Nanak Chand & Co. Vs PCIT (ITAT Delhi)
In a recent decision, the Income Tax Appellate Tribunal (ITAT) in Delhi ruled that a difference of opinion alone is insufficient to invoke Section 263 of the Income Tax Act. The case involved a revisional order passed by the Principal Commissioner of Income Tax (Pr.CIT) concerning the assessment order for the assessment year 2017-18.
Background:
The assessee had e-filed its income tax return for Assessment Year 2017-18, declaring a taxable income of Rs. 1,75,930. The return was selected for scrutiny assessment, with the primary issue being the verification of cash deposits made during the demonetization period.
After the completion of the assessment, the Pr.CIT exercised revisional powers under Section 263 of the Income Tax Act, deeming the assessment order to be erroneous and prejudicial to the interest of the revenue. The Pr.CIT issued a show-cause notice to the assessee, pointing out alleged discrepancies in the assessment.
Key Issues:
The primary issues highlighted in the show-cause notice were as follows:
i. Deposit of Rs. 35,10,000 in the assessee’s bank account on 11.11.2016.
ii. A significant decrease in the gross profit (GP) and net profit (NP) ratios compared to previous years.
iii. The inclusion of interest income of Rs. 1,87,700 in the profit and loss account.
The assessee responded to these issues, providing explanations and supporting documents. The Assessing Officer accepted the explanations and completed the assessment without any modifications.
Pr.CIT’s Revisional Order:
The Pr.CIT, upon reviewing the assessment records, found that the assessment order was erroneous and prejudicial to the interest of the revenue. The Pr.CIT alleged that the Assessing Officer had failed to conduct a proper inquiry into the cash deposits, the decrease in profitability ratios, and the interest income.
The Pr.CIT issued a revisional order setting aside the assessment and directing the Assessing Officer to conduct further inquiries and make a fresh assessment.
ITAT’s Decision:
The ITAT examined the case and concluded that the Pr.CIT’s revisional order was not sustainable in law. The tribunal made the following key observations:
i. Cash Deposit Inquiry: The ITAT noted that the assessee had provided a detailed explanation for the cash deposits, including evidence of withdrawals immediately preceding the deposits. The Assessing Officer had conducted an inquiry and accepted the explanation. The ITAT found that the Assessing Officer’s decision was based on a reasonable inquiry and could not be deemed erroneous merely due to a difference of opinion.
ii. Profitability Ratios: The ITAT acknowledged that the GP and NP ratios had decreased but pointed out that the nature of the assessee’s business, which involved dealing in agricultural produce, could lead to fluctuations in profitability. The Assessing Officer had made inquiries and accepted the explanations provided by the assessee. The ITAT held that the Pr.CIT’s opinion that the assessment was erroneous was unjustified.
iii. Interest Income: The ITAT observed that the Assessing Officer had considered the interest income and assessed it under the appropriate head. The Pr.CIT’s objection on this issue lacked merit.
Conclusion: The ITAT’s decision emphasized that a mere difference of opinion with the Assessing Officer’s decision is insufficient to invoke Section 263 of the Income Tax Act. In this case, the Assessing Officer had conducted reasonable inquiries, and the explanations provided by the assessee were accepted. Therefore, the revisional order was set aside and quashed.
This ruling underscores the importance of conducting thorough assessments and making decisions based on a reasonable inquiry, as it can provide protection against revisional actions.
FULL TEXT OF THE ORDER OF ITAT DELHI
The captioned appeal has been filed at the instance of the assessee against the revisional order of the ld. Principal Commissioner of Income Tax, Ghaziabad (‘Pr.CIT’ in short) dated 15.03.2022 wherein order passed by the Assessing Officer (AO) under Section 143(3) of the Income Tax Act, 1961 (the Act) dated 28.06.2019 concerning AY 2017-18 was held to be erroneous in so far as prejudicial to the interest of the revenue within the meaning of Section 263 of the Act.
2. The grounds of appeal raised by the assessee read as under:
“1. On the facts and circumstances of the case, the revision order passed u/s 263 dated 15.03.2022 by PCIT, Ghaziabad in respect of Assessment Order dated 28.06.2019 u/s 143(3) passed by the ITO, Ward-2(3)(3), Bulandshahar, UP is totally wrong, bad in law and needs to be quashed.
2. That the show cause notice has been issued in regard to three issues mentioned as under:
a) Deposit of sum of Rs.35,10,000/- in the bank account of the assessee on 11.11.2016,
b) Low rate of GP and NP as compared to previous years
c) Mentioning that if interest of Rs.1,87,700/- is excluded then the figure of net profit will be negative.
The assessee has filed complete details asked by the Assessing Officer from time to time and details filed by the assessee covered all the three issues. The cash was deposited on 11.11.2016. The assessee withdrew sum of Rs.18,00,000/- on 03.11.2016 and again Rs.18,00,000/- on 07.11.2016. The assessee explained the source of Rs.35,10,000/- and other details relating to GP and NP etc. Every officer has different way of working and the AO was fully satisfied with the papers / explanation filed by the assessee during the assessment proceedings. Anyhow, the assessee should not suffer for the negligence of the Assessing Officer. It is again the principle of natural justice. Hence, the order passed by the PCIT u/s 263 cancelling the assessment is totally wrong, bad in law and needs to be quashed.
3. That the order passed under Section 263 dated 15.03.2022 by the PCIT, Ghaziabad is bad, illegal and unjustified o the merits of the case and must be quashed.”
3. Briefly sated, the assessee e-filed his income tax return for Assessment Year 2017-18 declaring taxable income at Rs.1,75,930/-. The return filed was subjected to scrutiny assessment under Section 143(3) of the Act whereby the returned income was assessed without any modification. As per the assessment order, the return of assessee was selected under complete scrutiny with verification of cash deposits during demonetization period as central issue.
4. After the completion of the assessment, in exercise of the powers conferred under Section 263 of the Act, the case records of the assessment so made were called by the Revisional Commissioner (Pr.CIT, Ghaziabad). The Pr.CIT observed that the impugned assessment order is erroneous in so far as it is prejudicial to the interest of the revenue. A show cause notice dated 23.02.2022 was issued to the assessee in this regard by the Pr.CIT. As per the show cause notice, the revisional commissioner alleged that the Assessing Officer has failed to carry out requisite verification in respect of cash deposits in bank account during the demonetization period aggregating to Rs.36 lakh and also failed to objectively enquire into reasons for fall in GP ratio and the correctness of book results. The show cause notice issued in this regard to the assessee is reproduced hereunder:
Show Cause Notice u/s. 263 of the Income Tax Act, 1961
ITR for A.Y. 2017-18 was e-filed on 22.10.2017 declaring total income of Rs.1,75,930/- Later on the case was selected for complete scrutiny under CASS with reasons “abnormal increase in cash deposits during demonetization period as compared to pre-demonetization period “. The ITO, Ward-2(3)(3), Bulandshahr completed assessment order u/s. 143(3) of the I.T. Act, 1961, dated 28.06.2019 on total income of Rs.1,75,930/-.
2. From perusal of assessment record, for the year under consideration, following discrepancies/ errors have been noticed:-
(i) On perusal of reply dated 22.04.2019 in respect of notice issued by AO dated 09.04.2019, the assessee’s counsel has submitted reply regarding core issue scrutiny as under.-
Assessee was required to explain the reasons regarding cash deposit in bank account in demonetization period. In this respect my submission is that the govt. has declared demonetization currency from midnight of 08.11.2016 and all the banks were closed on 09.11.2016. Assessee withdraw Rs.36,00,000/- from his PB account as under to pay amount to the farmers from whom goods were purchased.
