Vanishree Holabasu Shettar Vs PCIT (ITAT Bangalore)
ITAT Bangalore held that before setting aside the matter the PCIT must have some material which would enable to form prima facie opinion that the order passed by the AO is erroneous in so far as it is prejudicial to the interest of the Revenue. Revision under section 263 of Income Tax Act not possible on guess work.
Facts-
The assessment of the assessee was completed u/s. 143(3) of the Act assessing the total income at Rs.18,21,581/- after disallowing the agricultural expenses amounting to Rs.1,27,461/-. The assessee received a show cause notice u/s. 263 of the Act from the PCIT proposing to set aside the assessment order u/s. 143(3) for the reason that the same is erroneous and prejudicial to the interest of the Revenue.
The assessee is in appeal before the Tribunal against the order of the PCIT.
Conclusion-
Held that before setting aside the matter the PCIT must have some material which would enable to form prima facie opinion that the order passed by the AO is erroneous in so far as it is prejudicial to the interest of the Revenue. In the given case the AO has given a clear finding with respect to the cash deposits done by the assessee during the demonetization period stating that the source for the cash deposit is the sale proceeds of the assessee’s business. The PCIT in his order has stated that the further enquiry would have revealed if the cash deposited in bank a/c out of either unexplained cash or SBNs received after the notified date in violation of law and would have resulted in unexplained income u/s. 69A of the Act. This in our view is not the right reason for revision, as the error envisaged by Section 263 of the Act is not one that depends on possibility as guess work but it should be actually an error either of fact or of law.
Further it is factually evident that the assessee has submitted all the relevant details with regard to cash deposits and agricultural income and the AO has in fact made additions with regard to the agricultural income. Merely because the order was not passed elaborately it would not be said that the order of the AO is erroneous and prejudicial to the interests of the Revenue.
FULL TEXT OF THE ORDER OF ITAT BANGALORE
This appeal by the assessee is against the order of the Principal Commissioner of Income Tax (PCIT) Hubli passes u/s. 263 of the Income Tax Act, 1961 (the Act) dated 25.03.2022 for AY 2017-18.
2. The assessee has raised the following grounds of appeal:-
“1. The order passed by the learned Principal Commissioner of Income Tax, Hubballi, passed under section 263 of the Act is so far as it is against the Appellant is opposed to law, weight of evidence, natural justice, probabilities, facts and circumstances of the Appellant’s case.
2. The notice issued for initiation of proceedings under section 263 of the Act is bad in law.
3. The learned PCIT is not justified in law in invoking the jurisdiction under section 263 of the Act and setting aside the order of the learned assessing officer as being “erroneous and prejudicial to the interest of the revenue”.
4. The learned PCIT is not justified in law in holding that the order passed by the assessing officer is bad in law, without appreciating that there was no error in the orders passed, much less prejudicial to the interest of revenue, on the facts and circumstances of the case.
5. The learned PCIT failed to appreciate that the provisions of section 263 of the Act shall be attracted only when the order is both erroneous and prejudicial to the interest of revenue and since the order passed under section 143(3) of the Act was not erroneous, much less prejudicial, the invoking of section 263 was not warranted on the facts and circumstances of the case.
6. The learned PCIT has passed the order without appreciating the reply furnished in response to the show cause notice issued under section 263 of the Act, on the facts and circumstances of the case.
7. Grounds on Merits of the Case:
a. The learned CIT was not justified in appreciating that the assessing officer has made proper enquiry on all of the aspects on which the revision is sought to be made, on the facts and circumstances of the case.
b. The learned PCIT has failed to appreciate that the appellant has furnished response to each and every query raised by the learned assessing officer on the facts and circumstances of the case.
c. The learned CIT failed to appreciate that the order of assessment has been passed after considering the replies filed and available on the record of the revenue, on the facts and circumstances of the case.
8. The appellant craves to add, alter, amend, substitute, change and delete any of the grounds of appeal.
9. For the above and other grounds that may be urged at the time of hearing of the appeal, the Appellant prays that the appeal may be allowed and justice rendered.”
3. The assessee is an individual engaged in grocery (Aadat) business. The assessee filed the return of income for the AY 2017-18 on 27.12.2017 declaring a total income of Rs.16,94,120/- and agricultural income of Rs.11,90,748/-. The return was selected for scrutiny under CASS for verification of agricultural income and cash deposited during demonetization period. The assessment was completed u/s. 143(3) of the Act assessing the total income at Rs.18,21,581/- after disallowing the agricultural expenses amounting to Rs.1,27,461/-. The assessee received a show cause notice u/s. 263 of the Act from the PCIT proposing to set aside the assessment order u/s. 143(3) for the reason that the same is erroneous and prejudicial to the interest of the Revenue. The assessee filed submissions stating that the AO has made a detailed verification of the various details submitted upon application of mind and proper appreciation of facts. The PCIT passed an order u/s. 263 of the Act setting aside the order of the AO by stating that –
“The assessee has deposited cash of Rs.39,59,349/- in Specified Bank Notes (SBNs) during demonetisation period in her bank accounts. The AO has observed that the source of this deposit is out of sale proceeds of business. Details relating to source of cash deposits were never inquired / verified by the Assessing Officer. and the assessment order has been passed without verifying the source of cash deposited during the period of demonetisation. The assessee had filed her return of income for the assessment year under consideration on 27.12.2017 declaring total income of Rs 16,94,120/-, The VAT returns for the period April 2016 to December 2016 have been filed only on 16.01.2017. Apart from this, bank statements do not show any credits or withdrawals made on account of business carried out. The Assessing Officer ought to have examined whether the assessee was carrying out any business, however, the Assessing Officer did not carry out any enquiry with regard to nature of business carried out, and the source of cash deposited in bank account during the period of demonetisation. The AO did not make necessary inquiries about the source of cash deposited during the demonitisation period. If cash was deposited in bank accounts out of either unexplained cash, or SBNs received after the notified date in violation of law, when they had ceased to be legal tender, then this deposit was liable to be treated as unexplained and added to income u/s 69A read with section 115BBE.
