2023 (4) TMI 800 - AT - Income Tax

Revision u/s 263 by CIT - Unaccounted cash and deemed dividend addition - merely filing of various details like financials, annual reports would not constitute or lead to the conclusion that there has been application of mind by the Ld.AO. - HELD THAT - We note that admittedly no specific query has been raised by the Ld.AO on the two issues that are subject matter of 263 proceedings. As in respect of the cash deposits during the demonetisation period, the Ld.AO has not followed the circulars issued by the CBDT to carry out necessary verifications in respect of the genuineness of cash deposited by the assessee during the relevant time. Admittedly, the assessee accepted the SBNs which were no longer a legal tender and were to be explained in accordance with the relevant circular mentioned hereinabove. These instructions gives a hint regarding what kind of investigation, enquiry, evidences that the assessing officer is required to take into consideration for the purpose of assessing such cases. Assessee is directed to establish all relevant details to substantiate its claim in line with the above applicable instructions. We are aware of the fact that not every deposit during the demonetisation period would fall under category of unaccounted cash. Burden is on the assessee to establish the genuineness of the deposit in order to fall outside the scope of unaccounted cash. AO shall verify all the details / evidences filed by the assessee based on the above direction and to consider the claim in accordance with law. Needless to say that proper opportunity of being heard must be granted to the assessee. The assessee may be granted physical hearing in order to justify its claim. We direct the Ld.AO to verify the cash deposited in the light of the above circular by granting proper opportunity of being heard to the assessee. Applicability of provisions of section 2(22)(e) - Queries raised by the Ld.AO do not indicate that there is an application of mind in respect of the money paid by assessee to M/s. Valmark Realty Holding and the money deposited by M/s. Avant Garde Fashion wear Pvt. Ltd. with assessee. The share holding of assessee in M/s. Avant Garde Fashion wear Pvt. Ltd. is also not been a subject matter of verification by the Ld.AO. The Ld.AR submitted that assessee is a NBFC and therefore advancing of loans is a regular activity on day-to-day basis. It was thus submitted that provisions of section 2(22e) will not attract to a NBFC company. Very pertinently the Ld.AO has also not looked into whether assessee is a NBFC or not. We direct the Ld.AO to verify the documents relating to assessee being a NBFC and to consider the issue in respect of applicability of provisions of section 2(22e) in accordance with law. We therefore do not find any infirmity in the 263 proceedings initiated in the present facts of the case. With these above modified directions, we uphold the order passed by the Ld.PCIT u/s. 263 of the act.

Summary

Issues involved:
The judgment involves issues related to the jurisdiction of Principal Commissioner of Income tax under section 263 of I.T. Act, 1961, applicability of provisions of section 2(22)(e), verification of cash deposits during demonetization period, and the adequacy of inquiries made by the Assessing Officer.

Jurisdiction of Principal Commissioner under Section 263:
The appeal was filed against the order passed by the Ld.PCIT, Bengaluru-2 for A.Y. 2017-18. The grounds of appeal challenged the jurisdiction of the Principal Commissioner, alleging that the order was bad in law, erroneous, and void ab-initio. The appellant contended that the assessment order was passed without proper inquiries and was merely based on a change of opinion, which does not confer jurisdiction under section 263. The appellant also argued that the PCIT did not make conclusive findings on errors, indicating a lack of basis for passing the order under section 263.

Applicability of Section 2(22)(e) Provisions:
The Ld.PCIT initiated proceedings under section 263 to verify a payment made by the assessee to a party and loans received from another entity, questioning the applicability of section 2(22)(e) provisions. The PCIT observed that the AO did not verify the applicability of these provisions, leading to the conclusion that the assessment order was erroneous and prejudicial to the interests of revenue. The appellant, a Non-Banking Financial Company, argued that the provisions of section 2(22)(e) were not applicable to the transactions in question, as the details were submitted to the AO during scrutiny and were verified.

Verification of Cash Deposits during Demonetization:
Another issue raised was the verification of cash deposits made by the appellant during the demonetization period. The Ld.AO did not follow CBDT circulars for necessary verifications, leading the PCIT to set aside the assessment order under section 263. The Tribunal directed the AO to verify the cash deposits based on the circulars, ensuring the genuineness of the deposits and granting the appellant a proper opportunity to justify the claims.

Adequacy of Inquiries by Assessing Officer:
The Tribunal noted that the AO did not raise specific queries on the issues subject to section 263 proceedings and failed to follow CBDT circulars for verifying cash deposits. The AO's lack of examination regarding the applicability of section 2(22)(e) provisions and the status of the appellant as a NBFC raised concerns. The Tribunal directed the AO to conduct thorough verifications and inquiries in accordance with the law, including verifying the documents related to the appellant's NBFC status and the applicability of section 2(22)(e) provisions.

Conclusion:
The Tribunal upheld the order passed by the Ld.PCIT under section 263, dismissing the grounds raised by the appellant. The Tribunal directed the AO to continue the assessment proceedings, carry out necessary verifications, and examine the documents in accordance with the law. The appeal filed by the assessee was ultimately dismissed, and the order was pronounced in the open court on 30th March, 2023.