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Facts
The assessee, a non-filer, had cash deposits in their bank account. The case was reopened under Section 147. The assessee explained the deposits as agricultural income and sale proceeds from Silver Oak trees. The Assessing Officer accepted the explanation and completed the reassessment.
Held
The Tribunal held that the Assessing Officer had conducted necessary enquiries and applied his mind before accepting the assessee's explanation. Therefore, the revisionary order under Section 263 by the Principal Commissioner was not justified.
Key Issues
Whether the Principal Commissioner was justified in invoking Section 263 to revise an assessment order when the Assessing Officer had conducted enquiries and applied his mind to the facts?
Sections Cited
147, 148, 144B, 263, 142(1), 148A(b), 45, 269ST
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Income Tax Appellate Tribunal, ‘A’ BENCH, BANGALORE
Before: SHRI WASEEM AHMED & SHRI SOUNDARARAJAN K
PER WASEEM AHMED, ACCOUNTANT MEMBER :
This appeal is directed against the order passed by the ld. Principal Commissioner of Income Tax, Bengaluru-3, dated 24.03.2025, under section 263 of the Income-tax Act, 1961, for the assessment year 2015-16.
The brief facts are that the assessee was a non-filer for the relevant year. The case was reopened under section 147 of the Act in view of large cash deposits noticed in the bank accounts of the assessee. A notice under section 148 was issued and In response, the assessee filed return of income declaring a sum of ₹95,200.00 only. In the reassessment proceedings, the assessee explained the source of cash deposits of ₹59,00,000 in the bank account by stating that a sum of ₹7,50,000 represented agricultural income from coffee and pepper produce, while ₹51,50,000 was received as sale proceeds from Silver Oak trees. In addition, the assessee had deposited ₹25,00,000 in the Hassan District Co-operative Bank. The Assessing Officer considered the submissions of the assessee and accepted the returned income. The reassessment order was accordingly completed on 28.03.2023 under section 147 read with section 144B of the Act.
However, the Principal Commissioner invoked his revisionary jurisdiction under section 263 by observing that the Assessing Officer had failed to conduct necessary enquiries into the source of these large cash deposits. The ld. PCIT was of the view that the Assessing Officer had not verified the claim of agricultural receipts with supporting documentary evidence, nor had he examined the nexus between the deposits and the sale of Silver Oak trees. He also observed that no enquiries had been made to verify the identity, creditworthiness, or financial capacity of the alleged buyers. The ld. PCIT further noted that the Assessing Officer had not examined timber permits, transportation records, or the fair market value of Silver Oak timber. He held that the claim of ₹51,50,000 as sale proceeds from Silver Oak trees appeared excessive when compared with reasonable market yield. He also highlighted that the cash deposit of ₹25,00,000 in the Hassan District Co-operative Bank remained unexplained. According to him, the Assessing Officer had ignored the provisions of section 269ST and also failed to examine whether the sale of Silver Oak trees could attract . capital gains under section 45 of the Act. Holding that the assessment order was erroneous and prejudicial to the interests of the revenue, the PCIT relied on the decisions of the Hon’ble Supreme Court in Deniel Merchants Pvt. Ltd. v. ITO (2018) 95 taxmann.com 366 and CIT v. Paville Projects Pvt. Ltd. (2023) 149 taxmann.com 115, and set aside the assessment with a direction to the Assessing Officer to conduct a fresh assessment after making proper enquiries.
Being aggrieved by the order of learned CIT-A, the assessee is in appeal before us.
Before us, the learned Authorised Representative for the assessee filed a paper book running from pages 1 to 138. He pointed out that the case was reopened under section 147 specifically on account of cash deposits, and this is evident from the order passed under section 148A(d) of the Act placed at page 99 of the paper book. He further drew attention to the queries issued by the Assessing Officer dated 14.11.2022 and 15.03.2023, and the replies filed by the assessee on 24.11.2022 and 20.03.2023, which are placed at pages 34 to 116 of the paper book. He also referred to pages 70 and 99 of the paper books to show that the assessee had submitted all relevant details before the Assessing Officer. The learned AR argued that the Assessing Officer, after due application of mind and on considering the material placed on record, accepted the explanation of the assessee. According to him, the assessment was framed after conducting necessary enquiries, and therefore it cannot be said to be erroneous or prejudicial to the interest of the revenue.
On the other hand, the learned Departmental Representative supported the order passed by the ld. Principal Commissioner under section 263 of the Act. He submitted that the Assessing Officer had failed to make proper enquiries regarding the cash deposits and thus the order deserved to be revised. He placed reliance on the judgment of the Hon’ble Karnataka High Court in the case of PCIT Vs. Te Connectivity India Pvt. Ltd. reported in 175 Taxmann.com 405 and also on the order of the Bangalore Bench of the Tribunal in the case of Kyoorius Tea and Coffee Estate in dated 19.06.2025.
We have carefully considered the rival submissions and perused the record. The issue before us is whether the assessment order dated 28.03.2023 was passed without making enquiries and whether it was therefore erroneous and prejudicial to the interest of the revenue. From the material placed before us, it is evident that the Assessing Officer issued detailed notices under section 142(1) and also under section 148A(b) of the Act, specifically calling upon the assessee to explain the source of cash deposits. The assessee filed detailed written replies along with supporting documents. The Assessing Officer examined those submissions, raised further queries, and after considering the replies, accepted the explanation. Thus, it is clear that the Assessing Officer did make enquiries and applied his mind to the issue before him. All the relevant details are placed on the paper book with respect to the queries raised by the AO during the assessment proceedings and the replies made by the assessee to that effect.
7.1 It is well-settled law that once the Assessing Officer has conducted enquiries, applied his mind and adopted a view, the ld. .
Principal Commissioner cannot invoke jurisdiction under section 263 merely because he believes that a more detailed or wider enquiry should have been made. Jurisdiction under section 263 arises only when the order is both erroneous and prejudicial to the interests of the revenue. The Hon’ble Supreme Court in Malabar Industrial Co. Ltd. v. CIT (243 ITR 83) has held that where the Assessing Officer has taken one of the possible views, the same cannot be revised under section 263 of the Act. In the present case, the assessment order may not contain elaborate reasoning, but brevity of discussion cannot be equated with absence of enquiry. The record shows that enquiries were made, details were furnished and considered, and the Assessing Officer took a conscious view.
7.2 The reliance placed by the ld. PCIT on the judgments of the Hon’ble Supreme Court in Deniel Merchants and Paville Projects is misplaced on facts. In those cases, there was complete absence of enquiry by the Assessing Officer. In the present case, however, the record demonstrates that the Assessing Officer had raised specific questions, obtained replies from the assessee and thereafter completed the assessment. Therefore, the case does not fall within the parameters of section 263 of the Act.
7.3 In view of the above discussion, we are of the considered view that the assessment order dated 28.03.2023 was passed after due enquiry and application of mind. It cannot be regarded as erroneous or prejudicial to the interest of the revenue. The order passed by the ld. PCIT under section 263 dated 24.03.2025 is accordingly quashed. The appeal of the assessee is allowed.
In the result, the appeal of the assessee is hereby allowed.