2022 (12) TMI 883 - AT - Income Tax

Revision u/s 263 - prima facie opinion that the order passed by the AO is erroneous, insofar as it is prejudicial to the interests of the Revenue - As per CIT AO Failed to verify the sources of cash deposits made and bring the unexplained deposit therein to tax AND Failed to examine the low profits/income declared from the liquor business and accepting without proper enquiry - HELD THAT - There is no dispute that u/s. 263 of the Act, the PCIT does have the power to set aside the assessment order and send the matter for a fresh assessment if he is satisfied that further enquiry is necessary and the assessment order is prejudicial to the interests of the Revenue. However, in doing so, the PCIT must have some material which would enable to form a prima facie opinion that the order passed by the AO is erroneous, insofar as it is prejudicial to the interests of the Revenue. In the present case of the assessee it is clear from the order of the AO which is extracted above, the AO has verified all these details as submitted by the assessee and has applied his mind while concluding the assessment accepting the income returned by the assessee. We see merit in the submission of the ld AR that the license is given to P S Associates vide partnership deed and there was no requirement for a separate license deed to be entered in this regard. The entire premise on which the PCIT has exercised the revisionary power is that the AO should have conducted further enquiries. PCIT has not brought anything on record to shown adverse effect of the lack of enquiry or any material to show that there been an error in the order that is prejudicial to the interest of the revenue. The views of the ld. PCIT as given in the order u/s.263, in our opinion, is not the right reason for exercising revisionary powers u/s. 263 as the error envisaged by Section 263 of the Act is not one that depends on possibility as a guess work, but it should be actually an error either of fact or of law. PCIT is not justified in setting aside the order of the AO and accordingly we hold that the order of the PCIT u/s. 263 is without jurisdiction and liable to be quashed. Appeal of the assessee is allowed.

Summary

Issues Involved:
1. Validity of the Principal Commissioner of Income Tax (PCIT) invoking Section 263 of the Income-tax Act, 1961.
2. Verification of sources of cash deposits.
3. Examination of low profits/income declared from the liquor business.
4. Adequacy of the Assessing Officer's (AO) enquiry during the original assessment.

Detailed Analysis:

1. Validity of PCIT Invoking Section 263:
The primary issue revolves around whether the PCIT was justified in invoking Section 263, which allows for the revision of an assessment order if it is deemed "erroneous" and "prejudicial to the interests of the revenue." The Tribunal noted that for the PCIT to exercise this power, there must be concrete material evidence indicating that the AO's order was erroneous and prejudicial to the revenue. The Tribunal cited the Bombay High Court's decision in Gabriel India Ltd. (1993) 203 ITR 108, emphasizing that an order cannot be termed erroneous simply because the Commissioner disagrees with the AO's conclusion unless there is a clear error of law or fact.

2. Verification of Sources of Cash Deposits:
The PCIT argued that the AO failed to verify the sources of cash deposits in the assessee's bank account. However, the Tribunal found that the AO had indeed verified these details during the assessment. The AO had examined the partnership deed, financial statements, VAT returns, and other relevant documents, concluding that the cash deposits were proceeds from the liquor business managed by the partnership firm, P S Associates. The Tribunal noted that these transactions were accounted for in the books of P S Associates, which included the bank account and sales of Vijayalakshmi Wines.

3. Examination of Low Profits/Income Declared from the Liquor Business:
The PCIT also contended that the AO did not adequately examine the low profits/income declared from the liquor business. The Tribunal found that the AO had scrutinized the relevant details, including the partnership deed and financial statements, and had accepted the assessee's explanation. The Tribunal emphasized that the PCIT did not provide any material evidence to show that the AO's acceptance of the declared income was erroneous or prejudicial to the revenue.

4. Adequacy of AO's Enquiry During the Original Assessment:
The Tribunal observed that the AO had conducted a thorough enquiry during the original assessment. The AO had called for and examined various details related to the liquor business and cash deposits, as evidenced by the detailed findings in the assessment order. The Tribunal concluded that the PCIT's assertion of inadequate enquiry was unfounded, as the AO had applied his mind and made a reasoned decision based on the available evidence.

Conclusion:
The Tribunal held that the PCIT was not justified in setting aside the AO's order under Section 263. The Tribunal found that the AO had conducted a proper enquiry and that the PCIT had not provided any material evidence to support the claim that the AO's order was erroneous and prejudicial to the revenue. Consequently, the Tribunal quashed the PCIT's order and allowed the assessee's appeal.