TaxTMI 
TaxTMI 
2023 (3) TMI 1346
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....urned. Subsequently, notice dated 22.07.2021 was issued u/s 263 of the Act by the Pr. CIT observing that month-wise cash sales during FY 2016-17 especially in the month of November, 2016 till 8th November and in the month of December, 2016 which was reported at 32,59,351/- and Rs.8,200/- were abnormal, keeping in view the nature of the business carried out by the assessee, assessee has not given justification for increase in cash sales and the AO failed to verify the source of cash deposits. It was also observed that the AO failed to make any meaningful logical enquiry in respect of the capital introduced in the form by the partners and, therefore, in the show-cause notice assessee was requested to show as to why the assessment order passed u/s 143(3) of the Act cannot be set aside as being erroneous and prejudicial to the interest of the Revenue. As there was change in incumbent of office of the Pr.CIT notices dated 09.11.2011 and 10.02.2022 were issued once again to the assessee to furnish explanation. The assessee furnished its reply dated 07.03.2022 on the points raised by the Pr. CIT. However, not convinced with the replies furnished by the Assessee the Pr. CIT passed order da....
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....uced by the partners, submits that complete details were provided by the assessee regarding source of funds introduced, the confirmations given by Smt. Vijaya Laxmi Verma who is the mother of the two partners of the firm who has given amounts to her sons through banking channels. Ld. Counsel submits that the assessee has also produced bank statement of Smt. Vijaya Laxmi Verma, Income tax return of Smt. Vijaya Laxmi Verma to prove the identity and creditworthiness of the donor. All these details regarding source of funds introduced by the partners in the form of capital was furnished. It is also submitted that Assessee furnished the details of sale of shares by the partners in various companies which are also the source for the capital introduced into the firm. Therefore, the Ld. Counsel for the assessee submits that the assessee has furnished all the details required by the Assessing Officer in respect of cash sales and cash deposits made into bank account and also in respect of introduction of capital by the two partners in the firm and all these details were examined in the course of assessment proceedings and the assessment was completed u/s 143(3) of the Act and, therefore, it ....
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....judicial to the interest of the Revenue for invoking the provisions of Section 263 of the Act. Reliance was placed on the decision of the Hon'ble Supreme Court in the case of Malabar Industrial Company vs. CIT 243 ITR 83. 11. Ld. Counsel placing reliance on the decision of ITAT, Surat Bench in the case of Pramod Kesari Chand Shah vs. Pr.CIT in ITA No. 43/SRT/2018 and the decision of Delhi Bench of ITAT in the case of Champ Info Software vs. Pr.CIT in ITA No. 2799/Del/2018 dated 21.06.2019 submits that when cash deposits were examined in original assessment proceedings revision u/s 263 is not permissible. 12. Ld. Counsel for the assessee also made written synopsis/arguments which are as under: - "This appeal is against the Section 263 order of the Principal CIT, Delhi-10, New Delhi ordering a fresh assessment after holding the assessment order dated 12.12.2019 passed u/s 143(3) of the Income-tax Act, 1961 (the Act) by the Asst. Commissioner of Income-tax, Circle 51(1), New Delhi (AO hereafter) as being erroneous and prejudicial to the interest of revenue. 2. The ground taken in appeal reads as under:- "That on the facts and in the circumstances of th....
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.... of the Act in the subject case is vicious and void ab initio. That is for the reason that the AO had made the requisite and adequate enquiries and carried out the assessment as per the directions contained in the CBDT Circular for the scrutiny and examination of demonetization cases (please refer pages 18 to 28 of the Paper Book). The format in which information had to be sought by the AO's had been prescribed by the CBDT. All such information which was required to be collated by the CBDT had indeed been submitted by the assessee to the AO during the course of the assessment proceedings. All of it had been examined by the AO and was found to be in order. Please refer pages 30 to 37 of the Paper Book. More specifically there was neither any requirement as prescribed by the CBDT which was omitted to be provided by the assessee nor was anything left unexamined by the AO. It is only after considering all such material, details and explanations on record and after rigorously scrutinizing them and finding no anomaly that the AO concluded the assessment in the manner in which it was done. To put it differently no discrepancy, deficiency or blemish of any sort was noticed by the AO in the....
