Case Law Details
Synergy India Vs PCIT (ITAT Chandigarh)
ITAT Chandigarh held that invocation of revisionary powers u/s 263 post due enquiry carried out by AO and assessment order passed with due application of mind is unjustified and untenable in law.
Facts- The Assessee has contended that the ld. PCIT, while wrongly assuming jurisdiction u/s 263 of the Act and while wrongly setting aside the assessment order dated 20.12.20 19, has failed to appreciate that detailed inquires had in fact been made by the AO during the assessment proceedings, with regard to the cash deposited during the demonetization period; that this is clearly evident from the numerous questionnaires and show cause issued to the Assessee by the AO, especially the show cause notice dated 27.11.2019 (ABP 44-47), to which, the Assessee gave ample reply.
It has been contended that despite the matter having been adequately examined by the AO during the assessment proceedings, the ld. PCIT has passed the impugned order without taking into consideration the replies of the Assessee, furnished during the revision proceedings.
Conclusion- We hold that the ld. PCIT was not justified in invoking the revisionary powers u/s 263 of the Act, when, as evident from the record, due enquiry had been carried out by the AO and the assessment order was passed with due application of mind by the AO. Accordingly, the grievance sought to be raised by the Assessee is found to be justified.
FULL TEXT OF THE ORDER OF ITAT CHANDIGARH
This is assessee’s appeal against the order of the ld. Principal Commissioner of Income Tax (in short, ‘PCIT’), National Faceless Appeal Centre (NFAC), Delhi, dated 30.03.2022, for the Assessment Year 20 17-18.
2. The Assessee in this appeal has taken the following grounds of appeal:-
1. hat the ld. PCIT, Ludhiana-1, has erred in assuming the jurisdiction u/s 263 and, thereby, setting aside the order as passed by the Ld. Assessing Officer, vide order, dated 20.12.2019 by passing the order afresh.
2. That the Ld. PCIT, Ludhiana-1 has failed to appreciate that the original assessment was framed after due application of mind by the Assessing Officer concerned, who had made detailed enquiries with regard to cash deposited during demonetization period, which is evident from various questionnaires as issued by the Assessing Officer, especially vide questionnaire dated 17.11.2019 and, therefore, the setting aside of the assessment order dated 20.12.2019 is bad in law.
3. That the action of the Ld. PCIT, Ludhiana-1 is otherwise not sustainable since the action u/s 263 has been prompted by way of proposal sent by the Ld. JCIT/Addl. CIT and on the basis of audit objection and, therefore, the jurisdiction, as assumed by the PCIT, is bad in law.
4. That the order as passed u/s 263 is against the facts and circumstances of the case.
3. As per record, finding the assessment order dated 20.12.20 19 to be erroneous and prejudicial to the interests of the Revenue, the ld. PCIT issued show cause notice (ABP 79-8 1) dated 23.02.2022 to the Assessee u/s 263 of the Income Tax Act, 1961 (hereinafter called ‘the I.T. Act’) as follows:-
“3.2 From the perusal of assessment records, it seems that you have furnished a copy of cash book for the period from 08/11/2016 to 31/12/2016. The opening cash B/F as on 08/11/2016 has been shown at Rs. 41,58,900/- and the closing balance as on 31/12/2016 has been shown at Rs. 2,21,031.05. Neither the AO has called for cash Book prior to 8/11/2016 nor produced by the assessee. Moreover, no comparative figures of Cash Sales, Bank Balances, withdrawal from Bank from earlier or succeeding years have been called by the AO to examine and verify the trend of cash deposit so as to justify the deposit of cash during demonetization period.
3.3 It is also seen that from the bank, no information regarding cash deposit in old/new currency notes as well as denomination has been called for by the AO and remained unverified from the bank.
