VALLI AGRO FOOD INDUSTRIES,SATTUR vs. ITO, WARD 5, VIRUDHUNAGAR

आदेश / O R D E R PER G. MANJUNATHA, AM: This appeal filed by the assessee is directed against the order of the

Principal Commissioner of Income Tax, Madurai-1, dated 12.09.2020 and

pertains to assessment year 2015-16.

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which is engaged in the business of manufacturing and sale of rice filed its

return of income for the AY 2015-16 on 30.11.2016 declaring ‘Nil’ total

income. The case has been selected for limited scrutiny under CASS with

the reason to verify whether cash in hand shown in the return of income is

correct. The assessment has been completed u/s.143(3) of the Act, on

30.10.2017 and accepted income declared by the assessee without making

any addition towards cash in hand shown as on 31.03.2015.

the PCIT, Madurai-1, and notice u/s.263 of the Act, was issued and called

upon the assessee to file objections, if any, for proposed revision. The PCIT,

in the said show cause notice observed that although, there is a huge cash

balance as on 31.03.2015 when compared to cash balance as on

31.03.2014, but the AO has not verified increase in cash balance, even

though, the assessee has filed its return of income after demonetization

date i.e. 08.11.2016. The PCIT further observed that since, the assessee

has not explained the reasons for huge increase in cash balance, the AO

ought to have invoked provisions of Sec.68 of the Act, and bring to tax cash

balance as unexplained cash credit. The PCIT further observed that

although, the assessee has filed belated return for the AYs 2012-13 to

2014-15, but the AO has allowed to carry forward unabsorbed depreciation,

which rendered assessment order to be erroneous and prejudicial to the

interest of the Revenue. In response to show cause notice, the assessee

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submitted that the assessment has been taken up for verification of cash

in hand shown as on 31.03.2015. The AO has called for various details

including cash book, sales tax return, ledger, bank statements, etc., and

the assessee has furnished all details. The AO after considering relevant

evidences observed that reason for selection for limited scrutiny has been

examined with reference to supporting evidences and concluded the

assessment. Therefore, it cannot be said that the assessment order passed

by the AO is erroneous and prejudicial to the interest of the Revenue. The

PCIT after considering relevant submissions of the assessee and also by

relying upon various judicial precedents observed that the assessment

order passed by the AO dated 30.10.2017 is erroneous in so far as it is

prejudicial to the interest of the Revenue, because, the AO failed to carry

out required enquiries he ought to have been carried out in light of relevant

provisions of the Act and thus, set aside the assessment order and direct

the AO to re-do the assessment after making necessary enquiries and

verification in accordance with law. Aggrieved by the order of the PCIT, the

assessee is in appeal before us.

by the AO is neither erroneous nor prejudicial to the interest of the

Revenue, because, the very purpose of taking up for assessment is huge

increase in cash balance and the AO has examined the said issue during

the course of assessment proceedings. In so far as unabsorbed

depreciation, the question of AO looked into does not arise, because, the

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case was taken up for limited scrutiny. Further, during the Financial Year

relevant to the AY 2015-16, the assessee has returned ‘nil’ total income

and thus, the AO has no reason to go into verification of unabsorbed

depreciation carry forward to subsequent assessment years. Therefore, on

both issues, assumption of jurisdiction by the PCIT fails.

submitted that although, the AO has verified the issues with reference to

evidences filed by the assessee, but he has failed to carry out required

enquiries he ought to have been carried out in the given facts and

circumstances of the case, more particularly, when there is a huge rise in

cash in hand after demonetization. Similarly, the AO has failed to carry out

necessary verification on the issue of unabsorbed depreciation and thus,

the PCIT rightly held that the assessment order passed by the AO is

erroneous and prejudicial to the interest of the Revenue

record and gone through orders of the authorities below. The provisions of

Sec.263 of the Act, confers suo moto powers to the PCIT to revise the

assessment order passed by the AO, if the PCIT satisfies, assessment order

passed by the AO is erroneous in so far as it is prejudicial to the interest of

the Revenue. In order to assume jurisdiction u/s.263 of the Act, the PCIT

must satisfy that the assessment order passed by the AO is erroneous and

also it is prejudicial to the interest of the Revenue and said satisfaction

should be arrived on the basis of reasoning. In this case, the PCIT has taken

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up two issues for proceedings u/s.263 of the Act, and the first issue taken