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....t. The AO, perhaps as a measure of abundant caution had obtained and placed the entire cashbook on record (pages 38-84). The objection raised by the Pr. CIT in this regard is ex facie erroneous. (iii) The pattern of cash deposits into the bank had been submitted by the assessee to the AO as per details contained on pages 33 & 34 of the Paper Book. In fact, the AO had gone a step further and for comparison of purposes had sought the pattern of cash-in-hand in the succeeding assessment year also. That was placed by the assessee as per page 34 of the Paper Book. (iv) The Pr. CIT is wrong in observing that documentary evidence to prove the contentions were not filed by the assessee during the revision proceedings. All details which was submitted to the AO were also explained to the Pr. CIT. The Pr. CIT had the entire record of assessment before him during the final hearing. That included monthwise cash and credit sales, list of top 20 parties to sales & purchases and the related VAT returns. Please see pages 85-95 of the Paper Book. The entire stock details were also in the records of assessment. Please see pages 96-138 of the Paper Book. (v) & (vi) The manne....
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....tion No. 4/2017 dated 03.03.2017 issued vide F.No. 225/10//2017/IT A-ll; 3. SOP dated 15.11.2018 issued vide F.No. 225/363/2017/IT A-ll; 4. SOP dated 03.03.2019 issued vide F.No. 225/363/2017/ITA-ll; and 5. Internal Guidance Note dated 13.06.2019 issued vide F.No. 225/145/2019/ITA-ll. The assessee was asked to submit the details and explanations on the lines as prescribed by the Instructions and SOP's devised by the CBDT. All such data and records as opined to necessary by the CBDT were collected and placed on record and were duly examined by the AO. For the purpose the AO had served notice u/s 142(1) of the Act dated 24.10.2019(Paper Book pages 21-28) which was duly complied with by the assessee. The AO had also obtained the reasons for the comparatively higher sales during the demonetisation period in November 2016 and also for the lesser sales in December 2016. The AO was convinced that the higher sales occurred due to an unforeseen and exceptional circumstances of demonetization and that the sales in December 2016 in cash were less due to the non-availability of the new currency notes. The AO had also called for and placed on record RBI Circu....
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....Generally, issues which are accepted by the Assessing Officer do not find mention in the assessment order and only such points are taken note of on which the assessee's explanations are rejected and additions / disallowances are made." 7. It is a point well accepted now after several decisions of High Courts that unless error is identified by the Commissioner in the assessment order he would not be vested with the power or jurisdiction to pronounce the order prejudicial to the Revenue. The decision of the apex Court in Malabar Industrial Co. Ltd. vs. Commissioner of Income-tax [2000] 243 ITR 83 (SC) is most relevant on this point. The Court observed as under:- "The phrase "prejudicial to the interests of the Revenue" has to be read in conjunction with an erroneous order passed by the Assessing officer. Every loss of revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interests of the Revenue. For example, when an Income-tax officer adopted one of the courses permissible in law and it has resulted in loss of Revenue; or where two views are possible and the Income-tax officer has taken one view with which the Com....
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....records reasons why it is erroneous. An order will not become erroneous because on remit, the Assessing Officer may decide that the order is erroneous. Therefore, the Commissioner of Income-tax must after recording reasons hold that the order is erroneous. The jurisdictional precondition stipulated is that the Commissioner of Income-tax must come to the conclusion that the order is erroneous and is unsustainable in law." 9. In sum it is submitted that the AO found no dearth, deficiency, error or deviation from accepted standard operating procedure for assessment of demonetisation cases. The Pr. CIT has not pointed out any shortcoming. No fallacy or impropriety in the assessment order has been brought on record by the Pr. CIT. The Pr. CIT has attempted to substitute her subjective and uninformed opinion over the blemishless, appropriate and balanced opinion of the AO. The whims and fancies of a superior authority cannot displace the rational and balanced opinion of a judicial authority though the latter may be at a lower hierarchical level. Further for the mere reason that the AO has not made any approbatory remarks in the assessment the order about the transactions in the ....