3. When the case was selected for scrutiny for examining cash deposited during the demonetization period and high agriculture income it was necessary for the Assessing Officer to examine the source of cash deposited and carry out necessary investigation in accordance with law and CBDT guidelines. The AO should have also analysed the bank account and trend of cash receipts and examined the cash Sales and the stock register during the specified period. The AO should have also examined the cash sales during the specified period and ascertained the cash in hand as on 8.11.2016 after examination of books by obtaining the cash book. The Assessing Officer has not done so. The Assessing Officer has not conducted necessary inquiries and has not made the additions required as per law. The assessee failed to furnish a satisfactory explanation regarding the source of cash deposited in the bank accounts and this amount remained unexplained, but no such addition has been made in the assessment order.”
4. The assessee is in appeal before the Tribunal against the order of the PCIT.
5. The learned A.R. submitted that:-
i) The AO has made enquiries and accepted the documents filed during the course of assessment and has passed the order after proper application of mind.
ii) The revision order is passed only based on the belief of the PCIT that the further enquiry would reveal the undisclosed income of the assessee which is an opinion different from that of the AO. When two opinions are formed then there cannot be any scope for revision.
iii) The impugned issue of revision i.e. the cash deposits during the demonetization period has been verified in detail by the AO which is evident from the notice calling for details – Query No. 6 in page 54 of paper book and Query No. 18 in page 56 of paper book. The assessee has filed the details as called for before the AO which is in page 60 and page 64 onwards.
iv) The assessee has submitted before the AO the financial statements as well as the entire ledger accounts of sales, cashbook, etc.
v) The AO has done proper verification of the details submitted which is evidenced from the addition made towards agriculture expenses and also the mention of verification of cash deposited during demonetization period by stating that :
“During the demonetization period, the assessee has deposited Rs.40,24,349/-. Out of this, Rs.10,65,000 were deposited in the loan account of Veerpulakeshi Co-operative Bank Limited, Rs.5,48,349/- were deposited in Housing loan account of Bapuji Pattin Souharda Sahakari Limited and the remaining amount is deposited in saving and current account. The cash is deposited out of the sale proceeds of her business.
vi) The details of cash deposited as stated in the order of the AO is supported by the entries in the books of accounts submitted before the AO which proves that there are verified by the AO.
vii) Reliance in this regard is placed on the following decisions: –
CIT v. Sunbeam Auto Ltd. [2011] 332 ITR 167 (Del) Malabar Industrial Co. Ltd. v. CIT [2000] 243 ITR 83 (SC)
CIT v. Cyber Park Development & Construction Ltd. [2021] 276 Taxman 460 (Kar)
CIT v. Anil Kumar Sharma [2011] 335 ITR 83 (Del) PCIT, Surat v. Shreeji Paints (P) Ltd. [2021] 282 Taxman 464 (SC)
Narayan Tatu Rane v. ITO [2016] 70 taxmann.com 227 (Mum Trib)
6. The learned D.R. submitted that the AO has verified only the agricultural income of the assessee and made the addition and there is nothing mentioned in the order to claim that the business income of the assessee is verified. The learned D.R. relied on the order of the PCIT which according to the learned D.R. clearly elaborates the reason as to why the order of the AO is erroneous and prejudicial to the interest of the Revenue. The learned D.R. also submitted that the case law relied by the learned A.R. cannot be applied if the same is prior to the insertion of explanation to Section 263 of the Act. The learned D.R. further submitted that the AO’s order does not mention any thing about the verification of the cash deposits made during demonetization period which proves that the AO has not examined the same which he ought to have done and to that extent the order is erroneous and prejudicial to the interest of the Revenue.
7. We heard the rival submissions and perused the material on record. The assessee during the course of assessment proceedings had submitted the various details called for by the AO including the details of cash deposits made during demonetization period. The PCIT has mentioned in the order u/s. 263 of the Act that that the AO did not make necessary enquiries about the source of cash deposited during the demonetization period. The PCIT has also stated that the AO should have verified the cash sales specifically by obtaining cash book to verify cash balance as on 08.11.2016. It was the submission of the learned A.R. that entire books of account including sales register, cash book, etc. were submitted before the AO and that he has verified the source of cash deposits. The learned A.R. in this regard drew out attention to the cash book where the cash deposit entries are accounted (page 202, 203 & 209 of PB) substantiating the submissions made before the AO as given below:-
