2021 (9) TMI 1133 - AT - Income Tax

Revision u/s 263 by CIT - unexplained cash deposits as realization from the advances and investments - AO erred in merely accepting the assessee s submissions as stated and in also accepting the cashbook furnished without verifying the existence of the debtors and into the genuineness of the transactions w.r.t recovery of the cash - HELD THAT - As the tax returns for all these earlier assessment years including that of the subsequent AY 2017-18 have been filed by the assessee and accepted by the Revenue which is again a clear affirmation on part of the Revenue that the financial statements represent true and fair view of assessee s affairs and which have thus not been disputed by the Revenue. In such a scenario, where the past affairs of the assessee as reflected in his financial statements and also disclosed in the tax returns have not been disputed by the Revenue, the assessments have been completed and no adverse material is available on record, it is beyond any reasonable belief that the AO will have any apprehension that the debtors and advances so reflected and accepted in the earlier years are not genuine and have to be enquired again afresh in terms of identity, creditworthiness and genuineness of their individual transactions. Where the assessee has shown recovery from old outstanding advances and debtors and provided the necessary financial and tax filing records and the Assessing officer having examined the same thoroughly, we are of the considered view that the necessary enquiries and examination as reasonably expected have been carried out by the AO in discharge of his quasi-judicial function and he has taken a prudent, judicious and reasonable view in accepting the explanation of the assessee in support of the cash deposits after considering the entire material available on record and the order so passed u/s 143(3) of the Act cannot be held as erroneous in so far as prejudicial to the interest of Revenue. The impugned order passed by the ld PCIT u/s 263 is accordingly set aside and the order of the Assessing officer is sustained. - Decided in favour of assessee.

Issues Involved:

1. Invocation of Section 263 of the Income Tax Act.
2. Assumption of jurisdiction under Section 263 without specific findings.
3. Alleged failure of the Assessing Officer (AO) to examine and verify cash recoveries.
4. Application of Explanation 2 to Section 263.
5. Allegation of change of opinion by the AO.

Detailed Analysis:

1. Invocation of Section 263 of the Income Tax Act:

The assessee contested the invocation of Section 263 by the Principal Commissioner of Income Tax (Pr. CIT), arguing that the order dated 11.03.2021 was erroneous both in law and on facts. The Pr. CIT had invoked Section 263 on the grounds that the assessment order dated 10.12.2018 was erroneous and prejudicial to the interests of the Revenue. The Tribunal noted that for Section 263 to be invoked, the order must be both erroneous and prejudicial to the Revenue, as established in Malabar Industrial Co. Ltd. v/s CIT (2000) and CIT v/s Max India Ltd. (2007).

2. Assumption of jurisdiction under Section 263 without specific findings:

The assessee argued that the Pr. CIT assumed jurisdiction under Section 263 without recording specific findings that the assessment order was erroneous and prejudicial to the Revenue. The Tribunal observed that the Pr. CIT had not provided specific and categorical findings to justify the invocation of Section 263. The Tribunal emphasized that the AO had made detailed inquiries and examined the books of accounts, including the cash book and balance sheets from previous years, before accepting the returned income.

3. Alleged failure of the AO to examine and verify cash recoveries:

The Pr. CIT alleged that the AO failed to verify the claimed recoveries of ?85,00,000 in cash from sundry debtors. The Tribunal found that the AO had issued multiple notices under Sections 142(1) and 143(2), calling for detailed explanations and documentation from the assessee. The AO had thoroughly examined the submissions, cash book, and other financial records before completing the assessment. The Tribunal noted that the AO had verified the availability of cash and the genuineness of the transactions, and there was no lack of inquiry on the AO's part.

4. Application of Explanation 2 to Section 263:

The Pr. CIT invoked Explanation 2 to Section 263, suggesting that the AO's order was erroneous due to lack of proper inquiry. The Tribunal held that Explanation 2 does not confer unbridled power on the Pr. CIT to revise orders merely on the grounds of inadequate inquiry. The Tribunal cited several judicial precedents, including CIT vs. Sunbeam Auto Ltd. (2011) and CIT vs. Chemsworth Pvt. Ltd. (2020), to support its view that an order cannot be deemed erroneous merely due to inadequate inquiry if the AO had applied his mind and taken a plausible view.

5. Allegation of change of opinion by the AO:

The assessee argued that the Pr. CIT's action amounted to a change of opinion, which is not permissible for invoking Section 263. The Tribunal agreed, noting that the AO had made a conscious decision after examining all relevant facts and documents. The Tribunal emphasized that the AO's decision was based on a possible view, and merely because the Pr. CIT had a different opinion did not justify the invocation of Section 263.

Conclusion:

The Tribunal concluded that the AO had conducted a thorough inquiry and verification before accepting the assessee's returned income. The Pr. CIT's invocation of Section 263 was not justified as the AO's order was neither erroneous nor prejudicial to the interests of the Revenue. The Tribunal set aside the Pr. CIT's order and allowed the assessee's appeal.

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