Demonetisation cash deposits from hosiery sales challenged as unsupported; s.263 revision quashed since AO had already examined records.

The dominant issue was whether the PCIT validly assumed revisionary jurisdiction under s.263 in respect of cash deposits during demonetisation allegedly unsupported by sales bills. The Tribunal held that the AO had examined the cash book containing bill-wise sales details, noted the assessee's seasonal hosiery trade and permissibility of cash sales, and formed a considered view taxing the resultant profit. Since this was not a case of "no enquiry" and the PCIT neither identified any specific enquiry omitted by the AO nor conducted further verification to show error and prejudice, s.263 could not be invoked merely to seek deeper enquiries or to substitute a plausible view. The s.263 order was set aside and the assessee's appeal was allowed.

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Issues Involved:

1. Jurisdiction under Section 263 of the Income Tax Act, 1961.
2. Adequacy of inquiries and verification by the Assessing Officer (AO).
3. Basis of revisionary order under Section 263 due to Audit objection.
4. Violation of Principles of Natural Justice.
5. Validity of the show cause notice under Section 263.

Summary:

1. Jurisdiction under Section 263 of the Income Tax Act, 1961:
The Assessee contended that the Principal Commissioner of Income Tax (PCIT) wrongly assumed jurisdiction under Section 263, making the order void-ab-initio. The Tribunal noted that the AO had carried out necessary inquiries during the assessment proceedings, and the PCIT's re-evaluation of the same material without fresh evidence does not justify invoking Section 263.

2. Adequacy of Inquiries and Verification by the AO:
The Assessee argued that the AO made adequate inquiries and verified documents during the assessment proceedings. The AO had accepted the Assessee's explanation for the cash deposited during the demonetization period after examining the cash book, purchase bills, and other relevant documents. The Tribunal found that the AO had indeed conducted a proper inquiry and formed a reasonable view, thus the assessment order was neither erroneous nor prejudicial to the interest of the Revenue.

3. Basis of Revisionary Order under Section 263 due to Audit Objection:
The Assessee claimed that the revisionary order was based solely on an Audit objection, which is illegal. The Tribunal observed that the PCIT did not conduct any further inquiries or verification to substantiate the Audit objection. The Tribunal emphasized that the PCIT must conduct some inquiries to establish that the assessment order is erroneous and prejudicial to the Revenue, which was not done in this case.

4. Violation of Principles of Natural Justice:
The Assessee argued that the PCIT did not address the Audit objection in the revisionary order, violating the Principles of Natural Justice. The Tribunal noted that the PCIT's findings were based on assumptions and conjectures without specific findings, thereby not adhering to the Principles of Natural Justice.

5. Validity of the Show Cause Notice under Section 263:
The Assessee contended that the show cause notice did not mention the words "erroneous" and "prejudicial to the interest of revenue," making the initiation of proceedings under Section 263 illegal. The Tribunal found that the AO had made sufficient inquiries and formed a permissible view, and the PCIT's order lacked the necessary foundation to invoke Section 263.

Conclusion:
The Tribunal set aside the order of the PCIT under Section 263 and revived the order of the AO, allowing the appeal of the Assessee. The Tribunal emphasized that the AO had conducted adequate inquiries, and the PCIT's re-appreciation of the same material without further inquiry was not justified. The order was pronounced in the open Court on 19/02/2024.

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