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Facts
The assessee, a proprietor, filed his return declaring income of Rs. 21,67,850. The assessment was reopened under Section 147 after discovering cash deposits of Rs. 41,78,914 during demonetisation. The Assessing Officer (AO) passed an assessment order accepting the returned income.
Held
The Principal Commissioner (PCIT) initiated revision proceedings under Section 263, holding that the original assessment order was erroneous and prejudicial to the revenue due to lack of proper verification of cash deposit sources. The Tribunal held that the AO had conducted sufficient verification and the revisionary order was not sustainable.
Key Issues
Whether the revisionary order passed by the PCIT under Section 263 was justified when the AO had already verified the sources of cash deposits during the reassessment proceedings.
Sections Cited
263, 147, 144B, 148, 142(1), 143(3), 144
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “A” BENCH : BANGALORE
Before: SHRI PRASHANT MAHARISHI & SHRI SOUNDARARAJAN K.
Per Prashant Maharishi, Vice President
This appeal is filed by Bharath Bafna (the assessee/appellant) for the assessment year 2017-18 against the revisionary order passed u/s. 263 of the Income-tax Act, 1961 [the Act] by the Principal Commissioner of Income Tax-2, Bengaluru. [ld. PCIT] dated 19.3.2024 wherein it has been held that the assessment order passed by National Faceless
Assessment Centre u/s. 147 r.w.s. 144B of the Act dated 12.3.2022 is erroneous and prejudicial to the interests of the revenue and therefore was set aside to make a fresh assessment. The assessee is aggrieved with the same and is in appeal before us.
Briefly stated the facts of the case show that assessee is a Proprietor of Prajwal Surgical & Scientifics carrying on business of wholesale and retail sale of surgical and medical equipment, filed his return of income on 1.11.2017 declaring total income of Rs.21,67,850. As per information that assessee has deposited cash in his bank account with Union Bank of India, Oriental Bank of Commerce and Kotak Mahindra Bank during the demonetisation period of Rs.41,78,914, the assessment was reopened by issue of notice issued u/s. 148 of the Act which was complied with by the assessee by reiterating the original return of income declaring income of Rs.21,67,850. During the course of reassessment proceedings, the assessee was asked various details of the cash deposits by issue of notice u/s. 142(1) of the Act. The assessee submitted the details with respect to source of income and business activity, date wise cash deposits along with source of such deposit bifurcating cash sales as well as receipt from the debtors, ledger account of all the debtors, details of month wise sale and purchases giving bifurcation of cash transaction and credit transaction, details of monthly cash sales and monthly cash deposit along with opening and closing balance of cash. Assessee also submitted the details of top 10 debtors from whom sales were made in cash stating their address, PAN, email and details of sales made. Similar details were also furnished
with respect to 10 top creditors. The assessee also submitted cash book, bank book, his annual accounts. On examination of these details, an assessment order u/s. 147 r.w.s 144B of the Act was passed on 12.3.2022 accepting the returned income of the assessee.
On examination of the records, the ld. PCIT issued a notice u/s. 263 of the Act on 4.12.2023 holding that reassessment order was passed without proper verification of nature and source of deposits into bank account during the demonetisation period, the AO should have called certificates from the various banks with respect to details of denomination of notes deposited during the specified period.
The assessee responded to the above notice stating that complete details were furnished before the AO which was verified and thereafter reassessment order was passed. Therefore, reassessment order is neither erroneous nor prejudicial to the interests of the revenue. The ld. PCIT held that the claim of assessee of receipt of cash received from debtors needs to be verified to ascertain the authenticity of the sources for cash deposits. The ld. AO has accepted the cash deposits made by the assessee without proper examination of the details and relevant material and therefore the order was held to be erroneous and prejudicial to the interests of the revenue by revisionary order passed u/s. 263 of the Act on 19.3.2024. Aggrieved with that order, the assessee is in appeal before us.
The ld. AR submitted a copy of the reassessment order passed in pursuance of the revisionary order passed u/s. 263 of the Act dated
10.3.2025 wherein the returned income filed by the assessee is accepted. Thus, he submits that the reassessment order originally passed by the AO on 12.3.2022 was neither erroneous nor prejudicial to the interests of the revenue.
He even otherwise submitted that when the ld. AO has verified the complete details originally, the revisionary order passed by the ld. PCIT was not sustainable. He submitted a detailed paperbook containing 101 pages. He submitted that on the merits also, the complete details were verified by the AO, therefore there is no reason to revise the order u/s. 263 of the Act by the ld. PCIT.
The ld. CIT(DR) submits that when in the reassessment order framed pursuant to the order u/s. 263, the returned income of the assessee is accepted, the appeal of the assessee becomes infructuous and hence should be dismissed.
We have carefully considered the rival contentions and perused the orders of the ld. lower authorities including the original reassessment order passed u/s. 143(3) r.w.s. 147 and 144B of the Act dated 12.3.2022 which was held to be erroneous and prejudicial to the interests of the revenue by revisionary order passed u/s. 263 of the Act by the ld. PCIT dated 19.3.2024 and the reassessment order passed u/s. 144 r.w.s. 263 r.w.s. 144B of the Act dated 10.3.2025.
We find that even in the reassessment order passed in pursuance of the directions u/s. 263 of the Act the returned income of the assessee is accepted. This itself shows that there is no error in the original reassessment order which is not prejudicial to the interests of the revenue.
Even otherwise, on the merits of the case, we find that the ld. AO in the original reassessment proceedings has passed the order after making a complete enquiry u/s. 142(1) of the Act. He verified the details of all the debtors from whom cash is received, compared monthly purchase and sales along with monthwise cash deposit. He also verified the details of top 10 debtors and also the list of debtors from whom cash was received which was deposited in 3 different banks. The cash book was also produced before the AO from which the cash was deposited into bank accounts. During revisionary proceedings all these facts were explained to the ld. PCIT. The ld. PCIT originally issued the notice wherein it was alleged that the AO has completed the assessment without proper verification of nature and source of cash deposit. It was also alleged in the notice that the AO should have called for the certificate from the banks about the details of denomination of notes deposited during the specified period. During reassessment proceedings, all the verification was made by the ld. AO was also recorded in para 6. In para 9, the ld. PCIT noted that the claim of assessee of receipt of cash from the debtors requires verification. It is a fact that when the list of such debtors from whom cash is received along with their copy of accounts, address, PAN, etc. was furnished, it is apparent that the source of cash deposit is business receipt of the assessee. Even the ld. PCIT on examination of the submissions did not make even a preliminary enquiry and did not invoke Explanation-2 of section 263 of the Act. There was no finding because the reassessment order originally passed was erroneous. Even otherwise obtaining the bank certificate about the denomination would not have made any difference so far as the income of the assessee is concerned. The subsequent reassessment order passed u/s. 144 r.w.s. 263 also proves that there is no error in the reassessment order, which is also not prejudicial to the interests of the revenue. In view of the above facts, the revisionary order u/s. 263 of the Act is not sustainable and hence quashed.
In the result, the appeal of the assessee is allowed.
Pronounced in the open court on this 16th day of May, 2025.