TaxTMI 
TaxTMI 
2025 (6) TMI 2016
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....ation No. 6335/2022, learned Senior Advocate Mr. Tushar Hemani with learned advocate Ms. Vaibhavi Parikh for the petitioner in Special Civil Application No. 6376/2022 and Special Civil Application No. 6377/2022 and learned Senior Standing Counsel Mr. Nikunt Raval for the respondent. 2. These petitions were heard together as common issue challenging the notice under section 263 of the Income Tax Act, 1961 (For short "the Act") on the issue of cash deposited in the bank accounts of the petitioners after demonetization relevant to Assessment Year 2017-2018 were raised. 3. For the sake of convenience Special Civil Application No. 6332/2022 is treated as the lead matter. 4. Facts of Special Civil Application No. 6332/2022 are that the petitioner, a partnership firm, is engaged in the business of manufacturing and trading of gold and silver ornaments and gold bullion. 5. The petitioner filed the return of income declaring total income at Rs. 20,42,019/- on 30.10.2017 for Assessment Year 2017-2018. 6. Case of the petitioner was taken up for scrutiny under Compulsory Manual Selection on the issue of cash deposit during demonetization period. Notices under section 142(1) of t....
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....e issues, the respondent could not have assumed jurisdiction as the assessment order is neither erroneous nor prejudicial to the interest of Revenue. 15. It was submitted that the value of assets in the books of accounts and under the Income Tax Act are bound to be different due to difference in the rate of depreciation under the Companies Act and the Income Tax Act and so far as second issue is concerned, the petitioner has correctly disclosed the purchases in the profit and loss account and break-up of the purchases of gold bar and gold ornaments were also provided and there is no discrepancy in view of break-up given by the petitioner. 16. So far as cash deposit after demonetization is concerned, it was submitted that the return of income of the petitioner was selected for manual scrutiny specifically to examine the issue of cash deposit during the demonetization period and the Assessing Officer during the course of regular assessment made thorough inquiry on every aspects of the cash deposited by the petitioner and its nature and its impact on the income. It was pointed out that the Assessing Officer being dissatisfied by the replies of the petitioner has rejected the boo....
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....4 taxmann.com 293 (Gujarat) to submit that provisions of section 263 cannot be invoked to correct each and every type of mistake or error committed by the Assessing Officer and it is only when an order is erroneous and prejudicial to the interest of Revenue, the Commissioner could have assumed the revisional jurisdiction. 22. Reliance was placed on the decision of this Court in case of Commissioner of Income Tax v. Kamal Galani reported in (2018) 95 taxmann.com 261 wherein it is held that once the Assessing Officer carried out detailed inquiries, it was not open for the Commissioner to reopen the issues on mere apprehension and surmises and therefore, Tribunal was justified in setting aside the revision order in facts of the said case. It was submitted that the Hon'ble Supreme Court dismissed the SLP arising out of said decision in case of Commissioner of Income Tax v. Kamal Galani reported in (2019) 110 taxmann.com 213 (SC). 23. Learned Senior Advocate Mr. Tushar Hemani adopted the submissions of learned Senior Advocate Mr. S.N. Soparkar and further submitted that in case of Siddhi Infrabuild(P) Ltd. v. Principal Commissioner of Income-tax reported in (2025) 172 taxmann.com ....
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....on 263 of the Act was issued, more particularly, relying upon Explanation 2 to section 263 which stipulates that for the purpose of section 263 of the Act, an order passed by the Assessing Officer shall be deemed to be erroneous insofar as it is prejudicial to the interests of the Revenue, if in the opinion of the Principal Commissioner of Income Tax, the order is passed without making inquiries or verification which should have been made. 30. It was therefore, submitted that in view of facts of each petition, these petitions are premature as the petitioners are required to file reply to the show cause notices which will be considered by the respondent PCIT on merits and thereby decide under the provisions of section 263 of the Act. 31. It was therefore, submitted that the petitions are required to be dismissed as the petitioners have alternative efficacious remedy to challenge the order passed under section 263 of the Act before the Income Tax Appellate Tribunal as the impugned show cause notices clearly demonstrates that on perusal of the assessment record, the assessment orders have been passed without making inquiries and verification which ought to have been made by the ....
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.... the writ petition against the show cause notice issued under section 263 of the Act and petitioner was advised to submit objection against the show cause notice and if any adverse order is passed, petitioner would have remedy against the same in accordance with law. 36. Having heard the learned advocates for the respective parties, it would be germane to refer to section 263 of the Act. Relevant extract of section 263 of the Act reads as under: "263. Revision of orders prejudicial to revenue. (1) The [Principal Chief Commissioner or Chief Commissioner or Principal Commissioner] or Commissioner may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by the Assessing Officer [or the Transfer Pricing Officer, as the case may be,] is erroneous in so far as it is prejudicial to the interests of the revenue, he may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, [including,- (i) an order enhancing or modifying the assessment or cancelling the asse....
