TaxTMI 
TaxTMI 
TaxTMI 
2024 (2) TMI 989
X X X X Extracts X X X X
X X X X Extracts X X X X
....te inquiries and verification of documents were sought from the assessee during the course of assessment proceedings and AO has taken a permissible view. The order passes by the AO is neither erroneous nor prejudicial to the interest of revenue, hence the order of PCIT should be set aside. 3. The Ld. PCIT has revised the order of the A.O. u/s 263 only on the basis of the Audit objection hence passing the revisionary order u/s 263 on the basis of Audit objection is illegal and bad in the eyes of law. 4. The Ld. PCIT has not considered or has not uttered a single word on the Audit objection which violates the Principles of Natural justice, hence the order passed by PCIT u/s 263 of the Income Tax Act, 1961 should be set aside. 5. That in the show cause notice the words erroneous and prejudice to the interest of revenue has not been mentioned and are missing hence initiating proceedings u/s 263 of the Income Tax Act, 1961 is illegal and uncalled for. 6. The assessee craves to leave, amend, alter or take additional grounds of appeal before or at the time of hearing." 3. Briefly the facts of the case are that the assessee filed its return of income declaring total income of....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ssessee, it is noticed that assessee is doing business of Trading of Cloth on seasonal basis every year. To verify the same the copy of purchase bills was sought from the assessee through E-filing Portal. The same has been verified. 8. The reply filed by the assessee on various dates through E-filing Portal have been perused and after perusal no adverse inference has been drawn. Therefore, the returned income at Rs. 3,44,820/- is accepted." 7. It was further submitted that during the course of assessment proceedings, the AO issued necessary queries and which were duly responded to by the assessee and the same are summarized as under: Particulars of the queries raised by the AO Reply furnished by the assessee during the original assessment proceedings 1. Month-wise details of the cash deposited by the assessee during the AY 2017-18 and AY 2016-17 - Question 6 of the notice dated 20.05.2019- Page 15 of the Pb. Reply filed during the course of the assessment proceedings wherein month-wise cash deposit is disclosed and enclosed in the paperbook at page 19. 2. The copy of the bank account statement Question 7 of the notice dated 20.05.2019- Page 15 of the Pb. Reply filed du....
X X X X Extracts X X X X
X X X X Extracts X X X X
....on period-Refer notice dated 24.05.2019- Page 24 of the Pb. The reply has been filed vide Point No. 9 was of the reply dated 30.05.2019 explaining the source of the cash deposits and thus the AO applied his mind on the said issue. 10. Confirmed copy of account of the supplier Refer notice dated 24.05.2019- Page 24 of the Pb. The confirmed copy of account of the supplier has been filed vide reply dated 30.05.2019 and enclosed in the paper book at page 27 of pb. 11. The copy of the cash book- Refer notice dated 24.05.2019-Page 24 of the Pb. The cash book has been filed vide reply dated 30.05.2019 and the same is enclosed in the paper book at pages-38-56. The said cash book duly depicts the sources of cash deposit and no adverse inference has been drawn by the Ld. AO regarding the same. 12. Month-wise cash deposit along with comparison with last year- Refer notice dated 24.05.2019- Page 24 of the Pb. It has been submitted vide reply dated 30.05.2019 as asked by the AO to examine the cash in hand in respect of the cash deposit 8. It was accordingly submitted that from the above, it is factually clear that the source of cash deposited by the assessee during the demonetization pe....
