SONAM CERAMICS,MORBI vs. THE PRINCIPAL COMMISSIONER OF INCOME TAX-1, RAJKOT

PDF · subscribers
ITA 245/RJT/2025Status: DisposedITAT Rajkot12 June 2026AY 2016-175 pages
AI SummaryDismissed

What did the Tribunal hold?

The Tribunal held that the PCIT's revisionary action under Section 263 was justified due to the Assessing Officer's lack of adequate enquiry into the source of substantial cash deposits. The assessment order was therefore erroneous and prejudicial to the revenue.

What were the facts?

The assessee declared income of Rs. 18,67,259, but the PCIT noted cash deposits of Rs. 74,75,000 without proper verification by the AO. The assessee claimed these were redeposits of withdrawn cash, but the PCIT found the AO's enquiry inadequate.

What were the issues?

Whether the PCIT's revisionary order under Section 263 was justified due to the AO's inadequate enquiry into the source of cash deposits. Whether the assessment order was erroneous and prejudicial to the interests of the revenue.

Which sections of the Income-tax Act were involved?

Section 263,Section 148,Section 147,Section 144,Section 144B,Section 69A

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, Rajkot Bench, Rajkot

Before: Dr. Arjun Lal Saini & Shri Sonjoy Sarma

For Appellant: Shri Vimal Desai, Ld. AR
For Respondent: Shri Ravinder Sindhu, Ld. Sr. DR
Hearing: 11/06/2026Pronounced: 12/06/2026

आयकर अपीलीय अिधकरण, राजकोट �यायपीठ, राजकोट। In The Income Tax Appellate Tribunal, Rajkot Bench, Rajkot Before Dr. Arjun Lal Saini, Accountant Member And Shri Sonjoy Sarma, Judicial Member आयकर अपील सं./ITA No. 245/RJT/2025 [ �नधा�रण वष�/Assessment Year: 2016-17 ] Sonam Ceramics, The Principal Commissioner C/o. Sarda & Sarda (CA), Sakar 1st of Income Tax-1 Vs. Floor, Dr. Radha-Krishnan Road, 2nd Floor, Aayakar Bhawan, Opp. Rajkumar College, Rajkot, Race Course Ring Road, Rajkot, Gujarat-360001 Rajkot, Gujarat-360001 �थायीलेखासं./जीआइआरसं./PAN/GIR No.: AAMFS2901G (अपीलाथ�/Appellant) (��यथ�/Respondent) Appellant by : Shri Vimal Desai, Ld. AR Respondent by : Shri Ravinder Sindhu, Ld. Sr. DR Date of Hearing : 11/06/2026 Date of Pronouncement : 12/06/2026 :: ORDER :: Per, Shri Sonjoy Sarma, JM: This appeal is directed against the order passed by the learned Principal Commissioner of Income Tax (PCIT) u/s 263 of the Income-tax Act, 1961 dated 29.03.2024. 2. Brief facts of the case are that the assessee filed its return of income in response to notice issued u/s 148 of the Act declaring total income of Rs.18,67,259. The assessment was completed u/s 147 read with sections 144 & 144B of the Act vide order dated 17.02.2022 accepting the income returned by the assessee. Subsequently, on examination of the records and ITS data, the learned PCIT noticed that the assessee had made cash deposits aggregating to Rs.74,75,000 in its HDFC Bank account during the relevant previous year. According to the Ld. PCIT, during the reassessment proceedings the source of such cash deposits was not verified by the Assessing Officer. It was further observed that the assessee had furnished bank account details only for the month of March, 2016 and had failed to establish the genuineness and source of the cash deposits with supporting evidence. Accordingly, a show-cause notice u/s 263 of the Act was issued. In response thereto, the assessee submitted that the cash deposits represented redeposit of cash earlier withdrawn from the bank for business and other expenditure purposes. It was contended that whenever the withdrawn cash remained unutilised, the same was redeposited into the bank account and that the corresponding entries were duly recorded in the cash book. The assessee, therefore, requested the Ld. PCIT to drop the revision proceedings. However, the Ld. PCIT was not satisfied with the explanation furnished by the assessee. He observed that the Assessing Officer had failed to conduct any meaningful enquiry regarding the source of cash deposits aggregating to Rs.74,75,000/- and accepted the returned income without proper verification. Holding that the assessment order dated 17.02.2022 was erroneous insofar as it was prejudicial to the interests of the Revenue, the Ld. PCIT invoked the provisions of section 263 of the Act and set aside the assessment order with a direction to the Assessing Officer to frame a fresh assessment after conducting necessary enquiries on the issue of cash deposits. In pursuant to the directions issued u/s 263 of the Act, the Assessing Officer passed a consequential assessment order dated 13.03.2025 wherein the cash deposits of Rs.74,75,000/- were treated as unexplained money u/s 69A of the Act and added to the income of the assessee. Consequently, the total income was assessed at Rs.93,42,259/-.

