TOTGARS CO-OPERATIVE SALE SOCIETY LTD ,SIRSI vs. PR. COMMISSIONER OF INCOME TAX , HUBBALLI

There is a delay of 286 days in filing the appeal before the Tribunal. The assessee has filed petition for condonation of delay along with affidavit stating that the order u/s 263 was passed on

After hearing both the parties and following the Hon’ble Supreme Court judgment in the case of Collector, Land Acquisition vs. Mst. Katiji & Ors., we are of the opinion that there was sufficient and reasonable cause for delay in filing the appeal before the Tribunal and condone the delay of 286 days.

The assessee has raised the following grounds of appeal:- “1. That the Honourable Principal Commissioner of Income Tax (‘PCIT’) Hubli has erred both on facts and in law in assuming jurisdiction under section 263 of the Act Income Tax Act, 1961 (‘the Act’). 2. That the order under section 263 of the Act passed by PCIT is against the principles of law, equity and justice.

The assessee for A.Y. 2017-18 filed its original return of income on 31.10.2017 declaring income of Rs.73,84,220/- after claiming deduction of Rs.20,00,00,447/- under Chapter VI-A. The ROI was processed u/s 143(1) of the Act by CPC, Bengaluru.

The case was selected for complete scrutiny under CASS to verify the following issues:- (i) Large Deduction under Chapter VI-A form Total Income (ii) Large Cash Deposit during Demonetization (iii) High Value Cash Receipt of Cash shown from third parties

A notice u/s 142(1) dated 08.04.2019 was issued to which the reply was filed manually on different dates. A notice u/s 142(1) dated 04.12.2019 was issued to which the reply was filed electronically providing the details of cash deposited during demonetization. It was also explained that the debtors have deposited the cash directly in the bank account of the assessee during the period of demonetization as per the RBI Guidelines vide reply dated 28.12.2019. The assessment order u/s 143(3) was passed on 30.12.2019 making addition u/s 80P(2)(d) of the Act and 57(iii) of the Act and total income was assessed at Rs. 6,63,56,142/-. No addition made for cash deposits during demonetization.

The ld. Pr.CIT, Hubli observed that the assessee society has made cash deposits of Rs.3,67,23,820/- (Rs. 3,67,52,590 – Rs. 28,770) in the Axis Bank, Sirsi Branch and Rs.75,00,000/- in Axis Bank, Hubli Branch during demonetisation period in SBNs. The assessee was not authorized to accept SBNs and any acceptance of SBNs after

The assessee furnished its reply that most of its customers are traders and cash was deposited in its bank account by the traders. The ld. Pr.CIT rejected the plea of the assessee holding that no evidence was filed to substantiate the same and the assessee has not established the identity, creditworthiness of the persons from whom it received SBNs and these credits do not satisfy the test of genuineness. He also noted that the SBNs received after demonetisaton were not legal tender and do not satisfy the test of genuineness and were therefore, unexplained credits in terms of section 68 The ld. Pr.CIT passed the impugned order u/s 263 was passed on 29.03.2022 setting aside the order passed u/s 143(3) with the direction to the AO to make fresh assessment after conducting necessary inquiries in accordance with law and CBDT guidelines.

Before us, the ld. AR has filed written submissions and submitted that the assessee filed its reply on 14.03.2022 providing the details of cash deposits by the third parties along with the ledger of parties which is at page 143-186 of the paper book. The assessee also furnished additional reply via email on 28.03.2022 challenging why the provision of section 68 would not attract to the cash deposited during the demonetisation period which is at page 187-198 of the paper book.

The ld. AR further submitted that the cash deposits in SBNs were made by the trade debtors in the bank accounts of the assessee. It was not accepted by the assessee directly. As per Notification dated 8.11.2016[ F No. 10/03/2016-Cy.1] and RBI Guidelines, the GOI as well as RBI has provided power to the assessee to provide authorisation to the third parties to deposit SBNs in their bank account. The bank can accept the deposit of SBNs from such third party in the bank account of assessee provided the specific authorisation obtained from the assessee is presented by the third party to the bank.

