ITAT rules PCIT's Section 263 revision invalid after proper AO inquiry on demonetization deposits and scrap sales

The ITAT Delhi held that the PCIT's revision u/s 263 was unjustified as the AO had conducted proper inquiry regarding cash deposits during demonetization and scrap sales disclosure. The tribunal found that the PCIT mechanically initiated proceedings without properly examining assessment records. Evidence showed the AO issued notices u/s 142(1) and 143(2), maintained proper order-sheet entries, and received assessee's replies. The audited financial statements clearly showed scrap sales were disclosed. Since the twin conditions of assessment being erroneous and prejudicial to revenue were not satisfied, the revision was invalid. Appeal decided in favor of assessee.

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Issues Involved:
1. Jurisdiction of PCIT u/s 263 of the Income-tax Act, 1961 to revise the assessment order.
2. Examination of cash deposits during the demonetization period.
3. Non-disclosure of income from scrap sales.

Summary:

Jurisdiction of PCIT u/s 263:
The assessee challenged the jurisdiction of the Principal Commissioner of Income Tax (PCIT) in invoking u/s 263 of the Income-tax Act, 1961 to revise the assessment order. The PCIT initiated proceedings under section 263, alleging that the Assessing Officer (AO) did not verify certain issues, including cash deposits during the demonetization period and the taxability of scrap sales. The PCIT concluded that the assessment order was erroneous and prejudicial to the interest of Revenue and directed the AO to frame the assessment de novo.

Examination of Cash Deposits:
The assessee contended that the AO had conducted a thorough inquiry into the cash deposits made during the demonetization period. The AO issued multiple notices under sections 142(1) and 143(2), calling for detailed information, including bank account statements and the source of cash deposits. The assessee responded with detailed replies and supporting documents. The Tribunal found that the AO had indeed conducted a detailed inquiry, which was recorded in the order-sheet entries.

Non-disclosure of Income from Scrap Sales:
The assessee argued that the income from scrap sales was disclosed in the audited financial statements and that Form 3CA was not applicable. The Tribunal noted that the AO had verified the details of scrap sales during the assessment proceedings. The materials on record indicated that the AO had conducted a thorough inquiry into the scrap sales and other issues raised by the PCIT.

Conclusion:
The Tribunal concluded that the PCIT had initiated proceedings u/s 263 without properly examining the assessment records. The AO had conducted a detailed inquiry into the cash deposits and scrap sales, and the assessment order was neither erroneous nor prejudicial to the interest of Revenue. Therefore, the exercise of jurisdiction u/s 263 by the PCIT was deemed invalid and unsustainable. The Tribunal quashed the impugned order passed u/s 263 and restored the original assessment order. The appeal was allowed.

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