3.4 The details of cash sales from 01.04.2016 have been submitted by you before the AO. On examination, it is noted that the firm is manufacturer of Bicycle parts and it is unlikely that the cycle parts from a manufacturing firm are sold in cash to retailers. However, details of cash sales have been furnished which revealed that the cash Sales from 01.04.2016 to 1.10.2016 have been of very meager amounts. The maximum being Rs. 23,511/- on 02.08.2016. However from 03.10.2016 cash sales have gone up to Rs. 3,57,874/-. The abnormal increase in the cash sales from first week of October, 2016 has not been examined by the AO or explained by you during the course of assessment proceedings. The Cash in hand which was Rs. 5,76,892/- as on 30.04.2016 has increased to Rs. 41,68,545/- as on 31.10.2016 on account of these alleged cash sales.
3.4 Vide his reply dated 20.12.2019 and point No. 11, it has been mentioned that “since day to day stock and production registers are not maintained, the month wise details of stock are not available”. Also vide reply dated 19.12.2019 point no. 16 you had stated that “The stock inventories prepared at the end of the year have been misplaced somewhere or lost in fire and are not available at present”. Thus quantitative/qualitative reconciliation of stock vis-a-vis cash sales could not be done. Therefore, the source of cash deposits could not satisfactorily be explained from cash sales only.
3.5 During the year total sales have decreased in comparison to last year by almost 10% (i.e. from 35.25 Cr in A.Y. 2016-17 to 31.83 Cr in A.Y. 201 7-18), however, GP has increased from 5.73 % to 8.14% in this year. There is no reasonable explanation on record to justify the sudden increase in GP alongwith sudden increase in cash sale in A.Y. 2017-18.
3.6 Considering all these aspects, it is clear that the source of cash deposit of Rs. 38,50,000/- during demonetization period was not examined by the AO as well as explained by the assessee.”
3. The Assessee submitted replies dated 13.03.2022 (APB 82-85) and 17.03.2022 (APB-97 & 98). The ld. PCIT, however, did not agree with the replies of the Assessee and he passed the impugned order dated 30.03.2022, holding the assessment order to be erroneous and prejudicial to the interests of the Revenue and directed the Assessing Officer (AO) to pass a fresh order in accordance with law on giving due opportunity to the Assessee. It was observed that though the Assessee had claimed that rejected goods had been sold in cash after removing defects, no documentary evidence had been furnished for having organised a clearance sale during the year from October 2016 onwards, which sale, according to the ld. PCIT, must have been held by the Assessee. It was observed that though in its reply dated 13.03.2022 filed before the ld. PCIT by the Assessee, the Assessee had stated that the stock registers and inventory called for had been perused by the AO, the Assessee had neither maintained such record, nor had it produced the same before the AO. It was further observed that neither the AO insisted on production of cash book prior to 08.11.2016, nor the Assessee had produced the same before the AO. It was also observed that it was required to be examined as to whether the alleged rejected goods had been shown in the closing stock of the preceding years and as to whether the sale returns were duly shown; and that in the absence thereof, the possibility of fictitious introduction of cash sales to justify deposit of unaccounted cash in the form of SBN had not been completely ruled out and the version of the Assessee had been simply accepted.
4. Aggrieved, the Assessee is in appeal.
5. Challenging the impugned order, the ld. Counsel for the Assessee has contended that the ld. PCIT, while wrongly assuming jurisdiction u/s 263 of the Act and while wrongly setting aside the assessment order dated 20.12.20 19, has failed to appreciate that detailed inquires had in fact been made by the AO during the assessment proceedings, with regard to the cash deposited during the demonetization period; that this is clearly evident from the numerous questionnaires and show cause issued to the Assessee by the AO, especially the show cause notice dated 27.11.2019 (ABP 44-47), to which, the Assessee gave ample reply. Our attention has been drawn to the Questionnaire dated 04.03.20 19 (APB 31-A and 31B), Questionnaire dated 06.09.2019 (APB 32-40), Reply dated 16.09.2019 (APB 41), Reply dated 19.09.20 19 (APB 42-43), Show Cause Notice dated 27.11.2019 (APB 44-47), Reply dated 20.12.2019 (APB 48-49) along with annexures (APB 50-60, 61, 62-64, 65-66), Reply dated 24.12.2019 (APB 67-68), Show Cause Notice dated 16.12.2019 (APB 69), Reply dated 26.12.20 19 (APB 70). Our attention has also been drawn to letter (APB 7 1-74) dated 12.04.202 1, sent by the JCIT (OSD), Circle-4, Ludhiana to the CIT Circle-4, Ludhiana, proposing action u/s 147 of the I.T. Act, letter (APB 75) dated 13.4.202 1, whereby the Additional CIT, Ludhiana directed the JCIT (OSD), Circle-4, Ludhiana to take action u/s 263 of the Act instead of initiating re-assessment proceedings and letter (APB 76-78) dated 22.04.202 1 from the JCIT (OSD), Circle-4, Ludhiana to the CCIT (OSD)-1,Ludhiana, proposing the Assessee’s case for revision proceedings u/s 263 of the I.T. Act. Our attention has also been drawn to the Show Cause Notice dated 23.03.2022 issued u/s 263 of the I.T. Act (APB 79-8 1), Reply (along with sample copies of debit notes issued by various parties dated 13.03.2022 (APB 82-94), Reply dated 14.03.2022 (APB 95-96), and Reply dated 17.03.2022 (APB 97-98). It has been contended that despite the matter having been adequately examined by the AO during the assessment proceedings, the ld. PCIT has passed the impugned order without taking into consideration the replies of the Assessee, furnished during the revision proceedings.
