2025 (5) TMI 1861 - AT - Income Tax

PCIT's revision order under section 263 upheld for inadequate investigation of unaccounted cash deposits requiring fresh assessment

ITAT Delhi upheld PCIT's revision order u/s 263 regarding unaccounted cash deposits in assessee's bank accounts. The tribunal found the original ... Revision u/s 263 - PCIT observed that cash deposits appearing in the saving bank accounts are unaccounted investment of the assessee, which needs in depth scrutiny/investigation - HELD THAT:- We observed that the assessment order passed by the AO is cryptic and there is no record to show that he has carried on the requisite investigation. During revision proceedings, PCIT observed that the parties involved have denied specifically the relevant cash payments made to the assessee for the relevant transactions. Before PCIT, assessee has submitted that Mr. Rohit Dhawan has filed a case against the assessee for recovery of Rs. 15 lakhs. All the information available on assessment record clearly shows that AO has not carried out requisite investigation before completing the assessment and he has merely relied on the affidavits filed by the assessee without corroborating the relevant evidences available on record. Therefore, we are inclined to agree with the findings of PCIT and hold that order passed u/s 263 is proper. Accordingly, the appeal filed by the assessee dismissed. Whether the assessee was given adequate opportunity to represent its case? - CIT (A) has given several opportunities to the assessee to submit the relevant information in support of assessee’s claim. However, ld. CIT (A) has passed the order based on the material available on record. Therefore, considering the additions made by the tax authorities, in our considered view, assessee should be given one more opportunity or being heard for the sake of overall justice. We are inclined to remit the file to AO to redo the assessment. Remit the file to AO to redo the assessment after giving proper opportunity of being heard to the assessee. Issues presented and considered in this case primarily revolve around the legality and propriety of the order passed under section 263 of the Income-tax Act, 1961, which called for reassessment on the ground of unexplained cash deposits in the assessee's bank accounts for Assessment Year 2011-12. The core legal questions examined include:1. Whether the Principal Commissioner of Income Tax (PCIT) was justified in invoking jurisdiction under section 263 to revise the assessment order passed by the Assessing Officer (AO) on the basis that the AO failed to make requisite inquiries regarding the source of cash deposits.2. Whether the cash deposits totaling approximately Rs. 45.71 lakhs and Rs. 7 lakhs, allegedly received as advances from third parties, were properly accounted for and explained by the assessee.3. Whether the AO erred in accepting the assessee's submissions without conducting adequate investigation or verification, especially in light of contradictory statements from the alleged payers denying the advances.4. Whether the interest income earned by the assessee, which was not disclosed separately in the return of income, was liable to be taxed and whether the AO failed to examine this aspect.5. Whether the impugned order under section 263 was passed without adhering to principles of natural justice and whether it was barred by limitation or otherwise illegal.6. Whether the subsequent assessment order passed under section 143(3) read with section 263, which was ex-parte, was valid and whether the assessee was given adequate opportunity to represent its case.Issue-wise detailed analysis:1. Jurisdiction and validity of order under section 263:The legal framework under section 263 empowers the PCIT to revise an assessment if it is found to be erroneous and prejudicial to the interests of the revenue. The Court examined whether this jurisdiction was properly exercised.The PCIT observed that the AO had accepted the assessee's explanation of cash deposits as advances from third parties without conducting proper enquiry. The statements of the alleged payers, Mr. Rohit Dhawan and Mr. Nand Lal Khurana, recorded during the enquiry, denied having given any such advances or loans. Despite this, the AO did not verify these denials or investigate further and accepted affidavits submitted by the assessee as sufficient proof.The Court noted that the AO's assessment order was cryptic and lacked evidence of any meaningful investigation or verification. The PCIT's action to call for reassessment was thus held to be justified, as the original assessment was indeed erroneous and prejudicial to revenue.The assessee's contention that the order under section 263 was passed without adequate opportunity and was barred by limitation was considered. The Court found no merit in these contentions as the assessee had been given ample opportunity to explain and submit evidence during the revision proceedings.2. Explanation and genuineness of cash deposits:The assessee claimed that the cash deposits in the bank accounts represented advances received from Mr. Rohit Dhawan and Mr. Nand Lal Khurana for property transactions. The assessee submitted affidavits and an indemnity bond to support these claims. However, the statements of these parties recorded by the AO and PCIT categorically denied any such advances or loans during the relevant period.The Court gave weight to these contradictory statements, particularly noting that Mr. Rohit Dhawan had filed a suit against the assessee seeking recovery of Rs. 15 lakhs, indicating a dispute rather than a bona fide advance. Furthermore, the payment transactions for the properties were denied by the alleged payers, undermining the assessee's explanation.The Court also observed that the affidavits submitted by the assessee were self-serving and could not be accepted at face value without corroborative evidence. The absence of corroboration and the denial by the alleged payers rendered the cash deposits as unexplained investments requiring further scrutiny.3. Interest income disclosure and taxation:The PCIT noted that the assessee had not separately disclosed interest income of Rs. 25,975 in the return of income. The assessee had shown Rs. 92,000 as income from other sources but did not specify the interest component clearly. During proceedings, the assessee's stand on this income shifted, indicating a lack of transparency.The Court held that the AO was required to inquire into the details of loans advanced and interest earned by the assessee. The failure to do so was a further ground for the PCIT to invoke section 263 and remit the matter for fresh assessment.4. Adequacy of AO's investigation and reliance on affidavits:The AO's acceptance of the assessee's submissions without verifying the contradictory statements of the alleged payers was a critical flaw. The AO relied heavily on affidavits submitted by the assessee without corroborating evidence or cross-examination of the third parties.The Court emphasized that affidavits alone, especially when contradicted by statements of involved parties, cannot be conclusive proof. The AO's failure to conduct a proper inquiry rendered the assessment order erroneous and prejudicial.5. Opportunity of hearing and procedural fairness:The assessee argued that the order under section 263 was passed without adequate opportunity and was thus violative of natural justice. The Court found that the assessee was given multiple opportunities to submit evidence and explain the transactions both during assessment and revision proceedings.Regarding the subsequent assessment order under section 143(3) read with section 263, which was passed ex-parte, the Court noted that the assessee had not availed the opportunities provided. However, in the interest of justice, the Court allowed the appeal filed against this order for statistical purposes and directed the AO to redo the assessment afresh after giving the assessee a proper hearing.6. Limitation and jurisdictional challenge:The Court found no merit in the contention that the revision order under section 263 was barred by limitation or without jurisdiction. The PCIT had valid grounds based on the material on record to invoke revision jurisdiction.Significant holdings:'The AO has not carried out requisite investigation before completing the assessment and he has merely relied on the affidavits filed by the assessee without corroborating the relevant evidences available on record. Therefore, we are inclined to agree with the findings of PCIT and hold that order passed u/s 263 is proper.''Cash deposits appearing in the saving bank account in HDFC and ICICI, Karnal are unaccounted investment of the assessee, which needs in depth scrutiny/investigation.''Affidavits submitted by the assessee cannot be accepted at its face value in the absence of corroborative evidence and in light of contradictory statements of the alleged payers.''The assessee was given several opportunities to submit relevant information and explain the transactions. The ex-parte order passed by the AO under section 143(3) read with section 263 is not sustainable in the absence of proper hearing, and the matter is remitted for fresh assessment after due opportunity.'The Court upheld the PCIT's revision order under section 263 and dismissed the appeal challenging it, confirming that the original assessment was erroneous and prejudicial to revenue due to lack of proper inquiry. However, the Court allowed the appeal against the ex-parte assessment order for statistical purposes and directed a fresh assessment with full opportunity to the assessee.