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Income Tax Appellate Tribunal, “C” BENCH : BANGALORE
Before: SHRI N.V. VASUDEVAN, VICE PRESEIDENT & SHRI PADMAVATHY S
Per Padmavathy S., Accountant Member This appeal by the assessee is directed against the order of the Principal Commissioner of Income-tax, Hubli, [PCIT] dated 29.03.2022 for the assessment year 2017-18 on the following grounds:-
“1. The order of the learned PCIT, in so far it is against the appellant is opposed to law, weight of evidence, facts and circumstances of the Appellant's case.
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The notice issued for initiation of proceedings under section 263 of the Act, is bad 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 fact, 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 provisions of section 263 of the Act shall be 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 PCIT was not justified in stating that the assessing officer has not made enquiry, when the details of cash on hand, along with the denomination deposited were explained in great detail and the inference that there was a lack of enquiry or inadequate enquiry, was contrary to fact, on the facts and circumstances of the case. 7. The learned PCIT was not justified in stating that the deposits of demonetised currency was Rs. 1,59,63,105/- when the same was restricted to Rs. 1,39,31,000/-, which would demonstrate that the documents available on record have not been appreciated, on the facts and circumstances of the case. 8. The learned PCIT failed to appreciate that the appellant is not in the business of trading and the cash flow patterns could not be applied in the instant case as a common yardstick to determine whether there was a surge
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in inflow of cash in its operations, on the facts and circumstances of the case. 9. The appellant craves leave to add, alter, substitute and delete any or all of the grounds of appeal urged above. to. For the above and other grounds to be urged during the hearing of the appeal the Appellant prays that the appeal be allowed in the interest of equity and justice.” 2. The assessee is a co-operative society in the business of offering banking services to its members. The assessee filed the return of income on 31.10.2017 declaring NIL income after claiming a deduction of Rs.37,83,283 u/s. 80P of the Act. The case was selected for scrutiny under CASS and a notice u/s. 143(2) was issued. During the course of assessment, the AO called for various details pertaining to cash deposited during demonetization period, large deduction claimed u/s. 80P and interest income from investments. The assessee furnished the details called for on the basis of which the AO completed the assessment u/s. 143(3) of the Act by disallowing the deduction u/s. 80P.
The PCIT issued a proposal notice u/s. 263 of the Act seeking to revise the assessment order on the premise that the cash deposited by the assessee was not verified properly and thus the order passed u/s. 143(3) was erroneous and prejudicial to the interests of the revenue. The assessee submitted before the PCIT that the AO has conducted enquiries pertaining to the cash deposits and the order of the AO was proper. However, the PCIT proceeded to hold that the order passed was prejudicial to the interests of the revenue and set aside the order
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u/s. 143(3) directing the AO to pass an order fresh. The relevant observations of the PCIT is reproduced below:-
“3. When the case was selected for scrutiny for examining cash deposited during the demonetization period, it was necessary for the Assessing Officer to examine the source of cash and SBNs deposited and carry out necessary investigation in accordance with law and CBDT guidelines. The Assessing Officer should have analysed the bank account and trend of cash receipts and ascertained the cash in hand as on 8.11.16 after examination of books, specially the cash book. The Assessing Officer has not done so. 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 and this amount remained unexplained, but no such addition has been made in the assessment order. 4. As discussed above, the assessee society has deposited cash during the demonetisation period in its bank accounts, in SBNs. In such cases, it was for the assessee to establish that the SBNs (Specified Bank Notes) deposited in the bank accounts were out of receipts prior to demonetisation. As the assessee has not established this, an adverse inference is naturally drawn that these SBNs were received after demonetisation. The SBNs were not legal tender after demonetisation. The Government guidelines allowed certain bodies like hospitals, etc. to receive SBNs even after demonetisation, subject to certain conditions. The assessee was not one of the persons permitted to receive SBNs. When the SBNs were no longer legal tender after demonetisation, receipt of SBNs by the assessee was contrary to public policy and a violation of law. 5. Any cash credit has to satisfy the test of identity and credit worthiness of the creditor and the genuineness of the transaction. As SBNs were not legal tender after demonetisation, receipt of SBNs was per se illegal and does not satisfy the test of genuineness in terms of Sec. 68. The assessee has not established the identity and credit worthiness of the persons from whom it received SBNs. Even assuming that identity and credit worthiness
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is proven, these credits did not satisfy the test of genuineness and are therefore, liable to be added as unexplained credits u/s. 68.” 4. Aggrieved, the assessee is in appeal before the Tribunal.