6. The ld. DR on the other hand, has placed strong reliance on the impugned order.
7. We have heard the parties and have perused the material on record. In the Show Cause Notice issued u/s 263 of the Act, the ld. PCIT observed that during the assessment proceedings, the Assessee had furnished cash book for the period from 08.11.2016 to 31.12.2016; that the opening cash brought forward as on 08.11.2016 had been shown therein at Rs. 4 1,58,900/- and the closing balance as on 31.12.2016 was shown at Rs. 2,21,031.05; that cash book prior to 08.11.2016 had not been called for by the AO, nor the same had been produced by the Assessee; that further, no comparative figures of cash sales, balance sheets and withdrawal from bank, from earlier or succeeding years had been called for by the AO to examine and verify the trend of cash deposits as to justify the deposit of cash during the demonetization period; that no information regarding cash deposit in old /new currency notes as well as denomination had been called for by the AO from the bank. It was further observed that the Assessee firm was manufacturer of bicycle parts and it was unlikely that such parts were sold in cash to retailers; that however, details of cash sales had been furnished, which revealed that cash sales from 01.04.2016 to 01.10.2016 had been of very meager amounts, the maximum being 23,511/-, on 02.08.2016; that however, from 03.10.2016, cash sales had gone up to Rs. 3,57,874/-, which abnormal increase had not been examined by the AO or explained by the Assessee; that there was cash-in-hand of Rs. 5,76,892/- on 30.4.20 16 which had increased to Rs. 41,68,545/- on 3 1.10.2016, on account of these alleged cash sales; that vide reply dated 20.12.2019, the Assessee had stated that since day-to-day stock and production register were not maintained, the month-wise details of stock were not available; that vide reply dated 19.12.20 19, the Assessee has stated that the stock inventory prepared at the end of the year had been misplaced or lost in fire and was not available at that time; that, thus, quantitative / qualitative reconciliation of stock viz-a-viz cash sales could not be done and, therefore, the source of cash proceeds could not satisfactorily be explained from the cash sales only; that there was no reasonable explanation on record to justify the sudden increase in gross profit from 5.73% in the earlier year to 8.14% in the year under consideration, along with sudden increase in the cash sales during the year; and that considering all these aspects, it was clear that the source of the cash deposit of Rs. 38,50,000/- during the demonetization period had not been examined by the AO and had not been explained by the Assessee.
