2024 (2) TMI 989 - AT - Income Tax

Revision u/s 263 - unexplained cash deposit during the demonization period - difference between no enquiry and inadequate enquiry - as per CIT assessee has deposited cash in old currency notes during the period of demonization and non-furnishing of bills of sales HELD THAT - Coming to specific findings of PCIT regarding non-furnishing of bills of sales, the ld AR has submitted that copy of cash book has been furnished during the course of assessment proceedings which contains bill wise details of sales made by the assessee. Regarding sales in cash and that too for a month, the ld AR has submitted that the said fact has been duly noted by the AO that the assessee was engaged in seasonal trade activity of hosiery items and there is no bar under law to undertake cash sales. In the instant case, where the assessee has carried out seasonal trade in hosiery items duly supported by documentary evidence, the AO having examined the same and having formed a considered view accepting the said transactions and resultant profit has been brought to tax, the ld PCIT cannot be permitted to invoke his jurisdiction merely because he believes that there are certain deficiency in the documentation so maintained and furnished by the assessee and therefore, the order so passed is erroneous as the same require further examination and verification. There was proper application of mind on the part of the AO and the matter has been duly examined by the AO during the course of assessment proceedings. It is not a case where necessary inquiries have not been carried out by the AO, and in such cases, it is important that for holding the order so passed by the AO as erroneous and prejudicial to the interest of the Revenue, certain further verification and inquiries should have been conducted by the Ld. Pr. CIT which has not happened in the present case and therefore the basic condition for invoking the provision of Section 263 are not satisfied in the instant case. Merely stating that detailed and deep enquiries are required in the instant case will result in taking away a vested right of the assessee in terms of completed assessment where it has already gone through the rigorous examination by the AO and the same cannot be sustained in the eyes of law even drawing support from the explanation 2(a) to Section 263 unless it is pointed out as to which enquiry or verification was not made by the AO before passing the assessment order as held in case of Pr. CIT (Central) Vs. Kanin (India) 2022 (5) TMI 1414 - PUNJAB AND HARYANA HIGH COURT Also in case of Ganpati International 2023 (3) TMI 1231 - ITAT CHANDIGARH have held that where the AO had made the enquiry and Id. PCIT is trying to substitute the plausible view taken by the AO with his own view, the said course of action is not permissible under the revisionary provisions under section 263 of the Act We find that where the matter relating to source of cash deposit during the demonization period has been duly examined by the AO and there is due application of mind as discernable from the assessment order and underlying assessment records, there is no justifiable basis to invoke the revisionary jurisdiction u/s 263 of the Act - Assessee appeal allowed.

Issues Involved:

1. Jurisdiction under Section 263 of the Income Tax Act, 1961.
2. Adequacy of inquiries and verification by the Assessing Officer (AO).
3. Basis of revisionary order under Section 263 due to Audit objection.
4. Violation of Principles of Natural Justice.
5. Validity of the show cause notice under Section 263.

Summary:

1. Jurisdiction under Section 263 of the Income Tax Act, 1961:
The Assessee contended that the Principal Commissioner of Income Tax (PCIT) wrongly assumed jurisdiction under Section 263, making the order void-ab-initio. The Tribunal noted that the AO had carried out necessary inquiries during the assessment proceedings, and the PCIT's re-evaluation of the same material without fresh evidence does not justify invoking Section 263.

2. Adequacy of Inquiries and Verification by the AO:
The Assessee argued that the AO made adequate inquiries and verified documents during the assessment proceedings. The AO had accepted the Assessee's explanation for the cash deposited during the demonetization period after examining the cash book, purchase bills, and other relevant documents. The Tribunal found that the AO had indeed conducted a proper inquiry and formed a reasonable view, thus the assessment order was neither erroneous nor prejudicial to the interest of the Revenue.

3. Basis of Revisionary Order under Section 263 due to Audit Objection:
The Assessee claimed that the revisionary order was based solely on an Audit objection, which is illegal. The Tribunal observed that the PCIT did not conduct any further inquiries or verification to substantiate the Audit objection. The Tribunal emphasized that the PCIT must conduct some inquiries to establish that the assessment order is erroneous and prejudicial to the Revenue, which was not done in this case.

4. Violation of Principles of Natural Justice:
The Assessee argued that the PCIT did not address the Audit objection in the revisionary order, violating the Principles of Natural Justice. The Tribunal noted that the PCIT's findings were based on assumptions and conjectures without specific findings, thereby not adhering to the Principles of Natural Justice.

5. Validity of the Show Cause Notice under Section 263:
The Assessee contended that the show cause notice did not mention the words "erroneous" and "prejudicial to the interest of revenue," making the initiation of proceedings under Section 263 illegal. The Tribunal found that the AO had made sufficient inquiries and formed a permissible view, and the PCIT's order lacked the necessary foundation to invoke Section 263.

Conclusion:
The Tribunal set aside the order of the PCIT under Section 263 and revived the order of the AO, allowing the appeal of the Assessee. The Tribunal emphasized that the AO had conducted adequate inquiries, and the PCIT's re-appreciation of the same material without further inquiry was not justified. The order was pronounced in the open Court on 19/02/2024.

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