2023 (5) TMI 790 - AT - Income Tax

Revision u/s 263 - as per CIT AO not properly examined issues viz., (i) salary to Manager Asst.Manager; (ii) disallowance of interest to others (iii) Cash deposit during demonetization period (iv) Audit fees and (v) bonus to staff and customers - as argued only CASS reason being cash deposit during demonetization period, Pr.CIT failed to note that AO cannot travel beyond the mandate of verifying such cash deposit only and in the absence of any approval by Pr.CIT to look into other- issues also, he erred in holding that the impugned order is erroneous and prejudicial to the interest of revenue. HELD THAT - We find that this issue has been addressed by Hon ble Supreme Court in the case of CIT vs Ralson Industries Ltd 2007 (1) TMI 89 - SUPREME COURT The facts in that case are quite similar to facts before us. When an order is passed by a higher authority, the lower authority is bound thereby keeping in view the principles of judicial discipline. An order of assessment is subject to exercise of an order of a revisional jurisdiction under section 263 of the Act. Doctrine of Merger in such a case will have no application. Each case is required to be considered on its own facts. It would not be correct to contend that only because a proceeding for rectification was initiated subsequently, the revisional jurisdiction could not have been invoked under any circumstances whatsoever. If such a proceeding was initiated, in our opinion, the contesting parties could bring the same to the notice of the Commissioner so as to enable him to take into consideration the subsequent events also. It goes without saying that if and when the Commissioner of Income-tax takes up for consideration a subsequent event, the assessee would be entitled to make its submission also in regard thereto. This decision would have precedence over all the other decisions as cited by Ld. AR. Therefore, we reject this plea raised by Ld. AR. We find that during the course of original assessment proceeding, a notice u/s 142(1) was issued to the assessee calling for requisite details from the assessee. The same include Copies of Audit Report and financial statements of previous 3 years. The assessee was also directed to explain the reasons for large cash deposit during demonetization period. Vide another notice the assessee was directed to file statistical report on cash deposit, This include cash deposit during financial years 2015-16, 2016-17 and details of cash sales as well as analysis of cash sales and cash deposits in those years. The assessee responded to these notices and uploaded certain details on 22-11-2019. The same include audit fees and expenses ledgers, ledger of bonus paid to customer, details of salary paid during the year. The issue of payment of Audit fees, staff salaries and bonus paid to customers was duly examined by AO and the assessee had furnished all the details as required by Ld. AO. Issue of cash deposits as well as issue of interest disallowance has nowhere been examined by Ld. AO. Though a query was raised regarding cash deposit, prima facie, the requisite details were not furnished by the assessee. This being so, no view could be said to be have taken by Ld. AO on these two issues. We modify the revisionary order and direct AO to remain confined himself to the extent of examining the issues of large cash deposit during demonetization period and the issue of interest disallowance u/s 36(1)(iii). The impugned order stand modified to that extent. Appeal partly allowed.

Summary

Issues Involved:
1. Invocation of revisional jurisdiction u/s. 263 by Ld. Pr. Commissioner of Income Tax.
2. Applicability of Sec. 154 in relation to the revision of the assessment order.

Summary:
The appeal challenged the invocation of revisional jurisdiction u/s. 263 by the Ld. Pr. Commissioner of Income Tax for the Assessment Year 2017-18. The grounds of appeal included errors in passing the order under section 263, disregarding the pendency of a notice issued under Section 154, and failure to properly examine various issues such as salary payments, interest disallowance, cash deposits during demonetization, audit fees, and bonus payments. The Ld. Pr. CIT held that the assessment order lacked proper examination of these issues, leading to a lack of enquiry and nonapplication of mind by the Ld. AO.

Regarding the argument raised about the pending rectification application u/s 154, the Tribunal referred to the Supreme Court's decision in CIT vs Ralson Industries Ltd. The Tribunal rejected the argument, stating that the scope and ambit of rectification proceedings and revision under section 263 are distinct. The Tribunal emphasized that the revisional jurisdiction is vested in the Commissioner and is a special provision that can be exercised if the assessment order is found to be prejudicial to revenue.

During the original assessment proceeding, the assessee provided details in response to notices issued by the Ld. AO, including audit reports, financial statements, and explanations for cash deposits during demonetization. While certain issues like audit fees, staff salaries, and bonus payments were examined by the Ld. AO based on the details provided, the issues of cash deposits and interest disallowance were not adequately addressed. Therefore, the Tribunal modified the revisionary order, directing the Ld. AO to focus on examining the issues of large cash deposits during demonetization and interest disallowance u/s 36(1)(iii), leading to a partial allowance of the appeal.

This judgment highlights the importance of thorough examination of all relevant issues in assessment proceedings and the distinct nature of rectification and revision proceedings in tax matters.