8. In its reply dated 13.03.2022, the Assessee stated before the ld. PCIT that the Assessee’s books of account including cash book, ledger, sale and purchase books and sale / purchase bills, etc., were produced before the AO, as stated by the Assessee in its submissions dated 20.12.20 19 and 26.12.20 19, filed before the AO; that the comparative figures of cash sales in the earlier year, i.e., A.Y. 2016-17 and details of month-wise cash-in-hand for A.Ys. 2017-18 and 2016- 17 were furnished before the AO; that the Assessee firm is a manufacturer of bicycle parts for big bicycles manufacturing companies, like Hero, Atlas etc.; that in the normal course of the Assessee’s business, after the goods manufactured by the Assessee are delivered to the buying units, some goods are rejected on account of various defects or quality reasons; that whereas some rejections may be resold to those very manufacturing units, others stay rejected; that similarly, sometimes, some of the goods returned relate to models which are subsequently discontinued by the manufacturer and are no longer required by them; that these rejected or second quality goods are sold in the secondary market of retailers and others, like repair shops, etc.; that these rejected goods go on accumulating over the years and they have to be sold in the open market after long intervals and without brand name, so as to avoid earning the displeasure of the Assessee’s customers; that during the year under consideration, it was decided that these goods, manufactured over a number of years, should be sold more or less by way of a clearance sale in the festive season of October /November 2016; that this was the reason of high sales during October 2016; that since the purchasing customers did not want to be identified as purchasers of rejected / sub-standard goods, they also purchased the goods anonymously and in cash; that it was noteworthy that the total cash sales were just above 1% of the total sales made during the year; that the stock register and the inventory were called for by the Assessing Officer during the assessment proceedings; that apropos the reduction in sales as compared to the appeal year and the increase in the gross profit rate compared to the earlier years, the fall or increase in gross profit rate is dependent on various factors and market conditions; that the increase in the gross profit rate, which results in increase in the taxable income, cannot be construed as being erroneous and prejudicial to the interests of the Revenue; that even excluding the cash sales in October 2016, the gross profit would work out to much more than that of the last year; and that in the subsequent year, i.e., A.Y. 20 18-19, the gross profit is 7.78%, as compared to that of 5.73% in A.Y. 20 15-16, and that there was no issue of demonetization or abnormal cash deposits.
9. The Assessee filed a further Reply dated 17.03.2022, wherein, it was stated that from Financial Year 2016-17 onwards, the amount of cash sales is very negligible due to the fact that from Financial Year 2016-17, the Assessee’s main customer, i.e., the Hero Group affected a change in the system of procurement of various parts, whereby the Assessee would purchase many of the parts from other manufacturing units, which parts and their rates were already approved by them, properly pack the same individually, and supply the same to them; that in the changed system, the incidence of rejection on account of the Assessee had reduced greatly; that in respect of goods manufactured by the Assessee, over the years, the Assessee had tried to improve and pinpoint reasons for rejection and after making correction at the Assessee’s end, the goods which were rejected or received back earlier were again supplied to them; that therefore, the incidence of total rejection had diminished to a very great extent; that secondly, cash sale of goods had also greatly diminished; that goods which were earlier being rejected were now being almost entirely re-sold after rectification; that after removal of defects, most of the goods returned were sold again to the concerned customers; that a few items, in which, the defects could not be set-right, were sold and some are still lying unsold with the Assessee; that the goods sold in cash during the demonetization period were almost wholly out of the goods rejected by the Assessee’s original customers; that on these goods, no further expenses were incurred or claimed during the year; that the whole of the sale value has been included in sales and included in the Assessee’s profit for the year under consideration; and that since the entire amount of sale proceeds of these goods has been shown as profit without claiming any further expenses thereon, the total amount already stands included in the Assessee’s income and there has been no under assessment of income.