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....gs: Sl.No. Particulars 1. Copy of reply dated 16.11.2019 along with annexures. 2. Copy of Cash Book for the period from 01.04.2016 to 31.03.2017 as annexure to letter 09.11.2019. 3. Month-wise details of cash and credit sales as well as cash and credit purchases for the FY 2016-17 and 2015-16. 4. Copy of list of top 20 sales parties along with their PAN & Address for the relevant FY 2016-17 with comparative figure for the FY 2015-16. 5. Copy of list of top 20 purchase parties along with their PAN & Address for the relevant FY 2016-17 with comparative figure for the FY 2015-16. 6. Copy of VAT returns for the FY 2016-17 & 2015-16. 7. Item-wise and month-wise detail of quantity of stock. 8. Copy of stock register. 16. It is also observed that the Assessing Officer issued notice u/s 142(1) of the Act dated 02.12.2019 along with annexure calling for the details in respect of capital introduced into the assessee firm by the partners and to explain the source with supporting evidences. In response to the said notice the assessee field its reply dated 05.12.2019 giving the details of capital introduced in the firm by the partners the....
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....during the year under consideration. During demonetization period from 09.11.2016 to 30.12.2016 the assessee firm had deposited Rs. 65,92,000/- in its bank account on the following dates:- Rs. 50,00,000/- on 11.11.2016 Rs. 15,92,000/- on 15.11.2016 Rs. 65,92,000/- Total Ongoing through the notice of hearing u/s 263 it has been learn that there are 2 observations regarding cash deposit in demonetization period. The contention of the assesses on these observations is as under: Point No.- 3 of notice u/s 263 Observation No.-1 It is has been pointed out in the notice of hearing u/s 263 that "on perusal of the assessment records and ongoing through the information filed by the assessee in respect of the month wise cash sales during the F.Y. 2016=17, it is seen that the assessee has made cash sales of Rs.32,59,351 in the month of November'2016 till 8th November & Rs.82Q0/- in the month of December'2016 which seems to be abnormal keeping in view the nature of business carried out by the assessee. Reply In this connection it is submitted that the reason for sale of Rs 8200/= in cash only in the month of Dec 20....
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.....2019. The source of cash deposit of Rs.65,92,000 can be easily understand in the following summarized form instead of the tabular form sought by AO. Cash in hand available as on 30-09-2016 Rs.27,78,041 Add : Cash sales in the month of October'2016 Rs. 11,27,362 Add: Cash sales during the period 01-11-2016 to 08-11-2016 Rs. 32,59,351 Rs.71,64,754 Less : Expenses in the month of October & till 8th November [-] Out of which Rs.65,92,000 was deposited during demonization period as stated above. Now the question arises regarding abnormal increase in cash sales. The comparative month wise cash sales for both the financial years 2015-16 & 2016-17 were provided to the AO via Point No.6(ix) and 6(x) on 16-11-2019 in response to her notice dated 24-10-2019. The relevant portion is re-produced here: 2016-17 2015-16 Cash sales (without VAT) Cash Sales (without VAT) October 11,27,362 6,67,805 November upto 8th 32,59,351 NIL As far as the sales of October'2016 is concerned there is a difference of Rs.4.55,008 only which is not a major difference as compare to the last ye....
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....regarding cash in hand through point no.- 6(iv). (Point to be appreciated that the assessee firm had immediately deposited the cash in bank i.e. Rs.50 lacs on 11-11-2016 and Rs.15.92 lacs on 15-11-2016 irrespective of the fact that the Govt, had allowed to deposit the same till 30th December'2016 which itself justify the holding of cash on 08- 11 -2016 since after the 2nd day of the working the assessee firm deposited Rs.50 lacs the maximum amount were being accepted by the bank on a single day. 2] Copy of cash book from 01-04-2016 to 31-03-2017 through point No.-6(v). 3] Copy of online response given to the department with reference to the cash deposit during demonetization period through point No.-6(vii). 4] Month wise details of cash and credit sales as well as cash and credit purchases in the requisite form for the current F.Y, 2016-17 as well as preceding F.Y. 2015-16 to comparing the same through point No.-6(viii). 5] Month wise cash sales and cash deposited for the period from 01-04-2015 to 31-03-2016 through point No.-6(ix). 6] Similarly month wise cash sales and cash deposited for the period from 01-04-2016 to 31-03-2017 as well....
