2014 (4) TMI 699 - AT - Income Tax

Jurisdiction u/s 263 of the Act Validity of order of relooking of the cash deposits Applicability of section 44AF of the Act - Held that - An order cannot be termed as erroneous unless it is not in accordance with law - If an Income-tax Officer acting in accordance with law makes a certain assessment, the same cannot be branded as erroneous by the Commissioner simply because, the order should have been written more elaborately - AO has not applied his mind with respect to the deposit in bank account, which led to increase in the capital of the assessee - where the AO frames assessment without application of mind and without making enquiry, the order of the AO becomes erroneous as well as prejudicial to the interest of Revenue - it is clear from the reply of the assessee before the CIT that bank account was deposited was not disclosed in the return of income - it was also contention of the assessee that the amounts so received and deposited was on account of sale of business which comes under Section 44AF the order of the CIT is modified and the AO is directed to examine the applicability of provisions of Section 44AF Decided partly in favour of Assessee.

Summary

Issues:
1. Jurisdiction under Section 263 of the IT Act
2. Assessment of cash deposit in bank account

Jurisdiction under Section 263 of the IT Act:
The appeal was filed against the order of the CIT for the assessment year 2009-10 under Section 263 of the IT Act. The CIT observed that the AO did not make any inquiry or addition regarding the cash deposits made by the assessee, which was considered erroneous and prejudicial to the interest of Revenue. The CIT issued a notice to the assessee, questioning the unexplained cash deposits. The assessee responded by stating that the cash deposits were from the sale proceeds of trading masala items and fell under Section 44AF. The CIT found the assessment order erroneous and set it aside. The assessee contended that the CIT's questioning of the assessment was incorrect, but the sufficiency of the explanation could be a valid issue for invoking Section 263. The Tribunal held that an order cannot be termed erroneous unless it is not in accordance with the law and directed the AO to re-examine the applicability of Section 44AF regarding the cash deposits.

Assessment of Cash Deposit in Bank Account:
The assessee, engaged in the business of preparing household masala items, deposited a substantial amount in a bank account, which was not reflected in the filed accounts. The CIT found the AO's failure to inquire into this irregularity as erroneous and prejudicial to Revenue. The assessee explained that the cash deposits were from the sale of business items falling under Section 44AF. The Tribunal noted that the AO did not apply his mind to the bank deposit issue, leading to an increase in the assessee's capital. It was established that when an AO frames an assessment without proper inquiry, the order becomes erroneous and prejudicial to Revenue. The Tribunal directed the AO to reconsider the issue in light of Section 44AF and determine the applicability of the provision to the cash deposits. The appeal was allowed in part for statistical purposes.

In conclusion, the Tribunal's decision focused on the jurisdiction under Section 263 of the IT Act and the assessment of cash deposits in the bank account. The Tribunal emphasized the importance of proper inquiry and application of mind by the AO in making assessments to avoid errors and ensure the interests of Revenue are protected. The direction to re-examine the issue under Section 44AF highlighted the need for a thorough assessment based on relevant provisions of the law.