2022 (12) TMI 1520 - AT - Income Tax

Revision u/s 263 - CIT-DR submits that the AO has not made desired investigation during assessment and accepted the returned income without further investigation on the issue of cash seized during the search - HELD THAT - We find that in the assessment order, there is no discussion about the issue raised by the ld. CIT in the show cause notice u/s 263 about the cash of Rs. 15.50 lacs. We further find that in reply to show cause notice, the assessee specifically stated that the cash of Rs. 15.50 lacs were of the assessee-company. And the assessee notionally reduced the cash balance by passing accounting entry by crediting cash by Rs. 15.50 lacks and debiting Rs. 15.50 lacks to cash seized in the search on 18.06.2016. We find that the ld. Pr.CIT has not disputed any other amount deposited in the form of SBN except the cash of Rs. 15.50 lacs. We further find that the department has already made addition of Rs. 15.50 lacs in the hands of Director of the assessee. Assessee vehemently submitted that when such amount was added in the hands of Director of the assessee, a reverse zonal entry was made to treat the said amount in the hands of Director of assessee. AR further stated that such addition was not disputed by the Director of the assessee in further appeal. AR before us raised a very limited contention that once the amount of Rs. 15.50 lacs is already added in the hands of Director of assessee, the same cannot be added in the hands of assessee company and thus, the assessment order is not at all prejudicial to the interest of revenue. We find merit in the submission of assessee that such submission is not disputed by the ld. Pr. CIT while revising the assessment order. We find that the revenue has already taxed the said amount in the assessment order dated 28/03/2016 passed u/s 143(3) for A.Y. 2014-15 in case of Director of assessee. Thus, the assessment order is not at all prejudicial to the interest of revenue. Thus, in our considered view, the twin condition as required to revise the assessment order is not meet out in the present case, therefore, the order passed by the ld. Pr.CIT is set aside and the grounds of appeal raised by the assessee are allowed.

Summary

Issues:
Appeal against order under Section 263 of Income Tax Act for AY 2017-18.

Analysis:
The appeal challenged the order of the Principal Commissioner of Income Tax, Valsad, passed under Section 263 of the Income Tax Act for the Assessment Year 2017-18. The assessee, a pharmaceutical company, declared a loss in its return of income for AY 2017-18. The assessment was revised by the Principal Commissioner as he noted discrepancies in the cash balance related to a Specified Bank Note (SBN) deposit during demonetization. The Principal Commissioner observed that the assessee had considered cash seized during an IT search as part of its balance, leading to an unexplained cash deposit. The department issued a show cause notice under Section 263, questioning the source of the cash deposit. The assessee explained that the seized cash belonged to the company, not the director. The Principal Commissioner held that the assessment order was both erroneous and prejudicial to the revenue's interests, setting it aside for a de novo assessment.

The assessee contended that the seized cash had already been added to the director's income for AY 2014-15 and that the assessment order was not prejudicial to revenue. The assessee argued that the cash was continuously shown in its accounts as seized during the search and had not been deposited in the government treasury. The department had already taxed the amount in the director's hands, and a reverse journal entry was made to reflect this. The assessee emphasized that the assessment order was not prejudicial to revenue, as the department had already dealt with the issue in a previous assessment.

The Tribunal found merit in the assessee's arguments, noting that the department had already taxed the amount in the director's assessment for AY 2014-15. As a result, the Tribunal concluded that the assessment order was not prejudicial to revenue and did not meet the conditions required for revision under Section 263. Therefore, the Tribunal set aside the Principal Commissioner's order and allowed the grounds of appeal raised by the assessee. The appeal was ultimately allowed in favor of the assessee.