X X X X Extracts X X X X
X X X X Extracts X X X X
....er, when the same has already been offered to tax in the form of sales and reliance in this regard is being placed on the following judgments:- (i) The judgement of Hon'ble High Court of Bombay in the case of R.B. Jessaram Fatehchand (Sugar Dept.) v. CIT reported at [1970] 75 ITR 33 (BOM.) "There is no necessity for assessee to maintain the addresses of customers and failure to maintain the same or to supply them as and when called for cannot give rise to suspicion with regard to genuineness of transactions" (ii) The Hon'ble High Court of Kerala reported at [1972] 83 ITR 484 (Kerala): M. Durai Raj v. CIT. (iii) M/s Asian Consolidated Industries Limited vs ITO in ITA No. 4873/Del/1998 order dated 05.10.2018 (Del Bench) (iv) ITO vs M/s Sunny Jewellery House in ITA No.196/Chd/2014 order dated 06.05.2016. (v) ACIT vs M/s Kewal Singh in ITA No. 664/Chd/2016 order dated 08.02.2017- It was also held that vis-a-vis cash sale noninclusion of addresses of customers could not be the basis for rejection of books of account. d. Further, when the cash book provided by the assessee has been accepted and no adverse inference regarding the details of stock has been drawn by the AO and ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....20000 and that the knitted cloth is only purchased by manufacturer or trader not by any individual/final consumer and thus, it is not a usual thing as the same would be violation of provisions of section 40A(3) It is submitted that it is not a valid allegation as the goods could be purchased by many small time traders who does not usually maintain their books of accounts on a regular basis and for the said kind of traders who usually comes 2-3 times for the purchase of small quantity of knitted cloth it is not possible for them to come again and again and furthermore, the provisions of section 40A(3) are not applicable when the return of income is being filed on presumptive basis which majority of the times are filed by such small time traders. 5 Not possible for seller to give new business such as the assessee, to allow credit period of 2 months. It is submitted that it is a normal business practice in hosiery industry to allow such credit especially to the business houses who normally has hosiery background and which in the case of the assessee is applicable since the Karta of the assessee is engaged in the Hosiery business from the past many years. Furthermore, the assessee ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ion only "cloth" and per Kg rates vary from Rs. 200/- and odd to Rs. 400/- & odd and even somewhere Rs. 700/- & odd, however no quality or description of Cloth is mentioned. All these show that the records maintained by the assessee are not real and the apparent is not real which should have been tested on the human probability test by conducting proper inquiries and verifications. 13. It was submitted that the assessee, apparently, was totally new in the business and despite that the alleged seller of cloth gave him credit of Rs. 40,00,000/- for about two months. This important aspect has not been examined by the AO. Further, neither the existence of the seller nor his creditworthiness has been examined. The AO has not made any independent verification of anything. He has not enquired as to when the bank account was opened and what have been the financial activities of the assessee during the earlier and later years. He has failed to take notice of the fact that except the entries of cash deposit during demonetization and debit of cheques in favour of a single party, there is no transaction in the bank account during the year. From these, it is clear that the AO has not conducted....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d that it is an admitted fact that the AO did carry out the enquiry during the course of assessment proceedings, explanation regarding cash deposit during the demonization period was called for and the assessee in response filed its submissions. The same is also evident from the assessment order where the AO has held that the assessee was engaged in seasonal trading of cloth every year and during the year under consideration, the purchases were made from M/s Vinay Knitwears Pvt Ltd and in that regard, copy of purchase bills, copy of purchase account, mode of payment and the confirmation from party were called for and which was duly submitted by the assessee and verified and found to be in order by the AO. Further, the AO has recorded the fact that the sales were made in cash and copy of cash book detailing the individual sales and relates particulars are forming part of the assessment record. We therefore find that the matter relating to purchases and sales and the source of cash deposit has been duly enquired into by the AO, necessary enquiries have been made and basis examination thereof, the source of cash deposit as arising out of sale proceeds has been accepted by the AO and i....
X X X X Extracts X X X X
X X X X Extracts X X X X
....litary activity or an adventure in the nature of trade equally qualifies as business where it satisfies the necessary attributes of purchase and sale supported by appropriate documentation. In the instant case, where the assessee has carried out seasonal trade in hosiery items duly supported by documentary evidence, the AO having examined the same and having formed a considered view accepting the said transactions and resultant profit has been brought to tax, the ld PCIT cannot be permitted to invoke his jurisdiction merely because he believes that there are certain deficiency in the documentation so maintained and furnished by the assessee and therefore, the order so passed is erroneous as the same require further examination and verification. 21. We therefore find that there was proper application of mind on the part of the AO and the matter has been duly examined by the AO during the course of assessment proceedings. It is not a case where necessary inquiries have not been carried out by the AO, and in such cases, it is important that for holding the order so passed by the AO as erroneous and prejudicial to the interest of the Revenue, certain further verification and inquiries....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... of the AO is erroneous and prejudicial to the interests of the Revenue, the Revisionary authority itself has to undertake some enquiries to establish that the assessment order is erroneous and prejudicial to the interests of the Revenue." 10. Trite it is that in order to attract section 263 of the Act, twin conditions are to be satisfied namely :- (i) The order of the Assessing Officer sought to be revised is erroneous, and (ii) It is prejudicial to the interest of the Revenue. 11. The contention of Ld. Senior Standing Counsel that the order passed by the Assessing Officer will fall within the ambit of Explanation 2(a) appended to section 263 of the Act, cannot be accepted till it is pointed out as to which inquiry or verification was not made by the Assessing Officer before passing the order. 12. Ld. Counsel for the appellant is not in a position to point out as to what are those inquiries or verification which should have been made but have not been made by the Assessing Officer in the present case so as to make the present case fall within Explanation 2 attached to section 263 of the Act. 13. In the case of Malabar Industrial Co. Ltd. v. CIT [2000] 109 Taxman ....