The ld. AR submitted that the order passed must be both erroneous and prejudicial to the interest of revenue. The learned PCIT in the order passed under section 263 of the Act, has held primarily that:-
i. The assessing officer has not made enquiries if the opening cash was genuine. ii. If the cash was unexplained, the same was to be added U/s 68 and the AO has not made additions required as per law. 6. The ld. AR further submitted PCIT has proceeded on the premise that the assessing officer has not made an enquiry into the source of the cash deposits, which in the belief of the PCIT was presumably unexplained. The PCIT, has also inferred that the cash deposits if unexplained, the same ought to have been added as unexplained income by invoking section 68 of the Act.
It was submitted that the assessee has in the revision proceedings filed details of queries made by the assessing officer and also submissions made in the assessment proceedings, along with a submission that there was no error in the order passed and that the assessing officer has made proper enquiry and verification of documents and thus there was no error in the order of assessment, much less prejudicial to the interest of revenue.
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The ld. AR submitted that the assessee has also attached the entire documents filed during the assessment proceedings for the benefit of the PCIT, which would demonstrate that the assessing officer has made enquiry as required under section 142(1) of the act and the explanation offered was accepted as being true and correct. Thus, there was no instance of inadequate enquiry by the assessing officer and the revision proceedings were not called for. Thus the AO passed the order on appreciation of the submissions and clarification offered by the assessee in respect of the source of cash deposited as being out of receipts from its members.
The ld AR submitted that the PCIT is restrained from revising assessment in a routine manner based on his only belief that the order was erroneous and prejudicial to the interests of the revenue on the difference of opinion and where there are two opinions possible, it is beyond the scope of revision. The revision of assessment cannot be made on the mere non-mentioning or inference of any particular issue in the assessment order. The AO is not required to mention each and every detail and revision cannot be made on the sole reason that certain point has not been discussed at length or it does not find specific mention. He drew our attention to the details submitted before the AO relating to cash deposits as listed below:-
(i) Details of cash deposited during demonetization period at pages 11 to 15 of PB. (ii) Books of accounts with supporting bills & vouchers, copy of bank pass book, financials with auditor report & computation of income at pages 24 to 46 of PB.
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(iii) List of cash deposits in the bank from 9.11.2016 to 30.11.2016 along with denomination at pages 58 & 59 of PB. (iv) Cash deposit details of PY 2015-16 & 2016-17 at page 57 of PB. 10. The ld. AR further submitted that the AO in his order has given a clear finding that the above details have been considered and accepted.
The ld. DR relied on the order of the PCIT and submitted that the AO has not done any enquiry. He also submitted that the cash deposits are from unidentified persons and that the AO has not done any examination of the same which justifies the revision order of the PCIT.
In rebuttal, the ld. AR submitted that the receipts are from the members of the assessee and hence there cannot be any unaccounted entries. He also relied on the following decisions:-
• CIT v. Max India Ltd. (2007) 295 ITR 282 (SC) • CIT v. Sunbeam Auto Ltd. (2010) 332 ITR 167 (Del) • CIT v. Cyber Park Development & Construction Ltd. (2020) • 121 taxmann.com 172 (Karn.) • CIT v. Anil Kumar Sharma (2011) 335 ITR 83 (Delhi) • Anantpur Kalpana v. ITO, ITA No. 541/Bang/2021 for AY 2017-18 decided on 13.12.2021. (Bangalore-Trib.) • ITO v. Sri Tatiparti Satyanarayana, ITA No. 76/Viz/2021 or AY 2017-18 decided on 16.03.2022. (Visakhapatnam- Trib.)
