Rameshwar Prasad Shringi Vs PCIT (ITAT Jaipur)
Assessing officer has carried out exhaustive enquiries and verifications regarding source of cash deposits in the bank account during the financial year relevant to impugned assessment year. The bank statements, the cash book, the ledger accounts, the financial statements for the year under consideration and for the earlier years, the tax returns for the year under consideration and for the earlier years have been called and examined by the Assessing officer. And we find that it is not a case where all these documentation were called for and merely placed on record and the assessment was completed. Rather, the Assessing officer has examined these documentation and raised pointed queries and sought explanation from time to time regarding each and every transaction where cash deposits have been made in the bank accounts as to nature and source of such deposits and such enquiry has not been limited to transactions undertaken during the year under consideration and reflection thereof in the bank and cash book, rather, the Assessing officer has examined the transactions pertaining to cash deposits in the subsequent period i.e, financial year 2016-17 and has asked specific questions regarding deposit of cash during the demonization period as well as earlier financial year and has called for cash ledger and availability of cash in hand during the financial year 2015-16 and 2016-17 to determine the linkage thereof with the transactions undertaken and reflected during the year under consideration.
Now coming specifically to the explanation submitted by the assessee in support of the cash deposits as realization from the advances and investments recorded in the books of accounts of the earlier years, we again find that the Assessing officer has raised specific questions and examined the financial statements and income tax returns right from A.Y 2008-09 onwards wherein the assessee has surrendered an amount of Rs 1,96,37,930/- to tax which includes an amount of Rs 1,59,00,000/- in respect of unexplained advances/investment in the name of assessee and his family members in various schemes of land/plot. Once the said amount was surrendered and offered to tax, the assessee reflected the said amount of Rs 1,59,00,000/-under the head “sundry advances and investments” in his regular books of accounts for the financial year 2007-08 relevant to assessment year 2008-09. The said advances were thereafter regularly reflected in terms of outstanding balances net of recoveries from time to time in the financial statements and balance sheets for the subsequent financial years which were also placed on record and examined by the Assessing officer. If we look at the balance sheet of the financial year 2014-2015 which is the immediately preceding financial year, we note that these advances were standing in the books of assessee at Rs 85,00,000/- which again lends credence to the explanation that out of total advances of Rs 1,59,00,000/-, there were recovery to the extent of Rs 74,00,000/- in the earlier years and the advances to the tune of Rs 85,00,000/- were outstanding at the beginning of the current financial year 2015-16 out of which the advances to the tune of Rs 75,00,000/- were recovered during the year under consideration with remaining advances of Rs 10,00,000/- continues to remain outstanding as on the close of the current financial year 2015-16. The recovery so made from earlier advances as well as cash receipts from other activities represent cash in hand of Rs 85,80,796/- as on the close of the current financial year which has been explained as source of cash deposits during the demonetization period in the subsequent financial year 2016-17. Further, it is noted that the tax returns for all these earlier assessment years including that of the subsequent Assessment Year 2017-18 have been filed by the assessee and accepted by the Revenue which is again a clear affirmation on part of the Revenue that the financial statements represent true and fair view of assessee’s affairs and which have thus not been disputed by the Revenue. In such a scenario, where the past affairs of the assessee as reflected in his financial statements and also disclosed in the tax returns have not been disputed by the Revenue, the assessments have been completed and no adverse material is available on record, it is beyond any reasonable belief that the Assessing Officer will have any apprehension that the debtors and advances so reflected and accepted in the earlier years are not genuine and have to be enquired again afresh in terms of identity, creditworthiness and genuineness of their individual transactions.
In such a scenario, where the assessee has shown recovery from old outstanding advances and debtors and provided the necessary financial and tax filing records and the Assessing officer having examined the same thoroughly, we are of the considered view that the necessary enquiries and examination as reasonably expected have been carried out by the Assessing officer in discharge of his quasi-judicial function and he has taken a prudent, judicious and reasonable view in accepting the explanation of the assessee in support of the cash deposits after considering the entire material available on record and the order so passed u/s 143(3) of the Act cannot be held as erroneous in so far as prejudicial to the interest of Revenue. The impugned order passed by the ld PCIT u/s 263 is accordingly set aside and the order of the Assessing officer is sustained.
