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Facts
The assessee is engaged in the business of telecommunication and sale of mobile accessories. The PCIT set aside the assessment order under Section 263, stating it was erroneous and prejudicial to revenue, directing a fresh assessment.
Held
The Tribunal held that the PCIT erred in assuming jurisdiction under Section 263, as the Assessing Officer had applied their mind and conducted inquiries. The Tribunal found that the assessee's business model and commission income were properly disclosed and not doubted, and the transactions were in the ordinary course of business.
Key Issues
Whether the PCIT correctly invoked Section 263 to revise the assessment order when the AO had already made inquiries and the assessee had provided explanations?
Sections Cited
143(3), 263, 263(1)
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आयकर अपीलीय अिधकरण,च�ीगढ़ �ायपीठ “बी” , च�ीगढ़ IN THE INCOME TAX APPELLATE TRIBUNAL, CHANDIGARH BENCH “B”, CHANDIGARH HEARING THROUGH: HYBRID MODE �ी राजपाल यादव, उपा�� एवं �ी कृणव� सहाय, लेखा सद� BEFORE: SHRI. RAJPAL YADAV, VP & SHRI. KRINWANT SAHAY, AM आयकर अपील सं./ 2022 िनधा�रण वष� / Assessment Year : 2017-18 बनाम Smt. Shipra Vig The Pr. CIT # 690, Subhash Gali, Panchkula Yamuna Nagar �ायी लेखा सं./PAN NO: AADHPV6374J अपीलाथ�/Appellant ��थ�/Respondent िनधा�रती की ओर से/Assessee by : Shri Sudhir Sehgal, Advocate राज� की ओर से/ Revenue by : Smt. Kusum Bansal, CIT DR सुनवाई की तारीख/Date of Hearing : 29/01/2025 उदघोषणा की तारीख/Date of Pronouncement : 11/04/2025 आदेश/Order PER KRINWANT SAHAY, A.M:
This is an appeal filed by the assessee against the order of Ld. PCIT, Panchkula dt. 21/03/2022 pertaining to Assessment Year 2017-18, who had set aside the order as passed by the AO, ward- 4, Yamuna Nagar u/s 143(3) vide order, dated 29.12.2019 as erroneous and prejudicial to the interest of revenue and directed for the fresh assessment to be made by the AO.
The following grounds of appeals have been taken by the assessee:-
"1. That the Ld. PCIT, Panchkula has erred in assuming the jurisdiction u/s 263 and holding the same as erroneous and prejudicial to the interest of revenue and canceling the assessment already framed u/s 143(3) vide, order, dated 29.12.2019.
2 2. That the Ld. PCIT has also erred in not appreciating that the Assessing Officer, while framing the original assessment had made requisite enquiries on the issue of cash deposits in the bank account and on account of secured and unsecured loans and had taken a possible view and, thus, setting aside the assessment to the file of Assessing Officer again is devoid of any valid reasoning. 3 That the Ld. PCIT has wrongly invoked the explanation 2(a) of section 263(1) on already completed assessment and which is not proper. Notwithstanding the above said ground of appeal, the Ld. PCIT 4. having asked for substantial details/explanation from the assessee with regard to the issue of cash deposits and Others as is apparent from the order as passed by the PCIT u/s 263 and have again set aside the issue to the file of the Assessing Officer and, thus, the PCIT having not been of confirmed view and, as such, the setting aside of the assessment to the file of Assessing Officer is not justified as per binding judgment of Hon'ble Punjab 8t Haryana High Court in the case of Kanda Rice Mills. Notwithstanding the above said ground of appeal, the Ld. PCIT 5. has erred in assuming the jurisdiction u/s 263 on the basis of audit objections, which is apparently wrong and incorrect in view of the judgment of Jurisdictional High Court in the case of Sohana Woollen Mill and other judgments of jurisdictional ITAT, Chandigarh Bench, Chandigarh in the case of M/s Ganga Acrowools Ltd. in and in the case of Sh. Surinder Pal Singh in vide orders, dated 31.01.2022 and also that 263 proceedings have been initiated at the behest of proposal sent by the Assessing Officer/Addl.CIT and, thus, the proceedings are void abinitio.
6. The appellant craves leave to add, amend, alter any of the above grounds during the appellate proceedings have been considered."
