2021 (9) TMI 410 - AT - Income Tax

Revision u/s 263 - cash deposits in the bank account - case of assessee was selected for limited scrutiny for verification of Cash Deposits - whether the AO has duly examined the details so furnished by the assessee as part of his return of income and where required, calling for further information/documentation and examination thereof during the course of assessment proceedings? - HELD THAT - As during the course of assessment proceedings, the AO has issued notice u/s 142(1) dated 31.05.2017 asking for copy of return of income, computation of income, books of accounts, bank statements and to explain the nature and source of cash deposits in saving bank accounts maintained by the assessee - assessee has submitted copy of his return of income, computation of income, bank statements, personal cash book, ledger, copy of capital account and balance sheets for A.Y 2014-15, A.Y 2015- 16 and A.Y 2016-17 showing the opening and closing cash in hand and has also submitted the nature and source of cash deposits during the year under consideration. Infact, the ld PCIT has also acknowledged this fact that the details of transactions in respect of cash deposits and withdrawals have been duly submitted by the assessee during the assessment proceedings. The submissions so made have been examined by the AO as evident from clear affirmation thereof by the AO in the assessment order. The matter has been duly examined by the AO with focus on cash deposits and withdrawals transactions made by the assessee during the year for which the matter was selected for limited scrutiny - where the AO has examined the personal cash book maintained by the assessee showing cash in hand, deposits and withdrawals made during the year and the opening and closing balances of cash in hand are duly reflected in the respective balance sheets of previous and subsequent years, we find that the AO has taken all reasonable steps as are expected to be taken to verify the subject transactions in terms of nature and source of such deposits. Balance sheets not just reflect the cash in hand rather reflect the state of affairs in terms of assets and liabilities as on the close of the financial year including the net results of the activities undertaken by the assessee during the year - where the net results of the activities so undertaken has been accepted by the ld PCIT as reflected in the return of income in terms of net income and further, where no adverse finding has been recorded regarding the status of assets and liabilities, it would be incorrect to hold that the balance sheet is not authentic merely for the fact that the assessee has failed to report certain details in the return of income. Necessary enquiries and examination as reasonably expected have been carried out by the Assessing officer and he has taken a prudent, judicious and reasonable view after considering the entire material available on record and the order so passed u/s 143(3) cannot be held as erroneous in so far as prejudicial to the interest of Revenue - Decided in favour of assessee.

Summary

Issues Involved:
1. Whether the assessment order passed by the Assessing Officer (AO) was erroneous and prejudicial to the interest of the Revenue.
2. Whether the Principal Commissioner of Income Tax (PCIT) had valid grounds to invoke revisionary powers under Section 263 of the Income Tax Act.
3. Adequacy of the AO's examination of the source of cash deposits in the assessee's bank account.

Detailed Analysis:

Issue 1: Whether the assessment order passed by the Assessing Officer (AO) was erroneous and prejudicial to the interest of the Revenue.

The assessee contended that during the assessment proceedings, the AO had issued notices under Sections 143(2) and 142(1) along with a query letter, to which the assessee responded by furnishing complete details of cash deposits and relevant documents. The AO, after thorough verification of the documentary evidence and explanations provided, concluded that the cash deposits in the bank account were from verifiable sources. The AO accepted the income declared by the assessee, finding no adverse material. The assessee argued that the AO exercised his quasi-judicial power in accordance with the law and arrived at a conclusion based on legal and valid documentary evidence. Therefore, the order could not be termed erroneous simply because the PCIT was not satisfied with the conclusion.

Issue 2: Whether the Principal Commissioner of Income Tax (PCIT) had valid grounds to invoke revisionary powers under Section 263 of the Income Tax Act.

The PCIT issued a show-cause notice under Section 263, observing that the assessment order was erroneous and prejudicial to the interest of the Revenue. The PCIT noted that the assessee had deposited ?72.34 lakhs in his bank account, with a major part claimed to be from an opening cash balance of ?46.57 lakhs. The PCIT found that the assessee had not furnished details in Part A-BS of his ITR and that the balance sheets prepared for AY 2014-15, 2015-16, and 2016-17 lacked authenticity as the details were not shown in the respective ITRs. The PCIT doubted the veracity of the opening cash balance and directed the AO to re-examine the source of cash deposits. The PCIT's assumption of jurisdiction under Section 263 was based on the AO's alleged failure to make proper enquiries.

Issue 3: Adequacy of the AO's examination of the source of cash deposits in the assessee's bank account.

The Tribunal noted that during the assessment proceedings, the AO had issued a notice under Section 142(1) asking for various documents, including the nature and source of cash deposits. The assessee submitted the required documents, including personal cash books, ledgers, bank statements, and balance sheets for AY 2014-15, 2015-16, and 2016-17. The AO examined these submissions and found no adverse findings, concluding that the cash deposits were from verifiable sources. The Tribunal found that the AO had conducted a thorough investigation and enquiry, focusing on the cash deposits and withdrawals, and had taken all reasonable steps to verify the transactions.

The Tribunal held that the AO had conducted the proceedings in a proper, reasonable, and judicious manner, and the assessment order could not be deemed erroneous and prejudicial to the interest of the Revenue. The Tribunal set aside the PCIT's order under Section 263 and sustained the AO's order.

Conclusion:
In conclusion, the Tribunal found that the AO had conducted a thorough and reasonable examination of the assessee's cash deposits and that the assessment order was neither erroneous nor prejudicial to the interest of the Revenue. The PCIT's invocation of revisionary powers under Section 263 was deemed invalid, and the appeal filed by the assessee was allowed.