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Income Tax Appellate Tribunal, PUNE “A” BENCH : PUNE
Before: SHRI RAMA KANTA PANDA & MS. ASTHA CHANDRA
ORDER PER RAMA KANTA PANDA, V.P. : This appeal filed by the assessee is directed against the order dated 21.03.2022 passed u/s.263 by the Pr.CIT, Nashik-1 for the Assessment Year 2017-18.
Facts of the case, in brief, are that the assessee is a firm and is carrying on the business of trading in electrical goods. It filed its return of income on 22.10.2017 declaring total income of Rs.1,60,00,260/-. The case was selected for scrutiny under CASS and statutory notices u/s.143(2) and 142(1) were issued and served on the assessee, in response to which, the assessee appeared before the AO from time to time and filed the requisite details. After considering the submissions made by the assessee from time to time, the AO completed the assessment accepting the returned income vide order dated 26.12.2019.
3. Subsequently, the Pr.CIT examined the records and noted that the AO prima-facie completed the assessment without making due verification and inquiries which were warranted in the facts and circumstances of the case. He observed from the verification of the record that the assessee during the demonetization period has deposited cash to the extent of Rs.19,11,20,840/- which is inclusive of Specified Bank Notes (SBN) amounting to Rs.18,84,20,100/-. He observed that during the period of 09.11.2015 to 31.12.2015 of the earlier year, meagre cash of Rs.35,86,050/- only was deposited in the bank account which is very less as compared to the cash deposited during the demonetization period. He noted that the AO during the assessment proceedings has failed to verify the source of substantial cash deposited into the bank account during the demonetization period with documentary evidence. He, therefore, was of the view that the assessment order passed u/s.143(3) of the Act on 26.12.2019 by the ACIT, Central Circle-1, Nashik is erroneous in so far as it is prejudicial to the interest of the Revenue because the assessment was made without making inquiries or verification which should have been made.
He, therefore, issued a show cause notice to the assessee asking him to explain as to why proceedings u/s.263 should not be initiated. The assessee in response to the same submitted that during the course of assessment proceedings the AO has issued notice u/s.142(1) calling for complete details of cash deposited in the bank account during demonetization period, month-wise cash sales for the A.Y. 2017-18 and A.Y. 2016-17, analysis of month-wise cash sales from 01.04.2016 to 08.11.2016, details of VAT returns for the F.Y. 2016-17 etc. vide Annexure attached to the notice. The assessee in response to the same has filed complete details explaining the source of such cash deposited during demonetization period. Relying on various decisions, it was argued that the proceedings u/s.263 being not in accordance with law should be dropped.
However, the Pr.CIT was not satisfied with the arguments advanced by the assessee. He observed that the assessee failed to explain the nature and source of cash deposited during the demonetization period in SBN amounting to Rs.18,84,20,100/- by producing any concrete evidence except the arguments. Further, the AO did not carry out necessary enquiry and has blindly accepted the returned income and submissions of the assessee. The AO has failed to appreciate the fact that the assessee could not furnish the relevant information in connection with the cash deposited during the demonetization period by way of SBN. Therefore, he was of the opinion that the assessment order passed u/s.143(3) of the Act for the A.Y. 2017-18 on 26.12.2019 by the AO is erroneous in so far as it is prejudicial to the interest of the Revenue. He, therefore, set-aside the order of the AO with a direction to frame the order afresh as per the provisions of law and after considering proper facts and submissions of the assessee and after giving due opportunity of hearing to the assessee.
Aggrieved with such order of the Pr.CIT, the assessee is in appeal before the Tribunal by raising the following grounds :
“1. The learned PCIT erred in holding that the asst, order passed u/s 143(3) in the case of the assessee for A.Y.2017 - 18 was erroneous and prejudicial to the interest of revenue and thereby directing the AO to pass fresh asst, order after carrying out necessary verification without appreciating that the said action of the PCIT was not justified in law and on facts of the case.
2. The learned PCIT ought to have appreciated that in the course of the asst, proceedings u/s 143(3), the A.O. had made detailed enquiries vide notice dated 06.12.2019 in respect of the entire cash deposits during demonetization period and the explanation furnished by the assessee was accepted by the A.O. after application of mind thereto and hence, there was no reason to resort to the provisions of section 263 in the present case.
