2024 (4) TMI 1185 - AT - Income Tax

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

Prakashbhai Ishwarbhai Changela Versus Principal Commissioner of Income-tax, PCIT-1, Rajkot

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 ... Validity of Revision u/s 263 - case of the assessee was reopened u/s 147 noting huge cash deposits in his bank accounts - assessment ultimately was finalized treating the cash deposits as pertaining to that of the business of the assessee and taxing only the net profit earned thereon estimating it @ 3% of the total cash deposits - HELD THAT:- The assessment order finds no mention any inquiry made by the Assessing Officer either with regard to Shri Bharat Popat who owned the transactions to relate to him in his affidavit or with M/s. Archar Metal Limited who contrarily stated the transactions to pertain to the business of the assessee. Even assessee was unable to demonstrate any inquiry /investigation carried out by the AO with respect to the contentions made by the assessee before him. There is no doubt, therefore, that the assessment order passed in the present case is without making any necessary inquiries, more particularly when the assessee had given two contrary submissions for the cash transactions in his bank account. AO in his order passed, so much so, gives no reason for accepting one of the contentions of the assessee and rejecting the other. In the face of two patently contrary explanation of the cash deposits in the bank account of the assessee, it was but logical for the AO to have made further inquiries to find out which explanation was true and then arrive at his findings accordingly. No hesitation, therefore, in holding that the assessment order passed in the present case is without any application of mind by the Assessing Officer to the submissions made before him and without conducting necessary inquiries before arriving at his findings. No hesitation therefore in confirming the order of the Ld. PCIT holding the assessment orders passed in the present case to be erroneous causing prejudice to the Revenue. As for the argument of assessee that the pendency of appeal before the ld. CIT (A) on the identical issue would debar the exercise of revisionary powers u/s 263 on the same issue, we find the same is grossly misplaced. The Hon’ble Apex Court in the case of Amritlal Bhogilal & Co. [1958 (4) TMI 3 - SUPREME COURT] as held that, during the pendency of appeal before the First Appellate Authority, the theory of merger of the order in appeal with the appellate order passed does not apply. That during pendency of the appeal, the assessment order subsists and is, therefore, amenable to revision. In effect therefore the order of the ld. PCIT passed u/s 263 of the Act holding the assessment order passed in both the cases before us as erroneous causing prejudice to the Revenue is upheld. Appeals of the assessee are 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.