10. In the impugned order, the ld. PCIT has observed that the Assessee had claimed that the rejected goods were sold in cash after removing their defects and a clearance sale was raised from October, 2016 onwards; and that no documentary evidence in respect of organizing such a sale has been furnished, nor any proof regarding publicity through advertisement and other channels has been furnished. In this regard, it is seen that in its reply dated 13.3.2022 (APB 82-85), the Assessee had stated before the ld. PCIT (ABP 83 para-4), that it is true that the Assessee firm is a manufacturer of bicycle parts, but it is manufacturing for big bicycle manufacturing companies / units having national and / or international brand names like Hero, Atlas, A-Von, etc.; that in the normal course of the Assessee’s business, after the goods manufactured by the Assessee are delivered to the big buying units, most goods are rejected and returned on account of various defects or quality reasons; that while some part of the rejections may be sold to the same very manufacturing unit, others stay rejected; that similarly, sometimes, some of the goods returned relate to the models which are subsequently discontinued by the big manufacturing companies and are no longer required by them; that these rejected or second quality goods are sold in the secondary market of retailers and others like repair shops, etc.; that this is a necessary complement of parts manufacturing units; that these goods go on getting accumulated over a long period running into years together, as open sale of such (branded) goods would only earn the displeasure of the valued customers of the Assessee; that these goods have to be sold in the open market at long intervals and without brand names; that in the year under consideration, it was decided that these goods, accumulated over a number of years, should be sold more or less by way of a Clearance Sale in the festival season of October / November, i.e, from Ist October 2016; that this is why the sales in the month of October, 2016 were so high; that since the present customers also probably did not want to be identified as purchasers of rejected / sub-standard goods, they also made the purchase anonymously and in cash; that it was noteworthy that the total cash sales has been just above 1% of the total sales during the year; that in support of the submissions regarding rejection of goods by the main customers of the Assessee, a few Debit Notes issued by them were being attached; and that the goods which are rejected / disapproved by the customers have to be sold in the open market. The stand of the Assessee is that such goods being rejected as sub-quality goods, they are not items which can be publicly advertised by the Assessee for any kind of sale, be it a clearance sale or a normal sale. The secondary market being a market of small retailers and other repair shops, by advertising such sales, the Assessee obviously could not afford the risk of earning the displeasure of its valued customers. In this scenario, the observation of the ld. PCIT, as correctly contended, is not sustainable. There could not have been any evidence of any clearance sale in these facts, nor any with regard to any publicity through advertisements or other channels.
11. Apropos the ld. PCIT’s observation that cash sales were made to anonymous persons, firstly, no case stands made out of the existence of any bar in making cash sales to unknown persons. It has been held so, inter alia, in ‘RB Jessaram Fatechand’, 75 ITR 33 (Bombay), which holds that there is no necessity, whatsoever, for the Assessee to maintain the addresses of cash customers. Besides, necessary bills have been issued for cash sales and the books of account of the Assessee have not been rejected. Even sale bills in respect of cash sales from 01.8.2016 to 8.8.2016 (APB- 67) were produced, as also the statement of date-wise cash sales (APB 62-64). The fact is that there were cash deposits in the year under consideration as well as in the earlier years.
12. The ld. PCIT has then observed that the day-to-day and production registers are not maintained and month-wise detail of stock is not available. In this regard, it is seen that it remains undisputed that the books of account and other records were duly produced, which were verified. As per the trading and profit & loss account for the year under consideration, the opening stock is at Rs. 28,99,000/- and the closing stock is at Rs. 12,67,565/-. There was, thus, sufficient stock available for making sales. Besides, statement of date-wise cash sales has been furnished (APB 48, item 6).
13. The next objection of the ld. PCIT is that the Assessee had not produced cash book prior to 8.11.2016, nor the AO had insisted on it. Here, it is seen that statement showing month wise closing cash in hand was submitted as per reply (APB 48, Sr. No.8). Detail of cash sales during the entire year are at APB 62 to 64 and the cash in hand is at APB 65, whereas books of account were produced, as per APB 70. Therefore, it cannot be said that the books of account were not
14. The ld. PCIT has stated that the AO had not examined whether the alleged rejected goods have been shown in the closing stock of the preceding year and as to whether sale return is duly shown and that thus, there is a possibility of fictitious introduction of cash sales to justify deposit of unaccounted cash, which is not completely ruled out. In contrast, as noted hereinabove, documentary evidences in the shape of debit notes, etc., issued by the Assessee’s customers, were duly produced, in support of the contention of rejection of goods. These have not been doubted. Furthermore, as rightly contended, revisionary action on the basis of mere possibility is not sustainable.
15. The ld. PCIT has observed that detailed and deep enquiries were required to be made. In fact, at the time of scrutiny, the issue of focus before the AO was of cash deposit during the demonetization period. Voluminous information was filed by the Assessee, as called It was examined by making comparison of cash deposit in the earlier year with that of the year under consideration. Even the comparative month wise sale figures of cash expenses were called for and examined. The evidence filed has been produced at APB 48 to 68. Moreover, the cash sales are just about 1% of the total sales, supported by the debit notes filed. This, however, has escaped the notice of the ld. PCIT. It has also not been considered that the Gross Profit has increased form 5.73% to 8.14%.
