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Facts
The assessee did not file a return for AY 2015-16 and the case was reopened. The assessee declared a loss and later filed a return. The AO accepted the returned income after examining cash deposits and interest income. Subsequently, the Pr. CIT invoked revisionary powers u/s 263, citing that the AO had not obtained sufficient details regarding the recovery of farmers' advances.
Held
The Tribunal held that the Pr. CIT could not substitute his own view for that of the AO if the AO had taken a plausible view and conducted necessary inquiries, even if partial. The Tribunal noted that similar issues for other years had been decided in favor of the assessee and confirmed by the Tribunal. It also referred to Supreme Court judgments on what constitutes an erroneous and prejudicial order.
Key Issues
Whether the Pr. CIT was justified in invoking revisionary powers u/s 263 when the AO had taken a plausible view and the issue had been decided in favour of the assessee in previous proceedings.
Sections Cited
263, 147, 143(3), 148, 143(2), 142(1), 68, 69A, 143(3)
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Income Tax Appellate Tribunal, “A” BENCH, CHENNAI
Before: HON’BLE SHRI ABY T. VARKEY, JM & HON’BLE SHRI MANOJ KUMAR AGGARWAL, AM
सुनवाईकीतारीख/Date of Hearing : 22-01-2025 घोषणाकीतारीख /Date of Pronouncement : 25-03-2025 आदेश / O R D E R Manoj Kumar Aggarwal (Accountant Member)
By way of this appeal, the assessee assails invocation of revisionary jurisdiction u/s 263 by Ld. Pr. Commissioner of Income Tax (Central), Chennai-2 (Pr.CIT) for Assessment Year (AY) 2015-16 vide impugned order dated 27-03-2024 in the matter of an assessment framed by Ld. AO u/s.143(3) r.w.s. 147 of the Act on 16-02-2022. The grounds taken by the assessee are as under: - 1. That the revision order dated 27.03.2024 passed by the Learned Principal Commissioner of Income Tax, Central - 2, Chennai ["Ld. PCIT"] u/s.263 of the Income-tax Act, 1961 ["Act"] is without jurisdiction, bad in law and barred by limitation.
That the Assessment Order dated 16.02.2022 passed by the Assessing Officer u/s.147 of the Act was neither erroneous nor prejudicial to the interests of the revenue, thus the Ld. PCIT erred in initiating revisionary proceedings u/s.263 of the Act.
That the Ld. PCIT erred in initiating revisionary proceedings in respect of an issue which has already' been decided in favour of the appellant by the Ld. CIT(A) and Hon'ble ITAT.
2. The Ld. AR advanced arguments and referred to the order of Tribunal for subsequent years on the impugned issue. The Ld. CIT- DR also advanced arguments and submitted that Ld. AO failed to make requisite enquiries. Having heard rival submissions and upon perusal of case records, our adjudication would be as under. The assessee being resident corporate assessee is stated to be engaged in manufacturing of sugar. Proceedings before lower authorities 3.1 From the facts, it emerges that the assessee did not file return of income for AY 2015-16. Accordingly, the case was reopened and notice u/s 148 was issued on 31-03-2021 which was followed by notices u/s 143(2) and 142(1). The assessee filed return of income declaring loss of Rs.9.96 Lacs. The assessee also furnished various replies to substantiate the source of cash deposits during the year. After having satisfied with assessee’s reply, Ld. AO accepted the returned income of the assessee. The assessment order takes note of the fact that the assessee made cash deposits of Rs.38.39 Lacs and earned interest income of Rs.93.44 Lacs. 3.2 Subsequently, Ld. Pr. CIT, upon perusal of case records, observed that the assessee reflected ‘recovery of farmers advances’ for Rs.17.13 Crores in this year. The Ld. AO did not obtain the list of farmers from whom the amount was recovered, corresponding ledger account of the farmers and name and addresses of the farmers. The Ld. AO, in AY 2017-18, made addition towards cash deposits which was claimed to be received out of recovery of farmers advances given during the earlier period. However, in AY 2015-16, Ld. AO accepted the returned income without making specific enquiries with regard to recovery of farmers’ advances. No specific query was raised in this regard and therefore, the assessment order was held to be erroneous and prejudicial to the interest of the revenue u/s 263 and the assessee was show caused. 