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TMI Blog2022 (9) TMI 1443X X X X Extracts X X X X X X X X Extracts X X X X ..... accepted the genuineness of the claim of the assessee. PCIT has not invoked the explanation 2 of section 263 of the Act in the show cause notice dated 17 January 2022 about the same. Opportunity with respect to the explanation 2 of section 263 of the Act was not afforded to the assessee. Thus, on this count the learned PCIT erred in taking the course of such provisions while deciding the issue against the assessee. Secondly, PCIT has also not specified the nature and the manner in which the enquiries which should have been conducted by the AO in the assessment proceedings. Thus, in the absence of any specific finding of the learned PCIT with respect to the enquiries which should have been made, we are not convinced by his order passed under section 263 of the Act. We hold that there is no error in the assessment framed by the AO under section 143(3) causing prejudice to the interest of revenue. Appeal filed by the assessee is allowed. X X X X Extracts X X X X X X X X Extracts X X X X ..... AN. Most of the bills were issued within few hours after 8 PM dated 8 November 2016 when demonetization was announced. Many of the bills were without time stamp. Thus, it seems that the assessee has deposited its unaccounted cash in the garb of sales. ii. As such, there was huge cash available with the assessee as on 8 November 2016 but the assessee has not deposited the same in one go rather it has deposited the same during the demonetization period in various instalments, although there was no restriction/ banned from the Government or RBI for deposit of cash in the bank accounts. iii. The cash deposits during the demonetization period should have been correspondingly compared/ verified with the immediate preceding year order to find out genuineness of cash deposits against the cash sales. iv. Similarly, cash sales prior and post to demonetization period should have been verified to ascertain the genuineness of the cash sales. v. The sales has been shown less than 2 lakhs in order to avoid the applicability of the provisions of section 269ST of the Act and identity of the purchaser so as to circumvent genuineness sale and creditworthiness of the purchaser. vi. There was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n passed in accordance with any decision which is pprejudicial to the assessee. rendered by the jurisdictional High Court or Supreme Court in the case of the assessee or any other person. 13. As per the Explanation 2, the order passed by the Assessing Officer shall be deemed to be erroneous in so far as it is prejudicial to the interest of the revenue if the order is passed allowing any relief without inquiring into the claim. However, the AO did not conduct any such inquiries or verification as outlined above and simply accepted the assessee's submission, in this manner the assessee s case is also covered under para 'a' of Explanation 2, of section 263{1) of I. T. Act. Therefore the order passed by the AO is erroneous and prejudicial to the interest of revenue to that extent. 14. Keeping in view these facts, I am of the considered view that this is a fit case for invoking section 263 of !.T. Act as the twin conditions namely, (i) the order of the Assessing Officer sought to be revised is erroneous: and (ii) it is prejudicial to the interests of the revenue are satisfied. The AO is directed to make fresh assessment keeping in view the observations made above, after ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sited by the assessee in the bank as discussed above and hence the assessment is erroneous insofar prejudicial to the interest of the Revenue and thus requiring revision by Pr. CIT u/s 263 of the Act. 7.1 An inquiry made by the Assessing Officer, considered inadequate by the Commissioner of Income Tax, cannot make the order of the Assessing Officer erroneous. In our view, the order can be erroneous if the Assessing Officer fails to apply the law rightly on the facts of the case. As far as adequacy of inquiry is considered, there is no law which provides the extent of inquiries to be made by the Assessing Officer. It is Assessing Officer's prerogative to make inquiry to the extent he feels proper. The Commissioner of Income Tax by invoking revisionary powers under section 263 of the Act cannot impose his own understanding of the extent of inquiry. There were a number of judgments by various Hon'ble High Courts in this regard. 7.2 Delhi High Court in the case of CIT Vs. Sunbeam Auto 332 ITR 167 (Del.), made a distinction between lack of inquiry and inadequate inquiry. The Hon'ble court held that where the AO has made inquiry prior to the completion of assessment, the same cannot be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... missioner does not feel satisfied with the conclusion. There must be some prima facie material on record to show that tax which was lawfully exigible has not been imposed or that by the application of the relevant statute on an incorrect or incomplete interpretation a lesser tax than what was just has been imposed. 