2016 (12) TMI 799 - AT - Income Tax

Tribunal overturns Principal CIT's decision, reinstates original assessment order under section 263.

The Tribunal set aside the Principal CIT's decision under section 263, restoring the original assessment order. It held that the AO had adequately ... Revision u/s 263 - cash deposits in bank accounts - Held that:- It is clear that Assessing officer examined the issue of cash deposits in bank accounts of the assessee in question, in detail, by examining the books of account, agreement to sell and other material on record. The view of the Assessing officer is permissible under the law and is sustainable. The assessee thus proved the source of the cash deposits in his bank accounts. Reasons given by the Ld. Principal CIT in totally for setting aside the assessment order are not justified as the same are not in accordance with law. No factual error has been pointed out by the audit party in this case because case was selected for scrutiny for cash deposits in the bank accounts of the assessee. The audit party did not agree with the findings of the Assessing officer, therefore, it could not be said that the assessment order was erroneous in so far as the prejudicial to the interest of the Revenue. The Ld. Counsel for the assessee therefore, rightly contended that the contents of the show cause notice u/s.263of the I.T. are similarly worded as have been noted in the audit objection. Therefore, subsequently on mere audit objection, the Ld. Principal CIT, was not justified in initiating the proceedings u/s.263of the I.T. Act. The Principal CIT was, therefore, not justified in holding that Assessing officer did not make necessary enquiry into the matter. The Ld. Principal CIT merely disagree with the findings of the Assessing officer, therefore, it could not be termed as assessment order to be erroneous and prejudicial to the interest of Revenue. Therefore, we do not subscribe to the view of the Principal CIT in exercising jurisdiction u/s.263 - Decided in favour of assessee Issues Involved:1. Validity of the assessment order under section 143(3) of the Income-tax Act, 1961.2. Examination of cash deposits in the assessee's bank accounts.3. Validity of the agreement to sell and its impact on the assessment.4. Jurisdiction of the Principal Commissioner of Income Tax (CIT) under section 263 of the Income-tax Act, 1961.5. Audit objection as a basis for initiating proceedings under section 263.Issue-wise Detailed Analysis:1. Validity of the Assessment Order under Section 143(3):The assessment order under section 143(3) for the assessment year 2011-12 was passed on 17.09.2013. The Assessing Officer (AO) noted cash deposits in the assessee's savings bank accounts with ICICI Bank and Allahabad Bank. The AO examined the information and details provided by the assessee, including bank statements and cash book, and made an addition of Rs. 1,32,000 under section 68 of the Income-tax Act due to unexplained opening balance. Interest earned on these bank accounts was also added to the assessee's income.2. Examination of Cash Deposits:The Principal CIT found the assessment order to be erroneous and prejudicial to the interest of Revenue, noting that the case was selected for scrutiny due to cash deposits exceeding Rs. 10 lakhs in the assessee's bank accounts. The assessee had deposited Rs. 98,60,901 through cash and transfer entries. The assessee explained the deposits with a lease agreement and an agreement to sell agricultural land. However, the Principal CIT noted that the agreement was not registered and considered it fake and bogus. The AO was found to have failed to verify the source of the deposits adequately.3. Validity of the Agreement to Sell:The assessee argued that the AO had duly examined the accounts and agreements, including an agreement to sell dated 13.11.2009, through which an advance of Rs. 90 lakhs was received. The sale deed could not be executed due to pending litigation involving the land. The Principal CIT, however, did not accept this contention, stating that the AO failed to verify the genuineness of the agreement as it was not registered. The Principal CIT also did not consider the civil court's judgment provided by the assessee, which supported the genuineness of the agreement.4. Jurisdiction of the Principal CIT under Section 263:The Principal CIT set aside the assessment order, directing the AO to pass a fresh order after proper verification. The Principal CIT's decision was based on the AO's failure to make necessary inquiries and verify the cash deposits. However, the Tribunal found that the AO had examined the details and evidence provided by the assessee, including the agreement to sell and the civil court's judgment, which justified the cash deposits. The Tribunal held that the Principal CIT could not reappraise the same evidence and that the AO had taken a permissible view under the law.5. Audit Objection as Basis for Section 263 Proceedings:The Tribunal noted that the Principal CIT initiated proceedings under section 263 based on an audit objection, which pointed out factual mistakes. However, the Tribunal held that a mere audit objection and the fact that a different view could be taken are not sufficient to deem the assessment order erroneous or prejudicial to the interests of the Revenue. The Tribunal relied on precedents, including the Hon'ble Punjab and Haryana High Court's decision in CIT vs. Sohana Woolen Mills, to support this view.Conclusion:The Tribunal set aside the impugned order under section 263 and quashed the same, restoring the assessment order dated 17.09.2013. The Tribunal concluded that the AO had conducted a detailed examination of the cash deposits and the agreement to sell, and the Principal CIT's disagreement with the AO's findings did not justify the invocation of section 263. The appeal of the assessee was allowed.