up by the PCIT is huge cash in hand as on 31.03.2015 when compared to

previous financial year and according to the PCIT, the assessee has shown

huge cash in hand without any proper source. The PCIT further observed

that the assessee has filed return of income subsequent to the date of

demonetization and therefore, opined that there is no proper explanation

for cash in hand shown as on the date of balance sheet. The AO without

verifying the said facts simply accepted the explanation furnished by the

assessee which rendered the assessment order to be erroneous and

prejudicial to the interest of the Revenue. We find that the reasons given

by the PCIT to take up said issue for revision proceedings is devoid of merits

for the simple reason that the scrutiny assessment has been taken up with

a reason to verify huge cash in hand as on the date of balance sheet and

the AO during the course of assessment proceedings, called upon various

details including cash book, sales tax return for the relevant assessment

year and also bank statements, to ascertain source for cash in hand shown

in the books of accounts. The AO after satisfying with the explanation

furnished by the assessee has accepted the return of income filed by the

assessee without making any additions to returned income. In our

considered view, once the AO has considered the issue and has accepted

the explanation of the assessee, then there is no scope for the PCIT to take

up said issue for revision proceedings on the guise of inadequate enquiry.

We further noted that the PCIT may assume jurisdiction to revise

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assessment order, in a case, where there is no enquiry at all. However, he

does not have power to revise the assessment order, in a case, where

enquiry has been made and according to the PCIT, enquiry is inadequate

and this principle is supported by the decision of the Hon’ble Bombay High

Court in the case of CIT v. Gabriel India Ltd., reported in [1993] 203 ITR

108 (Bom).

subsequent years, the PCIT was of the opinion that although, the assessee

has furnished return of income for the AYs 2012-13 to 2014-15 beyond due

date specified u/s.139(1) of the Act, but the AO has allowed to carry

forward unabsorbed depreciation. We find that once again the reasons

given by the PCIT to revise the assessment order on this issue is devoid of

merits for simple reason that the issue before the AO is AY 2015-16 and

for this assessment year, the assessee has returned ‘nil’ total income.

Therefore, the AO had no occasion to examine brought forward unabsorbed

depreciation for earlier assessment years. Even, assuming for a moment,

the PCIT is right on his observation, but fact remains that brought forward

unabsorbed depreciation can very well be examined by the AO when the

assessee has claimed set off of unabsorbed depreciation against current

year income in subsequent assessment years. Since, there is no positive

income for the impugned assessment year and the assessee has not

claimed set off of unabsorbed depreciation, in our considered view, there is

no prejudice is caused to the Revenue for the impugned assessment year

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and thus, the question of revision of assessment order on this issue does

not arise. To sum up, we are of the considered view that the PCIT is erred

in revising the assessment order passed by the AO u/s.143(3) of the Act,

dated 30.10.2017 and thus, we quashed the order passed by the PCIT

u/s.263 of the Act, for the reasons stated herein above.

Order pronounced on the 02nd day of December, 2022, in Chennai.

Sd/- Sd/- (वी. दुगा� राव) (जी. मंजूनाथा) (G. MANJUNATHA) (V. DURGA RAO) लेखा सद�य/ACCOUNTANT MEMBER �याियक सद�य/JUDICIAL MEMBER

चे�ई/Chennai, �दनांक/Dated: 02nd December, 2022. TLN आदेश क� �ितिलिप अ�ेिषत/Copy to: 1. अपीलाथ�/Appellant 4. आयकर आयु�/CIT 2. ��यथ�/Respondent 5. िवभागीय �ितिनिध/DR 3. आयकर आयु� (अपील)/CIT(A) 6. गाड� फाईल/GF