2020 (5) TMI 189 - AT - Income Tax

Revision u/s 263 - cash deposits in his bank account -whether the Ld. PCIT was justified u/s 263 in setting aside the assessment order and directing the A.O. to make more/further enquiries? - HELD THAT - Notices issued by the A.O. and replies thereto furnished by the assessee reveal that all the queries raised by the A.O. including about the source of deposits were duly answered by the assessee supported with the documentary evidence. PCIT was of the view that the A.O. had not made the requisite enquiries. However, in reply to the show cause notice, when the assessee had shown from the record that the necessary enquiries were made by the AO and the AO had applied his mind and the view adopted by him was one of the possible views, then without considering the reply of the assessee and without recording his reasoned disagreement/dissatisfaction there to, it was not open to the Ld. PCIT to brand the order of the A.O. as erroneous. Admittedly, the AO asked the assessee to furnish the necessary details from time to time which were duly furnished by the assessee and after considering the same the AO passed the assessment order. Second step for the Ld. PCIT, as per the provisions of section 263 before passing an order of modifying, enhancing or cancelling the assessment, he was supposed either to himself make or cause to make such an enquiry as he deems necessary. The words as he deems necessary , in our view, do not mean that the Ld. PCIT was left with a choice either to make or not to make an enquiry. As per the relevant provisions of section 263, it was incumbent upon the Ld. PCIT to make or cause to make an enquiry. So far as the words as he deems necessary are concerned, the said words suggest that the enquiries which are necessary to form a view as to whether the order of the AO is erroneous and prejudicial to the interest of Revenue or not? Admittedly, in this case also, the Ld. PCIT had asked the assessee to furnish the necessary details and explanations, to which the assessee had given a pointwise detailed reply. We agree with the submissions of assessee as to when there was no such issue or fact on the file regarding the source of any investment made by the assessee, where was the question of examining the issue on purely and imaginary suspicions. Opening cash in hand was carried/ brought forward from the closing cash in hand of the previous assessment year. DR could not convince us as to how the Ld. PCIT was justified to direct the A.O. to make enquiries regarding the source of cash in hand of the previous assessment year in the assessment proceedings for the subsequent year i.e. in the assessment year under consideration - regarding the source of the amount received from Smt. Gulshan Gupta and Ranjan Gupta, the assessee duly explained that the same were the repayments of the amounts earlier received by them from the assessee. Then the Ld. PCIT observed that no interest has been charged by the assessee from Smt. Gulshan Gupta and Mr. Ranjan Gupta. We fail to understand how this fact was relevant, when there was neither any observation made by the A.O. nor by the Ld. PCIT that assessee had used interest bearing funds to give advances to Smt. Gulshan Gupta and Mr. Ranjan Gupta. PCIT did not even bother to consider reply and details furnished by the assessee what to say of calling for any enquiry etc. PCIT has directed the A.O. to make further fishing and roving enquiries which even do not germane from the facts and issues involved. Even we find that the Ld. PCIT has directed the A.O. to make further fishing and roving enquiries which even do not germane from the facts and issues involved. In the case of CIT vs. G.M. Mittal Stainless Steel (P) Ltd. 2002 (12) TMI 13 - SUPREME COURT has observed that the satisfaction by the Commissioner must be one objectively justifiable and based on material either legal or factual when available, it cannot be mere ipse dixit of the Commissioner. Order of the Commissioner exercising jurisdiction u/s 263 cannot held to be sustainable in law and the same is accordingly set aside. - Decided in favour of assessee.

Issues Involved:

1. Erroneous and prejudicial assessment order by the AO.
2. Adequacy of enquiries made by the AO.
3. Source of cash deposits and cash flow statements.
4. Interest-free loans and advances.
5. Genuineness of transactions and investments.
6. Advances against properties.

Detailed Analysis:

1. Erroneous and Prejudicial Assessment Order by the AO:
The Principal Commissioner of Income Tax (PCIT) invoked jurisdiction under section 263 of the Income Tax Act, 1961, considering the assessment order dated 23.03.2016 erroneous and prejudicial to the interest of revenue. The PCIT set aside the assessment order and directed the AO to reassess specific issues.

2. Adequacy of Enquiries Made by the AO:
The PCIT noted that the AO accepted the return of income without making adequate enquiries or verifications. The PCIT emphasized that the AO failed to examine the genuineness of various transactions and the sources of funds. The assessee contended that all queries raised by the AO were duly answered, and necessary details and documents were provided. The assessee argued that the AO made adequate enquiries and that the PCIT's direction for further investigation was unwarranted.

3. Source of Cash Deposits and Cash Flow Statements:
The PCIT highlighted discrepancies in cash deposits and questioned the source of funds. The assessee provided a detailed cash book and cash flow statement, explaining the source of deposits. The PCIT, however, was not convinced and directed the AO to re-examine the source of cash deposits. The assessee argued that the cash deposits were from available cash in hand and that the AO had already verified the cash book during the assessment proceedings.

4. Interest-Free Loans and Advances:
The PCIT questioned the interest-free loans and advances given by the assessee to various individuals and entities, including family members. The PCIT noted that the AO did not examine the source of funds and the nature of these transactions. The assessee argued that the capital and interest-free funds were much more than the interest-free advances, and no adverse inference could be drawn. The assessee relied on the decision of the Punjab & Haryana High Court in the case of Bright Enterprises Pvt. Ltd. v. CIT.

5. Genuineness of Transactions and Investments:
The PCIT raised concerns about the genuineness of certain transactions and investments, including the purchase of demand drafts and advances against properties. The assessee explained that the transactions were genuine and supported by documentary evidence. The PCIT, however, directed the AO to make further enquiries to ascertain the genuineness of these transactions. The assessee contended that the AO had already examined these issues during the assessment proceedings.

6. Advances Against Properties:
The PCIT noted that the AO did not make any enquiry regarding the advances against properties received by the assessee. The PCIT directed the AO to examine the genuineness and nature of these advances. The assessee argued that the advances were received in earlier years and were already examined during the assessment proceedings of those years. The assessee contended that no fresh advances were received in the relevant assessment year, and therefore, no further enquiry was necessary.

Conclusion:
The Tribunal observed that the AO had made adequate enquiries and verifications during the assessment proceedings. The Tribunal noted that the assessee had provided detailed explanations and documentary evidence to support the transactions and sources of funds. The Tribunal held that the PCIT's direction for further investigation was based on mere suspicion and not on any concrete evidence. The Tribunal set aside the order of the PCIT, holding that the assessment order was neither erroneous nor prejudicial to the interest of revenue. The appeal of the assessee was allowed.

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