Case Law Details
Ashok Khimraj Jain Vs PCIT (ITAT Pune)
Introduction: In the case of Ashok Khimraj Jain Vs PCIT, the ITAT Pune reversed the revisionary order of the Pr. Commissioner of Income Tax-1, Nashik, asserting that revisionary powers under section 263 of the Income Tax Act would not apply if the Assessing Officer (AO) conducts appropriate verification during the assessment process. This decision provides important insight into the dynamics of tax revision under Indian law.
Analysis: The ITAT Pune ruled that the Pr. Commissioner of Income Tax-1’s revisionary order was inappropriate as the AO had conducted due inquiry into the appellant’s cash deposits during the assessment process. The ruling emphasized that the AO’s role as an investigator and adjudicator in the assessment process was fulfilled properly. The court referenced the legal precedent set by the High Court of Bombay in ‘CIT Vs Gabriel India Ltd.’ and ‘CIT Vs Design Automobile Engineers’ and the Delhi High Court in ‘CIT Vs Sunbeam Auto Ltd.’ as justification for the quashing of the revisionary order.
Conclusion: This ruling reinforces the principle that if an Assessing Officer conducts a thorough inquiry and verification during the assessment, no revision is necessary under section 263 of the Income Tax Act. It also reaffirms the role of the AO as both an investigator and adjudicator in the assessment process. Therefore, it’s a significant step towards tax law clarity, ensuring a fair and thorough examination is given precedence over revisionary measures.
FULL TEXT OF THE ORDER OF ITAT PUNE
By the present appeal, the assessee assailed the revisionary order of Pr. Commissioner of Income Tax-1, Nashik [for short ‘PCIT’] dt. 18/03/2021 passed u/s 263 of the Income-tax Act, 1961 [for short ‘the Act’], which ascended out of assessment order dt. 17/11/2017 passed u/s 143(3) by the Asstt. Commissioner of Income Tax, Circle Dhule [for short ‘AO’] for the assessment year [for short ‘AY’] 2015-16
2. The solitary issue under the present appeal revolves around alleged action of Ld. PCIT in directing the AO to reframe the assessment de-novo after thorough verification of source of cash deposits, wherein the case of the assessee had undergone limited scrutiny under CASS mechanism for the very reason to verify as to whether the cash deposit of during demonetization period has been made from disclosed sources.
3. Pithily stated facts borne out of case records are;
3.1 The assessee filed his return of income [for short ‘ITR’] for the year under consideration on 31/03/2017 declaring total income of ₹4,14,670/-. The case was selected for limited scrutiny under CASS to examine ‘Whether the cash deposit of ₹15,95,000/- during demonetization period has been made from disclosed sources’. After considering the submission, the Ld. AO completed the assessment proceedings u/s 143(3) of the Act, vide his order dt. 17/11/2017 by making addition of ₹1,64,098/- u/s 69A of the Act as unexplained money.
3.2 Post culminations of assessment proceedings, on perusal of case records, the Ld. PCIT observed that, during ssessment proceedings the assessee while explaining source of cash deposit of ₹15,95,000/- made into his bank accounts during the demonetisation period, was in support of his claim stated to had an opening cash balance of ₹ 6,57,438 i.e cash in hand as on 31/03/2014 and closing cash balance ₹10,19,188/-, however no documentary evidence in support of claim of cash balance held on 31/03/2014 for ₹6,57,438/- & 31/03/2015 for ₹10,19,188/- were found on record and same remained inquired into. Resultantly, the Ld. PCIT invoking the revisionary jurisdiction u/s 263 of the Act directed the Ld. AO to re-do the assessment for his failure in making proper inquiries or verification.
3.3 Saddled with the action of Ld. PCIT, the appellant assessee set-up his case claiming that, upon his submission of information and documents called for during the assessment proceedings and after conducting necessary inquiries into the sources of cash deposits, the Ld. AO framed the assessment u/s 143(3) of the Act with an addition of ₹1,64,098/- as unexplained money u/s 69A of the Act, thus leaving there no scope for revision. Per contra, the Ld. DR strongly relied on the order of Ld. PCIT and pressed for dismissal of appeal of the assessee.
3.4 After hearing to rival contentions of both the parties; and subject to the provisions of rule 18 of Income Tax Appellate Tribunal Rules, 1963 [‘ITAT-Rules’ hereinafter] perused the material placed on record, and duly considered the facts of the case in the light of settled legal position which are forewarned to parties present.