He further submitted that the AO vide notice u/s 142(1) of the Act dated 08.04.2019 has called for the following details: Questionnaire 11: Details of bank account along with Bank reconciliation statement and Bank statement. Questionnaire 14: Details of debtors in requisite format Questionnaire 19: Details of purchases and sales from parties in excess of Rs.10,00,000/- from the parties who are not covered under sundry debtors and creditors list

In response the assessee filed reply on 24.04.2019 & 13.05.2019 (page 12-22 of the PB) and furnished Copy of Bank Statement during

Further, the AO issued a notice u/s 142(1) of the Act (pg. 82-85 of PB) raising query on account of demonetisation. In response, the assessee furnished reply on 12.12.2019 (pg. 86-89 of PB). The ld. AR submitted that this query was raised several times by the AO during the course of hearing on several dates. Therefore the reply in relation to demonetisation was filed on 16.12.2019, 27.12.2019 and 28.12.2019 (pg. 90 to 128 of PB). The assessee vide reply dated 28.12.2019 (page 115-123 of PB) submitted that the deposits were made by the debtors directly to the banks account of the assessee as per RBI Guidelines as follows:- PAN No. Axis Bank Axis Bank Reason SL Hubli Sirsi Branch for Name of the party No Branch depositing 1 Gurunanak Traders AROPC3148E 50,00,000/- 3,11,92,980/- 2 Jai Maa Enterprises BJWPS6167C - 34,16,710/- 3 Kerala Spices & Nuts AGRPC9294R - 1,34,044/- 4 Sangam Trading Company AFKPM6503M - 5,34,791/- 5 Vimal Trading GIEPS5368M - 4,32,200/- Realisation 6 Yadav Trading Company ACJPY1069Q - 7,37,000/- from 7 TSS Ltd, Sirsi AACAT0251D - 28,770/- Debtors 8 Marbasil Enterprises Not Available - 12,895/- 9 Rising Sun Agencies Anchatageri AALFR4574M 25,00,000/- - 10 Siddhivinayaka Enterprises ADRPT4137D - 97,000/- 11 Uttam Sales AWRPV0227B - 1,67,200/-

The ld. AR submitted that after considering the above reply, the AO called for the date-wise details of cash deposited by the aforesaid parties in SBNs during demonetisation period in the Axis Bank Account, Sirsi Branch, which was duly furnished vide email on 28.12.2019 (pg. 124-128 of PB) and the same comprises of details of deposit of Rs.3,67,24,820/- credited in the Axis Bank, Sirsi Branch and Rs.75,00,000/- in Axis Bank, Hubli Branch. He submitted that it is evident from the same that the amount of deposit during the demonetisation period has been duly examined, enquired and verified by the AO. Also, details of deposit by the parties at page 125-128 of the PB matched with the bank statement at page 23-74 of the PB, and it is evident that the cash has been deposited by the trade debtors in the bank account of the assessee. He submitted few transactions as examples in this regard which are reproduced as under:- Axis Bank, Sirsi Branch Date Amount Branch Page Deposited by Page of of party of deposit Paper paper Book book 10.11.2016 1,80,000 Junagadh (GJ) 27 Gurunanak 125 Traders 11.11.2016 1,90,000 Junagadh (GJ) 27 Gurunanak 125 Traders 11.11.2016 31,00,000 Hubli (KT) 28 Jai Maa 128 23.11.2016 1,99,000 Relief Road, 42 Sangam 128 Ahmedabad (GJ) Trading Company 12.11.2016 1,85,900 Shahibaug, 29 Vimal 128 Ahmedabad (GJ) Trading 01.12.2016 1,90,000 Sion, Mumbai 53 Yadav 128 [MH] Trading Co.

On perusal of sale details, debtors list, banks statement, reply furnished in relation to demonetisation and reply furnished on 28.12.2019, the ld. AR submitted that it is evident that the AO has duly verified the cash deposit in SBNs during demonetisation from trade debtors formed part of revenue from operation and therefore has not made any further disallowance in this regard. Hence the AO has duly conducted necessary enquiries for verification of cash deposit during demonetisation. As such, it cannot be said that the AO had failed to examine this issue during the assessment stage in spite of the fact that the main object of the Scrutiny was for verification of large cash deposit during demonetisation. All the above facts clearly shows that there was no lack of enquiry or inadequate of enquiry..

The ld. AR further submitted that if a query has been raised at the time of assessment and the same was duly responded to by the assessee, it would not lead to the conclusion that the AO has passed the assessment order without making adequate enquiries/verification which he was required to make so as to render the assessment order erroneous and prejudicial to the interests of the revenue. Further, it is a trite proposition that in a case where the AO has taken a plausible view, then the ld. Pr.CIT is not permitted to substitute his own view because he disagrees with the view of the AO to warrant initiation of proceedings u/s 263 of the Act. Reliance in this regard is placed on the following decisions:- - J L Morison (India) Ltd Vs ACIT (ITA No. 786 (Kol) of 2010). Hon’ble Calcutta High Court dismissed the appeal of the

He submitted that as held in Hon’ble Supreme Court in the case of Malabar Industrial Co. Ltd. Vs. Commissioner of Income-tax (243 ITR 83) and CIT v. Max India Ltd [2007] 295 ITR 0282-SC, in order to invoke the revisionary provisions u/s 263 of the Act, the Commissioner 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. 21. An incorrect assumption of facts, an incorrect application of law will satisfy the requirement of the order being erroneous. If an Income Tax Officer acting in accordance with law, makes a certain assessment, the same cannot be branded as erroneous by the Commissioner simply

In the present case, even if the order is prejudicial to the interest of the revenue, the same cannot be said to be erroneous since proper enquiries were conducted by the learned AO during the course of assessment proceedings. Hence, the twin condition stipulated in section 263 of the Act is not met in the present case to warrant the initiation of proceedings u/s 263 of the Act.