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We have considered the rival submissions and perused the material on record. The PCIT has set aside the order u/s. 143(3) mainly on the premise that the assessee has not established that Specified Bank Notes (SBNs) deposited were out of receipts prior to demonetization and therefore an adverse inference was drawn that the receipts/SBNs were received after demonitisation which is contrary to public policy and in violation of law. We notice that this observation of PCIT is without any basis as the AO has done a thorough analysis of the details submitted by the assessee and has brought out his findings clearly in the order u/s. 143(3) which is reproduced below:-
“2.1 Subsequently, notice under section 142(1) was issued by my predecessor calling for information requisitioned for scrutiny of the case through e-proceeding. The undersigned has issued notice /letter under section 129 due to abolishing of ITO, ward-2, Gadag post. In response to notice u/s 142(1) the assessee to furnish information relating to cash receipts, cash deposits and withdrawals in the format prescribed and the assessee filed some of the information through e-proceeding. Since the assessee has deposited cash in SBNs during demonetization period, letters under section 133(6) of the I.T. Act, 1961 were also issued to the banks calling for account extract for the period 1.4.2015 to 31.3.2017 as well as copies of pay in slips for the cash deposit in SBNs during demonetization period. Accordingly, banks information received is placed on record after due verification. The assessee have submitted all the details on 06.06.2019, 21.07.19 & 13.12.2019 and also filed proforma report along with details of SBNs bankwise/branchwise which were deposited during demonetization period. It was found that the assessee has deposited cash amounting to Rs.1,61,59,405 with Corporation Bank, Bank of India, Bank of Maharashtra, during 10.11.2016 to 30.12.2016. The assessee have filed details of denomination of SBNs deposited and also details of cash receipt, deposit and withdrawals in the proforma. The same are placed on record after due verification. Copies of Bank Statements have also been filed
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along with detailed Audit Report. Cash Book & other relevant proofs were also produced. Thus, taking into consideration all the material available on record, assessee’s submissions as well as financial statements, proofs & explanations are accepted.” 14. Further our attention was drawn to the submission before the AO at page 58 of the PB where the opening cash balance as per cash book was shown as 178,74,731 and as per the break-up of SBN, the assessee had deposited Rs.61.15 lakhs in Rs.1000 denomination and Rs.78.16 lakhs in Rs.500 denomination. These submissions are duly verified and accepted as per AO’s order. Given this, we see no merit in the inference of the PCIT that the deposits are made out of SBN received post demonitisation and that the AO has not verified these details.
The Karnataka High Court in the case of Cyber Park Development & Construction Ltd. (supra) has held that –
“4. We have considered the submissions made by learned counsel for the parties and have perused the record. Before "proceeding further, it is apposite to take note of the relevant extract of section 263 of the Act, which reads as under: "263. Revision of orders prejudicial to revenue.— (1) The Commissioner may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by the Assessing Officer is erroneous in so far as it is prejudicial to the interests of the revenue, he, may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment."
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Thus, from close scrutiny of section 263 it is evident that twin conditions are required to be satisfied for exercise of revisional jurisdiction under section 263 of the Act firstly, the order of the Assessing Officer is erroneous and secondly, that it is prejudicial to the interest of the revenue on account of error in the order of assessment. 6. The aforesaid provision was considered by the Supreme Court in Malabar Industrial Co. Ltd.'s case (supra) and it was held that the phrase 'prejudicial to the interests of the revenue' has to be read in conjunction with an erroneous order passed by the Assessing Officer and every loss of revenue as a consequence of the order of the Assessing Officer cannot be treated as prejudicial to the interest of revenue. It was further held that where two views are possible and the Income-tax Officer has taken one view with which the Commissioner does not agree, the order passed by the Assessing Officer cannot be treated as erroneous order prejudicial to the interest of the revenue. The principles laid down in the aforesaid decision were reiterated by the Supreme Court in 'CIT (Central) v. Max India Ltd.' [2008] 166 Taxman 188/[2007] 295 ITR 282 and recently in 'Ultratech Cement Ltd. v. State of Rajasthan [2020] 117 taxmann.com 807 (SC). 7. The Tribunal has found that the Assessing Officer on meticulous appreciation of evidence on record has allowed depreciation on intangible assets and the Commissioner of Income-tax (Appeals) while passing the order under section 263 of the Act has held that the enquiry and verification made by the Assessing Officer is inadequate and the land cannot be treated as intangible asset. On the aforesaid basis, the powers under section 263 of the Act has been exercised and the order of the Assessing Officer has been set aside. The Tribunal has held that mere inadequacy of an enquiry or insufficiency of material on record cannot be a ground to invoke powers under section 263 of the Act. The view taken by the Tribunal is in consonance with well settled legal principles referred to supra. In view of preceding analysis, The substantial questions of law framed by this court are answered against the revenue and in favour of the assessee.”
