2023 (10) TMI 261 - AT - Income Tax

Revision u/s 263 - Addition u/s 40A(3)/269T - As per CIT AO ought to have inquired the issue of utilization of cash by the company and examined the violation of section 40A(3)/269T of the Act when in fact said amount is not expended during the year but disclosed on assets side of balance sheet - HELD THAT - AO has asked the assessee to submit month-wise details of cash sales for the financial year 2015-16 and month-wise details of cash sales for the financial year 2016-17 relevant to assessment year 2017-18. The assessing officer also asked the assessee to submit cash book for the assessment year 2017-18. AO also asked the assessee to submit Sales Tax return and VAT return and other returns filed under the Income Tax Act. We note that with help of these documents and details, the assessing officer has examined the cash received by the Raremat Mall Management office (assessee s office) from the assessee and summery of cash which have been utilized by the Raremat Mall Management office. Therefore, we note that assessing officer has examined the issue raised by the ld PCIT in his revision order therefore order passed by AO is neither erroneous nor prejudicial to the interest of revenue. According to us, the present order of AO passed u/s 143(3) cannot be termed as erroneous since enquiry was, in fact, carried out by him on the issue on which the PCIT has found fault with and has taken a plausible view. We note that the AO has made enquiry during the assessment proceedings about cash issued to Raremat Mall Management office and utilization of the such cash. Thus we note that the AO enquired during assessment proceedings and the assessee had filed details before him. So we find that the AO s action cannot be termed erroneous Since not only enquiry was carried out by the AO on the issue under consideration and based on the evidence gathered he has taken a plausible view, which at any rate cannot be called as an un-sustainable view. The Hon ble Supreme Court in the case of Malabar Industries 2000 (2) TMI 10 - SUPREME COURT held that this phrase i.e. prejudicial to the interest of the revenue has to be read in conjunction with an erroneous order passed by the AO. Their Lordship held that it has to be remembered that every loss of revenue as a consequence of an order of AO cannot be treated as prejudicial to the interest of the revenue. When the AO adopted one of the courses permissible in law and it has resulted in loss to the revenue, or where two views are possible and the Assessing Officer has taken one view with which the CIT does not agree, it cannot be treated as an erroneous order prejudicial to the interest of the revenue unless the view taken by the AO is unsustainable in law . Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of the revisionary order under section 263 of the Income Tax Act.
2. Whether the assessment order under section 143(3) was erroneous and prejudicial to the interest of revenue.
3. Examination of the utilization of cash payments and potential violations of section 40A(3)/269T.

Summary:

1. Validity of the Revisionary Order under Section 263:
The assessee challenged the correctness of the revisionary order passed by the Principal Commissioner of Income Tax (PCIT) under section 263 of the Income Tax Act, 1961, which set aside the assessment order under section 143(3) for the assessment year 2017-18. The assessee argued that the original order was neither erroneous nor prejudicial to the interest of revenue.

2. Whether the Assessment Order under Section 143(3) was Erroneous and Prejudicial to the Interest of Revenue:
The PCIT observed that the assessee-company made cash payments totaling Rs. 3,84,00,000/- to Raremat Mall Management Office in 87 transactions, with mall operation expenses booked at Rs. 1,28,15,659/-. The PCIT noted that the difference of Rs. 2,55,84,341/- was unexplained and that the Assessing Officer (AO) had not inquired into this matter during the assessment proceedings. The PCIT concluded that the AO's failure to verify the issue rendered the assessment order erroneous and prejudicial to the interest of revenue.

3. Examination of the Utilization of Cash Payments and Potential Violations of Section 40A(3)/269T:
The assessee contended that the cash payments were not expenses but were shown as current assets in the balance sheet. The funds were transferred to the Raremat Mall Management Office for managing expenses, and the ledger accounts were submitted to the AO during the assessment. The assessee argued that the AO had made adequate inquiries and verified the details, thus the order was not erroneous.

Tribunal's Findings:
The Tribunal examined the documents and evidence submitted by the assessee, including letters, audit reports, and ledger accounts. It noted that the AO had issued notices under section 142(1) and had asked relevant questions regarding the cash transactions. The Tribunal found that the AO had indeed made inquiries and verified the details during the assessment proceedings.

The Tribunal referred to the Supreme Court's decision in Malabar Industries Ltd. vs. CIT, which held that for an order to be revised under section 263, it must be both erroneous and prejudicial to the interest of revenue. The Tribunal concluded that the AO's order was neither erroneous nor prejudicial to the interest of revenue as the AO had made a plausible view based on the evidence.

Conclusion:
The Tribunal quashed the revisionary order passed by the PCIT under section 263, stating that the jurisdictional conditions for invoking revisional jurisdiction were absent. The appeal filed by the assessee was allowed, and the assessment order dated 25.12.2019 was upheld.

Order Pronounced:
The order was pronounced on 26/09/2023 in the open court.