2022 (8) TMI 1460 - AT - Income Tax

Tax officer's reasonable approach on demonetization cash deposits cannot be overturned by revision under section 263

Ms. Vimala Devi A. Kanunga, M/s. Jainam Syndicate Versus PCIT, Hubli

ITAT Bangalore quashed PCIT's revision order u/s 263 regarding unexplained cash deposits during demonetization. AO conducted limited scrutiny of bank ... Revision u/s 263 - cash deposit in the Bank Account unexplained - as dispute is settled under VSV Scheme, PCIT held that the same would be valid only to the extent of addition made by the AO and not the entire cash deposit in the Bank Account - HELD THAT:- The case was picked up for limited scrutiny of cash deposits in Bank Account during demonetization period. AO examined cash purchases and sales and came to a conclusion that purchases and sales from May, 2016 to October, 2016, were inflated and to the extent of such inflation, the AO drew an adverse inference. PCIT is of the view that the addition should have been on actual purchases and sales proved by the assessee and not on an ad hoc basis. The law is well settled that power u/s 263 of the Act cannot be exercised to substitute the view of the PCIT with that of the AO when the view taken by the AO was a possible view. It is equally well settled that the PCIT cannot invoke powers u/s 263 of the Act directing a fishing or raving enquiry. In a case where enquiry is directed to be made by the PCIT, he must give a finding as to how the enquiry made by the AO was wrong. In the present case, the enquiry made by the AO was proper and the AO has drawn proper conclusions on material available before her. The view taken by the AO was a possible view rather a very pragmatic view. The PCIT may not agree with that view. However, the powers under section 263 of the Act cannot be exercised to substitute the view of the PCIT with that of the AO. Since we have quashed the order on merits, we do not wish to go into the question regarding VSV Scheme and its effect on the power under section 263 of the Act. We also hold that the question of invoking the provisions of section 40A(3) of the Act does not arise firstly because the limited scrutiny was only to verify cash deposit in Bank Account. Secondly, the issue was not subject matter of SCN under section 263 of the Act nor was the assessee put on notice regarding the said issue by the PCIT in the proceedings under section 263 of the Act. Appeal of the assessee is allowed. Issues:- Appeal against order under section 263 of the Income Tax Act, 1961 for Assessment Year 2017-18.Analysis:1. The assessee, engaged in wholesale business, filed a return declaring total income. The case was selected for limited scrutiny to verify cash deposits during demonetization. The Assessing Officer (AO) found discrepancies in cash deposits, purchases, and sales, leading to an addition to the total income.2. The Principal Commissioner of Income Tax (PCIT) held the AO's order as erroneous and prejudicial to Revenue's interest due to inadequate enquiries. The PCIT noted the need for a thorough examination of purchases, sales, and cash in hand to determine unaccounted money deposited in bank accounts during demonetization.3. The PCIT observed that the AO did not conduct necessary inquiries to ascertain the source of cash deposits. The PCIT set aside the assessment order and directed the AO to make a fresh assessment, considering all relevant aspects and giving the assessee an opportunity to explain.4. The PCIT ruled that settlement under the VSV Scheme only applies to the extent of the addition made by the AO, not the entire cash deposit. The PCIT directed the AO to verify any contravention of section 40A(3) without prior notice to the assessee, which was deemed invalid.5. The Tribunal, considering the submissions, found that the AO's enquiries were proper, and the conclusions drawn were based on available evidence. The Tribunal emphasized that the PCIT cannot substitute the AO's view with its own unless the AO's view is unreasonable.6. Consequently, the Tribunal allowed the appeal, quashing the PCIT's order and emphasizing that the power under section 263 was not properly exercised. The Tribunal also clarified that the issue of the VSV Scheme's effect and section 40A(3) did not arise in this context.7. In conclusion, the Tribunal allowed the assessee's appeal, setting aside the PCIT's order and emphasizing the importance of proper exercise of power under section 263 of the Income Tax Act, 1961.