2023 (10) TMI 1064 - HC - Income Tax

Revision u/s 263 - Cash deposits during demonetization period - In the perception of the CIT, AO had not examined the sources of cash in hand and that the possibilities of introducing unaccounted income could not be ruled out - ITAT quashing the order u/s. 263 - HELD THAT - Perusal of the order would indicate that the Income-tax Appellate Tribunal and in our opinion rightly came to the conclusion that since the assessment proceedings were specifically undertaken for the reason of verifying the cash deposits during the demonetization period, it was not the case where no enquiry was made by the A.O. during the course of assessment proceedings. Perusal of the order and reasons would indicate that these are finding of facts arrived at by the Tribunal. Having found that in response to the notice issued by the A.O, details were supplied such as Certificates from the Lakshmi Vilas Bank, certificate from the Allahabad Bank, Bank Statements of the banks concerned, cash books for the financial year 2016-17 etc., based on which the A.O had taken a decision, the Income Tax Tribunal allowed the appeal of the assessee.

Summary

Issues involved:
Challenge to order of Income Tax Appellate Tribunal dated 22.02.2023 in Income Tax Appeal No. 124/RJT/2022.

Issue 1:
Whether the Tribunal was justified in quashing the order u/s. 263 of the Income Tax Act when Explanation 2 of Section 263 provides for the final opinion of the PCIT to deem an order prejudicial and erroneous to the interest of revenue?

The case involved a revision under Sec. 263 of the Income Tax Act by the Principal Commissioner of Income Tax (PCIT) who believed that the Assessing Officer (AO) had not adequately examined the sources of cash deposits made by the assessee during the demonetization period. The PCIT argued that the AO should have compared the cash deposits made during demonetization with those made in the rest of the year to assess the genuineness of the transactions. The Tribunal, after reviewing the facts, held that the AO had indeed made inquiries into the cash deposits during demonetization and had considered various documents submitted by the assessee. The Tribunal concluded that the PCIT cannot set aside an assessment order simply due to a difference in opinion and that Section 263 does not allow for substitution of judgment unless the decision is wholly erroneous.

Issue 2:
Whether the Tribunal was justified in quashing the order u/s. 263 of the Income Tax Act when the AO had accepted the genuineness of transactions of Rs. 27,00,000 deposited by the assessee during demonetization?

The Tribunal found that the AO had initiated assessment proceedings specifically to verify the cash deposits during demonetization. The assessee provided details such as bank certificates, bank statements, and cash books in response to the AO's queries. The Tribunal observed that the AO had considered these details and did not make any addition to the returned income. Therefore, the Tribunal concluded that the AO had conducted inquiries into the cash deposits during demonetization, and the PCIT's observation that the AO failed to apply his mind was incorrect. Based on these findings, the Tribunal allowed the appeal of the assessee.

Issue 3:
Whether the Tribunal was justified in quashing the order u/s. 263 of the Income Tax Act when the Assessment Order passed by the AO was unsustainable in law?

The Tribunal, after examining the facts, found that the assessment proceedings were specifically undertaken to verify the cash deposits during demonetization. The Tribunal concluded that the AO had made inquiries into the cash deposits and had considered the details provided by the assessee. Based on these findings, the Tribunal determined that the AO's decision was not legally impermissible, and the PCIT could not set aside the assessment order merely due to a difference in opinion. The Tribunal held that Section 263 does not allow for the Commissioner to re-visit the entire assessment and determine income at a higher figure unless the decision is wholly erroneous.

Issue 4:
Whether the Tribunal was justified in quashing the order u/s. 263 of the Income Tax Act when the AO failed to verify the source of aggregate cash of Rs. 27,00,000 deposited during demonetization by the assessee?

The Tribunal found that the AO had indeed verified the cash deposits made by the assessee during demonetization. The assessee provided various documents in response to the AO's queries, and after due consideration, the AO did not make any addition to the returned income. The Tribunal concluded that the PCIT's observation that the AO failed to verify the source of cash deposits was incorrect. Based on these findings, the Tribunal allowed the appeal of the assessee.

Issue 5:
Whether the Tribunal was justified in allowing the appeal of the assessee against the order u/s. 263 of the Income Tax Act when there was gross inadequacy in the inquiry conducted as per the order of the Supreme Court in the case of Commissioner of Income Tax Vs. M/s. Paville Projects Pvt. Ltd.?

The Tribunal, after reviewing the facts and documents submitted by the assessee, found that the AO had conducted inquiries into the cash deposits made during demonetization. The Tribunal observed that the AO had considered various details provided by the assessee and did not make any addition to the returned income. The Tribunal concluded that the PCIT's observation of gross inadequacy in the inquiry was incorrect. Based on these findings, the Tribunal allowed the appeal of the assessee.

In conclusion, the High Court dismissed the appeal, finding no reason to interfere with the Tribunal's decision based on the facts and legal considerations presented during the proceedings.