2022 (1) TMI 1153 - AT - Income Tax

Revision u/s 263 by CIT - Unexplained cash deposit received from various persons - case was selected for limited scrutiny under cash with the reason large cash deposit in the bank account - only allegation made by the ld. Pr. CIT that the AO should not have accepted the assessee s reply - HELD THAT - Nowhere Ld. PCIT had himself tried to carry out some enquiry at his level so as to prima facie indicate that the explanation as well as the evidences filed by the assessee are not reliable and cannot be accepted specifically when the cash was stated to be received from relatives and agriculturists. AO has accepted certain explanation and was satisfied with the evidence in the form of confirmations from the parties, then it was incumbent upon the ld. Pr. CIT to dislodge and explanation carrying out some verification and enquiry from any of the parties which could have been the basis for justifying that there was lack of enquiry by the AO. The assessment order passed after due verification and examination simply cannot be set aside on the ground that some more or further enquiry should have been done. One very glaring fact which is evident from the impugned order of the ld. Pr. CIT, (the whole of which has been reproduced above) is that, nowhere the ld. Pr. CIT has held that the assessment order passed by the Assessing Officer is erroneous or prejudicial to the interest of Revenue. The basic requisite condition for acquiring the jurisdiction under Section 263 and cancelling the assessment order is that, the ld. Pr. CIT has to give categorical finding as to how the assessment order is erroneous and not only that, he has to show that it is also prejudicial to the interest of Revenue. Both the conditions have to be satisfied and is to be specified by the Ld. PCIT, in case he intends to set-aside the assessment order. Once the Assessing Officer has taken a view based on the explanation as well as evidence filed by the assessee, it cannot be the case of lack of enquiry. At the best, it is inadequate enquiry and, therefore, in such a situation the assessment order cannot be cancelled or set aside. Accordingly, we hold that in absence of any charge by the ld. Pr. CIT that assessment order is erroneous and prejudicial to the interest of Revenue, assessment order cannot be set aside and accordingly, the order passed by the ld. Pr. CIT is set aside and the order of assessment is restored. Appeal of the assessee is allowed.

Issues Involved:

1. Validity of the order passed under Section 263 of the Income Tax Act, 1961.
2. Whether the assessment order under Section 143(3) was erroneous.
3. Consideration of the submissions and evidence provided by the assessee.
4. Examination of the cash deposits and their sources.

Issue-wise Detailed Analysis:

1. Validity of the order passed under Section 263 of the Income Tax Act, 1961:

The assessee challenged the order passed by the Principal Commissioner of Income Tax (Pr. CIT) under Section 263 of the Income Tax Act, 1961, asserting that it was contrary to facts and bad in law. The Pr. CIT issued a show-cause notice under Section 263, questioning the acceptance of cash deposits by the Assessing Officer (AO) without proper inquiry into the identity, genuineness, and creditworthiness of the persons from whom the cash was received. The Pr. CIT concluded that the AO's failure to make adequate inquiries rendered the assessment order erroneous and prejudicial to the interests of the Revenue.

2. Whether the assessment order under Section 143(3) was erroneous:

The Pr. CIT observed that the AO accepted the assessee's explanations regarding cash deposits without proper verification. The AO accepted handwritten confirmations from 12 persons without additional details like PAN or ITRs, which the Pr. CIT deemed insufficient to establish the identity and creditworthiness of the parties. The Pr. CIT argued that the AO's failure to make necessary inquiries led to the escape of income amounting to ?64,88,000/-, thus making the assessment order erroneous.

3. Consideration of the submissions and evidence provided by the assessee:

The assessee contended that during the assessment proceedings, all necessary details and confirmations were provided to the AO, who was satisfied with the explanations regarding the cash deposits. The assessee argued that it was not a case of "no inquiry" but rather "inadequate inquiry," for which revision under Section 263 is not permissible. The assessee further argued that the Pr. CIT did not conduct any independent inquiry to discredit the evidence provided during the assessment proceedings.

4. Examination of the cash deposits and their sources:

The AO had accepted the assessee's explanation that the cash deposits were from agricultural income and gifts from relatives and farmers. The Pr. CIT, however, pointed out that no substantial evidence like PAN or ITRs of the donors was provided to verify the identity and creditworthiness of the parties. The Pr. CIT directed the AO to conduct a fresh assessment with proper examination and investigation of the cash deposits.

Judgment Analysis:

The Tribunal noted that the AO had specifically raised queries regarding the source of cash deposits, to which the assessee provided detailed explanations and documentary evidence, including confirmation letters from the parties involved. The Tribunal emphasized that the AO's acceptance of the assessee's explanations and evidence indicated that proper inquiries were made. The Tribunal held that the Pr. CIT did not conduct any independent inquiries to discredit the evidence provided by the assessee, and merely stating that the AO should have made further inquiries was not sufficient to invoke Section 263.

The Tribunal further observed that the Pr. CIT did not explicitly state that the assessment order was erroneous and prejudicial to the interests of the Revenue, which are mandatory conditions for invoking Section 263. The Tribunal concluded that the assessment order was based on due verification and examination, and setting it aside on the grounds of inadequate inquiry was not justified.

Conclusion:

The Tribunal set aside the order passed by the Pr. CIT under Section 263 and restored the original assessment order, allowing the appeal of the assessee. The Tribunal emphasized that the assessment order could not be canceled or set aside merely on the grounds of inadequate inquiry without demonstrating that it was erroneous and prejudicial to the interests of the Revenue.

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