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We also notice that the Supreme Court in the case of PCIT v. Shreeji Prints (P) Ltd. [2021] 282 Taxman 464 (SC) with regard to invoking the revisional powers in the light of Explanation 2 to section 263 has made the following observations:-
"17 We thus find merit in the plea of the assessee that the Revisional Commissioner is expected show that the view taken by the AO is wholly unsustainable in law before embarking upon exercise of revisionary powers. The revisional powers cannot be exercised for directing a fuller inquiry to merely find out if the earlier view taken is erroneous particularly when a view was already taken after inquiry. If such course of action as interpreted by the Revisional Commissioner in the light of the Explanation 2 is permitted, Revisional Commissioner can possibly find fault with each and every assessment order without himself making any inquiry or verification and without establishing that assessment order is not sustainable in law. This would inevitably mean that every order of the lower authority would thus become susceptible to section 263 of the Act and, in turn, will cause serious unintended hardship to the tax payer concerned for no fault on his part. Apparently, this is not intended by the Explanation. Howsoever wide the scope of Explanation 2(a) may be, its limits are implicit in it. It is only in a very gross case of inadequacy in inquiry or where inquiry is per se mandated on the basis of record available before the AO and such inquiry was not conducted, the revisional power so conferred can be exercised to invalidate the action of AO. The AO in the present case has not accepted the submissions of the assessee on various issues summarily but has shown appetite for inquiry and verifications. The AO has passed after making due enquiries issues involved impliedly after due application of mind. Therefore, the Explanation 2 to section 263 of the Act do not, in our view, thwart the assessment process in the facts and the context of the case. Consequently, we find that the foundation for exercise of revisional jurisdiction is sorely missing in the present case.”
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In the facts and circumstances of the present case, it cannot be said that the AO did not carry out enquiry or verification which ought to have been done. The adverse inference drawn by the PCIT from the documents are debatable as the PCIT has out brought any material on record to substantiate his adverse inference. The Bombay High Court in the case of Grasim Industries Ltd. v. CIT (2010) 321 ITR 92 (Bom) has considered the scope of revision proceedings initiated u/s. 263 of the Act and held as under:-
“'Section 263 of the Income-tax Act, 1961 empowers the Commissioner to call for and examine the record of any proceedings under the Act and, if he considers that any order passed therein, by the Assessing Officer is erroneous in so far as it is prejudicial to the interests of the Revenue, to pass an order upon hearing the assessee and after an enquiry as is necessary, enhancing or modifying the assessment or cancelling the assessment and directing a fresh assessment. The key words that are used by section 263 are that the order must be considered by the Commissioner to be "erroneous in so far as it is prejudicial to the interests of the Revenue". This provision has been interpreted by the Supreme Court in several judgments to which it is now necessary to turn. In Malabar Industrial Co. Ltd. v. CIT [2000] 243 ITR 83, the Supreme Court held that the provision "cannot be invoked to correct each and every type of mistake or error committed by the Assessing Officer" and "it is only when an order is erroneous that the section will be attracted". The Supreme Court held that an incorrect assumption of fact or an incorrect application of law, will satisfy the requirement of the order being erroneous. An order passed in violation of the principles of natural justice or without application of mind, would be an order falling in that category. The expression "prejudicial to the interests of the Revenue", the Supreme Court held, it is of wide import and is not confined to a loss of tax. What is prejudicial to the interest of the Revenue is explained in the judgment of the Supreme Court (headnote) :
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"The phrase 'prejudicial to the interests of the Revenue' has to be read in conjunction with an erroneous order passed by the Assessing Officer. Every loss of revenue as a consequence of an order of the Assessing Officer, cannot be treated as prejudicial to the interests of the Revenue, for example, when an Income-tax Officer adopted one of the courses permissible in law and it has resulted in loss of revenue, or where two views are possible and the Income- tax Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the Revenue unless the view taken by the Income-tax Officer is unsustainable in law." The principle which has been laid down in Malabar Industrial Co. Ltd. [2000] 243 ITR 83 (SC) has been followed and explained in a subsequent judgment of the Supreme Court in CIT v. Max India Ltd. [2007] 295 ITR 282.'” 18. In the instant case, the AO has verified the details and applied his mind to come to the conclusion that no addition is warranted towards the cash deposited by the assessee during the demonetization period. On the other hand, the PCIT has arrived at a view that the cash was deposited out of SBN received post demonetization and proper enquiries ought to have been made by the AO which is clearly a difference of opinion which cannot be a reason for revision u/s. 263 of the Act.
