2022 (7) TMI 1422 - AT - Income Tax

Tax Tribunal reinstates Assessing Officer's order, rejects Principal Commissioner's revision under

The Tribunal found that the Principal Commissioner of Income-tax (PCIT) failed to establish that the Assessing Officer's (AO) order was both erroneous and ... Revision u/s 263 by CIT - Unexplained cash u/s 68 - As per CIT-A cash deposited by the assessee was not verified properly and thus the order passed u/s. 143(3) was erroneous and prejudicial to the interests of the revenue - assessee has not established that Specified Bank Notes (SBNs) deposited were out of receipts prior to demonetization and therefore an adverse inference was drawn that the receipts/SBNs were received after demonetization which is contrary to public policy - HELD THAT:- As it cannot be said that the AO did not carry out enquiry or verification which ought to have been done. The adverse inference drawn by the PCIT from the documents are debatable as the PCIT has out brought any material on record to substantiate his adverse inference. In the instant case, the AO has verified the details and applied his mind to come to the conclusion that no addition is warranted towards the cash deposited by the assessee during the demonetization period. On the other hand, the PCIT has arrived at a view that the cash was deposited out of SBN received post demonetization and proper enquiries ought to have been made by the AO which is clearly a difference of opinion which cannot be a reason for revision u/s. 263. As decided in Gabriel India Ltd [1993 (4) TMI 55 - BOMBAY HIGH COURT] Commissioner before holding an order to be erroneous should have conducted necessary enquiries or verification in order to show that the findings of the AO is erroneous and unsustainable in law. In the present case, the PCIT has not done so and simply expressed a view based on his inference that the AO should have conducted enquiry. Such course of action by the PCIT is not in accordance with the mandate of law - Decided in favour of assessee. Issues Involved:1. Legality of the notice issued for initiation of proceedings under section 263 of the Income-tax Act.2. Justification of invoking jurisdiction under section 263 by the Principal Commissioner of Income-tax (PCIT).3. Examination of whether the order passed by the Assessing Officer (AO) was erroneous and prejudicial to the interest of the revenue.4. Adequacy of the enquiry conducted by the AO regarding cash deposits during the demonetization period.5. Applicability of section 68 regarding unexplained cash credits.6. Validity of the PCIT's inference about the source of cash deposits and the legality of Specified Bank Notes (SBNs) post-demonetization.Detailed Analysis:1. Legality of the Notice Issued for Initiation of Proceedings Under Section 263:The appellant contested the legality of the notice issued for the initiation of proceedings under section 263 of the Income-tax Act, claiming it was 'bad in law.' This issue questions whether the procedural aspects of the notice were correctly followed, but the judgment does not provide a detailed discussion on this specific point.2. Justification of Invoking Jurisdiction Under Section 263 by the PCIT:The appellant argued that the PCIT was not justified in invoking jurisdiction under section 263 and setting aside the AO's order. The PCIT's jurisdiction under section 263 requires that the order be both 'erroneous and prejudicial to the interests of the revenue.' The Tribunal emphasized that the PCIT must demonstrate that the AO's order is 'wholly unsustainable in law' and that mere inadequacy of enquiry or difference of opinion does not justify invoking section 263.3. Examination of Whether the Order Passed by the AO Was Erroneous and Prejudicial to the Interest of the Revenue:The appellant argued that the AO's order was neither erroneous nor prejudicial to the interest of the revenue. The Tribunal noted that for section 263 to be applicable, both conditions must be satisfied. The Tribunal referred to several precedents, including the Supreme Court's rulings in Malabar Industrial Co. Ltd. and Max India Ltd., to emphasize that if two views are possible and the AO has taken one view, the order cannot be considered erroneous.4. Adequacy of the Enquiry Conducted by the AO Regarding Cash Deposits During the Demonetization Period:The PCIT contended that the AO did not adequately verify the source of cash deposits during the demonetization period. However, the Tribunal found that the AO had conducted a thorough enquiry, including calling for information under section 142(1), issuing letters under section 133(6) to banks, and verifying the details provided by the assessee. The Tribunal cited the AO's detailed findings and concluded that the AO had applied his mind and conducted the necessary verification.5. Applicability of Section 68 Regarding Unexplained Cash Credits:The PCIT argued that the unexplained cash deposits should be added as unexplained credits under section 68. The Tribunal noted that the AO had verified the details and accepted the explanation provided by the assessee regarding the source of cash deposits. The Tribunal emphasized that the PCIT did not bring any material on record to substantiate that the cash deposits were unexplained.6. Validity of the PCIT's Inference About the Source of Cash Deposits and the Legality of SBNs Post-Demonetization:The PCIT inferred that the SBNs deposited were received post-demonetization and were therefore illegal. The Tribunal found this inference to be without basis, noting that the AO had verified the details and accepted the explanation regarding the source of SBNs. The Tribunal also referred to the Karnataka High Court's ruling in Cyber Park Development & Construction Ltd., which held that mere inadequacy of enquiry does not justify invoking section 263.Conclusion:The Tribunal concluded that the PCIT failed to demonstrate that the AO's order was both erroneous and prejudicial to the interests of the revenue. The Tribunal set aside the revision order passed by the PCIT under section 263 and restored the AO's assessment order under section 143(3). The appeal by the assessee was allowed.