15. Thus, even the Commissioner conceded the position that the Assessing Officer made the inquiries, elicited replies and thereafter passed the assessment order. The grievance of the Commissioner was that the Assessing Officer should have made further inquires rather than accepting the explanation. Therefore, it cannot be said that it is a case of 'lack of inquiry'." 7.3 The Hon'ble Bombay High Court in case of Gabriel India Ltd. [1993] 203 ITR 108 (Bom), discussed the law on this aspect in length in the following manner: "The consideration of the Commissioner as to whether an order is erroneous in so far as it is prejudicial to the interests of the Revenue, must be based on materials on the record of the proceedings called for by him. If there are no materials on record on the basis of which it can be said that the Commissioner acting in a reasonable manner could h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Gayatri Associates*[2019] 106 taxmann.com 31 (SC), held that where Pr. CIT passed a revised order after making addition to assessee's income under section 69A in respect of on-money receipts, however, said order was set aside by Tribunal holding that AO had made detailed enquiries in respect of such on-money receipts and said view was also confirmed by High Court, SLP filed against decision of High Court was liable to be dismissed. The facts of this case were that pursuant to search proceedings, assessee filed its return declaring certain unaccounted income. The Assessing Officer completed assessment by making addition of said amount to assessee's income. The Principal Commissioner passed a revised order under section 263 on ground that Assessing Officer had failed to carry out proper inquiries with respect to assessee's on money receipt. In appeal, the Tribunal took a view that Assessing Officer had carried out detailed inquiries which included assessee's on-money transactions and Tribunal, thus, set aside the revised order passed by Commissioner. The Hon'ble High Court upheld Tribunal's order. The Hon'ble Supreme Court while dismissing the SLP filed by the De ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able in law, or the AO has completely omitted to make any enquiry altogether or the order demonstrates non-application of mind. 7.8 Now in the facts before us, in the case of the assessee, we find that the AO during the course of assessment proceedings, made enquiries on this issue and after consideration of written submissions filed by the assessee and documents / evidence placed on record, and then framed the assessment under section 143(3) accepting the return of income. This fact can be verified from the notice under section 142(1) of the Act by the AO and submissions of the assessee against such notice. Relevant queries raised in the notice dated 22-08-2019: 15. Please furnish the quantity wise details of closing stock and opening stock of raw material, finished goods and semi finished goods. Also file details working of cost sheet in case of rates adopted in this regard is the basis of which closing stock and opening stock is valued. Also state whether stock is inclusive of excise duty or not? 16. Please give month-wise details of purchases and sales (item wise separate details) in quantity and value in the following formar. Month Op. Stock Purchase Sales Closing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it report showing the same 16 Item wise Purchase and Sales:- Month wise details of Purchases and Sales as is enclosed 17 Sec.43B Copy of Chart for audit report Annexure for Section 43B and Amount paid during the year Challan enclosed. 18 Cash Deposited: Details of Cash Deposited during the year in given format 19 Explanation regarding source of cash deposited during the demonetization period with corroborative evidences: The explanation retgarding the source of cash deposited during the demonetization period with corroborative evidence is enclosed 20 Day wise Stock Register Details of Stock register enclosed 21 Information in respect of cash sales; Details of Cash receipts in given format is/are enclosed. 22 Information in respect of cash sales: Details of Cash Sales in given format is /are enclosed 23 Month wise cash sales and cash deposits: Details of Cash Sales and Cash Deposited for the year 2015-16 in given format is enclosed herewith. 24 Month wise cash sales and cash deposits: Details of Cash Sales and Cash Deposited for the year 2016-17 in given format is enclosed herewith. 25 VAT Audit Report or Form 205: VAT Report for the year 2016-16 in For ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... : Details of Cash Sales in given format is /are enclosed 23 Month wise cash sales and cash deposits: Details of Cash Sales and Cash Deposited for the year 2015-16 in given format is enclosed herewith. 