16. So far as regards the enquiries conducted by the AO, the case of the Assessee was selected for scrutiny and questionnaire dated 3.20 19 (APB 31A – 31B) was issued to the Assessee u/s 142(1) of the Act. Therein, the Assessee was asked to furnish the complete details of the cash deposits made by the Assessee in its bank accounts during the previous year 2016-17, relating to the year under consideration, i.e., assessment year 2017-18, and sources thereof, along with supportive documents. The Assessee was also asked to provide the details of the cash deposits made by it during the demonization period, i.e., from 9.11.2016 to 31.12.2016, and the source thereof, along with the comparative figures for the same period in the two preceding years. Another questionnaire u/s 142(1) of the Act (APB 32-40) was issued on 6.9.20 19. Therein, the Assessee was asked to produce various details including the details regarding cash deposits, cash sales and comparative date of cash sales, for Financial Year 2015-16, as asked for in the earlier questionnaire dated 4.3.20 19. The Assessee filed detailed replies dated 16.9.20 19 (ABP 41) and dated 19.9.2019 (APB 42-43). Therein all the details / explanation required were given. The following documents were attached:-
1) Return of income
2) Computation of Income
3) Audit Report
4) Balance Sheet, Trading and Profit & Loss Account and
5) Note on the Assessee’s business activity.
6) Details of the Assessee’s only sister concern
7) Details of Partners
8) A flow chart of the manufacturing Process of bicycles.
9) Statement giving details of offices, etc.
10) Details of partners with their addresses
11) Details of bank accounts maintained
12) Confirmed copies of accounts of the partners in the books of the firm
13) Copy of account of late Smt. Pritam Bindra in support of credit of Rs. 298505.50 in the account of Shri Harnish Singh Bindra
14) Copy of old unsecured loans appearing in the balance sheet
15) Details of Sundry Creditors/ trade payables above Rs. 5 lacs as per Balance Sheet.
16) Details of Sundry Debtors above Rs. 5 lacs as per Balance
17) Details of loans and advances given
18) Details of additions to fixed assets
19) Details of payment of expenditure covered u/s 43B of the Act, outstanding as payable on 31.3.2017
20) Evidence in respect of payment of these expenses in time, i.e., on or before the due date for filing of the return of income.
21) Depreciation Chart as claimed along with` the computation of income.
17. A Show Cause Notice dated 27.11.2019 (APB 44-47) was also issued by the AO to the Assessee. Therein, various details including cash deposit during the demonstration period, month wise supply for assessment years 2016-17 and 2017-18 and a comparative monthly closing balance, cash expenses, etc., were required to be filed. The Assessee filed reply dated 20.12.2019 (APB 48 to 66). Therein, details, as asked for, were submitted along with relevant annexures, as follows:-
1) Chart showing Income tax assessment details for five years.
2) Chart showing Turnover, Book profit, Returned income. etc.
3) Evidence regarding payment of Bonus and Leave with Wages covered u/s 43B of the Act.
4) Annexure 6 of Form 3CD showing details of deductions on account of ESI and PF from Employees and deposit thereof.
5) Cash book maintained and relating to the period of demonetization from 9.11.2016 to 30.12.2016.
6) Summary of cash deposit in old currency in the banks during the demonetization period.
7) Summary of day–wise cash sales.
8) Statement showing month wise closing cash in hand.
9) Comparative statement of day wise cash sales for the period from 8.11.2016 to 31.12.2016.
10) Statement giving month-wise and head-wise details of cash
11) Purchase and sales account along with sale and purchase bills, etc.
12) Ledger accounts of expenses.
13) Copy of Bad Debts written off.
14) Copy of account of the Customers whose recoverables have been written off as bad debts for the year under consideration along with copies of their accounts for the last year of transaction in their account.