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.... the original assessment. 39. This Court in case of JMC Projects (India) Limited (supra), rendered on 21.12.2015, in the facts of the said cases has held that writ petition under Articles 226/227 of the Constitution is maintainable when the question is the very foundation of the notice and jurisdiction of the Commissioner to exercise such revisional powers by observing as under: "9. The Commissioner does not dispute this aspect of the matter. Though in the impugned notice there is no such clear-cut admission to detailed assertion made by the petitioner in the petition backed by materials on record, there is no denial in the reply filed by the Commissioner. We would, therefore, proceed on the basis that against the proposed addition of Rs. 105.36 crore suggested by the Commissioner in the impugned notice, the assessing officer under the same heads for the assessment years in question had made addition of Rs. 123 crore to the income of the assessee. The crucial question, therefore, arises whether revisional powers under section 263 of the Act can be exercised. As held by the Supreme Court in the case of Malabar Industrial Co. Ltd. (supra), powers under section 263 of the ....
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....rs of assessment cannot be stated to be prejudicial to the interests of the revenue. To the factual aspect, even the Revenue is unable to raise any contest. The apprehension of the revenue appears to be that if the logic adopted by the assessing officer is not accepted in appeal, the entire additions would be deleted. Under the circumstances, if the correct methodology, as suggested by the Commissioner in the impugned notice, is adopted, the additions would stand the test of law. In other words, the Commissioner desires that the order of assessment should be better written and flaws, if any, be ironed out. In our opinion, powers under section 263 of the Act are not meant for improving an order of assessment. As long as the income is assessed and tax as per the law levied, the order cannot be stated to be prejudicial to the interests of the revenue and, therefore, not revisable. 15. There is one more reason why we cannot share the apprehension of the revenue. When an order of assessment is framed and certain additions made resulting to levying of tax, two situations may arise. The assessee may accept such assessment and so far as the tax levied is concerned it would achieve....
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....mit the Commissioner to complete the proceedings and thereafter to direct the petitioner to take appeal route does not arise." 40. The Hon'ble Apex Court thereafter, recently while considering the challenge to the show cause notice under section 263 of the Act in case of Piyara Lal (supra), has held as under: "The petitioner has been served with a show-cause notice under Section 263(1) of the Income Tax Act, 1961 for re-assessment of his income in respect of the Assessment Year 2010-11. The show-cause notice dated 17/20.11.2017 (P-10) is self-speaking and self-explanatory. It requires the petitioner to show-cause as to why the order suggested therein be not passed for which objections have already been invited from the petitioner on or before 01.12.2017. In our considered view, no writ petition is maintainable against a show-cause notice. The petitioner, if so advised, may submit objections against the show-cause notice and if any adverse order is passed, he shall have his remedy against the same in accordance with law. The writ petition is dismissed as not maintainable. However, with a view to enable the petitioner to submit objections, it is directed....
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....rson under verification is not required to attend the Income-tax office personally under any circumstance and at any stage during the verification exercise. It has been endeavour of CBDT to identify and target the potential cases through e-verification so that possible instances of grievances arising from the process of verification are minimized. 5.1 The online verification should be focussed and limited to the issue under verification the outcome of which is either 'Acceptable' or 'Non-Acceptable'. The queries raised should be relevant and limited in number since this is a preliminary verification process only. 5.2 The Assessing Officer is required to verify each information record individually and take a decision about each record being 'Acceptable' (where the nature and source of cash deposit for that particular record is explained by the person under verification to the prima-facie satisfaction of the Assessing Officer) or 'Non-Acceptable' (where the Assessing Officer is not satisfied with the explanations offered by the person under verification based on the information available). For each 'Non-Acceptable' information....
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.... verification remarks. 5.10 The cases under the 'Non Acceptable' category would get escalated back to the Directorate of Systems and may lead to advance processing of such cases for further handling as cases involving possible tax-evasion. 5.11 In case the person under verification does not respond within the time frame prescribed, it might lead to a possible inference that the cash deposit under verification is prima-facie undisclosed and consequently the AO may treat these cases under the 'Non-Acceptable' category with relevant remarks. 5.12 A holistic view should be adopted looking into the various aspects of the circumstances leading to deposit of cash (e.g. family-size, financial status and background of person) and uniformity in approach must be adopted while forming a view about quantum of undisclosed income." 45. On perusal of the above SOP, the Assessing Officer was required to verify the cash deposit made by the petitioners in the bank account during the demonetization period as per the Annexure to the SOP which contains the details as per the cash deposited out of earlier income or savings, cash out of receipts exempt from ta....