2022 (8) TMI 1215 - AT - Income Tax

Revision u/s 263 by CIT - Unexplained deposits and withdrawals in bank account - HELD THAT - As every month, there is atleast one deposit and in some months, there are few deposits and few withdrawals. Thus, the argument of the assessee accepted by the AO that these were normal deposits and withdrawals for the stated business activity of the assessee gains strength. Hence, it is not a case where the assessee is seen to have made a lumpsum deposit. Such an action may have been open to the interpretation that there was no business activity in the unorganized sector. Frequent deposits and withdrawals from the bank are available. Hence, in the absence of any evidence of any nefarious illegal activity referred to on record, the inference that the stated claim was incorrectly accepted, cannot be so concluded. It is seen that in the festive month of July, there are 5 deposits on 5 different dates and 2 withdrawals of Rs.2,87,000/- and Rs.85,000/- on two specific different dates. Similarly in the festive month of Sept and October, it is seen that there are 15 specific instances of deposit and withdrawal. These facts available on record support the claim that the assessee was engaged in some small scale business trading activity. As observed, we find that no contrary fact or evidence has been referred by the ld. PCIT to show that the claim was incorrectly accepted by the AO. The assessee is stated to be currently engaged as a farm labourer and is stated to have overtly engaged in the business to gain financial legitimacy. The efforts in the unorganized sector even if sporadic in order to gain a credible financial legitimacy should be encouraged and not allowed to be stunted by the administrative brunt. The enterprise and efforts of a farm labourer to have a footprint in financial sector by engaging in trade in cloth etc, from house to house/village mart on a cart should be given due consideration. There is a rising India which inhabits the unorganized sector having aspirations to rise on their own steam and courage. On a perusal of the facts on record and the impugned order we find that no fact or evidence has been referred to by the ld. PCIT to show that the assessee was engaged in any nefarious activity from which the amounts were deposited and withdrawn. There is no fact referred to show that the AO has committed an error in accepting the claim of the assessee. Accordingly in the facts as they stand we find no infirmity in the AO having accepted the claim of the assessee. Appeal of assessee allowed.

Summary

Issues Involved:
1. Condonation of Delay in Filing the Appeal
2. Validity of Revisionary Powers Exercised Under Section 263 of the Income Tax Act
3. Examination of Unexplained Cash Deposits

Issue-wise Detailed Analysis:

1. Condonation of Delay in Filing the Appeal:
The assessee filed the appeal with a delay of 194 days, citing pandemic conditions as the reason for the delay. The assessee relied on the Supreme Court's decision in "In Re: Cognizance for Extension of Limitation," which extended the limitation period from 15.03.2020 to 02.10.2021 due to the pandemic. The Revenue agreed that the delay could be condoned. The Tribunal, considering the legal position and the statutory time available to the assessee, condoned the delay and ordered the appeal to be heard on merits.

2. Validity of Revisionary Powers Exercised Under Section 263 of the Income Tax Act:
The assessee challenged the order passed under Section 263 by the Principal Commissioner of Income Tax (PCIT), arguing that the revisionary powers were exercised arbitrarily and contrary to law. The assessee contended that the Assessing Officer (AO) had already examined the issue of cash deposits during the assessment proceedings and had accepted the explanation provided. The Tribunal noted that the AO had indeed issued notices, examined the return, and considered the source of the deposits before passing the assessment order. The Tribunal emphasized that the PCIT did not point out any specific error in the AO's order or provide evidence that the AO's acceptance of the assessee's explanation was incorrect. The Tribunal referred to various judicial precedents, including the Supreme Court's decision in Malabar Industrial Co. Ltd. vs. CIT, which mandates that for an order to be revised under Section 263, it must be shown to be both erroneous and prejudicial to the interests of the revenue. The Tribunal concluded that the PCIT's exercise of revisionary powers was not justified in the absence of any specific error or contrary evidence.

3. Examination of Unexplained Cash Deposits:
The PCIT had set aside the AO's order, arguing that the AO had not conducted independent inquiries to verify the assessee's claim of being in the business of trading cloth and that the cash deposits were from business receipts. The PCIT contended that the absence of documentary evidence regarding the business activities made the cash deposits unexplained. The Tribunal, however, found that the AO had indeed made inquiries, issued notices, and considered the assessee's explanations and bank statements. The Tribunal noted that the deposits were periodic and accompanied by corresponding withdrawals, supporting the assessee's claim of business activity. The Tribunal observed that the PCIT did not provide any evidence of illegal or nefarious activities related to the deposits. The Tribunal emphasized that the AO's acceptance of the assessee's explanation was based on the evidence available and that the PCIT's order did not point out any specific error in the AO's assessment. Consequently, the Tribunal quashed the PCIT's order, holding that the revisionary powers under Section 263 cannot be exercised based on mere suspicions and inferences without concrete evidence.

Conclusion:
The Tribunal allowed the appeal, condoning the delay in filing and quashing the PCIT's order under Section 263. The Tribunal held that the AO had conducted due inquiries and that the PCIT's revisionary powers were exercised without pointing out specific errors or providing contrary evidence. The Tribunal emphasized the need for concrete evidence to justify the exercise of revisionary powers and supported the AO's acceptance of the assessee's explanation for the cash deposits.