2023 (4) TMI 950 - HC - Income Tax

Revision u/s 263 - assessee has made purchases in cash in contravention of the provisions of section 40A(3) - HELD THAT - Tribunal has rightly observed that there was an audit objection by the Internal audit party. It is apparent from the audit objection filed the selection of the scrutiny in case of the assessee was also only on the parameters of AIR information. According to para number 2 (il) the scope of enquiry should be limited only on that aspect only. In such cases, the assessing officer are also directed to confine themselves by questionnaire only to the specific issues pertaining to AIR data and further the wider scrutiny in those cases can only be conducted as per the guidelines and procedures stated in Instruction number 7/2014. According to us when the learned assessing officer was not required to enquire on those issues such as purchases in cash more than specified sum, the learned CIT was not correct in holding that the learned assessing officer has not made due inquiries on that ground as the verification of the purchases exceeding specified limit in cash was not an issue before the assessing officer. Naturally, he should not have made any enquiry on that aspect. Even though the learned assessing officer has raised the specific questions on that aspect and verified the requisite detail. The order passed by the Tribunal has been passed after going through the entire record in detail. No substantial question of law.

Summary

Issues involved:
The appeal under Section 260-A of the Income Tax Act, 1961 seeks to set aside an order passed by the Income Tax Appellate Tribunal for the assessment year 2011-2012.

Details of the Judgment:

Issue 1: Addition to Total Income
The assessee, engaged in liquor retailing, faced scrutiny due to unexplained profits. The assessing officer made lump-sum additions to the total income as detailed item-wise sales were unavailable. The total income was assessed at Rs. 4,21,310. A show cause notice under section 263 highlighted cash purchases and deposits without proper explanation. The CIT set aside the assessment for fresh consideration on these issues. The ITAT allowed the assessee's appeal, emphasizing proper verification of cash deposits by the assessing officer.

Issue 2: Cash Purchases
The CIT held the assessing officer failed to verify cash payments for purchases, breaching section 40A(3) of the Income Tax Act. However, the audit objection and relevant instructions limited the scrutiny to cash deposits only. The assessing officer was not required to investigate cash purchases exceeding a specified limit, as per the instruction. The Tribunal found no infirmity in the ITAT's decision, dismissing the appeal as no substantial question of law arose.

This judgment clarifies the scope of scrutiny in income tax assessments, emphasizing the need for proper verification of specific issues raised during assessments.