24 Month wise cash sales and cash deposits: Details of Cash Sales and Cash Deposited for the year 2016-17 in given format is enclosed herewith. 25 VAT Audit Report or Form 205: VAT Report for the year 2016-16 in Form 205 is enclosed herewith. We have not revised return file after 08.11.2016. 26 Day wise cash book: Day wise cash book attached herewith Relevant queries raised in the notice dated 24-10-2019: Please refer to the notice u/s.142(1) dated 22.08.2019. You have been requested to furnish the details however, you have partially responded to the questions asked in statutory notice issues. For ex: you have not submitted any response in respect of questions no.6 (bank statement & reconcillation not provided), 7 (old loans not provided), 15 with respect to cash sales and advances received on 08.11.2019 provide following details 1, Orginal bills and vourcher 2.PAN as mandated by section 285BA of the Act, Rule 114B) and address of purchases 3. Also provide monthly VA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of staff, their roles/duties assigned as on 8.11.2016 along with staff register. 5. Provide names, detailed address of the persons who have signed on the cash bills issued on 08.11.2016 as provided by you. The reply made by the assessee dated 18-11-2019 PAN No.AACEFP7696K Sub: Assessment Proceedings for A.Y. 2017-18 Reference is invited to your notice U/s 142(1) vide No.ITBA/AST/F/142(1)/2019-20/1020416785(1) dated 14/11/2019 calling us to furnish the details/information as per the notice. Please find enclosed the required details/information as called for as under: Sr.No. Particulars 1. Details of Sales Register for the Month of Oct. 2016 has been already uploaded vide our submission dated 11.10.2019 in reply to point no.16. However, the same is again reuploaded 2. Copies of Bills as mentioned vide No.TRS/1111 to TRS/1137 have been already submitted vide our submission dated 05.11.2019. However, the copies of same are again re-uploaded. 3. Copies of 10 Cash bills issued in the month of Oct. 16 are submitted as required by you. 4. Details of Staff their roles/duties assigned as on 08.11.2016 along with staff register submitted as required by you. The same was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for such huge sales according to you is customer rush due to demonetisation. On 08.11.2016 demonetisation was declared at 20,00hrs. taking liberal view even if it is presumed that customer inflow began at 21.00 hrs, the approximate time for which you attended customers can not be more than 180 min [ assuming shop remained open till midnight 00.00 hrs] on 08.11.2016 after declaration of demonetisation. On 08.11.2016 you had 15 sales person [ including 03 sales executive]. Total customers attended by these 15 sales person were 414. This means 01 sales person attended aroung 28 customers in 180 min which in turn means on an average one customer took just 6.44 min to purchase goods. During these 6.44 min customer not just selected the good but also made payment for it. Considering the nature of business and nature of goods the time taken by customers [as shown by you] is very less and is not coterminous with the general behaviour of the customers vis a vis transaction is gold. It is common knowledge the customers take quite lot of time to select precious items like god. Even if we consider the rush it is unacceptable that someone would just give money and pick up any item without ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f account, it implies that the same have been added to the profit on which we have paid income tax. The proposal to add the amount again would lead to double taxation. 3.6 further, since all the transactions are accounted for there is no violation of any provisions under the Income tax Act. 4. We therefore submit that the proposal action is not justified. We request you to please not to make the proposed addition. 7.9 From the above, it is revealed it is not the case that the AO has not made any enquiry. Indeed the Pr. CIT initiated proceedings under section 263 of the Act on the ground that the AO has not made enquiries or verification which should have been made in respect of cash deposited during the demonization period. It is not the case of the Pr. CIT that the Ld. AO did not apply his mind to the issue on hand or he had omitted to make enquiries altogether. In the instant set of facts, the AO had made enquiries and after consideration of material placed on record accepted the genuineness of the claim of the assessee. 7.10 At this juncture, it is also important to note that the learned PCIT in his order passed under section 263 of the Act has made reference to the explan ..... X X X X Extracts X X X X X X X X Extracts X X X X
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