3. The learned PCIT failed to appreciate that the view taken by the A.O. after carrying out detailed verification and after application of mind to the submissions made by the assessee, was certainly a possible view and therefore, the revision order passed u/s 263 on the above facts was not justified in law.
4. The appellant craves, leave to add, alter, amend and delete any of the above grounds of appeal.”
7. The assessee has also taken the following additional ground :
The assessee submits that in this case, the revision proceedings u/s 263 were initiated on the basis of recommendation proposal for revision forwarded by A.O. through Addl. CIT and thus, the said revision proceedings were not initiated by the Pr. CIT suo-moto by calling for and examining the assessment records and therefore, the notice issued u/s 263 in the instant case and the consequential order passed u/s 263 may be declared as null and void in law.
The ld. Counsel for the assessee submitted that the additional ground raised is purely legal in nature which goes to the root of the matter and all the necessary facts are already available on record. Referring to the decision of Hon‟ble Supreme Court in the case of the National Thermal Power Co. Ltd. v. CIT [1998] 229 ITR 383 (SC) and in the case of Jute Corporation Of India Ltd vs Commissioner Of Income Tax And Anr (1991) 187 ITR 688 submitted that the additional ground raised by the assessee should be admitted.
After hearing both the sides and considering the fact that the additional ground raised by the assessee is purely legal one and all the material facts are already available on record and no new facts are required to be investigated, therefore, in view of the decision of Hon‟ble Supreme Court in the case of the National Thermal Power Co. Ltd. v. CIT (supra) and in the case of Jute Corporation Of India Ltd vs Commissioner Of Income Tax And Anr (supra), the additional ground raised by the assessee is admitted for adjudication.
The ld. Counsel for the assessee at the outset drew the attention of the Bench to the notice issued u/s.142(1) along with the Questionnaire dated 14.08.2019, copy of which is placed at pages 23 to 25 of the paper book and submitted that the AO vide Question Nos. 11, 12, 13, 14 and 15 has asked the following queries :
“11. Please submit cash book for the F.Y. 2015-16 along with copy of Balance Sheet highlighting the cash balance as on 31/03/2016. 12. Please give details regarding cash balance at the end of every month till the month of December-2016 in the following format : Cash balance Cash received Cash Actual Cash balance on the opening during the month withdrawn utilisation of at the end of day of the from the various cash for the the month month sources excluding business bank account activity
Specific note on total cash deposited during the period 08/11/2016 to 31/12/2016 with copies of all bank statement for the period 01.04.2016 to 31/03/2017.
14. Copy of Cash book for the period 01/04/2016 to 31/03/2017. 15. Details of currency deposited in the bank of account with copies of pay in slips used for the purpose.”
Referring to the notice issued u/s.142(1) dated 19.10.2019 along with the annexure, copy of which is placed at pages 26 to 29 of the paper book, he submitted that the AO in the said questionnaire has again asked to specify the nature of cash deposit in the bank account in the given proforma such as total cash deposited during financial year 2015-16, total cash deposited during the period from 01-04-2015 to 08.11.2015 and 09.11.2015 to 31.12.2015 and for the same period for the financial year 2016-17. He has also asked the month wise cash held and deposits for financial years 2015-16 and 2016-17 (i.e. April to December of said years). Referring to page 30 of the paper book, the ld. Counsel for the assessee submitted that the assessee vide letter dated 19.11.2019 has submitted the details. Referring to page 34 to 40 of the paper book, the ld. Counsel for the assessee submitted that the AO vide another notice issued u/s.142(1) dated 06.12.2019 has also asked to submit the monthly VAT returns, details of cash deposited during 08.11.2016 to 30.12.2016, cash balance at the end of every month till the month of December, 2016 in the prescribed form, details of cash deposited in bank as per the proforma given, details of sales analysis of month-wise cash sales and cash deposited from 01.04.2015 to 08.11.2015, analysis of month-wise cash sales and cash deposits from 01.04.2016 to 08.11.2016 etc. He has also asked the assessee to explain the reasons for amount of cash in hand in the F.Y. 2016-17 till 08.11.2016. Referring to pages 41 and 42 of the paper book, the ld. Counsel for the assessee submtited that vide letter dated 12.12.2019, the assessee has replied to the notice issued u/s.142(1) on 06.12.2019.