At the outset, the Ld. Counsel of the assessee stated that ground No.5 is not being pressed and the same therefore, may be treated as withdrawn. Regarding ground of appeals, it was argued by the Ld. Counsel of the assessee that the assessee is in the business of telecommunication and purchase and sale of Mobile accessories. The business of 'E-Wallet', 'Recharge Coupon' and 'e-recharge coupons' was started mainly during the year under consideration. 3.1 It was further submitted that the assessee is only earning commission @ .25% to .30% and on e-.money transfers and 1.25% 3 to 1.75 on 'recharge' of coupons. Such commission as earned have been disclosed in the return of income and this commission is also reflected in Form No.26AS, where the TDS has been deducted on such earning of commission. There is no dispute about said commission as disclosed and earned during the year under consideration. In the earlier years also, though, the business of 'e-wallet' and 'e-recharge coupons' was very less, since it was started very late in last year, but in this year, there was substantial work of 'e-wallet' and 'e-recharge coupons,. All such commission have been received from the companies through banking channels and such commission is earned by providing services of 'e-wallet' and e-recharge coupons through retailors working under the assessee. 3.2 The modus operandi is that a person, who wants to send his money to his Home town approaches the retailors and such retailors working under the assessee, accept small amount of cash, which he intents to send to his 'Home Town'. For sending that amount, the facility of e-wallet transfer is required, which the assessee gets from the companies, with whom, he has entered into agreements. Thus, whatever, cash is collected by such retailors, is handed over to the assessee. Then, she deposits the same in her bank accounts and then the remittances are made through banking channels to the companies from whom, the services of 'e-wallet and e-recharge coupons' are undertaken. Such companies then pay the commission to assessee. The assessee has also placed before us a Paper Book-ll, in which, the copies of accounts of the 'Idea Cellular Ltd', 'Idea Money & Communication System'/ 'Idea Mobile Commerce Services Ltd'., 4 'Pranav Online Solution Pvt. Ltd.', 'Vishesh Info System Pvt. Ltd.'. in the books of assessee are placed. Copies of all bank accounts of the assessee, namely of, 'HDFC Bank',,' Axis Bank', Bank of Maharashtra, and Vijaya Bank had also been submitted. It proves that the payment is being remitted to such companies and commission is earned. Thus, it was argued that the bank accounts of the assessee are self-explanatory and the cash, which is deposited in the bank accounts of the assessee was on account of the transactions made during the regular course of business of the assessee. Said cash as being collected from the retailors has remitted to the companies from whom services of 'E-wallet and e- recharge coupons' is being availed. 3.3 It was further submitted by the assessee that the case was taken up in scrutiny by AO on account of cash deposits during the year under consideration and the return had been filed on the basis of audited books of accounts. The main business of the assessee is on account of earning of commission, which have been disclosed in the audited profit and loss account at Rs. 22,45,795/- and trading of Mobile accessories, at which gross profit of Rs. 1,68,215/- has been disclosed. 3.4 It was further brought to our notice that the detailed questionnaire regarding the source of cash was issued by the then AO vide notice, dated 29.07.2019, raising various queries with regard to the source of cash deposited in the bank accounts. Replies were filed before the AO and all the copies of bank accounts had also been submitted. It was after due application of mind by the AO, after looking into the bank accounts of the 5 assessee and modus operandi of business, the assessment was framed by the AO concerned.
3.5 Further, arguments were made with regard to the proceedings u./s 263 and it was argued that the Ld. PCIT had asked for the deposits in the bank accounts. Copy of the show cause notice u/s 263 have been placed in the 'Paper Book' and it was replied at length, to the Ld. PCIT by way of two replies, dated 04.03.2022 and 09.03.2022. Again, the same modus operandi was reiterated and copies of the agreements with the companies were also placed on record, from whom, the services of 'e-wallet' and 'e-recharge coupons' had been undertaken. 3.6 It was further submitted that the PCIT in the order passed u/s 263 has reproduced the replies as submitted during the course of proceedings before us. He stated that there are no signatures in some of the agreements, so furnished and thus, he has confused herself about the availability of cash, which have been deposited in the bank account by mentioning that since the sales of the assessee are only to the tune of Rs. 42,29,593/- of the Mobile Accessories. It was also submitted that the availability of cash for depositing in the bank accounts which was, later on, remitted entirely to the various companies, from whom the services of 'e- wallet' and 'e-recharge coupons' had been taken. It was vehemently argued that the Ld. PCIT has ignored the fact that the assessee is also providing the services of 'E-wallet and E-recharge coupons and the retailors are remitting the cash to the assessee for availing such services and such cash is remitted by the 6 assessee to the companies as per Bank Statement furnished before the AO and commission is earned on such dealings. 