FULL TEXT OF THE ORDER OF ITAT JAIPUR
This is an appeal filed by the assessee against the order of ld. Pr.CIT, Udaipur dated 11.03.2021 relevant for A.Y 2016-17 wherein the assessee has raised the following grounds of appeal:-
“1. The Ld. Pr. CIT erred in law as well as on the facts of the case in invoking the provisions of Sec. 263 of the Act and therefore, the impugned order dated 11.03.2021 u/s 263 of the Act kindly be quashed.
2. The ld. Pr. CIT erred in law as well as on the facts of the case in assuming jurisdiction u/s 263 of the Act without recording a specific and categorical finding that the subjected assessment order passed u/s 143(3) dated 10.12.2018 is erroneous and prejudicial to the interest of the revenue, in absence of which the entire proceedings u/s 263 is vitiated.
Therefore, the impugned order dated 11.03.2021 u/s 263 of the Act kindly be quashed.
3. The ld. Pr. CIT erred in law as well as on the facts of the case in assuming jurisdiction u/s 263 of the Act by wrongly and incorrectly holding that the AO failed to examine and verify the claimed recoveries made in cash from the Sundry Debtors and erred in cancelling/ setting aside the subjected assessment order passed u/s 143(3) dated 10.12.2018, with a direction to the AO to examine the identity & creditworthiness of the debtors, genuineness of the transactions w.r.t. recovery of advances o f cash amount of Rs. 85 Lakh and also to make necessary additions wherever required.
The assumption of jurisdiction u/s 263 and the impugned direction, being contrary to the provisions of law and facts on record hence, the proceedings initiated u/s 263 of the Act and the impugned order dated 11.03.2021 deserves to be quashed.
4. The ld. Pr. CIT erred in law as well as on the facts of the case in assuming jurisdiction u/s 263 of the Act by wrongly and incorrectly invoking Explanation 2 to S. 263 as if the same conferred unbridled power upon the Pr. CIT even though the facts and circumstances of the case did not justify the application of the said Explanation.
5. The ld. Pr. CIT erred in law as well as on the facts of the case in wrongly setting aside the assessment order dated 10.12.2018 despite there being complete application of mind by the AO on the subjected issues and it was nothing but a case of change of opinion and/or suspicion, based on which, assumption of jurisdiction u/s 263 is not permissible. The impugned order dt. 11.03.2021 therefore lacks valid jurisdiction u/s 263 o f the Act and hence, the same kindly be quashed. ”
2. Briefly stated, the facts of the case are that the assessee filed his return of income on 17.03.2017 declaring total income of Rs. 5,49,620/- which was selected for scrutiny through manual scrutiny guidelines issued by the CBDT. Thereafter, notices u/s 143(2) and 142(1) were issued by the Assessing calling for necessary information and documentation. Taking into consideration the submissions and information/documentation filed by the assessee, the assessment was completed accepting the returned income vide order passed u/s 143(3) dated 10.12.2018.
3. Thereafter, the ld. Pr. CIT, Udaipur called for the assessment records and after review thereof, issued a show cause to the assessee dated 29.01.2021 the contents thereof read as under:-
“On examination of assessment record, it is seen that in your case, the ITR for A.Y. 2016-17 has been filed on 17.03.2017 i.e. after the date o f demonetization. As a home work for F.Y. 2016-17 i.e. A.Y. 2017-18, you have shown recovery of sundry advances of Rs. 85,00,000/- as a cash in the month of March, 2016. But the AO during the course of assessment proceeding has not made any enquiry about the persons from whom the sundry advances of Rs. 85,00,000/- are claimed to have been recovered by you in cash in the month of March, 2016. The name and addresses of the persons who as per your claim have paid these amounts of Rs. 85,00,000/-to you are not available on record. The genuineness of this transaction o f Rs. 85,00,000/- being sundry advances recovered from the persons have also not been verified by the AO. Thus, it shows that there was lack o f enquiry on the part of AO as he failed to make enquiry in respect of the persons to whom earlier advances of Rs. 85,00,000/- were claimed to have been given by you and from whom such advances of Rs. 85,00,000/- were claimed to have been received by you in the month of March, 2016 and because of this lack of enquiry, the assessment order in your case for A.Y. 2016-17 is found to be erroneous in so far as it is prejudicial to the interest of Revenue. ”
4. In response to the show-cause, the assessee filed his submissions and necessary information/ documentation which were considered but not accepted by the ld PCIT and the assessment order passed u/s 143(3) was held as erroneous and prejudicial to the interest of the Revenue and the assessment order was set aside and the Assessing Officer was directed to examine the matter afresh after providing reasonable opportunity to the assessee. Against the said findings and order of the ld PCIT, the assessee is in appeal before us.
