2023 (4) TMI 139 - AT - Income Tax

Court overturns Principal CIT's decision under Income Tax Act, emphasizing twin conditions for invoking section 263.

Diamond Heritage Versus Pr. Commissioner of Income Tax, PCIT, Jalandhar - 1

The appeal challenged an order under section 263 of the Income Tax Act for Assessment Year 2017-18. The court found that the Principal CIT's decision to ... Revision u/s 263 by CIT - cash deposit during the demonetization period - assessee’s case was selected under limited scrutiny for the reason of cash deposit during demonetization period and abnormal increase in sales with decrease in profit as compared to preceding year - HELD THAT:- As evident from the assessment order that the AO has verified the transaction regarding the cash deposit during the demonetization period and the cash sales. The allegation of the Pr.CIT that source of cash deposit during the demonetization has remained unverified without reference to the cash sales as examined by the Assessing Officer has no substance and remained uncorroborated with the support of documentary evidence. Merely based on presumption, questioning the cash deposit during the demonetization period and other issues other than the limited scrutiny such as cash creditors are beyond the domain of the jurisdiction of the PCIT u/s 263 of the Act. Therefore, the action of the PCIT invoking jurisdiction u/s 263 of the Act without pointing out specific defects/errors, or specific point of investigation the decision of ld. PCIT to hold the assessment order erroneous and prejudicial to the interest of the Revenue, is bad in law. In the present case, it could not be said that the assessment order was passed by the AO without making enquiries on the issues of limited scrutiny. The AO has taken one view and where only one view was plausible for such view, no second view can be taken to make the order erroneous and prejudicial to the interest of the Revenue. Thus, PCIT’s views cannot be approved to substitute the view of the Assessing Officer. Decided in favour of assessee. Issues involved:The appeal challenges the order passed under section 263 of the Income Tax Act, 1961 for Assessment Year 2017-18.Grounds of Appeal:1. The Principal CIT erred in holding the assessment order as prejudicial to the interest of revenue.2. The Principal CIT failed to appreciate the earlier assessment completed after due consideration.3. The Principal CIT erred in invoking provisions of s. 263 without adequate enquiry by the AO.4. The Principal CIT was unjustified in invoking s. 263 based on inadequate enquiry.5. The appellant reserves the right to amend the grounds of appeal.Summary of Judgement:The appellant's case was selected for limited scrutiny due to cash deposit during demonetization and increase in sales. The AO raised queries and the assessee provided relevant documents. The AO was satisfied with the explanation and no adverse inference was drawn. The PCIT's decision to invoke s. 263 without specific defects or errors is deemed unlawful. The PCIT failed to establish the twin conditions required for invoking s. 263. The judgment cites the Malabar Industrial Co. Ltd. case emphasizing the necessity for an order to be both erroneous and prejudicial to Revenue for s. 263 to apply. In this case, the AO's view was plausible and not erroneous, thus PCIT's decision was deemed infirm. The appeal of the assessee was allowed, and the PCIT's order was held bad in law and annulled.