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.... their satisfaction in the body of assessment order itself. It is a usual practice they always mentioned in the body of assessment order that the requisite details have been called and examined which the assessing officer did so in our case. Hence, it can't be said that Just because the AO did not bring this fact into the assessment order and has passed the order in brief does not mean that the AO has not examined the source of cash deposit FURTHER, in our case the source of cash deposit was primary cash sates and for the purpose of genuineness of the cash sales, the AO sought a number of following information, documents/records etc. The Assessee firm submitted the same on the income tax portai for her verification and record: 1] Copies, of all VAT returns for the period from 01- 04-2016 to-31-03-2017 along with reason of revision in vat returns if any for the period prior to demonetization period. Please appreciate that all the returns were filed in time and none was revised for the purpose of revising the turnover. The assessee firm was registered with the Delhi VAT department. The cash sales made during the year were subject to charge of VAT accordingl....
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....ement for the year under consideration along with Audit Report u/s 44AB were also submitted before the assessing officer. 7] The books of accounts are regularly maintaining in normal course of business along with stock register on day to day basis. All the purchases and sales are duly recorded in the financial books as well as stock record. The movement of stock is directly linked to the purchase and saies, the audit report u/s 44AB, financial statement furnished clearly shows the reduction of stock position and matching with the sales which go to say that the cash generated represent the sales hence there is no reason to disbelieve the sales. 8] That in the case of cash sales (less than Rs.2 lacs) PAN, address, name of the buyer, telephone number of the buyer are not provided by the customer being not mandatory required. Hence in the case of cash sales the genuine-ness can be verified only from the cash book, cash memos, availability of the stock and VAT Returns which the AO had asked to file and the assessee had uploaded on the portal for verification. CBDT instruction dated 09.08.2019 (supra) also advised the assessing officer to verify all these documents to d....
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....The assessee also submitted the details of cash deposit in response to notice under section 142(1) of the Act. The assessee also submitted the copy of the cash book before the assessing officer. Thus, the assessee has submitted the details of cash deposit from his side and it was on the Assessing Officer to examine it." and d) The reliance has been placed on the latest case of ACIT vs. Hiraparana Jewellers [2021] 128 taxman.com 291 (Vishakhapatnam- Trib). Copies of gist of the case and complete order are enclosed herewith for your reference. The case has been decided after reviewing and referred the number of Hon'ble apex court decisions and Delhi High Court. The list is not repeated here for the sake of brevity in which HAT held: "On appeal, Visakhapqtnam ITAT held that purchases, sales, and stock are interlinked and inseparable. Every purchase increases the stock, and every sale decreases the stock. To disbelieve the sales, either the assessee should not have sufficient stocks in their possession, or there must be defects in the stock registers/stocks. Once there was no defect in the purchases and sales, and the same matches inflow and....
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....capita! contribution. At the outside without prejudicial to the mentioned hereafter it is hereby submitted that Smt. Vijay Laxmi Verma had given the above mentioned amount to their son by selling Equity Shares of Eicher Motors limited to the tune of Rs.1,37,77,075/- r.npy of ITR-V showing this exempted Income is enclosed herewith for your perusal and record. During the assessment the confirmation from Smt. Vijay Laxmi Verma along with her Bank Statement were submitted before the Ld. AO for her verification and perusal. Smt. Vijay Laxmi Verma is assessed to tax vide PAN-ADPPV3701R and had filed her return of income for the year under assessment. She being had given the said amount to her sons out of her declared income hence it is not prejudicial to the interest of revenue. Besides above it is submitted that the assessee is a partnership firm and both the partners are income tax payee and filing their return of income regularly. The entire capital was introduced by the partners through banking channels, copy of the bank statements of the partners were also filed. It is further submitted that it is a well settled law that the credit in the capital account of a partn....