3.3 The assessee opposed the same on the ground that assessment order was passed after careful examination of the cash ledger summary produced during the course of assessment proceedings. However, Ld. Pr. CIT continued to hold on opinion that the Ld. AO failed to examine the issue of recovery of advances as shown in cash ledger summary by obtaining requisite details thereof. The Ld. AO simply accepted the claim of the assessee. Pertinently, the addition made for cash deposit in AY 2017-18 was deleted by first appellate authority which was confirmed by Tribunal. The pendency of appeal proceedings for AY 2017-18 could not prejudice the current proceedings or estop the department from revisiting the order. The recovery of the loans was credited in the books for AY 2015-16. The enquiries and subsequent additions had to be in the year in which the credits were entered in the cash book and ledger. In AY 2017-18, wherein addition was made was essentially an opening balance in the Balance Sheet and as such, it could not be added in that year. Moreover, the validity of said Balance Sheet itself was questionable as the assessee had failed to file return for AY 2015-16 and it filed Return of Income for AY 2016- 17 and 2017-18 in February, 2017 i.e., after demonetization. These entries in Balance sheet were, therefore, convenient devices o bullpup a cash balance. Moreover, the addition made in AY 2017-18 were based on disproportionately small sample. The sample should have been truly random and from the database of the entire list of farmers from whom recovery was made. This was not the case. The assessee did not furnish the entire list of farmers. Whatever data was furnished, only a small portion was enquired into. The enquiries themselves were inadequate and inferences were inappropriately adopted for a wrong year. Accordingly, Ld. Pr. CIT proceeded with proposed revision of the order. The Ld. AO ought to have done complete verification for recovery of farmers’ advances amounting to Rs.17.13 Crores. Accordingly, Ld. AO was directed to modify the assessment order after verifying claim of recovery of farmers’ advances. Aggrieved as aforesaid, the assessee is in further appeal before us. Our findings and Adjudication 4. From the facts, it emerges that the assessee’s return of income was duly scrutinized u/s 143(3) on 16-02-2022 to examine the issue of cash deposits in the bank account and interest income. The assessee did not file return of income for this year. Accordingly, the case was reopened and notice u/s 148 was issued to the assessee. The assessee declared loss of Rs.9.96 Lacs. During the course of assessment proceedings, notices u/s 142(1) were issued to the assessee directing him to substantiate these issues. The assessee filed various details on 24-01-2022 and 08-02-2022. It was explained that the cash was deposited out of business receipts and the assessee also submitted cash book in support of its claim. The explanations were verified and Ld. AO chose to accept the returned income of the assessee. In notice u/s 142(1) as issued on 10-01- 2022, the assessee was directed. Inter-alia, to furnish copy of financial statements and soft copy (Tally) of books of accounts. The assessee was also directed to furnish bank statements, details of movable and immoveable properties, unsecured loans etc. The assessee, vide its reply dated 24-01-2022, furnished all the documents as required by Ld. AO. The assessee furnished cash book (Page No.1-214 of Paper Book Volume II) and also placed on recorded confirmations from farmers furnished during the course of assessment proceedings for AY 2017-18 (Page nos.215 to 318 of Paper Book Volume II). Pertinently, the assessee furnished cash ledger summary of receipts and payments (Page No.100 of the paper book). In this statement, one of the sources of cash was shown as farmers’ advances recoveries for Rs.17.13 Crores. The assessee reflected closing cash balance of Rs.15.78 Crores. The assessee, vide its reply dated 31-01-2022, furnished note on farmers advances recovered. The assessee duly explained the circumstances in which the advances were received back and it also tabulated the recoveries made during FYs 2014-15 to 2016-17. The assessee made recoveries of Rs.17.13 Crores in FY 2014-15, Rs.19.22 Crores in FY 2015-16 and Rs.3.43 Crores in FY 2016-17. The assessee also pointed out to assessment proceedings of subsequent year to submit that the recoveries so made were added by Ld. AO u/s 68. During proceedings for AY 2017-18, the assessee submitted 104 confirmations from various farmers confirming the advances received and detailing the advances returned to the assessee during FYs 2014-15 to 2016-17. Out of these confirmations, 48 confirmations were selected for verification. The percentage of confirmation was approx. 44% and accordingly, Ld. AO proposed disallowance of 60% of cash deposit. Accordingly, the entire recovery of farmer’s advances during the three years was considered for taxation u/s 69A while passing order u/s 143(3) for AY 2017-18. Therefore, the recoveries made for Rs.17.13 Crores in this year were already considered for taxation while framing assessment for AY 2017-18. The Ld. AO, after considering the detailed reply of the assessee, accepted the claim of the assessee with due application of mind and chose not to disturb the returned income of the assessee. Thus, it is a case of acceptance of one of the plausible views which was more on facts and this view could not be said to be opposed to any law or statutory provisions. The Ld. AO, in our considered opinion, had taken one of the plausible views in the matter and therefore, Ld. Pr. CIT could not be said to be justified in substituting the view of Ld. AO with that of his own view.