Referring to the letter dated 12.12.2019, copy of which is placed at pages 43 and 44 of the paper book, the ld. Counsel for the assessee drew the attention of the Bench to the reasons given by the assessee for the amount of cash in hand during F.Y. 2016-17 till 08.11.2016 and the reason for huge difference in the amount of cash deposited in the bank account during the period 08.11.2016 to 30.12.2016 and the same period of the preceding financial year. Referring to pages 45 and 46 of the paper book, the ld. Counsel for the assessee drew the attention of the Bench to another notice issued u/s.142(1) dated 20.12.2019 along with questionnaire to which the assessee has also submitted the requisite details before the AO. He accordingly submitted that when the AO has asked for complete details regarding the nature and source of such cash deposited during the demonetization period and the assessee has explained the same, it cannot be said that the AO has not made any enquiry and passed the order. Therefore, the order of the AO is neither erroneous nor prejudicial to the interest of the Revenue. Therefore, the 263 order passed by the Pr.CIT should be quashed.
13. Referring to the following decisions, the ld. Counsel for the assessee submitted that when the AO had made detailed enquires regarding the source of cash deposits and had taken a possible view, the order passed u/s.263 is not sustainable :
1. PCIT v. Mukesh Chand Mai Pitti [(2023) 156 Taxmann.com 145 (Gui)(HC)].
2. Diamond Heritage v. PCIT [(2023) 37 NYPTTJ 543 (Asr). 3. Mahaveer Prasad Jain v. PCIT [(2023) 153 taxmann.com 207 (Jaipur).
4. Jilha Sahakari Kendriya Bank Maryadit v. PCIT [(2022) 142 taxmann.com 110 (Jabalpur)].
5. Manui Jain HUF v. PCIT [ITA No. 392/ Chd/ 20221 dated 19.02.2024
Referring to the following decisions, the ld. Counsel for the assessee submitted that where the AO had conducted enquiries regarding the source of cash deposits made during demonetization period and taken a view, the Pr.CIT was not justified in invoking the revision power u/s.263 by merely directing the AO to carry out enquiries afresh without himself conducting further enquiries to show that the view taken by the AO on merits was erroneous :
1. V. L. Jewellers v. PCIT [ITA No. 836/ Delhi/ 20221 dated 24.03.2023.
2. Premii Valji & Sons v. PCIT [ITANo. 125/Rajkot/20221 dated 09.09.2022. 3. CIT v. Gabrial India Ltd. [203 ITR 108 (Bom)(HC)
15. Referring to the following decisions, he submitted that where the revision proceedings u/s.263 were initiated at the instance of proposal for 263 action forwarded by the successor AO and not suo moto initiated by the Pr.CIT, then the revision order u/s.263 is not sustainable in law:
1. Premraj Bhanraj Bafna v. PCIT [ITA No. 317/PUNE/ 2020 dated 21.10.2022.
2. Alfa Laval Lund AB v. PCIT [(2022) 215 TTJ 814 (PUNE). 3. KBB Nuts Pvt. Ltd. v. PCIT [(2021) 35 NYPTTJ 801 (Asr). 4. Shantai Exim Ltd. v. CIT [(2016) 178 TTJ 451 (Ahd).
The Ld. counsel for the assessee also relied on the following case laws :
1. S. D. Educational Society v. PCIT [ITA No. 1179/ Delhi/2023] dated 15.03.2024.
2. Ambawatt Buildwell Pvt. Ltd. v. PCIT [ITA No. 2552/Delhi/2017] dated 21.05.2021. 3. BBR Projects Pvt. Ltd. v. ITO [ITA No. 113/Hyd/2022] dated 11.10.2022. 4. Narayan Tatu Rane v. ITO [70 taxmann.com 227 (Mum)]. 5. Raj Kumar Karanwal v. PCIT [ITA No. 644/Delhi/2021] dated 11.09.2023.”