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....ecessary documents, such as, copies of demand drafts and cheques etc., no addition could have been made by this appellant in respect of the amount received by the assessee. Under Section 68 of the Income Tax Act, the Assessing Officer while assessing a Partnership Firm, can go behind the source of income of the partnership firm, but he cannot go to "source of source". The aforesaid aspect of the matter has been properly appreciated by the income Tax Appellate Tribunal by allowing the appeal preferred by the respondent - assessee and no error has been committed by the Income Tax Appellate Tribunal, Circuit Bench, Ranchi." Your attention is also invited on the decision held by HAT Delhi bench -B New Delhi order dated 21-06-2019 in the case of Champ Info Software vs. Pr. Commissioner of income Tax Noida, ITA No. 2799/DeI/2018. The relevant para's are reproduced here under: "5.5 In the instant case, the Id. PC1T has essentially exercised revisionary power u/w 263 of the Act to examine the source of source of partner which is not permissible In the eye of law. In fact during the course of hearing before us, it was bought to our notice that notice u/s 148 of the Act....
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....h the above provision the source to source is to be explained in the case of companies in which public is not substantially interested for the verification of share application money, share capital, share premium or such other amount. This section does not require to explain the credit worthiness of the source to source for others. Your attention is invited that the firm had established the identity of the person who invested in the firm being partner. The partner has also provided copy of their bank account and explained the source of investment date wise as well as amount wise with evidences, the firm had discharged its onus, and the AO cannot charge tax on the firm as decided in a number of cases as detailed above, hence the order passed by the AO is neither erroneous nor prejudicial to the interest of the revenue. The reliance has also been placed in the case of Champ Info. Software vs. Pr.CIT in the Income Tax Appellate Tribunal Delhi Bench B New Delhi vide ITA No.-2799/Dei/2018 order dated 21-06-2019. Copy of the order is also enclosed herewith for your ready reference. On the basis of the above facts it can be said that the assessment order is neit....
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....and evidences furnished by the Assessee especially when the assessment was taken up for scrutiny for examining the cash deposits during demonetization period with specific information was called for in the specified format. There may be inadequate enquiry but it cannot be said that there is absolutely no enquiry at all by the Assessing Officer. We also observe that the Ld. Pr.CIT has not pointed out any error in the assessment order except saying that the Assessing Officer has not made enquiries. 20. The Hon'ble Delhi High Court in the case of DIT vs. Jyoti Foundation (supra) observed as under: "Thus, in cases of wrong opinion or finding on the merits, the Commissioner of Income-tax has to come to the conclusion and himself decide that the order is erroneous, by conducting necessary enquiry, if required and necessary, before the order under section 263 is passed. In such cases, the order of the Assessing Officer will be erroneous because the order passed is not sustainable in law and the said finding must be recorded. The Commissioner of Income-tax cannot remand the matter to the Assessing Officer to decide whether the findings recorded are erroneous................". ....
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....diture. This argument predicates on the assessment order, which apparently does not give any reasons while allowing the entire expenditure as revenue expenditure. However, that by itself would not be indicative of the fact that the Assessing Officer had not applied his mind on the issue. There are judgments galore laying down the principle that the Assessing Officer in the assessment order is not required to give detailed reason in respect of each and every item of deduction, etc. Therefore, one has to see from the record as to whether there was application of mind before allowing the expenditure in question as revenue expenditure. Learned Counsel for the assessee is right in his submission that one has to keep in mind the distinction between "lack of inquiry" and "inadequate inquiry". If there was any inquiry, even inadequate that would not by itself give occasion to the Commissioner to pass orders u/s 263 of the Act, merely because he has a different opinion in the matter. It is only in cases of "lack of inquiry" that such a course of action would be open." 22. The Hon'ble Bombay High Court in the case of Gabriel India Ltd., (203 ITR 108) held as under: ".....From a r....
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....ide and left to the Commissioner he would have estimated the income at a figure higher than the one determined by the Income Tax Officer. That would not vest the Commissioner with power to re-examine the accounts and determine the income himself at a higher figure. It is because the Income Tax Officer has exercised the quasi-judicial power vested in him in accordance with law and arrived at a conclusion and such a conclusion cannot be formed to be erroneous simply because the Commissioner does not formed to be erroneous simply because the Commissioner does not feel satisfied with the conclusion.....There must be some prima facie material on record to show that tax which was lawfully exigible has not been imposed or that by the application of the relevant statute on an incorrect or incomplete interpretation a lesser tax than what was just has been imposed.... We may now examine the facts of the present case in the light of the powers of the Commissioner set out above. The Income Tax Officer in this case had made enquiries in regard to the nature of the expenditure incurred by the assessee. The assessee had given detailed explanation in that regard by a letter in writing. Al....
