2023 (5) TMI 687 - AT - Income Tax

Revision u/s 263 - unexplained expenditure - HELD THAT - Assessee makes some credit sales to the regular customers, though the amount is not received but the same is entered in the cash sales register and the amount is shown outstanding in the name of truck owners with truck numbers. Subsequently, when the amount is received the same is credited to the daily cash sales customer accounts. Though the policy adopted by the assessee is not at par with the settled accounting policies since the cash is entered in the books without actually receiving the cash, however, going through the flow of the transactions we find that this is in the nature of sales reversal - the sales which is booked at the time of giving goods to the regular customers and though the amount is not received but still the cash sales are increased by that amount but subsequently, when the actual amount is received then again the regular sales is credited with that amount and the amount shown in the past as cash sales from such customers (not actually giving cash), the same is reversed. Therefore, it is merely a sales reversal entry and not a case of unexplained expenditure . Complete documentary evidences in support of these transactions have been filed and we are satisfied that it is not a case of unexplained expenditure. Even otherwise all these details of cash sales including the cash book have examined by ld. AO in detail while carrying out the assessment proceedings for the reason for which the case selected for scrutiny i.e. cash deposit during demonetization period, therefore CIT erred in referring to other issue which was not required to be dealt by ld. AO and thus, wrongly invoked jurisdiction u/s 263 of the Act. Since no prejudice is caused to the Revenue due to this accounting system consistently followed by the assessee and since the order of ld. AO is not erroneous as complete examination of details has been carried out through issuance of notice u/s 142(1) to which proper compliance has been made by the assessee filing requisite details and thus, the assessment proceedings u/s 143(3) of the Act has been carried out after making proper enquiry, proper application of mind and taking a plausible view in accordance with law. No justification in the jurisdiction assumed by CIT u/s 263 for carrying out the revisionary proceedings and even on merits, the impugned proceedings are not valid - Appeal of assessee allowed.

Summary

Issues Involved:
1. Legality of the order passed by the Pr. Commissioner of Income Tax (Pr. CIT) under Section 263 of the Income Tax Act, 1961.
2. Whether the Assessing Officer (AO) conducted necessary enquiries and verifications during the assessment.
3. Determination of the nature of Rs. 67,85,064/- as unexplained expenditure or sales reversal.

Summary:

Issue 1: Legality of the Order Passed by Pr. CIT under Section 263
The assessee challenged the order passed by the Pr. CIT under Section 263 of the Income Tax Act, 1961, arguing that the Pr. CIT was unjustified in setting aside the AO's order dated 04.12.2019. The Pr. CIT's action was deemed "bad and illegal" and liable to be quashed as it failed to establish how the AO's order was "erroneous" and "prejudicial to the interest of revenue."

Issue 2: Conduct of Necessary Enquiries and Verifications by AO
The AO completed the assessment for AY 2017-18 after making minor disallowances and assessing the income at Rs. 13,36,141/-. The Pr. CIT issued a show-cause notice under Section 263, claiming the AO did not conduct proper enquiries or verifications regarding cash expenses amounting to Rs. 92,52,023/-. The Pr. CIT argued that Rs. 67,85,064/- should be treated as unexplained expenditure.

Issue 3: Nature of Rs. 67,85,064/- as Unexplained Expenditure or Sales Reversal
The assessee contended that the amount of Rs. 67,85,064/- was not unexplained expenditure but sales reversal. The assessee maintained that the amount was initially included in cash sales and later reversed when actual payments were received. The Tribunal found that the accounting method, though not conventional, was consistently followed and did not result in unexplained expenditure. The Tribunal concluded that the AO had conducted a thorough examination and the Pr. CIT's jurisdiction under Section 263 was wrongly invoked.

Conclusion:
The Tribunal quashed the order passed by the Pr. CIT under Section 263 and restored the AO's assessment order dated 04.12.2019. The appeal filed by the assessee was allowed, and the Tribunal found no justification for the revisionary proceedings initiated by the Pr. CIT.