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Income Tax Appellate Tribunal, “A” BENCH : BANGALORE
Before: SMT. BEENA PILLAI & SHRI LAXMI PRASAD SAHU
O R D E R Per Laxmi Prasad Sahu, Accountant Member :-
This is an appeal filed by the assessee against the order passed by the ld.Pr.CIT dated 19/03/2022 in revising assessment order passed by the AO vide order dated 15/10/2019 on the revisionary power u/s 263 of the Act by the ld.Pr.CIT on the following grounds of appeal:-
“i) The order of the learned Principal Commissioner of Income- tax I Hubli, passed under section 263 of the Act in 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 had 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 AO, as being "erroneous and prejudicial to the interest of the revenue, which is contrary to tact, on the facts and circumstances of the case. 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 order passed, much less prejudicial to the interest of revenue, on the facts and circumstances of the case. 5) The learned PCIT was not justified in appreciating that the provision of section 263 of the Act shall he 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 CIT was not justified in appreciating that the assessing officer has called for and verified the SOUFCCS of cash, by cross verifying the turnover, the bank accounts, the cash summary and hence the inference by the CIT, that the assessing officer has not made enquiry, is contrary to fact, on the facts and circumstances of the case. 7) The learned CIT was not justified in making a revision on the premise that "ii the cash was unexplained", when the purport of section 263 is attracted only when the order is erroneous and the revision on a presumption, is had in law, on the facts and circumstances of the case. 8) Without prejudice, the learned CIT failed to appreciate that the months of October and November were festival months and the assessing officer has considered this fact, while passing the order of assessment, on the facts and circumstances of the case. 9) The appellant craves leave to add, alter, amend, substitute, change and delete any of the grounds of appeal. io) For these grounds that may be urged at the time of hearing of appeal, the appellant prays that appeal may he allowed for the advancement of substantial cause of justice and equity.”
The brief facts of the case are that the assessee filed his return of income on 03/10/2017 declaring a total income of Rs.6,02,480/-. The case was selected for scrutiny under CASS and other statutory notices were issued to the assessee. The various details were called for from the assessee which were submitted by the assessee online and further information was called for and which are complied by the assessee. The assessee is a proprietor of Kunj Jewellers and running in the business of jewellary and gold ornaments. During the course of assessment proceedings extract of purchase, sales, cash book, audited accounts and expenditure vouchers were submitted by the assessee and return of income was accepted. The ld.Pr.CIT called for record and he observed that the case was selected for scrutiny under CASS to verify the deposits made by cash during demonetization period of Rs.32 lakhs. It was stated that these cash were deposited on 09/11/2016 out of the opening cash balance of Rs.35,25,144/- as on 09/11/2016. The AO has not examined the abnormal increase in the sales during the demonetization period and he also did not conduct necessary enquiries about the genuineness of opening cash balance and he observed that the tax should have been computed as per sec.115JBBE of the Act. Accordingly he observed as under:-
“3 In view of these facts the assessment order was considered to be erroneous and prejudicial to the interests of revenue in terms of Sec 263 A show cause notice was issued on 08.03 22 giving the assessee an opportunity to explain why the assessment order be not revised u/s 263. The notice was sent by e-mail on 09.3.22 and was duly delivered on 09.3.22. A copy of the notice was also sent by speedpost. In response, the assessee has filed submissions claiming that this has already been verified by the AO during assessment proceedings. The submissions filed by the assessee have been carefully considered, As discussed above, the assessee has made cash deposits in SBN of Rs.32,00,000I- in his bank account during the demonetization period. This cash is stated to have been deposited out of the opening cash balance however, the AO has neither verified the cash book nor analyzed the abnormal increase in sales reported by the assessee for the month of October and November 2016. The AO did not make necessary inquiries about the genuineness of opening cash balance which is claimed to be the source of cash deposited during the demonetization period. If cash was deposited in bank accounts out of 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 1 15BBE. 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. He has not filed any evidence to substantiate his claims. The assessee's reply is, therefore, unacceptable 4. In Cochin International Airport Ltd. (92 taxmann.com 277), the Hon'ble ITAT Cochin have explained the provisions of section 263 and observed as follows:
7.1 In order to ascertain whether an order sought to be revised under Section 263 is erroneous. it should be seen whether it suffers from any of the aforesaid forms of error. In our view, an order sought to be revised under Section 263 would be erroneous and fall in the aforesaid category of "errors if it is, inter a/ia based on an incorrect assumption of facts or an incorrect application of law or non-application of mind to something which was obvious and required application of mind or based on no or insufficient materials so as to affect the merits of the case and thereby cause prejudice to the interest of the revenue. 7.2 Section 263 of the Income-tax Act seeks to remove the prejudice caused to the revenue by the erroneous order passed by the Assessing Officer. It empowers the Commissioner to initiate suo mcto proceedings either where the Assessing Officer takes a wrong decision without considering the materials available on record or he takes a decision without making an enquiry into the matters where such inquiry was prima fade warranted. The Commissioner will be well within his powers to regard an order as erroneous on the ground that in the circumstances of the case the Assessing Officer should have made further enquires before accepting The claim made by the assessee in his return. The reason is obvious. Unlike the Civil Court which is neutral iii giving a decision on the basis of evidence produced before it, the role of an Assessing Officer under the Income-tax Act is not only that of an adjudicator but also of an investigator He cannot remain passive in the face of a claim, which is apparently in order but calls for further enquiry. He must discharge both the roles effectively. In other words, he must carry out investigation where the facts of the case so require and also decide the matter judiciously on the basis of materials collected by him as a/so those produced by the assessee before turn The scheme of assessment has undergone radical changes in recent years. It deserves to be' noted that the present assessment was made under Section 143(3) of the Income-tax Act In other words, the Assessing Officer was statutorily required to make the assessment under Section 143(3) after scrutiny and not in a summary manner as contemplated by Sub-section (1) of Section 143 Bulk of the returns filed by the assessees across the country is accepted by the Department under Section 143(1) without any scrutiny Only a few cases are picked tip for scrutiny. The Assessing Officer is therefore, required to act fairly while accepting or rejecting the claim of the assessee in cases of scrutiny assessments. He should be fair not only to the assessee but also to the Public Exchequer. The Assessing Officer has got to protect, on one hand, the Interest of the assessee in the sense that he is not subjected to any amount of tax in excess of what is legitimately due from him and on the other hand, he has a duty to protect the interests of the revenue and to see that no one dodged the revenue and escaped without paying the legitimate tax. The Assessing Officer is not expected to put blinkers on his eyes and mechanically accept what the assessee claims before him. It is his duty to ascertain the truth of the facts stated and the genuineness of the claims made in the return when the circumstances of the case are such as to provoke inquiry. Arbitrariness in either accepting QT reject1g the claim has no place The order passed by the Assessing Officer becomes erroneous because an enquiry has not been made or genuineness of the claim has not been examined where the inquiries ought to have been made and the genuineness of the claim ought to have been examined and not because there is anything wrong with his order if all the facts stated or claim made therein are assumed to be correct. The Commissioner may consider an order of the Assessing Officer to be erroneous not only when it contains some apparent error of reasoning or of law or of fact on the face of it but also when it is a stereo-typed order which simply accepts what the assessee has stated in his return and fails to make enquiries or examine the genuineness of the claim which are called for in the circumstances of the case In taking the aforesaid view, we are supported by the decisions of the Hon'ble Supreme Court in Rampyari Devi Saraogi v. CIT[1968] 67 !TR 84. Smt. Tara Devi Aggarwal v. CIT[1973] 88 ITR 323 (SC), and Malabar Industrial Co. Ltd. 's case (supra). 5 Considering the facts discussed above, it is clear that the Assessing Officer has not conducted necessary enquiries to examine the source of cash deposited during the year. The assessee also failed to furnish a satisfactory explanation regarding the source of cash deposited in the bank accounts. He has failed to explain the source of cash deposits not only during assessment proceedings, but even in response to the notice u/s 263. The amount of unexplained cash deposits should have been added to the assessee's income, but the Assessing Officer has not made any such addition. When the case was selected for scrutiny specifically for examining the cash deposited during demonetisation, it was necessary for the Assessing Officer to examine the source of cash deposited and carry out necessary inquiries in accordance with law and CBDT guidelines, The Assessing Officer has not conducted necessary inquiries and has not made the additions required as per law. Considering these facts, the assessment order is erroneous and prejudicial to the interests of Revenue in terms of section 263.
6. This view is supported by the following juridical decisions: 1 Malabar Industrial Co., Ltd [2000] 243 ITR 83 (SC) 2. Daniel Merchants P. Ltd. 2017- TIOL-455-SC-IT 3. Rajmandir Estates P Ltd. (2017) 245 Taxman 127 (SC) 4 Ashok Logani (2012) 347 ITR 22 (Delhi) 5 Gee Vee Enterprises (1975) 99 ITR 375 (Delhi) 6. Vedanta Ltd. (2021) 279 Taxman 358 (Born) 7 V. K. Bharathi (2019) 102 taxmann.com 255 (Kar) 8 Rajalakshmi Mills Ltd. v. ITO (2009) 121 lTD 343 (Chennai)(SB) 9. Lokesh M. (2021) 187 lTD 342 (Bang) 7. In view of the above discussion, the assessment order u/s 143(3) is erroneous and prejudicial to the interests of Revenue in terms of section 263 The assessment order is accordingly, set aside for this purpose and the AO is directed under section 263, to make a fresh assessment in accordance with law, after considering the above. The AO shall examine the cash deposits during the demonetization period and conduct necessary inquiries in accordance with law and CBDT guidelines on this subject. He shall give the assessee an opportunity to furnish necessary evidence to establish his claim and explain why the proposed additions be not made to income. The AO shall consider the facts. and the results of any enquiries made, as well as the explanation furnished by the assessee and make a fresh assessment in accordance with law.”