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....omes erroneous because such an inquiry has not been made and not because there is anything wrong with the order if all the facts stated therein are assumed to be correct." 14. In the said judgment, Delhi High Court had referred to earlier decisions of the Supreme Court in Rampyari Devi Sarogi vs. CIT (1968) 67 ITR 84 (SC) and Tara Devi Aggarwal vs. CIT (1973) 88 ITR 323 (SC), wherein it has been held that where Assessing Officer has accepted a particular contention/issue without any enquiry or evidence whatsoever, the order is erroneous and prejudicial to the interest of the Revenue. After reference to these two decisions, the Delhi High Court observed:- "These two decisions show that it is not necessary for the Commissioner to make further inquiries before cancelling the assessment order of the Income-tax Officer. The Commissioner can regard the order as erroneous on the ground that in the circumstances of the case the Income-tax Officer should have made further inquiries before accepting the statements made by the assessee in his return." 15. The aforesaid observations have to be understood in the factual background and matrix involved in the said two c....
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....is clear that the power of suo motu revision can be exercised by the Commissioner only if, on examination of the records of any proceedings under this Act, he considers that any order passed therein by the Income-tax Officer is "erroneous in so far as it is prejudicial to the interests of the Revenue" . It is not an arbitrary or unchartered power, it can be exercised only on fulfilment of the requirements laid down in sub-section (1). The consideration of the Commissioner as to whether an order is erroneous in so far as it is prejudicial to the interests of the Revenue, must be based on materials on the record of the proceedings called for by him. If there are no materials on record on the basis of which it can be said that the Commissioner acting in a reasonable manner could have come to such a conclusion, the very initiation of proceedings by him will be illegal and without jurisdiction. The Commissioner cannot initiate proceedings with a view to starting fishing and roving enquiries in matters or orders which are already concluded. Such action will be against the well- accepted policy of law that there must be a point of finality in all legal proceedings, that stale issues shoul....
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....are part of the record of the case. Evidently, the claim was allowed by the Income-tax Officer on being satisfied with the explanation of the assessee. Such decision of the Income-tax Officer cannot be held to be " erroneous" simply because in his order he did not make an elaborate discussion in that regard." 17. Thus, in cases of wrong opinion or finding on merits, the CIT has to come to the conclusion and himself decide that the order is erroneous, by conducting necessary enquiry, if required and necessary, before the order under Section 263 is passed. In such cases, the order of the Assessing Officer will be erroneous because the order passed is not sustainable in law and the said finding must be recorded. CIT cannot remand the matter to the Assessing Officer to decide whether the findings recorded are erroneous. In cases where there is inadequate enquiry but not lack of enquiry, again the CIT must give and record a finding that the order/inquiry made is erroneous. This can happen if an enquiry and verification is conducted by the CIT and he is able to establish and show the error or mistake made by the Assessing Officer, making the order unsustainable in Law. In some c....
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.... period being wedding season when compare to the corresponding previous year. All these details and explanation were also produced before the Ld. Pr.CIT, however, the Ld. Pr.CIT in her order observed that even during the revision proceedings assessee has failed to provide the documentary evidences to prove its contention which is entirely contrary to record. The Ld. Pr.CIT had made no efforts to examine the evidences and replies furnished by the assessee explaining the anomalies pointed out by the Ld. Pr.CIT. On a reading of the order of the Ld. Pr.CIT, we see that the Ld. Pr.CIT set aside the assessment order as erroneous and prejudicial to the interest of the Revenue directing the Assessing Officer for making fresh enquiries and to consider the cash sales under the purview of section 68/69 of the Act on the pretext that there was no enquiry by the Assessing Officer in the course of assessment proceedings simply stating that the AO had not called for the details and assessee had not furnished evidences and explanations regarding cash deposits and the sources of funds introduced as capital by the partners, which is not permissible under law. 25. In the case of Ld. Pr.CIT vs. Del....