2022 (9) TMI 925 - AT - Income Tax

Revision u/s 263 by CIT - unexplained cash deposits - when an order can be termed as erroneous ? - HELD THAT - PCIT, before holding an order to be erroneous, should have conducted necessary enquiries or verification in order to show that the finding given by the assessing officer is erroneous, the Ld. PCIT should have shown that the view taken by the AO is unsustainable in law. In the instant case, PCIT has failed to do so and has simply expressed the view that the assessing officer should have conducted enquiry in a particular manner as desired by him. Such a course of action of the Ld. PCIT is not in accordance with the mandate of the provisions of sec. 263 - CIT has taken support of the newly inserted Explanation 2(a) to sec. 263 of the Act. The said explanationwas inserted by Finance Act 2015 w.e.f. 1.4.2015. If that be the case, then the PCIT can find fault with each and every assessment order, without conducting any enquiry or verification in order to establish that the assessment order is not sustainable in law and order for revision. Hon'ble Supreme Court has held in the case of Parashuram Pottery Works Co. Ltd. 1976 (11) TMI 1 - SUPREME COURT that there must be a point of finality in all legal proceedings and the stale issues should not be reactivated beyond a particular stage and the lapse of time must induce repose in and set at rest judicial and quasi-judicial controversies as it must in other spheres of human activity. what is relevant for clause (a) of Explanation 2 to sec. 263 is whether the AO has passed the order after carrying our enquiries or verification, which a reasonable and prudent officer would have carried out or not. It does not authorise or give unfettered powers to the Ld. PCIT to revise each and every order, if in his opinion, the same has been passed without making enquiries or verification which should have been made. In our view, it is the responsibility of the Ld. PCIT to show that the enquiries or verification conducted by the AO was not in accordance with the enquiries or verification that would have been carried out by a prudent officer. During the notice u/s 142(1) the assessee submitted the relevant documents before the revenue authorities. On basis of these documents the order was passed by the ld. AO. It cannot be said that the issue was untouched and unverified by the assessing authority. Mere change of opinion an order cannot be called as erroneous. We directed that the order passed by the PCIT is unjust for, and the order is setting aside. Appeal of assessee allowed.

Summary

Issues Involved:
1. Legality of the Principal Commissioner of Income Tax (PCIT)'s revision order under Section 263 of the Income Tax Act, 1961.
2. Adequacy of the Assessing Officer (AO)'s verification process during the assessment of cash deposits made during the demonetization period.

Detailed Analysis:

1. Legality of the PCIT's Revision Order under Section 263:

The appeal was filed against the order of the PCIT, who had set aside the AO's order and directed a fresh assessment, considering the original assessment as erroneous due to alleged incomplete verification of cash deposits during the demonetization period. The case was selected for limited scrutiny under CASS due to large cash deposits, and the AO completed the scrutiny with a Nil demand. The PCIT issued a notice under Section 263, claiming the assessment order was erroneous and prejudicial to the interests of the revenue.

The ITAT examined whether the PCIT's invocation of Section 263 was justified. It was noted that the PCIT can revise an order only if it is shown to be erroneous and prejudicial to the interests of the revenue. The ITAT cited the Hon'ble Bombay High Court's decision in Gabriel India Ltd., which clarified that an order cannot be termed erroneous unless it is not in accordance with the law. The ITAT emphasized that the AO had exercised quasi-judicial power and arrived at a conclusion based on the verification of documents submitted by the assessee.

The ITAT also referred to the Hon'ble Delhi High Court's decision in Sunbeam Auto Ltd., which held that when two views are possible, and the AO has taken one of the possible views, the order cannot be held to be prejudicial to the revenue. The ITAT concluded that the PCIT had not conducted necessary enquiries or verification to show that the AO's findings were erroneous. Thus, the PCIT's action of revising the order without establishing the AO's error was not in accordance with the mandate of Section 263.

2. Adequacy of the AO's Verification Process:

The PCIT contended that the AO's verification of the source of cash deposits was incomplete, as the AO had not adequately scrutinized the explanations provided by the assessee. The assessee had deposited Rs. 12,00,000 during the demonetization period and explained the sources as gifts from family members, advance rent, opening cash in hand, and past personal savings. The AO had issued notices under Section 142(1) and obtained confirmations and supporting documents from the assessee.

The ITAT noted that the AO had examined the accounts, made enquiries, and applied his mind to the facts and circumstances of the case. The AO had accepted the explanations provided by the assessee and completed the assessment. The ITAT emphasized that the PCIT had not shown that the AO's verification process was inadequate or that the AO's conclusions were unsustainable in law.

The ITAT highlighted that the PCIT's reliance on Explanation 2(a) to Section 263, inserted by the Finance Act 2015, was misplaced. The provision applies if the order is passed without making enquiries or verification that a reasonable and prudent officer would have carried out. The ITAT concluded that the AO had conducted reasonable enquiries and verification, and the PCIT's opinion on the adequacy of the AO's enquiries was not sufficient to revise the order.

Conclusion:

The ITAT held that the PCIT's order was unjustified and set it aside. The appeal of the assessee was allowed, and the original assessment order passed by the AO was upheld. The ITAT emphasized that mere change of opinion does not render an order erroneous and that the AO had conducted appropriate verification based on the documents submitted by the assessee. The ITAT's decision underscores the importance of adhering to the legal standards for revising assessment orders under Section 263.