15) Copy of bank statement of CITI Bank for the relevant period with time deposit of Rs. 65 lacs was made from the Assessee’s account with CITI Bank on 23.11.2016 and prior to taking of the FDR, the Assessee had received payment of Rs. 83,44,180/- on 22.11.2016 from Hero Cycle Ltd., against outstanding dues from them.
16) Ledger account of cash in hand in the books of the Assessee from 8.11.2016 to 31.12.2016.
17) Details of Daily Cash Sales during financial year 20 16-17.
18) Details of comparative cash in hand.
19) Details of daily cash sales during F.Ys. 2015-16 and 2016-17.
18. The Assessee filed another reply dated 24.12.20 19 (APB 67- 68), and stated subsequently that no old currency in the denomination of Rs. 500/- or Rs. 1000/- notes was received by the Assessee in respect of cash sales after 8.11.2016. Copies of sale bills in respect of cash sales from 1.10.2016 to 8.11.2016 were filed.
19. Thereafter, another Show Cause Notice dated 16.12.20 19 (APB 69) was issued to the Assessee by the AO. The Assessee filed reply dated 26.12.2019 (APB 70).
20. The AO stated that the Assessee had not furnished any details of expenditure and the source of cash deposits during the demonization period. The Assessee responded that all information had been furnished vide Assessee’s replies dated 19.12.2019, 20.12.2019 and 24.12.20 19 and that as desired, Books of account had also been produced before the AO. Subsequent to the above correspondence and voluminous information filed by the Assessee in response to the notices / questionnaires, assessment order dated 29.12.2019 was passed, assessing the income of the Assessee at Rs. 57,15,306/-, making addition to the tune of Rs. 2 lakhs, on account of disallowance of expenditure. Later, vide letter dated 12.4.2021 (APB 7 1-74), the JCIT (OSD), Circle-4, Ludhiana, proposed initiation of action u/s 147 of the Act. However, vide letter dated 13.4.2021 (APB 75), The Additional CIT, Ludhiana directed the JCIT (OSD), Circle-4, Ludhiana to take action u/s 263 of the Act, instead of initiating re-assessment proceedings. Still thereafter, again, the JCIT(OSD) issued letter dated 22.4.202 1 (APB 76-78) to the CCIT (OSD)-1, Ludhiana, proposing the Assessee’s case for revision proceedings u/s 263 of the Act.
21. From the above narrated discussion, it is amply clear that due enquiry was carried out by the AO in the Assessee’s case during the scrutiny proceedings, where-after, the assessment order was passed with due application of mind on requisite verification of the facts and documentary evidence filed concerning the issue of cash deposits. Complete books of account were produced and mention of the same has been made in the reply dated 26.12.2019 (APB 70). The AO, thus, took a possible view which could not have been sought to be substituted by the ld. PCIT on a mere change / difference of opinion.
22. It is also seen that for the A.Y. 2016-17, the case of the Assessee has also been assessed under the Punjab VAT Act 2005, vide order dated 6.3.2019, passed by the Assistant Excise & Taxation Commissioner-cum-Senior Auditor, Ludhiana, u/ss 28/29 of the PVAT Act, 2005, a copy whereof has been placed on record before us. In the said proceedings, gross sales of the Assessee, amounting to Rs. 31,83,87,070/- stand verified, leaving no space for doubting the same, as has been done by the ld. PCIT.
23. In ‘Malabar Industries Co. Ltd. v CIT’, 243 ITR 83 (SC), it has been held that if the AO adopts one of the possible courses permissible in law and it has resulted in loss of revenue, or where two views are possible and the AO adopts one view, with which the Commissioner does not agree, it would not be an order prejudicial to the interests of the Revenue for the purpose of invoking revisionary powers u/s 263 of the I.T. Act.
24. In ‘Commissioner of Income Tax v Nirav Modi’, 77 com15 (SC), it was noted that the Commissioner, in his order of revision, did not indicate any doubt in respect of the genuineness of the evidence produced by the Assessee; that moreover, the satisfaction of the AO on the basis of the documents produced was not shown to be erroneous; that the Hon’ble High Court held that it was a case where a view had been taken by the AO after making proper enquiry; and that thus, the Tribunal was justified in setting aside the revisional order. The Hon’ble Supreme Court dismissed the SLP filed.
