Assessee wins appeal as cash deposits adequately explained through withdrawals and documentary evidence under section 263

ITAT Ahmedabad allowed the assessee's appeal against PCIT's revision order u/s 263 regarding unexplained cash deposits of Rs. 30 lakhs. The assessee had adequately explained the source through opening cash balance and withdrawals in April-May 2016 with documentary evidence. ITAT held that where cash deposits are explained through withdrawals and revenue doesn't prove alternative utilization, the explanation cannot be doubted. The AO's acceptance of the explanation was a plausible view, not erroneous warranting revision. PCIT's finding that AO mistakenly failed to make additions was rejected as assessment orders must be read as written without inference.

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Issues Involved:

1. Validity of the order passed by the Principal Commissioner of Income-tax (PCIT) under Section 263 of the Income-tax Act, 1961.
2. Examination of cash deposits by the Assessing Officer (AO) during the scrutiny assessment.
3. Whether the assessment order was erroneous and prejudicial to the interest of revenue.
4. Adequacy of inquiry conducted by the AO regarding cash deposits.
5. Invocation of revision jurisdiction by PCIT despite the principle of merger with the CIT(A)'s order.

Summary:

1. Validity of the Order Passed by PCIT under Section 263:

The assessee challenged the PCIT's order dated 10.03.2022, which was passed in exercise of revisionary powers under Section 263 of the Income-tax Act, 1961, for the Assessment Year 2017-18, arguing that the order was "bad in law and required to be quashed."

2. Examination of Cash Deposits by the AO During Scrutiny Assessment:

The AO had scrutinized the cash deposits made by the assessee, which included Rs. 30 lakhs deposited prior to demonetization and Rs. 22 lakhs during the demonetization period. The AO made an addition of Rs. 22 lakhs but did not add the Rs. 30 lakhs deposited before demonetization, accepting the assessee's explanation that it was from prior withdrawals.

3. Whether the Assessment Order was Erroneous and Prejudicial to the Interest of Revenue:

PCIT found the assessment order erroneous for not examining the source of Rs. 30 lakhs deposited before demonetization. PCIT noted that the AO did not document any acceptance of the assessee's explanation, nor was there any Office Note indicating proper application of mind.

4. Adequacy of Inquiry Conducted by the AO Regarding Cash Deposits:

The PCIT argued that the AO failed to make proper inquiries and that the explanation provided by the assessee'withdrawals from the same bank account'was not plausible. The PCIT found it unusual for someone to withdraw cash without immediate need and then redeposit it. The PCIT also noted unexplained deposits in the bank account prior to withdrawals.

5. Invocation of Revision Jurisdiction by PCIT Despite the Principle of Merger:

The assessee contended that the assessment order had merged with the CIT(A)'s order, making revision under Section 263 impermissible. However, the PCIT held that the AO's failure to add Rs. 30 lakhs was a mistake, thus justifying the revision.

Final Judgment:

The Appellate Tribunal disagreed with the PCIT's findings, stating that the AO had indeed examined the cash deposits and accepted the explanation provided by the assessee, which was supported by documentary evidence. The Tribunal found no error in the AO's assessment order and held that the PCIT's order was not justified. The appeal of the assessee was allowed, and the PCIT's order was set aside.

Order Pronounced:

The appeal of the assessee was allowed, and the order was pronounced in the open Court on 23/02/2024 at Ahmedabad.

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