Further, the Ld.Pr. CIT in the SCN u/s 263 of the Act as well as in the order passed u/s 263 of the Act has alleged that the Ld.AO has not added the cash deposits during the demonetisation period as unexplained cash credits u/s 68 of the Act. He referred to various CBDT SOPs/Guidelines/notifications issued for handling cases related to substantial cash deposit during the demonetisation period as under:- - Instruction No.3/2017 dated 21.02.2017 issued vide F.No. 225/100/2017 ITA-II - Instruction No.3/2017 dated 21.02.2017 issued vide F.No. 225/100/2017 ITA-II - SOP dated 15.11.2017 issued vide F.No. 225/363/2017/ITA-II. - SOP dated 03.03.2019 issued vide F.No. 225/363/2017/ITA-II. [Not available in public domain]

Next, the ld. AR submitted that the provision of section 68 cannot be applied in the case of the assessee being the receipt from the Trade Debtors. The sales made to the trade debtors during the year is already recorded in the books of accounts of the assessee and offered to tax as revenue from operations. All the details like sales details, Trade Debtors Details, bank statement and statement showing date wise receipts from the said party to show that cash receipts was from the debtors were duly furnished before the AO. Thereafter, after examining the entire details and documents, the AO was satisfied that

Further, the provision of section 68 has been invoked alleging that the acceptance of SBNs during demonetised period is in violation of law. In this regard it is submitted that the acceptance of SBNs [Rs. 500 and Rs.1000 denomination] by the assessee was not permissible as per law. However, the acceptance of cash deposit in the bank account of the assessee by third parties was permitted to the banks by GOI and RBI. Hence the contention of the ld. Pr. CIT is not correct and so the initiating of proceedings u/s 263 of the Act for invoking proviso of section 68 of the Act is bad in law.

A bare reading of Section 68 of the Income-tax Act, 1961, suggests that for a sum so credited to be charged to income-tax as the income of the assessee of that previous year by the AO; (i) there has to be credit of amounts in the books maintained by the assessee ; (ii) such credit has to be a sum of money during the previous year ; and (iii) either (a) the assessee offers no explanation about the nature and source of such credits found in the books or

It is submitted that the identity and creditworthiness of the trade debtors is not in doubt by Ld.Pr. CIT. It is only the genuineness of the receipts which has been questioned. In this respect it is submitted that the genuineness of the payments received has been duly established by the assessee by furnishing ledger copies of the trade debtors who has deposited the cash, Bank Statement in which cash was deposited along with the branch details in which it was deposited, and date wise deposit details along with the name of parties. Moreover PAN of the Trade Debtors depositing cash in a bank account has been mentioned by the assessee in its submission. Hence the Ld.AO has duly verified the transaction and found it to be genuine. Thus the question of invoking provision of section 68 in case of receipts from debtors through deposits made by them directly in the bank as per RBI and GOI guidelines cannot be said to be unexplained cash credit. Reliance was placed on the following decisions of Bangalore Tribunal wherein the Hon’ble Tribunal has quashed the proceedings u/s 263 of the Act on the addition u/s 68 of the Act:-

On the other hand, the ld. DR relied on the order of the ld. Pr.CIT and submitted that the assessment order is rightly set aside. The AO is an investigating office and thereafter he is an adjudicating officer. But from the assessment order it does not come out whether the AO has conducted any enquiry on the issues pointed out by the ld. Pr.CIT.

After hearing both the sides, perusing the entire material on record and the orders of the lower authorities, we note that the assessee’s case was selected for scrutiny under CASS on the above noted points. The AO issued notice u/s. 142(1) on different dates and the assessee has filed the reply. The assessment order was passed by the AO on 30.12.2019. The ld. Pr.CIT has set aside the assessment order as erroneous and prejudicial to the interests of the revenue because the AO did not conduct necessary enquiries as per CBDT guidelines. On going through the questionnaire issued u/s. 142(1) by the AO and reply submitted by the assessee which are placed at pg. 1 to 198 of the Paper Book (PB), we note that three questions in the questionnaire are important which are Sl.No.11, 14 & 19 and the assessee has filed reply on various dates. The AO further issued notice

In the result, the appeal by the assessee is allowed.