He accordingly submitted that the order of the PCIT u/s 263 be quashed and the grounds raised by the assessee be allowed.
The ld. DR on the other hand while supporting the order of the Pr.CIT relied on the various decisions :
„1. Hon'ble High Court of Kerala in case of Perinthalmanna Services Co- operative Bank Ltd. Vs ITO [2014] 49 Taxmann.com 438 (KERALA)/[2014] 363 ITR 268 (Kerala) [31-01-2014] 2. Hon'ble High Court of Madras in case of Ashok Leyland Ltd. Vs CIT [002] 125 Taxman 965 (Madras) / [2003] 260 ITR 599 (Madras) / [2003] 181 CTR 332 (Madras) [30-09-2002] 3. Hon'ble High Court of Madras in case of CIT Vs Neyveli Lignite Corporation Ltd. [2001] 118 Taxman 230 (Madras) / [2001] 248 ITR 611 (Madras) / [2001] 171 CTR 154 (Madras) [06-11-2000] 4. Hon'ble High Court of Rajasthan in case of CIT Vs Emery Stone Mfg. Co [1995] 83 Taxman 643 (Rajasthan) / [1995] 213 ITR 843 (Rajasthan) / [1995] 126 CTR 345 (Rajasthan) [21-07-1994] 5. Hon'ble High Court of Karnataka in case of Thalibai F Jain Vs ITO [1975] 101 ITR 1 (Karnataka) [14-03-1975] 6. Hon'ble Supreme Court of India in case of Malabar Industrial Co Ltd. Vs CIT [2000] 109 Taxman 66 (SC) / [2000] 243 ITR 83 (SC)/ (2000) 159 CTR 1 (SC) [10-02-2000]
Hon'ble Supreme Court of India in case of CIT, Mumbai Vs Amitabh Bachchan [2016] 69 taxmann.com 170 (SC) / [2016] 240 Taxman 221 (SC) / [2016] 384 ITR 200 (SC)/ (2016) 286 CTR 113 (SC) [11-05-2016] 8. Hon'ble Supreme Court of India in case of CIT Vs Paville Projects (P) Ltd. [2023] 149 Taxmann.com 115 (SC) [06-04-2023] 9. Hon'ble High Court of Calcutta in case of Success Tours & Travels (P) Ltd Vs ITO, Ward 9(4), Kolkata [2017] 80 Taxmann.com 263 (Calcutta) / [2017] 247 Taxman 109 (Calcutta) / [2017] 394 ITR 37 (Calcutta) / [2017] 295 CTR 430 (Calcutta) [23-03-2017] 10. Hon'ble ITAT Pune in the case of Mrs. Minakshi Shivkumar Bansal Vs. PCIT, Pune [2022] 139 Taxmann.com 407 (Pune -Trib.)[07-03-2022] 11. Hon'ble ITAT Pune in the case of Jalgaon People's Co-op Bank Ltd. Vs. PCIT-2, Nashik [2021] 127 Taxmann.com 243 (Pune - Trib.)/(2021) 188 ITD 608 (Pune - Trib.)[22-02-2021].”