The Bombay High Court in the case of Gabriel India Ltd. (1993) 203 ITR 108 has explained as to when an order can be termed as erroneous as follows:-
“From the aforesaid definitions it is clear that an order cannot be termed as erroneous unless it is not in accordance with law. If an income tax officer acting in accordance with the law makes a certain assessment, the same cannot be branded as erroneous by
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the Commissioner simply because, according to him, the order should have been written more elaborately. This section does not visualise a case of substitution of the judgment of the Commissioner for that of the Income-tax Officer, who passed the order, unless the decision is held to be erroneous. Cases may be visualised where the Income tax officer while making an assessment examines the accounts, makes enquiries, applies his mind to the facts and circumstances of the case and determines the income either by accepting the accounts or by making some estimate himself. The Commissioner, on perusal of records, may be of the opinion that the estimate made by the officer concerned was on the lower side and left to the Commissioner he would have estimated the income at a figure higher than the one determined by the Income tax officer. That would not vest the Commissioner with power to examine the accounts and determine the income himself at a higher figure. It is because the Income tax officer has exercised the quasi judicial power vested in him in accordance with law and arrived at a conclusion and such a conclusion cannot be termed to be erroneous simply because the Commissioner does not feel satisfied with the conclusion ………….. There must be some prima facie material on record to show that the tax which was lawfully exigible has not been imposed or that by the application of the relevant statute on an incorrect or incomplete interpretation a lesser tax than what was just has been imposed.” 20. The law laid down by the Bombay High Court makes it clear that the Commissioner before holding an order to be erroneous should have conducted necessary enquiries or verification in order to show that the findings of the AO is erroneous and unsustainable in law. In the present case, the PCIT has not done so and simply expressed a view based on his inference that the AO should have conducted enquiry. Such course of action by the PCIT is not in accordance with the mandate of the provisions of section 263 of the Act. Further, the PCIT has treated the assessment order to be prejudicial to the interests of the revenue based on the same inference that the source of SBN
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deposit was not satisfactorily explained and addition ought to have been made u/s. 68 of the Act. The PCIT has not brought out any corroborative material on record to show that the cash deposits are unexplained and therefore, in our considered view, it cannot be said that the assessment order is prejudicial to the interests of the revenue.
In view of the foregoing discussion, we are of the view that the ld. PCIT has not made out a case to show that the assessment order is not only erroneous but also prejudicial to the interests of the revenue, thus failing to satisfy the twin conditions set out in section 263 of the Act. Accordingly, we set aside the revision order passed by the PCIT u/s. 263 of the Act and restore the assessment order of the AO u/s. 143(3) of the Act.
In the result, the appeal by the assessee is allowed. Pronounced in the open court on this 27th day of July, 2022. Sd/- Sd/- ( N V VASUDEVAN ) ( PADMAVATHY S ) VICE PRESIDENT ACCOUNTANT MEMBER Bangalore, Dated, the 27th July, 2022. /Desai S Murthy / Copy to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR, ITAT, Bangalore. By order
Assistant Registrar ITAT, Bangalore.