2024 (6) TMI 932 - AT - Income Tax

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

Sh. Dharam Singh Versus Pr. CIT, Bareilly, Uttar Pradesh.

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 ... Revision u/s 263 - as per CIT AO has not made inquiry with regard to the cash deposits made during demonetization and further he has not examined non-disclosure of income from scrap sales - HELD THAT:- PCIT has observed that on perusal of assessment record, he found that the cash book and bank account statements from the assessee were not obtained and copy of bank account for the relevant period not placed on file. These facts led him to conclude that the cash deposits made by the assessee were not examined by the AO. If the aforesaid observations of learned PCIT are kept in juxtaposition to the order-sheet entries of the AO as well as the questionnaires along with notices issued u/s 142(1) of the Act and replies furnished by the assessee, there can be two conclusions. Firstly, without making any inquiry the Assessing Officer has misstated the facts and made false entries in the order-sheets. Secondly, PCIT has not examined the records properly. Keeping in view the details of inquiry conducted by the Assessing Officer, which is manifest from the materials brought on record in the form of notices issued under section 142(1) and 143(2), the order-sheet entries, replies filed by the assessee, it is not possible under any circumstances to conclude that the Assessing Officer has misstated the facts or has recorded false order-sheet entries. Therefore, the only conclusion one can reach is, the allegations made by the PCIT that the Assessing Officer has not conducted any inquiry with regard to cash deposits during demonetization period, is not based on materials on record, or rather, contrary to materials on record. The materials on record certainly make it clear that learned PCIT has initiated proceedings under section 263 of the Act mechanically without properly examining the assessment records. Non-disclosure of scrap sales, the materials on record clearly reveal that there, in fact, is no such nondisclosure of scrap sales. The Audited financial statement furnished in course of assessment proceedings clearly indicate that the scrap sales, indeed, were shown by the assessee. The primary conditions for invoking section 263 of the Act are, the order sought to be revised must be erroneous and at the same time prejudicial to the interest of Revenue. Unless, these twin conditions are satisfied, section 263 of the Act cannot be invoked. In the facts of the present case, learned PCIT has put much emphasis on Explanation 2 to section 263 of the Act. In our view, Explanation 2 to section 263 of the Act does not invest unbridled power with the revisionary authority so as to empower him to invoke revisionary jurisdiction arbitrarily. In the facts of the present appeal, the materials brought on record clearly reveal that the Assessing Officer has conducted thorough inquiry on various issues, including the issues on which learned PCIT has exercised jurisdiction u/s 263 - After satisfying himself with the result of enquiry, the Assessing Officer has completed the assessment. That being the factual position emerging on record, the assessment order cannot be held to be erroneous and prejudicial to the interest of Revenue - In absence of any material brought on record by the revisionary authority to establish the lack of inquiry, mere allegation would not suffice. Decided in favour of assessee. 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.