2020 (12) TMI 42 - AT - Income Tax

Validity of revision order passed by PCIT u/s 263 - AO has not conducted the due enquiry in respect of the total deposit made by the assessee in the bank account and consequently determined total turnover of the assessee without considering the deposits made in the bank account - HELD THAT - Assessment order was suffering from error which is factual in nature and not in respect of any view taken by the AO. There is no quarrel on the point that if the AO has taken one of the possible views, then the Commissioner is not permitted to invoke the provisions of section 263 merely because he does not agree with the view taken by the AO. Therefore, the decisions relied upon by the ld. A/R of the assessee on this point are not applicable to the facts of the present case where the ld. Commissioner has clearly pointed out the factual error in the assessment order and lack of enquiry on the part of the AO to verify the minimum required facts about the deposits made in the bank account during the year and consequential turnover of the assessee. Hence we do not find any substance or merit in the ground no. 1 challenging the validity of the revision order passed under section 263. Undisclosed bank deposits - HELD THAT - Assessee has raised this plea that the entire deposits made in the bank account cannot be considered as turnover, however, when the assessee is not maintaining the books of account as required under section 44AA as well as the audit of the same under section 44AB, then the claim of availability of opening cash balance with the assessee cannot be accepted. The withdrawal of the amount from the bank can be considered as a source for re-depositing if the assessee can fully satisfy the AO that the withdrawal made from the bank is not utilized for any other purposes being the purchases and other expenditures incurred by the assessee in the course of business as well as personal drawings. Therefore, to that extent all the facts and details are required to be properly verified. No error or illegality in the impugned order of the ld. Commissioner to the extent that the order of the AO is erroneous and prejudicial to the interest of the revenue. However, the AO is directed to verify the availability of source of cash deposit in the bank account to the extent of cash withdrawals by the assessee.

Summary

Issues Involved:
1. Validity of the revision order passed under section 263 of the IT Act.
2. Merits of the order passed by the Commissioner regarding the total turnover of the assessee.

Issue-wise Detailed Analysis:

1. Validity of the Revision Order Passed Under Section 263 of the IT Act:

The assessee challenged the revision order dated 20.01.2020 by the Principal Commissioner of Income Tax (PCIT), Alwar, under section 263 of the IT Act for the assessment year 2010-11. The PCIT found the order passed by the Assessing Officer (AO) under section 143(3) read with section 147 to be erroneous and prejudicial to the interest of the revenue. The PCIT noted that the AO failed to conduct proper verification of the total deposits made by the assessee in the bank account, which amounted to ?1,89,51,996/- (?1,40,11,085/- cash deposit + ?49,40,991/- cheque deposit). The AO had computed net profit at 2.75% on a total turnover of ?1,04,97,340/- without adequately investigating the source of the cash deposits.

The assessee argued that the AO had conducted an enquiry by examining the books of accounts, supporting documents, and bank statements before assessing the income. The assessee contended that the PCIT cannot invoke section 263 merely because he disagrees with the AO's view, citing decisions from the Ahmedabad and Delhi Benches of the Tribunal. However, the PCIT pointed out that the AO's order was based on incomplete facts and lacked proper enquiry, rendering it erroneous and prejudicial to the revenue. The Tribunal upheld the PCIT's revision order, stating that the AO failed to verify the total deposits and determine the correct turnover, making the assessment order erroneous.

2. Merits of the Order Passed by the Commissioner Regarding the Total Turnover of the Assessee:

The assessee contended that the PCIT's direction to consider the total deposits of ?1,89,51,996/- as the turnover was unjust and arbitrary. The assessee explained that part of the deposits represented earlier withdrawals and opening cash balances, which should not be treated as turnover. The PCIT, however, noted that the AO had not maintained proper books of account or conducted an audit as required under section 44AB, and thus, the source of deposits needed verification.

The Tribunal agreed with the PCIT's decision to set aside the AO's order, directing the AO to pass a speaking assessment order after proper enquiry and verification of the deposits. The AO was instructed to consider the source of cash deposits, including earlier withdrawals, and ensure that the deposits were not utilized for other purposes. The Tribunal found no error in the PCIT's order but emphasized the need for the AO to verify the source of cash deposits.

Conclusion:

The Tribunal upheld the PCIT's revision order under section 263, finding the AO's assessment order erroneous and prejudicial to the revenue due to lack of proper enquiry and verification of the total deposits. The Tribunal directed the AO to conduct a thorough investigation and pass a fresh assessment order, verifying the source of cash deposits. The appeal was partly allowed for statistical purposes.