2020 (1) TMI 1395 - AT - Income Tax

Tribunal overturns tax assessment order under section 263, emphasizing need for proper inquiry

M/s Klaxon Trading (P.) Ltd. Versus PCIT, Central – 3, New Delhi

M/s Klaxon Trading (P.) Ltd. Versus PCIT, Central – 3, New Delhi - TMI Issues:1. Jurisdiction under section 263 of the Income Tax Act, 19612. Cancellation of assessment order due to alleged unexplained cash deposits3. Erroneous assessment order under section 153A/143(3)4. Adequate opportunity of hearing in passing the impugned order5. Legality, jurisdiction, and timing of the order under section 263Jurisdiction under section 263 of the Income Tax Act, 1961:The appeal was filed against the order passed by the Principal Commissioner of Income Tax, New Delhi under section 263 of the Income Tax Act, 1961. The original assessment was framed by the Assessing Officer under section 153A r.w.s. 143(3) of the Act, where detailed inquiries were conducted, and questionnaires were issued to the assessee. The Principal Commissioner issued a show-cause notice stating that no inquiries were made on account of cash deposits, deeming the assessment as erroneous and prejudicial to revenue. The Principal Commissioner directed the Assessing Officer to decide the issue afresh, leading to the appeal.Cancellation of assessment order due to alleged unexplained cash deposits:The assessee argued that during the relevant assessment year, cash business sales were accounted for, with VAT duly charged and deposited. The cash received from these sales was deposited in the bank account, supported by various documents like cash book, sales register, cash invoices, VAT returns, and bank statements. The Assessing Officer made inquiries specifically about cash deposits, and the assessee provided detailed explanations and evidence. The assessee contended that the cash deposits were from accounted cash sales of gold, supported by ledger entries, VAT returns, cash book, sales register, and auditor's report. The Assessing Officer accepted the return of income after thorough examination. The Tribunal found that the Assessing Officer had made all necessary inquiries and passed a reasoned assessment order, leading to the cancellation of the Principal Commissioner's order under section 263.Erroneous assessment order under section 153A/143(3):The Principal Commissioner alleged that the assessment order passed under section 153A/143(3) was erroneous and prejudicial to revenue due to lack of inquiries on cash deposits. However, the Tribunal noted that the Assessing Officer had indeed made inquiries and verified documents before passing the assessment order. The Tribunal emphasized that the Principal Commissioner's differing view was not sufficient to invoke section 263, as the assessment order was reasoned and based on inquiries conducted.Adequate opportunity of hearing in passing the impugned order:The assessee contended that the Principal Commissioner did not provide adequate reasons for deeming the explanation as untenable, despite the assessee submitting detailed evidence. The Tribunal found that the Principal Commissioner's order lacked justification for considering the explanation as inadequate. The Tribunal highlighted that the Assessing Officer had conducted thorough inquiries and the Principal Commissioner's order lacked a valid basis for deeming the assessment order erroneous.Legality, jurisdiction, and timing of the order under section 263:The Tribunal analyzed the legality and jurisdiction of the Principal Commissioner's order under section 263. It emphasized that the revisionary power under section 263 is triggered when an order is passed without proper inquiry or investigation. In this case, the Assessing Officer had conducted all necessary inquiries and passed a reasoned assessment order. The Tribunal cited relevant case laws to support its decision that not every loss of revenue constitutes an order prejudicial to revenue. The Tribunal set aside the Principal Commissioner's order under section 263, concluding that it was not justified.In conclusion, the Tribunal allowed the appeal of the assessee, setting aside the order passed by the Principal Commissioner of Income Tax under section 263.