AO's failure to investigate seized cash doesn't make assessment erroneous when same amount already taxed in director's hands under section 263

ITAT Surat set aside Pr.CIT's revision order u/s 263 regarding Rs. 15.50 lacs cash seized during search. The tribunal found that while AO didn't investigate the seized cash issue, the same amount was already taxed in the director's hands for A.Y. 2014-15. Since the revenue had already recovered tax on this amount from the director and the company made corresponding accounting entries, the assessment order was not prejudicial to revenue interest. The twin conditions for revision u/s 263 were not satisfied, making the revision order invalid.

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Issues:
Appeal against order under Section 263 of Income Tax Act for AY 2017-18.

Analysis:
The appeal challenged the order of the Principal Commissioner of Income Tax, Valsad, passed under Section 263 of the Income Tax Act for the Assessment Year 2017-18. The assessee, a pharmaceutical company, declared a loss in its return of income for AY 2017-18. The assessment was revised by the Principal Commissioner as he noted discrepancies in the cash balance related to a Specified Bank Note (SBN) deposit during demonetization. The Principal Commissioner observed that the assessee had considered cash seized during an IT search as part of its balance, leading to an unexplained cash deposit. The department issued a show cause notice under Section 263, questioning the source of the cash deposit. The assessee explained that the seized cash belonged to the company, not the director. The Principal Commissioner held that the assessment order was both erroneous and prejudicial to the revenue's interests, setting it aside for a de novo assessment.

The assessee contended that the seized cash had already been added to the director's income for AY 2014-15 and that the assessment order was not prejudicial to revenue. The assessee argued that the cash was continuously shown in its accounts as seized during the search and had not been deposited in the government treasury. The department had already taxed the amount in the director's hands, and a reverse journal entry was made to reflect this. The assessee emphasized that the assessment order was not prejudicial to revenue, as the department had already dealt with the issue in a previous assessment.

The Tribunal found merit in the assessee's arguments, noting that the department had already taxed the amount in the director's assessment for AY 2014-15. As a result, the Tribunal concluded that the assessment order was not prejudicial to revenue and did not meet the conditions required for revision under Section 263. Therefore, the Tribunal set aside the Principal Commissioner's order and allowed the grounds of appeal raised by the assessee. The appeal was ultimately allowed in favor of the assessee.

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