2024 (7) TMI 1433 - AT - Income Tax

Revision u/s 263 - cash deposited during demonetization period - HELD THAT - AO has conducted due enquiries by calling for various details from the assessee to substantiate the source of cash deposits in Specified Bank Notes during the demonetization period and therefore, it cannot be said that the AO has not applied his mind and has accepted the submissions made by the assessee. Therefore, it can be safely concluded that the present case is not a case of no enquiry or lack of enquiry. AO in the instant case has made due enquiries which is expected of him and after receiving the replies from the assessee from time to time, has accepted the source of such cash deposits in the bank account during the demonetization period. The order passed by the AO in the instant case may be prejudicial to the interest of the Revenue but cannot be termed as erroneous in view of the various notices issued by him calling for various details from the assessee to substantiate the source of such huge cash deposits during the demonetization period. CIT in the instant case, despite having all the material, has not examined the details himself and came to a definite conclusion but has merely set-aside the matter to the file of the AO for afresh assessment. The various decisions relied on by the ld. Counsel for the assessee in the case law compilation support his case to the proposition that where the AO had conducted enquiries regarding the source of cash deposits made during the demonetization period and has taken a possible view, the Pr.CIT was not justified in invoking the revision powers u/s. 263 of the Act by merely directing the AO to carry out enquiries afresh without himself conducting further enquiries. Since the AO in the instant case has made detailed enquiries regarding the source of cash deposits made during the demonetization period and after being satisfied has taken a possible view, therefore, we are of the considered opinion that the ld. Pr.CIT is not justified in invoking the provisions of section 263. We, therefore, set aside the same. The grounds raised by the assessee are accordingly allowed.

Issues Involved:

1. Legality of invoking Section 263 by Pr.CIT.
2. Adequacy of the AO's inquiry during the assessment.
3. Justification of the Pr.CIT's directive for a fresh assessment.

Issue-wise Detailed Analysis:

1. Legality of invoking Section 263 by Pr.CIT:

The appeal concerns the order dated 21.03.2022 passed under Section 263 by the Pr.CIT, Nashik-1 for the Assessment Year 2017-18. The Pr.CIT noted that the AO completed the assessment without making due verification and inquiries warranted by the facts and circumstances of the case, particularly concerning the substantial cash deposits during the demonetization period. The Pr.CIT issued a show cause notice to the assessee, arguing that the assessment order was erroneous and prejudicial to the interest of the Revenue because the AO did not verify the source of the cash deposits with documentary evidence.

The assessee contended that the AO had made detailed inquiries during the assessment proceedings and had accepted the explanations provided. The additional ground raised by the assessee argued that the revision proceedings under Section 263 were initiated based on a recommendation from the AO through the Addl. CIT, and not suo-moto by the Pr.CIT, thus making the proceedings null and void.

2. Adequacy of the AO's inquiry during the assessment:

The AO issued various notices under Section 142(1) asking for detailed information regarding the cash deposits during the demonetization period. The assessee provided comprehensive responses, including cash books, balance sheets, bank statements, and explanations for the cash in hand and cash deposits. The AO conducted due inquiries and accepted the explanations provided by the assessee.

The Tribunal noted that the AO had indeed made detailed inquiries, and it could not be said that the AO had not applied his mind or had accepted the submissions blindly. The AO's inquiries were thorough and covered all aspects required to substantiate the source of the cash deposits.

3. Justification of the Pr.CIT's directive for a fresh assessment:

The Tribunal observed that for invoking Section 263, the order passed by the AO must be both erroneous and prejudicial to the interest of the Revenue. The Pr.CIT did not conduct further inquiries himself but merely set aside the matter for a fresh assessment, which is not permissible.

The Tribunal cited various judicial precedents, including the Hon'ble Bombay High Court in CIT vs. Gabrial India Ltd. and the Hon'ble Delhi High Court in CIT vs. Sunbeam Auto Ltd., which held that the Pr.CIT must record a clear finding that the order is erroneous and prejudicial to the interest of the Revenue. The Tribunal concluded that the AO had made due inquiries and had taken a possible view, and therefore, the Pr.CIT was not justified in invoking Section 263.

Conclusion:

The Tribunal allowed the appeal filed by the assessee, setting aside the order passed by the Pr.CIT under Section 263. The Tribunal held that the AO had conducted adequate inquiries, and the Pr.CIT's directive for a fresh assessment was not justified. The grounds raised by the assessee were accordingly allowed.

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