PCIT's Section 263 revision upheld for inadequate inquiry into unexplained cash deposits under Section 68

The ITAT Amritsar upheld the PCIT's revision order u/s 263, finding the AO's assessment erroneous and prejudicial to revenue interests. The case involved unexplained cash deposits u/s 68 where the assessee could not provide depositor details, goods purchase invoices, or transport documents. The tribunal held that the AO failed in his dual role as investigator and adjudicator by not conducting proper enquiry into suspicious cash transactions. Despite the assessee's argument regarding similar treatment in AY 2014-15, the tribunal ruled that res judicata principles don't apply to income tax proceedings as each year is separate. The revision was upheld, directing fresh assessment proceedings.

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Issues Involved:

1. Whether the order passed by the Assessing Officer (AO) was erroneous and prejudicial to the interests of revenue.
2. Whether the Principal Commissioner of Income Tax (PCIT) was justified in invoking powers u/s 263 of the Income Tax Act.
3. Whether the lack of enquiry by the AO constitutes grounds for invoking section 263.

Summary:

Issue 1: Erroneous and Prejudicial Order by AO

The assessee filed a return of income declaring Rs. 4,00,480/-. The case was selected for limited scrutiny to examine "whether the cash deposit has been made from disclosed sources." The AO completed the assessment without making any enquiry regarding the cash deposits of Rs. 13,39,75,217/- in the assessee's bank accounts. The assessee claimed these deposits were from customers for purchasing glass bangles. The PCIT observed that the AO failed to conduct any enquiry, thus rendering the order erroneous and prejudicial to the interests of revenue.

Issue 2: Justification for Invoking Section 263

The PCIT invoked section 263, arguing that the AO's failure to investigate the cash deposits made the order erroneous and prejudicial to the interests of revenue. The assessee contended that the AO had made a conscious decision after examining the necessary evidence. However, the Tribunal found that the AO did not conduct any enquiry into the cash deposits, thus justifying the PCIT's invocation of section 263.

Issue 3: Lack of Enquiry by AO

The Tribunal noted that the AO did not make any enquiries regarding the details of parties from whom cash was received or the transactions involved. The assessee admitted that no such details were provided during the assessment proceedings. The Tribunal emphasized that the AO's role includes being both an investigator and an adjudicator. The failure to investigate constitutes a lack of enquiry, making the order erroneous and prejudicial to the interests of revenue.

Conclusion

The Tribunal upheld the PCIT's action u/s 263, concluding that the AO's lack of enquiry rendered the assessment order erroneous and prejudicial to the interests of revenue. The appeal was dismissed, with the observation that the assessee would have the opportunity in the set-aside assessment proceedings to justify the cash deposits.

Order Pronounced

The appeal was dismissed, and the order was pronounced in the open court on 22.04.2024 at Agra, U.P.

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