5. During the course of hearing, the ld. AR raised various contentions as are contained in his written submissions and the contents thereof read as under:
“1. Legal Position on Sec.263 – Judicial Guideline: Before proceeding, we may submit as regards the judicial guideline, in the light of which, the facts of this case are to be appreciated.
1.1 The pre-requisites to the exercise of jurisdiction by the CIT u/s 263, is that the order of the Assessing Officer is established to be erroneous in so far as it is prejudicial to the interest of the Revenue. The CIT has to be satisfied of twin conditions, namely
(i) The order of the Assessing Officer sought to be revised is erroneous; and
(ii) it is prejudicial to the interests of the Revenue. If any one of them is absent
i.e. if the assessment order is not erroneous but it is prejudicial to the Revenue, Sec.263 cannot be invoked.
This provision cannot be invoked to correct each and every type of mistake or error committed by the Assessing Officer; it is only when an order is erroneous as also prejudicial to revenue’s interest, that the provision will be attracted. An incorrect assumption of the fact or an incorrect application of law will satisfy the requirement of the order being erroneous. The phrase ‘prejudicial to the interest of the Revenue’ has to be read in conjunction with an erroneous order passed by the AO. Every loss of Revenue as a consequence of the order of the AO cannot be treated as prejudicial to the interest of the Revenue. For example, if the AO has adopted one of the two or more courses permissible in law and it has resulted in loss of revenue, or where two views are possible and AO has taken one view with which the CIT does not agree, it cannot be treated as an erroneous order prejudicial to the interest of the Revenue, unless the view taken by the AO is totally unsustainable in law. Kindly refer Malabar Industrial Co. Ltd. v/s CIT (2000) 243 ITR 83 (SC).
1.2 Also kindly refer CIT v/s Max India Ltd. (2007) 295 ITR 282 (SC) wherein it is held that:
“The phrase “prejudicial to the interests of the Revenue” in S. 263 of the Income Tax Act, 1961, has to be read in conjunction with the expression “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 the Assessing Officer adopts one of two courses permissible in law and it has resulted in loss of revenue, or where two views are possible and the Assessing Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the Revenue, unless the view taken by the Assessing Officer is unsustainable in law. “
Ratio of these cases fully apply on the facts of the present case in principle. 2. Due application of mind:
2.1 It is submitted that the AO had raised very specific and relevant queries/called for explanation and evidences w.r.t. cash recoveries made from the Sundry Advances (debtors), to the extent he was supposed to act in law. The AO after making a detailed enquiry relating to the issue in hand and examination of books of account, in particular cash book for the current year (PB 23-26) and other records being Balance Sheets starting right from A.Y. 2008-09 to 2015-16 (PB 23-50) took a possible view that the assesse was having sufficient cash available immediately prior to the subjected cash deposits (i.e. 08.11.2016 and onwards) and completed the subjected assessment without any variation. The relevant para of the assessment order, wherein the AO has examined each any every documents submitted by assessee during scrutiny proceedings, is reproduced below:
“The case was selected for scrutiny through manual scrutiny guidelines issued by the CBDT. The first notice u/s 143(2) issued on dated 28.07.2017 by the DCIT, Central Circle Kota which was served upon the assesse and hearing was fixed on 16.08.2017. Further, notice u/s 142(1) issued on 28.08.2017 and 23.10.2017 along with questionnaire/ Annexure-A requiring certain details/information, which was served upon assesse. Thereafter, notice u/s 142(1) issued on 21.12.2017. Notice under sub-section (1) of section 142 issued on 07.06.2018 through e-proceeding. In response to that, Shri P.Khandelwal, FCA and AR of the assessee attended the proceeding and filed written submission, which is placed on record. Later no, notice have been issued through e-proceedings portal. AR/assesse complied on e-proceedings portal and uploaded all the replies.”
2.2 This is also evident from queries raised and the replies given thereto, reproduced hereunder:
2.2.1 Through the Notice/s u/s 142(1) dated 07.06.2018 (PB 10) & dated 23.10.2017 (PB 03), following informations were called for:
“1. Submit copies of your Capital A/C, P & L A/C, and Balance Sheet.
Similar queries were raised and explanation called for vide Notice u/s 142(1) dated 23.10.2017 through Pr. 12
2. Explain the credit entries and all cash deposits in the bank accounts. Explain the purpose of the debit entries and all cash withdrawals in the following format for all bank accounts: –
Name of the Bank
Account Number
