2022 (11) TMI 583 - AT - Income Tax

Revision u/s 263 by CIT - Unexplained cash deposits during demonetisation low gross profit and net profit inspite of increased receipts compared to previous years Service tax applicability for travel business and Sundry creditors - HELD THAT - This is not a case where no enquiry has been made by the assessee officer during the course of assessment proceedings. It is also not the case of the Pr. CIT that the Ld. AO failed to apply his mind to the issues on hand or he had omitted to make enquiries altogether or had taken a view which was not legally plausible in the instant facts. As held by various Courts sec 263 of the Act does not visualise a case of substitution of the judgment of the Principal CIT for that of the AO who passed the order unless the decision is held to be wholly erroneous. As noted in various judicial precedents highlighted above the Principal CIT on perusal of the records may be of the opinion that the estimate made by the officer concerned was on the lower side and left to the Commissioner he would have estimated the income at a figure higher than the one determined by the Income-tax Officer. That would not vest the Commissioner with power to re-visit the entire assessment and determine the income himself at a higher figure. Now on the issue that the Ld. AO passed a cryptic order and did not discuss in detail regarding assessee s submissions on various queries raised vide the various notices in our view it is a well settled position of law that if from the assessment records it is evident that the AO has made due enquiries in response to which assessee has filed its submissions then even if the assessment order does not discuss all aspects in detail with regards to claim of the assessee it cannot be held that the order is erroneous and prejudicial to the interests of the Revenue. The above proposition has been upheld in the case of CIT v. Reliance Communication 2016 (4) TMI 173 - BOMBAY HIGH COURT Smt. Anupama Bharat Gupta 2021 (4) TMI 1000 - ITAT AHMEDABAD Goyal Private Family Specific Trust 1987 (10) TMI 43 - ALLAHABAD HIGH COURT CIT v. Mahendra Kumar Bansal 2007 (7) TMI 149 - HIGH COURT ALLAHABAD . We thus find no error in the order of Ld. AO so as to justify initiation of 263 proceedings by the Ld. Pr. CIT. The Grounds of appeal raised by the assessee are thus allowed.

Summary

Issues Involved:
1. Jurisdiction of Principal Commissioner of Income Tax (PCIT) under Section 263.
2. Verification of cash deposits during demonetization.
3. Verification of gross profit and net profit.
4. Applicability of Section 43B regarding service tax.
5. Examination of sundry creditors.
6. Adequacy of Assessing Officer's (AO) inquiries.

Detailed Analysis:

1. Jurisdiction of Principal Commissioner of Income Tax (PCIT) under Section 263:
The assessee contended that the PCIT erred in passing the order under Section 263 without jurisdiction and appropriate powers, asserting that the AO neither committed any error nor caused prejudice to the revenue. The Tribunal noted that the power under Section 263 can only be invoked if the order is erroneous and prejudicial to the interests of the revenue.

2. Verification of Cash Deposits During Demonetization:
The PCIT held that the AO did not adequately verify the cash deposits amounting to Rs. 51,22,500 during the demonetization period. The assessee argued that complete details were provided, and the AO had verified the same to his satisfaction. The Tribunal observed that the AO had made detailed inquiries and the assessee had provided explanations and supporting documents. Therefore, the Tribunal found no lack of inquiry or verification by the AO.

3. Verification of Gross Profit and Net Profit:
The PCIT criticized the AO for not verifying the lower gross profit and net profit despite increased receipts. The assessee explained that the lower profit margins were due to higher discounts given to attract customers in a competitive market. The Tribunal noted that the AO had specifically inquired into this aspect and received detailed explanations from the assessee. The Tribunal concluded that the AO had conducted adequate inquiries and the PCIT's direction for further inquiry was unwarranted.

4. Applicability of Section 43B Regarding Service Tax:
The PCIT set aside the assessment order on the grounds that the AO failed to verify the service tax liability under Section 43B. The assessee argued that service tax was paid under the Sabka Vishwas scheme and provided relevant details. The Tribunal found that the AO had inquired into the service tax liability and received responses from the assessee. Thus, the Tribunal held that the AO had made the necessary inquiries and the PCIT's order was not justified.

5. Examination of Sundry Creditors:
The PCIT observed that the AO did not verify the sundry creditors, which were allegedly loans misclassified as creditors. The assessee maintained that the AO had examined these details during the assessment. The Tribunal noted that the AO had indeed inquired into the sundry creditors and received detailed responses. Therefore, the Tribunal found the PCIT's direction for further inquiry to be unnecessary.

6. Adequacy of Assessing Officer's (AO) Inquiries:
The Tribunal emphasized that an inquiry deemed inadequate by the PCIT does not make the AO's order erroneous. The AO's discretion in the extent of inquiry is recognized, and the PCIT cannot impose his own standards of inquiry. The Tribunal cited various judicial precedents to support the view that the AO's inquiries were adequate and the PCIT's order was beyond the scope of Section 263.

Conclusion:
The Tribunal allowed the appeal, concluding that the AO had made adequate inquiries and the PCIT's order under Section 263 was not justified. The Tribunal emphasized the distinction between lack of inquiry and inadequate inquiry, supporting the AO's discretion in conducting assessments. The Tribunal's decision was based on a thorough review of the AO's inquiries and the assessee's responses, ultimately finding no error in the AO's original assessment order.