2023 (2) TMI 21 - AT - Income Tax

Revision u/s 263 - failure of assessee to substantiate the source of deposit - short assessment by AO HELD THAT - Here in the present case on limited question of fact Ld. PCIT exercised its jurisdiction u/s 263 of the Act as Ld. PCIT found that the cash deposits in bank account of assessee with ICICI Bank Ld. AO has wrongly taken the figure at Rs.3,00,74,620/- and which even assessee admitted in its reply to the show-cause notice that cash deposit was Rs.3,05,73,196/-. Thus, the short assessment to the extent of Rs.4,98,576/- has been taken into consideration as difference which Ld. AO failed to consider. Certainly as far as the facts are concerned, in spite of having the material information in the form of bank account statement available with him, the Ld. AO had fallen in error in not taking into account the correct figure. The failure of Ld. AO to examine the bank statement in correct perspective had led to under assessment of income - That, certainly makes the assessment order erroneous and prejudicial to the interest of assessee to the extent of amount ignored by Ld.AO. If any observations have been made by Ld. PCIT with regard to failure of assessee to substantiate the source of deposits are superfluous and have no binding effect on Ld. AO as Ld. AO is expected to only comply with the operative part of the order of the Ld. PCIT which merely directs the Ld. AO to add short amount Rs.4,98,576/- to the addition made by Ld. AO u/s 69A of the Act. The enquiry and verification only to the extent of this amount has been directed by the Ld. PCIT and to that extent there is no illegality in the exercise of powers of Section 263 of the Act by Ld. PCIT. Whatever contentions have been raised on behalf of the assessee as to the nature of its business leading to deposit of cash throughout the year or that there was no disproportionate or exceptional high deposit in the period of demonetization are not issues covered and examined by the Ld. PCIT and assessee has already availed the remedy to challenge the addition on merits by preferring appeal against the order dated 10.12.2019. The judgments relied are quite distinguishable on facts as in the present case the admitted state of affairs is that there was factual error committed by Ld. AO and same apparently caused loss of revenue. Thus, the grounds raised have no substance. Consequently, the appeal is dismissed.

Summary

Issues:
1. Challenge to order u/s 263 of the Income Tax Act, 1961
2. Addition of cash deposits under Section 69A of the Act
3. Proper enquiry and verification before completion of assessment
4. Setting aside of assessment order with directions for further inquiry
5. Grounds raised in appeal challenging the order u/s 263

Issue 1: Challenge to order u/s 263 of the Income Tax Act, 1961
The assessee appealed against the order dated 30.03.2022 u/s 263 of the Income Tax Act, challenging the revisional order passed by the Principal Commissioner of Income Tax, Delhi-12 (Ld. PCIT) against the original assessment order u/s 144 of the Act. The primary contention was that the Ld. PCIT exceeded jurisdiction by invoking Section 263 to correct alleged mistakes made by the Assessing Officer. The assessee argued that the show-cause notice itself contained incorrect facts regarding the amount allegedly under-assessed, leading to confusion over the actual amount in question.

Issue 2: Addition of cash deposits under Section 69A of the Act
The case involved the addition of cash deposits under Section 69A of the Act, where the Assessing Officer (Ld. AO) added cash deposits to the tune of Rs. 3,23,08,300/- due to the inability of the assessee to explain the source of cash deposited during the financial year 2016-17. The Ld. Revisional Authority found discrepancies in the assessment, particularly in the amount deposited in the ICICI Bank, leading to a partial setting aside of the assessment order for further inquiry.

Issue 3: Proper enquiry and verification before completion of assessment
The Ld. Revisional Authority observed a lack of proper enquiry and verification by the Ld. AO before completing the assessment, specifically noting the failure to provide complete details of customers who directly deposited cash in the bank account. This lack of verification led to an under-assessment of income, highlighting the importance of thorough investigation before finalizing assessments under the Act.

Issue 4: Setting aside of assessment order with directions for further inquiry
The Ld. PCIT set aside the assessment order in part and directed the Ld. AO to conduct appropriate inquiries and verification regarding the cash receipts deposited in the bank account. The direction aimed to rectify the under-assessment and ensure a fair assessment process, emphasizing the need for a detailed examination of the cash deposits to determine the accurate income figures.

Issue 5: Grounds raised in appeal challenging the order u/s 263
The assessee raised multiple grounds in the appeal, including challenging the legality and jurisdiction of the order u/s 263, alleging a lack of proper opportunity to be heard, disputing the setting aside of the assessment order, and criticizing the handling of submissions by the Ld. PCIT. However, the arguments presented by the assessee were deemed unsubstantiated, with the Tribunal dismissing the appeal based on the factual errors in the original assessment and the necessity for further inquiry to rectify the under-assessment.

In conclusion, the judgment addressed the challenges raised by the assessee against the order u/s 263, emphasizing the importance of proper enquiry, verification, and adherence to legal procedures in income tax assessments to ensure accuracy and fairness in determining tax liabilities.