The Ld. CIT(A), in its written submissions, has stated that during AY 2017-18, Ld. AO has made partial verifications of only 48 farmers out of confirmation from 104 framers as submitted by the assessee company. This is an undisputed fact and in fact, the same was brought to the notice of Ld. AO by the assessee which has already been enumerated by us in the preceding paragraphs. Therefore, this fact was duly considered by Ld. AO during the course of assessment proceedings and a view was taken in the matter. The same is also evident from the fact that the assessment for AY 2016-17 was framed u/s 143(3) on 31-12-2018 and the assessment for AY 2017-18 was framed u/s 143(3) on 23-12-2019. Subsequent to completion of these assessments, the case for AY 2015-16 was reopened and notice u/s 147 was issued and assessment was framed on 16-02-2022. This assessment has been framed by same Ld. AO who framed the assessment for AY 2017- 18 and therefore, it could very well be said that Ld. AO took a view in the matter considering the view already taken in AY 2017-18 and accepted the claim of the assessee with due application of mind. In AY 2016-17, Ld. AO added full recoveries u/s 68 whereas in AY 2017-18, Ld. AO disallowed 60% of cash deposits. Both these appeals were agitated by the assessee wherein Ld. CIT(A) confirmed the existence of farmers’ advances and its genuineness and accordingly deleted addition for both the years. The said adjudication ahs been confirmed by Tribunal in & 673/Chny/2023. In para 8 of the order, the bench took note of the fact that the case for AY 2015-16 was reopened by Ld. AO and returned income was accepted therein. The bench also observed that once the debtors balance is accepted, the recovery of the same could not be doubted unless some positive material was brought on record to establish that the cash was not received by the assessee from such debtors. It was also noted that the assessee submitted cash books and other books of accounts which were accepted by Ld. AO. Finally, the bench confirmed the impugned order. Thus, the issue has already been allowed in assessee’s favor by the Tribunal and therefore, the subsequent revision thereof proposing further verification could not be sustained.
The Hon’ble Supreme Court in Malabar Industrial Co. Ltd. vs. CIT (supra) has 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. Every loss of revenue as consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interest 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 interest of the revenue, unless the view taken by the Income-tax Officer is unsustainable in law. The said principal has been reiterated by Hon’ble Court in its subsequent judgment titled as CIT V/s Max India Ltd. (295 ITR 282). Similar principal has been followed in Grasim Industries Ltd. V/s CIT (321 ITR 92). The ratio of all these decisions is that where two views are possible and AO has preferred one view against another view, order could not be said to be erroneous or prejudicial to the interest of the revenue.
Therefore, on the given facts, the allegation of Ld. Pr. CIT that Ld. AO did not make necessary enquiries could not be accepted. Accordingly, the impugned revision u/s 263 could not be upheld. We order so. The assessment framed by Ld. AO stand restored back.
The appeal stands allowed in terms of our above order. Order pronounced on 25th March, 2025