2022 (12) TMI 69 - AT - Income Tax

Unexplained cash deposits - Declaration of cash under IDS - cash deposit during the demonetization period - Case selected for scrutiny under the Computer Aided Scrutiny Selection (CASS) on the issues of large exempt income and large value of cash deposits during demonetization period - HELD THAT - It is only when a final certificate is issued in respect of income declared and accepted under IDS, could the same possibly be considered as so in law, while the same is admittedly not available with the assessee even at this stage. No inquiry in the matter was made by the AO, ascertaining its status as the final acceptance of the assessee s application, other things aside, is of vital significance to it s explanation as to the nature and source of the cash deposited in his bank account during the relevant previous year w.r.t. the income declared under IDS. More recently, the Hon ble Apex Court in Dy. CIT v. M.R. Logistics (P.) Ltd. 2022 (4) TMI 46 - SUPREME COURT held that merely because there has been a declaration under IDS, 2016, which in that case was of a related party, the same, unless linked with the impugned receipt, would not prove the same, again emphasizing that the matter, as clarified earlier, is primarily factual, and would therefore stand to be determined on the basis of firm factual findings, found absent in the instant case. We, for the reasons afore-stated, find no reason to interfere. We may also add that our findings may not be, apart from bearing a general character clarifying on the legal as well as the factual aspects, regarded as final, foreclosing the assessee s case as the same stands set aside for a de novo consideration to the AO, who shall decide the same per a speaking order having regard to the entirety of the facts and circumstances of the case, and the evidences that may be led or explanations furnished before him. We may before parting with this order also clarify that though the ld. Pr. CIT had called for comments from the incumbent AO, as apparent from his order, his findings are based on his examination of the record and due application of mind, with in fact the comments called for being after eliciting the assessee s replies dated 27/7/2021 25/11/2021, so that no adverse inference arises from the calling of comments from the AO, and are only facilitative. Assessee s appeal is dismissed.

Issues Involved:
1. Validity of the assessment order under section 263 of the Income Tax Act, 1961.
2. Explanation and verification of cash deposits during the demonetization period.
3. Compliance with the Income Declaration Scheme, 2016 (IDS).
4. Application of relevant judicial precedents and principles.

Detailed Analysis:

1. Validity of the Assessment Order under Section 263:
The appeal is directed against the order under section 263 of the Income Tax Act, 1961, which was passed by the Principal Commissioner of Income Tax (Pr. CIT). The Pr. CIT set aside the original assessment order for AY 2017-18, citing non-application of mind by the Assessing Officer (AO) and lack of proper investigation into the assessee's claims. The Pr. CIT relied on various judicial precedents, including CIT vs. Deepak Kumar Garg, Consolidated Photo and Finvest v. Asst. CIT, and Malabar Industrial Co. Ltd. v. CIT, to justify the revision of the assessment order for de novo consideration.

2. Explanation and Verification of Cash Deposits During Demonetization:
The assessee explained that the cash deposits of Rs. 98 lacs during the demonetization period were from Rs. 100 lacs declared under the Income Declaration Scheme (IDS), 2016. However, the Pr. CIT found that the AO failed to verify this claim properly. The AO's report indicated that the assessee did not disclose any cash deposits during the demonetization period as per Form-1 of IDS. The Pr. CIT noted that the AO accepted the assessee's claim without proper investigation, which led to the invocation of section 263.

3. Compliance with the Income Declaration Scheme, 2016 (IDS):
The primary issue was whether the cash deposited during the demonetization period was indeed declared under IDS. The assessee claimed that the cash was declared in Form-1 filed on 26/09/2016 and accepted by the Revenue in Form-2 on 13/10/2016. However, the Pr. CIT and the Tribunal found discrepancies in the assessee's claim. The declaration in Form-1 did not mention any cash, and the cash balance as on 09/11/2016 was reported as Rs. 2,09,070, contradicting the assessee's claim of Rs. 100 lacs in cash. The Tribunal emphasized that the final acceptance of the IDS declaration and the completion of the process were crucial to the assessee's explanation.

4. Application of Relevant Judicial Precedents and Principles:
The Tribunal upheld the Pr. CIT's order, emphasizing that the AO's assessment was made without proper inquiry and verification. The Tribunal referred to the decision in CIT v. Associated Food Products (P) Ltd., which highlighted the importance of demonstrating how the AO's order was prejudicial to the Revenue. The Tribunal also noted that the onus was on the assessee to explain the nature and source of the cash deposits. The Tribunal acknowledged the assessee's reliance on judicial precedents like Mahaveer Kumar Jain vs. CIT and Pr. CIT vs. Manju Osatwal, which state that income declared under a disclosure scheme cannot be taxed again. However, the Tribunal clarified that the issue was factual, requiring verification of whether the income declared under IDS was indeed the source of the cash deposits.

Conclusion:
The Tribunal concluded that the assessment order was rightly set aside under section 263 due to the AO's failure to conduct proper inquiries and verify the assessee's claims. The Tribunal upheld the Pr. CIT's order for de novo consideration by the AO, ensuring a thorough investigation and application of the correct provisions of the Act. The assessee's appeal was dismissed, and the matter was remanded for fresh assessment.

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