Feeling aggrieved from the order of the ld.Pr.CIT, the assessee filed appeal before the Income Tax Appellate Tribunal.
The ld.AR reiterated the submissions made before the ld.Pr.CIT and he submitted that all the details as required by the AO was filed online portal and copy of the notice u/s 142(1) and reply which was submitted before the AO was also submitted before the ld.Pr.CIT but he has not accepted . The VAT return were filed before the VAT Department and it was accepted by them. Details of the purchase/sales/loan confirmation from the depositors/creditors were filed and copy of bank statement and all the details were filed before the AO and it cannot be said that the AO has not examined any detailed enquiry merely not mentioning details in his order as required by the law. Details of the opening cash balance were also filed and the AO after satisfying the same has accepted return filed by the assessee and no adverse comments has been made by him and in support of his arguments he relied on the following judgments:-
He has also filed paper book containing pages 1 to 76.
On the other hand, the ld.DR relied on the order of the ld.Pr.CIT and submitted that the case was selected for scrutiny during the course of assessment proceedings, the details submitted by the assessee does not support the cash deposit during the demonetization period but the AO has also not examined the availability of cash during the demonetization period as well as whole of the year and he has not examined details of the purchase/sales/stock of gold jewellary with the relevant vouchers. The case was selected for scrutiny under CASS to verify the large cash deposits during the demonetization period as compared to average rate of cash deposit during the pre-demonetization period which is defected by the AO and in view of this the ld.Pr.CIT has rightly exercised his power u/s 263 of the Act. The AO has not discharged his liability as per Explanation (2) of sec. 263, there is lack of enquiry by the AO to justify the cash deposit during the demonetization period. The case law relied on the ld.AR is not distinguishable on facts.
Considering the rival submissions and perusing the entire material on record, we observe that the assessee is in the business of gold jewellery and his turnover is Rs.1,64,91,988/- as per Form No.3CD which is placed at page No.24 of the paper book. The show cause notice was issued by the ld.Pr.CIT on 08/03/2022 and order was passed on 19/03/2022. The ld.AR of the assessee submitted that sufficient opportunity was not given by the ld.Pr.CIT for substantiating the cash depositing during the demonetization period properly. We found substance on the submission of the ld.AR. It is clear that this is the first year of assessee’s business and on perusal of trading profit and loss account, the assessee has shown opening stock value of Rs.9,90,099/-.
6.1 During the course of assessment proceedings, the notices was issued to the assessee u/s 142(1) of the Act and the reply has been filed but the details of the cash deposit during the demonetization period as well as the assessee has not shown date wise what was the purchases/sales/cash and stocks available with the assessee on the date of demonetization period as well as pre and post demonetization period. The assessee was to submit the date wise cash book as well as stock books but the assessee has also not filed the balance sheet for the financial year 2015-16 for opening cash balance to justify the opening cash and stock of goods. On perusal of the capital account, there is opening balance of capital as on 01/04/2016 is Rs.17,0 6,414.75 and also there is unsecured loan taken by the assessee but the assessee has not given the closing cash balance as on 01/04/2016. The assessee is also not provided before us date wise cash balance purchase and sales with evidences and stocks. All these aspects must have been examined by the AO during the course of scrutiny assessment. Firstly, the AO is investigating Officer thereafter he is an adjudicating officer. Considering the entire facts mentioned above and the observation by the ld.Pr.CIT, we have come to the conclusion that the order passed by the AO is erroneous and prejudicial to the interest of revenue. Since we have upheld the order passed by the ld.Pr.CIT in favour of the Revenue, accordingly we modify the order of the ld.Pr.CIT and giving direction to the AO for examining in depth in regard to opening cash balance, source of cash received, application of cash, closing balance of cash, purchases/sales and closing stocks of goods traded. We had raised a specific query in regard to the above, the ld.AR fairly accepted that the matter may be send back to the AO for further verification in regard to the above details and he undertook that the assessee will be able to produce the above said documents for substantiating the cash deposited during the demonetization period. Accordingly, The appeal of the assessee is partly allowed.
In the result, the appeal filed by the assessee is partly allowed for statistical purposes.
Order pronounced in court on 15th day of September, 2022