3.7 Regarding, the signatures of some of the officials of the companies, being not there on the agreements, it was argued that the agreement with the companies, who are giving services of e-wallet and recharging are 'NBFC companies'. Those agreements as entered with those companies, have been acted upon. The Ld. PCIT has failed to appreciate that not even the single penny of cash deposit has been used for personal benefit of the assessee. Entire amount had been remitted to the NBFC companies, whose business is regulated by the Reserve Bank of India. Regarding the substantial cash balances on day to day basis, it was argued that the cash is as per regular books of account and no discrepancy have been pointed out with regard to same by the Ld. PCIT. She has just doubted for the sake of doubt that why there is a substantial cash in hand and which has been deposited in the bank accounts of the assessee for remitting to NBFC companies. 3.8 Lastly, it was argued vehemently that commission income as disclosed has not been doubted at all and such commission income is matching to TDS deducted during the year. Thus, both on the application of mind by the AO concerned and on merits of the case, it was argued that the order u/s 263 as passed by the Ld. PCIT deserves to be set aside as the Ld. PCIT has failed to appreciate the business model of the assessee, where the assessee is in the business of providing services to parties on account of e-wallet and e-recharging substantially. The assessee 7 also relied upon the judgment of Jurisdictional Punjab & Haryana High Court in the case of M/s V-Con Integrated Solutions Pvt. Ltd. in ITA No.88-2024(O&M). In this case also appeal u/s 263 has been challenged the judgment of Chandigarh Bench have been upheld by holding that where the AO had issued the questionnaire and assessee had replied to such questionnaires, the same would not be valid ground for treating the order of AO as erroneous and prejudicial to the interest of revenue. Similar reliance was placed in the following judgments: i). PCIT V. SPML Infra Ltd., as reported in (2024) 164 taxmann.com 505 (SC). ii). PCIT V. Pramod Kumar Tekriwal as reported in (2023) 154 taxmann.com 142 (SC) 4. The Ld. CIT (DR) relied on the order of Ld. PCIT and sought confirmation of order of Ld. PCIT on the basis of facts as mentioned in the order of Ld. PCIT.
We have considered the order of Ld. PCIT passed u/s 263, arguments of the Ld. Counsel and of the Ld. CIT (DR) and Brief Synopsis and the Paper Books furnished by the assessee. We find that the Assessing Officer during the course of assessment proceedings had raised specific queries vide questionnaire, dated 29.07.2019, wherein, the nature of business, source of cash deposits in the bank account, headwise cash payment expenses and other details had been asked for. It was substantiated by way of other queries, which were replied to. We also find that each and every objection of the Ld. PCIT in the notice u/s 263 have been replied by way of two replies, dated 04.03.2022 and 09.03.2022. Copies of agreements with NBFC companies have also 8 been filed. The Ld. PCIT has not been able to dispute the commission earned by the assessee on such services being provided on account of e-wallet and on recharge coupons. It was substantially new business during the year under consideration and thus there was deposit of cash, which was received from different retailors of the assessee to whom, the services of e-wallet and recharge were provided with the help of NBFC companies. 5.1 We have also gone through the copies of the bank accounts of the assessee and copies of accounts of NBFC Companies, as placed in the Paper Book. We find that substantial sum of money has been transferred through banking channels out of the cash deposits in the assessee's bank account and said NBFC companies have facilitated by providing the 'e-wallets and e- recharge coupons to the assessee. They are provided to retailors as above. The Ld. PCIT has not doubted the commission earned, reflected in the profit and loss account of the assessee and the same has also been clarified to the Assessing Officer during the course of assessment proceedings. The business model has been explained to the AO and to Ld. PCIT which have not been doubted and merely that the cash has been deposited in the bank accounts of the assessee, without looking into the business model of the assessee, without doubting the commission earned on such services being provided of 'E-wallet and E-recharge coupon', is not proper. 5.2 We have carefully gone through the copies of the bank accounts, copies of the agreements. As per record of the department, those agreements have been acted upon and once 9 that agreement had been acted upon and merely that there were no signatures of the parties, is not conclusive reason to doubt the veracity of such agreements. The commission has been earned and disclosed by the assessee and the agreements have been acted upon. We have also gone through the case laws as relied upon by the Ld. Counsel. The Hon'ble Apex Court and the Jurisdictional Punjab & Haryana High Court as cited supra for the preposition that once there is due application of mind by the AO and the AO having raised the queries and then replied to by the assessee, the cancellation of assessment as framed by the AO after due application of mind cannot be held to be proper. 5.3 Accordingly, the action of Ld. PCIT in passing order u/s 263 charging the Assessment Order as erroneous and prejudicial to the interest of Revenue cannot be sustained.
In the result, appeal of the Assessee is allowed.