Cash deposit enquiries during demonetization period held sufficient, revision order under section 263 set aside

ITAT Pune-AT allowed the assessee's appeal against revision order u/s 263 regarding cash deposits during demonetization period. The tribunal held that AO had conducted due enquiries by issuing various notices seeking details to substantiate source of cash deposits in Specified Bank Notes. Since AO made detailed enquiries and took a possible view after being satisfied with replies, the order though prejudicial to revenue interest was not erroneous. Pr.CIT was not justified in invoking revision powers by merely directing fresh assessment without conducting further enquiries himself. Revision order was set aside.

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Issues Involved:

1. Legality of invoking Section 263 by Pr.CIT.
2. Adequacy of the AO's inquiry during the assessment.
3. Justification of the Pr.CIT's directive for a fresh assessment.

Issue-wise Detailed Analysis:

1. Legality of invoking Section 263 by Pr.CIT:

The appeal concerns the order dated 21.03.2022 passed under Section 263 by the Pr.CIT, Nashik-1 for the Assessment Year 2017-18. The Pr.CIT noted that the AO completed the assessment without making due verification and inquiries warranted by the facts and circumstances of the case, particularly concerning the substantial cash deposits during the demonetization period. The Pr.CIT issued a show cause notice to the assessee, arguing that the assessment order was erroneous and prejudicial to the interest of the Revenue because the AO did not verify the source of the cash deposits with documentary evidence.

The assessee contended that the AO had made detailed inquiries during the assessment proceedings and had accepted the explanations provided. The additional ground raised by the assessee argued that the revision proceedings under Section 263 were initiated based on a recommendation from the AO through the Addl. CIT, and not suo-moto by the Pr.CIT, thus making the proceedings null and void.

2. Adequacy of the AO's inquiry during the assessment:

The AO issued various notices under Section 142(1) asking for detailed information regarding the cash deposits during the demonetization period. The assessee provided comprehensive responses, including cash books, balance sheets, bank statements, and explanations for the cash in hand and cash deposits. The AO conducted due inquiries and accepted the explanations provided by the assessee.

The Tribunal noted that the AO had indeed made detailed inquiries, and it could not be said that the AO had not applied his mind or had accepted the submissions blindly. The AO's inquiries were thorough and covered all aspects required to substantiate the source of the cash deposits.

3. Justification of the Pr.CIT's directive for a fresh assessment:

The Tribunal observed that for invoking Section 263, the order passed by the AO must be both erroneous and prejudicial to the interest of the Revenue. The Pr.CIT did not conduct further inquiries himself but merely set aside the matter for a fresh assessment, which is not permissible.

The Tribunal cited various judicial precedents, including the Hon'ble Bombay High Court in CIT vs. Gabrial India Ltd. and the Hon'ble Delhi High Court in CIT vs. Sunbeam Auto Ltd., which held that the Pr.CIT must record a clear finding that the order is erroneous and prejudicial to the interest of the Revenue. The Tribunal concluded that the AO had made due inquiries and had taken a possible view, and therefore, the Pr.CIT was not justified in invoking Section 263.

Conclusion:

The Tribunal allowed the appeal filed by the assessee, setting aside the order passed by the Pr.CIT under Section 263. The Tribunal held that the AO had conducted adequate inquiries, and the Pr.CIT's directive for a fresh assessment was not justified. The grounds raised by the assessee were accordingly allowed.

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