PCIT revision order upheld for erroneous assessment lacking proper inquiry into contradictory explanations for cash deposits u/s 263

ITAT Rajkot upheld PCIT's revision order u/s 263 finding assessment erroneous and prejudicial to revenue. Case involved reopening u/s 147 for huge cash deposits where assessee provided contradictory explanations - one attributing deposits to third party, another claiming business transactions. AO failed to conduct necessary inquiries despite conflicting submissions and accepted one explanation without reasoning. ITAT confirmed assessment lacked application of mind and proper investigation. Assessee's argument that pending appeal before CIT(A) barred revision powers was rejected citing Supreme Court precedent that assessment order subsists during appeal pendency. Appeals dismissed.

---

---

Issues Involved:
1. Jurisdiction and validity of the order passed under Section 263 of the Income-tax Act, 1961.
2. Adequacy of inquiries conducted by the Assessing Officer (AO).
3. Pendency of appeal before CIT(A) and its impact on the revisionary powers under Section 263.
4. Invocation of Explanation 2 to Section 263 without issuing a show-cause notice.

Issue-wise Detailed Analysis:

1. Jurisdiction and Validity of the Order under Section 263:
The assessee contended that the order passed by the Principal Commissioner of Income-tax (PCIT) under Section 263 was "without jurisdiction, bad in law and void ab-initio." The argument was based on the fact that the issue raised in the assessment framed under Section 143(3) read with Section 147 was pending with the CIT(Appeals). The Tribunal found that the PCIT had the jurisdiction to pass the order under Section 263, as the assessment order was erroneous and prejudicial to the interests of the Revenue. The Tribunal upheld the PCIT's order, stating that the AO had not conducted necessary inquiries before finalizing the assessment.

2. Adequacy of Inquiries Conducted by the AO:
The PCIT found the assessment orders to be erroneous because the AO had made no inquiries regarding the huge cash deposits in the assessee's bank accounts. The AO had accepted the assessee's explanation that the cash deposits were business receipts and taxed only 3% of the total deposits as net profit. The Tribunal noted that the AO had recorded contradictory contentions from the assessee-one stating that the transactions did not pertain to him and another stating that they were business transactions. The AO did not make any inquiries to verify these contentions. The Tribunal concluded that the assessment order was passed without any application of mind and without conducting necessary inquiries, thereby confirming the PCIT's order.

3. Pendency of Appeal Before CIT(A) and Its Impact on Revisionary Powers:
The assessee argued that since the issue was pending before the CIT(A), the PCIT could not exercise revisionary jurisdiction under Section 263. The Tribunal rejected this argument, citing the Hon'ble Apex Court's decision in the case of Amritlal Bhogilal & Co., which held that the pendency of an appeal does not suspend the operation of the order under appeal. The Tribunal stated that the assessment order subsists during the pendency of the appeal and is amenable to revision.

4. Invocation of Explanation 2 to Section 263 Without Issuing a Show-Cause Notice:
The assessee contended that the PCIT had invoked Explanation 2 to Section 263 without issuing a show-cause notice, making the order bad in law. The Tribunal referred to the decision of the ITAT, Ahmedabad Bench in the case of Nilay Kumar Bros Jewellers, which held that there is no requirement to issue a show-cause notice specifically mentioning the invocation of Explanation 2. The Tribunal also noted that the decision of the Hon'ble Gujarat High Court in the case of Shreeji Prints (P) Ltd. did not support the assessee's contention, as the issue of invoking Explanation 2 without a show-cause notice was not the question before the High Court.

Conclusion:
The Tribunal upheld the PCIT's order passed under Section 263, holding the assessment orders for both assessment years as erroneous and prejudicial to the interests of the Revenue. The appeals filed by the assessee were dismissed. The Tribunal confirmed that the AO had failed to conduct necessary inquiries and that the PCIT had the jurisdiction to pass the revisionary order, even during the pendency of the appeal before CIT(A). The invocation of Explanation 2 to Section 263 without issuing a show-cause notice was also found to be valid.

---