meaningful inquiry was conducted in respect of source of cash to meet the losses incurred on transactions with M/s. Labdhi Finance Corporation. A bare look at the assessment order gives an infallible impression that the assessment order was passed in a routine and perfunctory manner without any discussion on any aspect of the assessment for which the case was reopened. The preponderance of evidence and explanations thereon by the assessee clearly indicates its unrealistic nature which would warrant an inquiry from the source persons. The Pr.CIT in discharge of its solemn duty u/s 263 could not remain oblivious of these facts. There is an apparent plausibility in the action of the Pr.CIT by resorting to powers under s.263 of the Act which is of wide amplitude. The circumstances clearly existed which demanded enquiry which was not done by the AO while discharging its statutory function. Stock market regulations did not permit a share broker or market intermediary to accept the cash payments against the transactions carried out on the platform of the stock exchange. The client is expected to deal with the share broker only through the banking channel. The case made out on behalf of the assessee that the transactions were carried out on behalf of the unknown clients from whom the cash was received remains totally unsubstantiated. No tangible enquiry has been made by the AO into the circumstances which led to so called arrangement whereby the cash was given by unidentified people to the assessee for doing transactions on their behalf where arrangement itself is violative of regulated procedure. The source of cash has remained unexplained before the AO indeed in the absence of proper verification in this regard. Similarly, no concrete evidence is available for conversion of cash into demand drafts, which has, in turn, been paid to the broker. The elementary details called for by the AO could not persuade any reasonable person to form an opinion in favour of the assessee as regards source of cash. No trail of cash deposits was placed on record. Mere passing of entries towards receipt of cash from unknown persons, in the cash book, in the strange circumstances bypassing the stock market regulations, could not have discharged the AO of its quasi-judicial responsibilities. The assessment order passed by the AO clearly suffers from the vice of lack of requisite enquiries or verification expected from him which has rendered the order passed by the AO to be erroneous in so far as it is prejudicial to the interests of the Revenue as rightly held by the Revisional Commissioner. Armed with fairly extensive powers, the Pr.CIT, in our view, has taken action compatible with circumstances. Cause of action did exist in relation to all the three assessment years in question. Hence, the Pr.CIT was fully justified in invoking its power u/s 263 of the Act to set aside the assessment framed without any application of mind for making a fresh assessment de novo after making necessary enquiry regarding source of credit entries from the assessee and towards cash deposits made in the bank account by the assessee. A lack of inquiry on a pertinent point which demonstrates possible revenue leakage of staggering amount would definitely tantamount to the order being both erroneous as well as prejudicial to the interest of the Revenue. Consequent upon the action of Pr.CIT, the assessment order is merely cancelled and set aside to the file of the AO for making relevant inquiries as specified for which objective material is available at the threshold. The assessee has not estopped in any manner from dealing with the inquiry as specified to the AO and to rebut the perception that the prima facie belief on error in the original order is not correct. The assessee is not prevented from supporting its case in any manner before the AO in the proceedings pursuant to Section 263 - no justifiable reason to interfere with the revisional action of the Pr.CIT. - Decided against assessee.

Summary

Issues Involved:
1. Revisional jurisdiction under Section 263 of the Income Tax Act.
2. Verification of source of cash deposits in the bank account.
3. Verification of payments made to the share broker.

Issue-wise Detailed Analysis:

1. Revisional Jurisdiction under Section 263 of the Income Tax Act:
The assessee challenged the revisional jurisdiction exercised by the Principal Commissioner of Income Tax (Pr.CIT) under Section 263 of the Income Tax Act. The Pr.CIT invoked Section 263, alleging that the assessment order passed by the Assessing Officer (AO) was erroneous and prejudicial to the interests of the Revenue due to lack of proper enquiry and verification of the source of cash deposits and payments made to the share broker.

2. Verification of Source of Cash Deposits in the Bank Account:
The assessee did not file a return of income initially, but later filed a return declaring a business loss and minimal income from other sources after a notice under Section 148 was issued. The AO assessed the income as declared but disallowed the carry forward loss. The Pr.CIT found that the AO accepted the explanation for cash deposits totaling ?20,87,000/- in the bank account without proper verification. The Pr.CIT noted discrepancies between the assessee's bank account and the ledger account with the share broker, Labdhi Finance Corporation. The Pr.CIT argued that the AO should have conducted a more thorough enquiry into the source of these deposits, especially given the meager income declared by the assessee.

3. Verification of Payments Made to the Share Broker:
The Pr.CIT also noted that the assessee's ledger account with the share broker showed payments aggregating to ?26,86,510/- through cheques, which were not reflected in the assessee's bank account. The AO failed to verify the source of these payments. The Pr.CIT highlighted the need for a detailed enquiry into these transactions to ensure they were genuine and not prejudicial to the interests of the Revenue.

Tribunal's Analysis and Decision:
The Tribunal upheld the Pr.CIT's decision to invoke Section 263, agreeing that the AO's assessment was perfunctory and lacked necessary verification. The Tribunal emphasized that the AO's acceptance of the assessee's explanations without meaningful enquiry rendered the assessment order erroneous and prejudicial to the interests of the Revenue. The Tribunal noted that the stock market regulations did not permit cash transactions for share trading, and the assessee's explanation of receiving cash from unidentified clients was unsubstantiated. The Tribunal concluded that the Pr.CIT was justified in setting aside the assessment order and directing the AO to conduct a fresh assessment with proper enquiries.

Conclusion:
The Tribunal dismissed the assessee's appeals, affirming the Pr.CIT's order under Section 263. The Tribunal found that the AO's failure to verify the source of cash deposits and payments to the share broker warranted the Pr.CIT's intervention to protect the interests of the Revenue. The Tribunal's decision emphasized the importance of thorough verification and enquiry in the assessment process to ensure the accuracy and integrity of tax assessments.