2022 (5) TMI 1131 - AT - Income Tax

Revision u/s 263 - As per CIT- A source of cash deposit in savings bank account which are alleged to be more than the assessee s business turnover - HELD THAT - We find merit in the grounds raised by the assessee and note that the source of cash deposit in the bank account held with IDBI has been examined by the ld. AO and after being satisfied with the details has accepted the source of cash deposits. Even before ld. PCIT, the assessee has given complete details about the frequent withdrawal of cash from different bank accounts and the source of cash deposit in both the bank accounts held with IDBI Bank. Ld. PCIT failed to find any error in the details filed by the assessee. The finding of the ld. PCIT seems to be general even after the assessee has given the complete details and the source of cash deposit. It makes sense that the ld. AO was obligatory to conduct enquiries into the source of deposits by issuing notice u/s 133(6) of the Act. We do not find any merit in such finding of ld. PCIT because ld. AO issued notice u/s 133(6) of the Act, called information from the bank, perused the audited financial statements of both the sole proprietorship concerns and after being satisfied that since the assessee sells the goods to retailers in the small villages, towns and markets of Sambalpur, Jharsuguda, Rourkela, Cuttack etc., the source of cash deposit is from sale of goods and in some cases from withdrawal of cash from one bank account and deposit into another. PCIT erred in assuming jurisdiction u/s 263 of the Act and since proper enquiry have been conducted for the issue raised in the show cause notice and a permissible view has been taken by the ld. AO, the entire proceedings u/s 263 of the Act are bad in law. We, therefore, quash the impugned order passed by ld. PCIT and restore the order of the ld. AO passed u/s 143(3) of the Act dated 22.11.2016. Hence, all the grounds raised by the assessee are allowed.

Summary

Issues Involved:
1. Jurisdiction of the Principal Commissioner of Income Tax (PCIT) under Section 263 of the Income Tax Act, 1961.
2. Examination of the source of cash deposits in the assessee’s bank accounts.
3. Validity of the assessment order passed under Section 143(3) of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Jurisdiction of the Principal Commissioner of Income Tax (PCIT) under Section 263 of the Income Tax Act, 1961:
The assessee challenged the order passed under Section 263 by the PCIT, claiming it was "arbitrary, illegal, bad in law and without jurisdiction." The PCIT had invoked Section 263, stating that the assessment order was erroneous and prejudicial to the interest of the revenue because the Assessing Officer (AO) did not properly examine the source of cash deposits in the bank accounts. However, the Tribunal found that the AO had indeed scrutinized the source of these deposits during the original assessment. The Tribunal concluded that the PCIT erred in assuming jurisdiction under Section 263 since the AO had conducted proper inquiries, and a permissible view was taken. Consequently, the Tribunal quashed the PCIT's order and restored the AO's assessment order.

2. Examination of the Source of Cash Deposits in the Assessee’s Bank Accounts:
The PCIT issued a show-cause notice to the assessee, indicating that the source of cash deposits in the bank accounts was not adequately examined. The notice detailed various cash deposits and withdrawals, questioning their sources and the rationale behind frequent transactions. During the revisionary proceedings, the assessee explained that the cash deposits were from collections made by salesmen, which were deposited into different bank accounts and later transferred to the main account to avoid bank charges. The AO had verified these transactions during the original assessment by issuing notices under Section 133(6) and reconciling the deposits with the bank statements. The Tribunal noted that the AO had satisfactorily examined the sources of the cash deposits and that the PCIT's concerns were addressed during the original assessment.

3. Validity of the Assessment Order Passed Under Section 143(3) of the Income Tax Act, 1961:
The assessment order under Section 143(3) was challenged by the PCIT on the grounds that it was erroneous and prejudicial to the revenue's interest. The Tribunal, however, found that the AO had conducted a detailed examination of the cash deposits and their sources, including issuing notices under Section 133(6) to banks and verifying the transactions with the audited financial statements. The AO concluded that the cash deposits were from legitimate business transactions and withdrawals from other bank accounts. The Tribunal held that the AO had taken a permissible view based on the evidence presented and that the assessment order was neither erroneous nor prejudicial to the revenue's interest. Therefore, the Tribunal restored the original assessment order passed by the AO.

Conclusion:
The Tribunal allowed the appeal filed by the assessee, quashing the PCIT's order under Section 263 and restoring the AO's assessment order under Section 143(3). The Tribunal found that the AO had conducted a proper inquiry into the source of cash deposits, and the PCIT's assumption of jurisdiction under Section 263 was unjustified. The Tribunal emphasized that the AO's findings were based on a thorough examination of the evidence and were not erroneous or prejudicial to the revenue's interest.