25. In ‘Sunbeam Auto Ltd. v CIT’, 332 ITR 167 (Delhi), it was held that if there was any enquiry, even inadequate, that would not by itself give the powers to Commissioner to pass order u/s 263 of the Act, merely because the Commissioner has a different opinion in the matter and that it is only in those cases where there was no enquiry, that the powers u/s 263 of the Act can be exercised; and that the ld. PCIT cannot pass an order u/s 263 of the Act merely on the ground that further or thorough enquiry should have been made by the AO.
26. In ‘Dev Raj Hi Tech Machines Ltd. v DCIT’, 83 com15 (ASR Trib), it was held that where additional income surrendered by the Assessee company in search proceedings was declared as business income and the same was accepted by the AO after considering the reply of the Assessee, revisionary proceedings initiated u/s 263 by the Commissioner on the basis that such income should be taxed as deemed income u/s 69A of the Act was not sustainable.
27. In ‘CIT Vs. A.R. Builders & Developers P Ltd.,’ 425 ITR 272 (Madras), it was held that where the AO has adopted one of the two possible views, the Commissioner cannot set aside the assessment order u/s 263 of the Act.
28. In ‘Kusumlata Sonthalia v PCIT’, 82 ITR (Trib.) 382 (Kolkata), it was held that where the AO has taken a view permissible in law, the assessment is not prejudicial to the interests of the Revenue and that revision u/s 263 of the Act is not sustainable.
29. In ‘Narain Singhla Vs. PCIT’, ITA No. 427/Chd/2015 and other cases, vide order dated 31.8.2015 (copy placed at pages 61 to 75 of the Assessee’s Case Law paper book), it has been held that when the AO was fully aware of the matter, he had appraised the evidences filed by the Assessee and then had formed a view to accept the same, the Commissioner was not justified in invoking jurisdiction u/s 263; that if there was an inquiry, even inadequate, that would not, by itself, give occasion to the Commissioner to pass order u/s 263, merely because he had a different opinion in the matter; and that it is only in a case of lack of enquiry, that such a cause of action can be open.
30. In ‘CIT Vs. Anil Kumar Sharma’, 335 ITR 83 (Delhi), it was held that the Tribunal had arrived at a conclusive finding that though the assessment order did not patently indicate that the issue in question had been considered by the AO, the record showed that the AO had applied his mind; that once such application of mind is discernable from the record, the proceedings u/s 263 would fell into the area of the Commissioner having a different opinion; that this being the position, the case would not be one of the lack of inquiry and even if the enquiry was termed as inadequate, that would not, by itself, give occasion to the Commissioner to pass order u/s 263 of the Act, merely because he had a different opinion in the matter. ‘M/s Sunbeam Auto Ltd’, (supra) was followed.
31. In ‘CIT v Hindustan Marketing and Advertising Cor. Ltd.’, 341 ITR 180 (Delhi), it was held that the observation of the Commissioner that the Income Tax Officer did not make sufficient enquiry, was totally subjective; that it was not a case of lack of enquiry; that the Commissioner judged the ‘sufficiency of enquiry’ by subjective standards; that it appeared that according to the Commissioner more enquiries should have been made; and that the observations of the Commissioner were general in nature, namely, that there was lack of proper enquiry or investigation or cosmetic treatment was given by the
32. The above decisions, in our considered opinion, are squarely applicable to the facts of the case at hand. No decision to the contrary has been cited before us.
33. In view of the above discussion, we hold that the ld. PCIT was not justified in invoking the revisionary powers u/s 263 of the Act, when, as evident from the record, due enquiry had been carried out by the AO and the assessment order was passed with due application of mind by the AO. Accordingly, the grievance sought to be raised by the Assessee is found to be justified. It is accepted as such. The order ITA No. 504-Chd-2022 – M/s Synergy India, Ludhiana under appeal is, therefore, reversed and the assessment order is revived. Ordered accordingly.
34. In the result, the appeal is allowed.
Order pronounced on 23.05.2023.
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