Revision u/s 263 quashed when Cash deposit was examined in original assessment proceedings

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Pramod Kesharichand Shah Vs. The Principal Commissioner of Income Tax

[ITA No.43/SRT/2018]

Facts of the case

The assessee an individual, filed his return of income on 31.10.2007, declaring total income to the tune of Rs.9,14,884/-. The assesses case was re-opened under section 148 of the Income Tax Act, 1961 and the assessment under section 143(3) was passed on 28/01/2015, determining total income of Rs.9,14,890/-.

Later on, the ld. PCIT has exercised his jurisdiction under section 263 of the Income Tax Act 1961 and observed that assessment order passed by the assessing officer is erroneous as well as prejudicial to the interest of revenue and therefore, a notice under section 263 of the Act was issued to the assessee. The relevenat extracts of the notice are produced below:

“The AO has erred in accepting the claim made by the assessee that the cash deposits of Rs.16,00,000/- in the saving bank account no. xxxxxxxxxx2457 maintained with development credit bank, DCS, Daman Branch came out of land transaction in which the assessee was a confirming party. The AO has accepted this claim without any verification which was required to be made in the facts and circumstances of the case before accepting of the claim. It is further seen that the AO has erred in accepting a cash flow statement prepared and submitted by the assessee showing a brought forward/opening balance of Rs. 824009/- and further deposits of Rs. 9,50,000/- from the land transaction which the AO failed to verify. Almost complete absence of any inquiry on this issue makes the order erroneous as well as prejudicial to the interest of revenue.”

In response to the show cause notice of the Ld. PCIT under section 263 of the Act, The AR of the assessee attended and filed various documents and took adjournment. However, the ld. PCIT, after going through assessment records, rejected the contention of the assessee and held that assessing officer has failed to do proper inquiry in respect of cash deposit in bank account and it is indirectly and prima facie established that the assesses claim, as made before the Assessing Officer, is not correct and cannot be substantiated with help of relevant documents.

AR’s Arguments

The AR of the assessee has contended that reassessment proceedings initiated by the Assessing Officer under section 147 of the Act, is itself not valid; therefore the consequential exercise of the jurisdiction under section 263 of the Act is also going to be invalid. The AR submitted that during the reassessment proceedings, the Assessing Officer asked the assessee to furnish the details of cash deposit of Rs.16,00,000. The assessee submitted reply to AO by giving the entire details and there is no mistake on the part of the assessee in furnishing the details of cash deposit. Therefore order passed by the Assessing Officer is neither erroneous nor prejudicial to the interest of Revenue. Hence, the order passed by the ld. PCIT under section 263 of the Act should be quashed.

Findings of the Tribunal

The bench held that during the reassessment proceedings, the assessee submitted the details and the explanations of Rs.16,00,000/- cash deposited in the bank account. Just because the Assessing Officer did not bring this assessment order and has passed order in brief, does not mean that assessing officer has not examined the cash deposit. The assessing officer has applied his mind and passed the reassessment order under section 143(3) r.w.s.147 of the Income Tax Act. Hence, order passed by the Assessing Officer should not be erroneous. The assessee also submitted the details of cash deposit in response to notice under section 142(1) of the Act. The assessee also submitted the copy of the cash book before the assessing officer. Thus, the assessee has submitted the details of cash deposit from his side and it was on the Assessing Officer to examine it.

There is difference between ‘Lack of enquiry’ and ‘inadequate enquiry’. It is for the Assessing Officer to decide the extent of enquiry to be made as it is his satisfaction as what is required under law.

The hon’ble high court of Delhi in the case of CIT v. Sunbeam Auto Ltd. [(2010) 332 ITR 167], held that if there was any inquiry, even inadequate, that would not by itself, give occasion to the Commissioner to pass order u/s 263 of the Act, merely because the Commissioner has a different opinion in the matter and that only in cases where there is no enquiry, the power u/s 263 of the Act can be exercised. The ld. PCIT cannot pass the order u/s 263 of the Act on the ground that further/thorough enquiry should have been made by Assessing Officer.

Further, it was settled by honorable Supreme Court in the case of Malabar Industrial Co. Ltd. vs. CIT [(2000) 243 ITR 83 (SC)] wherein it was held that if the A.O. adopts one of the possible courses available in the scheme of the I.T. Act which results in any loss of revenue or when two views are possible and the A.O. adopts one of them with which the C.I.T. does not agree, then it would not be an order prejudicial to the interest of revenue for invoking the jurisdiction u/s. 263 of the Act.

The object of section 263 is to examine whether order passed by the AO is erroneous as well as prejudicial to the interest of revenue. Therefore, based on this factual position, the order passed by the AO under section 143(3) r.w.s.147 of the Act should not be erroneous. We note that Coordinate Bench of I.T.A.T., Kolkata in the case of Plastic Concern vs. ACIT [61 TTJ 87 (Cal)] has held that mere possibility of gathering more material to prove the claim of the assessee wrong would not make the concluded assessment erroneous so long as the ld. A.O. had acted judiciously and conducted enquiries in the course of assessment proceedings. Held, that revisionary jurisdiction exercised by the Ld. Pr. C.I.T. u/s. 263 of the Act was not in tune with the facts and evidences on record duly explained to the Ld. Assessing Officer and verified by him and that being so the order passed u/s. 263 of the Act on such erroneous stand is liable to be quashed.

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