2023 (3) TMI 259 - AT - Income Tax

Revision u/s 263 by CIT - Cash deposits during the monetization period - conclusion by the learned PCIT, that inquiries or verification which ought to have been done, had not carried out by the AO - whether AO has carried out the inquiries or verification in regard to cash deposits under reference which ought to have been carried out in the circumstances of the case? - HELD THAT - As submitted that AO has issued specific show cause notice wherein the assessee was asked to substantiate the genuineness of the high cash sales made in the month of October 2016. In response thereto, the assessee filed submissions on 24/12/2019, which are available - The other notices issued and information called under section 133(6) of the Act are also in relation to high cash sales. In such circumstances, it cannot be said that Assessing Officer ignored the fact of the cash sales. The evidences like sale bills, sale registers, stock register, partywise cash sales, have been filed during assessment proceeding, which demonstrates that not only purchases, but sales were also duly verified by the AO. PCIT stated that assessee has purchased diamonds and sold diamonds to small customers, which is not practical as a small retail customers don't buy loose diamonds. In this regard, the assessee submitted that it has not sold loose diamonds to customers, but loose diamonds are purchased and after engaging labourers, jewelry was made, which was then sold. The sales are only in respect of the jewelry during October 2016 and which includes bangles, pendants, rings, earrings etc, which is evident from the copy of the bills, ledger accounts, labour bills etc. detailed filed in the paperbook. The finding of the PCIT that enquiry or verification which ought to have been done, had not been done, is devoid of merit and not justified. The Explanation -2 to section 263 of the Act cannot be invoked in such circumstances. The order of the Ld. PCIT is accordingly set aside. The grounds of the appeal of the assessee are accordingly allowed.

Issues Involved:
1. Violation of the principles of natural justice.
2. Jurisdiction under section 263 based on issues not referred in the show cause notice.
3. Error in holding the assessment order as erroneous and prejudicial to the revenue.
4. Conditions for invoking section 263 not satisfied.
5. Adequacy of inquiries and verifications by the Assessing Officer (AO).
6. Use of section 263 for roving inquiries on already examined issues.
7. Difference of opinion as a basis for invoking section 263.
8. Independent application of mind by the Principal Commissioner of Income-tax (PCIT).

Detailed Analysis:

Violation of the Principles of Natural Justice:
The assessee contended that the PCIT erred in passing the order under section 263 without giving a fair and reasonable opportunity for hearing, thus violating the principles of natural justice. The Tribunal noted that the PCIT issued a notice under section 263, but the assessee claimed that the issues/reasons for the revision were not referred to in the show cause notice, depriving the assessee of the opportunity to controvert the same.

Jurisdiction Under Section 263 Based on Issues Not Referred in the Show Cause Notice:
The assessee argued that the PCIT exercised jurisdiction under section 263 based on issues not mentioned in the show cause notice, which is procedurally incorrect. The Tribunal observed that the PCIT's notice highlighted that the AO did not properly examine the issue of cash deposits during the demonetization period, considering it prejudicial to the interest of the revenue.

Error in Holding the Assessment Order as Erroneous and Prejudicial to the Revenue:
The PCIT held that the AO's order was erroneous and prejudicial to the revenue's interest due to inadequate verification of cash deposits. The Tribunal examined whether the AO carried out sufficient inquiries and verifications. It was noted that the AO issued multiple notices and the assessee provided detailed submissions, including financial statements, sales and purchase details, stock registers, and VAT returns.

Conditions for Invoking Section 263 Not Satisfied:
The assessee contended that the conditions for invoking section 263 were not satisfied since the AO made thorough inquiries. The Tribunal found that the AO had indeed conducted detailed inquiries and verifications, including issuing notices under section 133(6) to verify sales and purchases, and found the PCIT's conclusion of inadequate inquiry to be incorrect.

Adequacy of Inquiries and Verifications by the AO:
The Tribunal reviewed the chart provided by the assessee, detailing the queries raised by the AO and the corresponding submissions and evidence provided by the assessee. The Tribunal concluded that the AO conducted extensive inquiries and verifications, contrary to the PCIT's findings.

Use of Section 263 for Roving Inquiries on Already Examined Issues:
The assessee argued that the PCIT initiated section 263 proceedings to make roving inquiries on issues already examined by the AO. The Tribunal agreed, noting that the AO had already verified the cash sales, purchases, and stock details, and the PCIT's invocation of section 263 was based on a difference of opinion rather than any new evidence.

Difference of Opinion as a Basis for Invoking Section 263:
The Tribunal found that the PCIT's invocation of section 263 was based on a different view of the same set of facts already examined by the AO. The Tribunal held that a mere difference of opinion does not justify the invocation of section 263.

Independent Application of Mind by the PCIT:
The assessee claimed that the PCIT assumed jurisdiction under section 263 based on a proposal sent by the AO without independent application of mind. The Tribunal did not find sufficient evidence to support this claim but noted that the primary issue was the adequacy of the AO's inquiries.

Conclusion:
The Tribunal concluded that the AO conducted adequate inquiries and verifications regarding the cash deposits during the demonetization period. The PCIT's order under section 263 was set aside as it was based on incorrect factual findings and a difference of opinion, which does not justify the invocation of section 263. The appeal of the assessee was allowed, and the additional ground was rendered academic and dismissed as infructuous.

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