3.

Aggrieved by the order passed u/s 263 of the Act, the assessee preferred the present appeal before the Tribunal with a delay of 321-days along with the appeal, the assessee filed an application seeking condonation of delay supported by an affidavit explaining that the delay occurred on account of lack of proper legal advice and that the assessee became aware of its right to challenge the revision order only after consulting its tax consultant. We, after considering the reasons stated in the condonation petition and the affidavit filed in support thereof, and finding sufficient cause for the delay, the delay of 321-days in filing the appeal is condoned and the appeal is admitted for adjudication.

4.

At the time of hearing the Ld. AR submitted that the issue relating to the cash deposits had already been examined by the Assessing Officer during the reassessment proceedings u/s 147 of the Act. According to him, the action of the learned PCIT amounted merely to a change of opinion and, therefore, the assumption of jurisdiction u/s 263 of the Act was not justified. It was accordingly prayed that the order passed u/s 263 of the Act as well as the consequential proceedings be quashed.

5.

On the other hand, the learned DR strongly supported the order of the Ld. PCIT. He submitted that the source of cash deposits amounting to Rs.74,75,000/- was never examined by the Assessing Officer during the reassessment proceedings. He further submitted that even the documents explaining the source of cash deposits, including the cash book, were produced by the assessee only during the revision proceedings. According to the Ld. DR, the failure of the Assessing Officer to conduct enquiries on such a substantial issue rendered the assessment order both erroneous and prejudicial to the interests of the Revenue. He further pointed out that the consequential assessment order dated 13.03.2025 has already been passed making addition u/s 69A of the Act and the assessee has separately challenged the same before the appellate authority.

6.

We have heard, the rival submissions and perused the material available on record. We find that the issue relating to the source of cash deposits aggregating to Rs.74,75,000/- was not properly examined by the Assessing Officer while framing the reassessment order dated 17.02.2022 u/s 147 read with sections 144 and 144B of the Act. The Ld. PCIT has categorically recorded a finding that the source of such deposits was not verified during the assessment proceedings and that the assessee had furnished bank account details only for the month of March, 2016. Thus, the Assessing Officer accepted the returned income without conducting adequate enquiries on a material issue having significant tax implications. It is a settled proposition of law that lack of enquiry or inadequate enquiry by the Assessing Officer on a material issue renders the assessment order erroneous and prejudicial to the interests of the Revenue. In the present case, the failure of the Assessing Officer to verify the source of substantial cash deposits clearly justified the exercise of revisionary jurisdiction by the Ld. PCIT u/s 263 of the Act. We further note that pursuant to the directions issued by the Ld. PCIT, the Assessing Officer has passed a consequential assessment order dated 13.03.2025 treating the cash deposits as unexplained money u/s 69A of the Act. This itself demonstrates that the issue required detailed verification which had not been undertaken in the original reassessment proceedings.

7.

In view of the above facts and circumstances, we do not find any infirmity in the order passed by the Ld. PCIT u/s 263 of the Act. The ratio laid down by the Hon’ble Supreme Court in the case of Malabar Industrial Co. Ltd. vs. CIT (2000)

243 9TR 83(SC) squarely applies to the facts of the present case. Accordingly, we uphold the order passed u/s 263 of the Act.

In the result, the appeal filed by the assessee is dismissed. 8.

Order is pronounced in the open Court on 12/06/2026.

Sd/- Sd/- [ Dr. Arjun Lal Saini ] [ Shri Sonjoy Sarma ] लेखा सद�य/Accountant Member �याियक सद�य/Judicial Member राजकोट/Rajkot िदनांक/ Date: 12/062026 Copy of the order forwarded to : 1. The assessee 2. The Respondent 3. CIT 4. The CIT(A) 5. DR, ITAT, Rajkot 6. Guard File By order //True Copy// Sr. Private Secretary ITAT, Rajkot

Page 5 of 5

More judgments on Section 263

All 13,616 judgments and leading authorities on Section 263 →

Recent GST High Court judgments

Search GST case law →