Cash deposits during demonetisation period justified when withdrawn before announcement and redeposited due to circumstances

ITAT Kolkata held that CIT's revision u/s 263 was unjustified regarding abnormal cash deposits during demonetisation. The assessee had withdrawn Rs.1,35,00,000 from credit facility before demonetisation announcement and redeposited unused cash during the prescribed period due to circumstances preventing home retention. AO had conducted proper enquiry during assessment proceedings. CIT failed to demonstrate how the assessment order was erroneous or caused revenue prejudice, merely observing it was erroneous without plausible reasoning. ITAT quashed the revision order and allowed the assessee's appeal.

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Issues Involved:
1. Condonation of delay in filing the appeal.
2. Validity of the revision order under Section 263 of the Income Tax Act.

Detailed Analysis:

1. Condonation of Delay in Filing the Appeal:
The appeal was time-barred by 47 days. The assessee filed an application for condonation of delay, supported by an affidavit explaining that the delay was due to a reconstitution of the firm, leading to confusion among partners about tracking income-tax litigation. The Tribunal considered the rival contentions and noted that the expression "sufficient cause" should be construed liberally, as per the Hon'ble Supreme Court's observations in Collector Land Acquisition Vs. Mst. Katiji & Others and N. Balakrishnan Vs. M. Krishnamurthy. The Tribunal found that almost one year of the delay was attributable to the COVID period, and there was no substantial delay on the part of the assessee. Hence, the delay was condoned, and the appeal was decided on merit.

2. Validity of the Revision Order under Section 263:
The assessee challenged the Principal Commissioner of Income Tax's (CIT) order under Section 263, which set aside the assessment order for the assessment year 2017-18. The CIT's revision was based on the abnormal increase in cash deposits during the demonetisation period, which he believed was not adequately investigated by the Assessing Officer (AO).

Facts and Arguments:
- The assessee filed its return declaring an income of Rs.1,39,246/-. The case was selected for scrutiny, and a notice under Section 143(2) was issued.
- The AO issued a show-cause notice and a questionnaire under Section 142(1), which included specific queries about cash deposits during the demonetisation period.
- The assessee explained that the cash deposits were from cash withdrawals made before demonetisation for purchasing paddy, which were redeposited due to the demonetisation announcement.
- The CIT, however, found the AO's investigation inadequate and considered the assessment order erroneous and prejudicial to the interests of the revenue.

Tribunal's Findings:
- The Tribunal reviewed the records and found that the AO had indeed raised specific queries and received detailed explanations from the assessee regarding the cash deposits.
- The Tribunal noted that the CIT's finding that there was no evidence of proper verification by the AO was factually incorrect.
- The Tribunal emphasized that the AO had made due inquiries and accepted the assessee's explanations, which were supported by documentary evidence.
- The Tribunal cited various judicial precedents, including Malabar Industrial Co. Pvt. Ltd vs. CIT and Gee Vee Enterprise vs. Addl. CIT, to highlight that the CIT must demonstrate how the AO's order was erroneous and prejudicial to the revenue, which was not done in this case.
- The Tribunal concluded that the CIT failed to provide a plausible reason for disagreeing with the AO's findings and quashed the revision order under Section 263.

Conclusion:
The Tribunal allowed the appeal, quashing the CIT's order under Section 263, and upheld the original assessment order.

Order Pronouncement:
The order was pronounced in the open Court on October 10, 2022.

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