4. We note that, the appellant had deposited cash of ₹15,95,000/- into his bank account on 08/11/2016. Pursuant to OCM operation, the appellant case was subjected to scrutiny u/s 143(3) of the Act. During the course of regular assessment proceedings u/s 143(3) of the Act for AY 2015-16 the appellant submitted that, said cash deposits were supported by closing balance of ₹10,19,188/- held by him as on 31/03/2015 and cash commission earned during the financial year 2015-16. The submission of the appellant did inspire no confidence, hence in the absence of appellant’s failure to adduce persuasive material and convincing explanation in support of aforestated closing balance of ₹10,19,188/-, the Ld. AO framed an assessment u/s 143(3) of the Act by treating the entire closing balance held on 31/03/2015 as unexplained u/s 69A and brought to tax after allowing credit therefrom for; (1) opening cash balance of ₹6,57,438/- , (2) ₹1,97,652/-, which resulted into net addition of ₹1,64,098/- u/s 69A of the Act.
5. We further note that, subsequent to framing the assessment for 2015-16 wherein the appellant was given credit for opening cash balance of ₹6,57,438/-(i.e. 31/03/2014), was brought to tax in the respective assessment year 20142015 by invoking jurisdiction u/s 147 of the Act by the Ld. AO. The said addition was found duly confirmed by the Ld. CIT(A) in first appeal before him and by the Co-ordinate bench Tribunal in ITA No. 155/PUN/2023 dt. 25/04/2023. Thus, admittedly the Revenue invariably has brought the entire closing balance of ₹10,19,188/- claimed to have held on 31/03/2015 to tax u/s 69A of the Act.
6. We further noticed that, this aforestated fact of taxing the entire amount of closing balance held by the appellant as at the closure of the previous year relevant to assessment year under consideration has lost sight of Ld. PCIT, therefore the observation recorded while invoking the revisionary jurisdiction suffered, thus the very basis for revision u/s 263 of the Act.
7. Therefore in our considered view, the Ld. PCIT’s finding that the documents through which attempt has been made to support the explanation were neither called by the AO nor produced by the assessee which clearly shows that the AO has failed to make the due verification and assessment proceedings have been completed without verifying the source of cash deposits are not correct and deviate from the factual position. For the reasons, we see force in the vehement arguments of Ld. AR that, the provisions of Explanation 2(a) to Section 263 of the Act cannot be made applicable in this case; consequently impugned revisionary order of Ld. PCIT deserves to be quashed.
8. In the light of aforestated undisputedly facts and circumstances, we see hardly any reason to deviate from the settled legal proposition laid by the Hon’ble Jurisdictional High Court of Bombay in ‘CIT Vs Gabriel India Ltd.’ Reported in 203 ITR 108 and ‘CIT Vs Design Automobile Engineers’ reported in 323 ITR 632 (Bom), and Hon’ble Delhi High Court in ‘CIT Vs Sunbeam Auto Ltd.’ reported in 332 ITR 167 (Del.) in holding that in the absence of any failure on the part of Assessing Officer in making due inquiry(ies), the first limb i.e. an assessment being erroneous fails therefore the very basis of jurisdiction of the Ld. PCIT u/s 263 of the Act.
9. Before parting we also note that, the Hon’ble lordship in ‘Gee Vee Enterprises Vs Addl. CIT’ reported in 99 ITR 375 (DHC) held that the Assessing Officer’s role in framing a regular assessment is that of an investigator as well as an adjudicator. An unless the Assessing Officer as an adjudicator decides a question or aspect and makes an assessment which is unsustainable in law, it cannot be corrected by the Commissioner in exercise of revisionary power. As an investigator, it is incumbent upon the Assessing Officer to investigate the facts required to be examined and verified to compute the taxable income and in doing so the when Assessing Officer commits no mistakes, there remains no error. It is incumbent on the assessing officer to investigate the facts stated in the return when circumstances could make such an inquiry prudent that the word “erroneous” in section 263 includes the failure to make such an inquiry, the order becomes erroneous because such an inquiry has not been made and consequent to which Revenue suffered, in these twin circumstances only, the Ld. PCIT as well can exercise his revisionary powers u/s 263 of the Act and not otherwise. Since in the instant case, the Ld. AO had conducted due inquiry before framing an assessment u/s 143(3) in respect of standing opening cash balance held, therefore we find no merits in the action of Ld. PCIT. Ergo, the impugned revisionary order is quashed as unsustainable in law.
10. Resultantly, the appeal of the appellant is ALLOWED.
In terms of rule 34 of ITAT Rules, the order pronounced in the open court on this Friday 26th day of May, 2023.