We have considered the rival arguments made by both the sides, perused the orders of the Assessing Officer and the CIT(A) and the Paper Book filed on behalf of the assessee. We have also considered the various decisions cited by both the sides. We find the ld. Pr.CIT in the instant case invoking the power conferred u/s.263 of the I.T. Act, 1961 held that the order passed by the AO is erroneous in so far as it is prejudicial to the interest of the Revenue since the AO passed the order without verifying the source of substantial cash deposited into the bank account during the demonetization period with documentary evidence. It is the submission of the ld. Counsel for the assessee that the AO during the course of assessment proceedings has issued various notices and questionnaires on various dates asking the assessee to explain the source of such cash deposits including the cash balance at the end of every month till the month of December, 2016 in the given form, specifying nature of total cash deposited during the period 08.11.2016 to 31.12.2016, details of currency deposited in the bank account with copies of pay-in-slips used for the purpose etc., details of which are at pages 24 and 25 of the paper book. Similarly, the AO vide annexure to notice u/s.142(1) dated 19.10.2019 asked the assessee to give the details in the following proforma :
“In connection with the above, you are requested to furnish the information as per the annexure of the notice u/s 142(1) dt. 14/08/2019 along with following details. Cash deposit made between 9th Nov to 31st Dec 2016. ii. Please specify the nature of cash deposit (i.e. out of loan received, repayment of loan, gift, sale or advance for sale of land or nay other capital asset, cash received for services rendered other exempt income, cash in hand or any other). iii. Whether stock register maintained. If yes, please provide monthwise stock position. iv. Details of cash deposits in Bank: Sl No Description Amount 1(a) Total cash deposit in Bank in F.Y. 2015-16 (b) Total cash deposit in Bank from 01.04.2015 to 08.11.2015 (c) Total cash deposit in Bank from 09.11.2015 to 31.12.2015 2(a) Total cash deposit in Bank in F.Y. 2016-17 (b) Total cash deposit in Bank from 01.04.2016 to 08.11.2016 (c) Total cash deposit in Bank from 09.11.2016 to 31.12.2016 3(a) Percentage increase between 2(a) & 1(a) (b) Percentage increase between 2(b) & 1(b) (c) Percentage increase between 2(c) & 1(c) v. Details of Cash Sales Sl No Description Amount 1(a) Total cash sales in F.Y. 2015-16 (b) Total cash sales from 01.04.2015 to 08.11.2015 2(a) Total cash sales in F.Y. 2016-17 (b) Total cash sales from 01.04.2016 to 08.11.2016 3(a) Percentage increase between 2(a) & 1(a) (b) Percentage increase between 2(b) & 1(b) vi. Analysis of month wise cash sales and cash deposits from 01.04.2015 to 08.11.2015 Monthwise Opening Cash Cash Cash Closing cash in sales deposited withdrawal cash on hand in Bank from the hand bank April-15 May-15 June-15 July-15 Aug-15 Sep-15 Oct-15 November till 08.11.2015 vii. Analysis of month wise cash sales and cash deposits from 01.04.2016 to 08.11.2016 Monthwise Opening Cash Cash Cash Closing cash in sales deposited withdrawal cash on hand in Bank from the hand bank April-16 May-16 June-16 July-16 Aug-16 Sep-16 Oct-16 November till 08.11.2016 viii. Please explain the reason for mounting cash in hand in F.Y. 2016-17 till 08.11.2016.
VISHNU PRASAD H ACIT CIRCLE-1, NASHIK”
Similarly, we find the AO vide annexure to notice u/s.142(1) dated 06.12.2019 has asked the assessee to give the details in the following proforma :
“Kindly refer to the above 1. During the year, it is seen that you have taken unsecured loans from multiple parties. Regarding the same, you are requested to provide the following details.
1. Ledger extract with full narration of the person from whom loan is taken in your books of account.
2. Income Tax Return of the Person from whom unsecured loan has been taken 3. Capital Account of the Person from whom unsecured loan has been taken.
4. Bank account statement of the person from whom unsecured loan has been taken with highlighted entries of the receipt of the loan.
2. Copy of Profit & Loss Account & Balance Sheet along with all schedule for F.Y. 2015-16.
With regard to your Sundry Creditors, please provide the list of all Sundry Creditors outstanding in your books, in the following format Sundry Amount Date of Last Amount paid Nature of Creditor Outstanding Payment in the last Goods/Services Name, PAN as on Made payment received and address 31/03/2017
1. Ledger extract of discount account in the following format. Name of the Nature of Total Purchase Discount given Purchaser goods/services sale
1. Details of interest to Pvt Parties in the following format Name, Loan Loan Loan Loan Interest Address outstandin taken repaid outstanding paid & PAN of g as on during during the as on the 01/04/2016 the year year 31/03/2017 person
1. Submit the monthly VAT return for F.Y. 2016-17
1. Provide the monthwise purchase in the following format Month Total Purchase Cash Purchase Credit Purchase
1. Provide the monthwise sales in the following format Month Total Sales Cash Sales Credit Sales
1. Please provide the details of cash deposited during 08/11/2016 to 31/12/2016 in the following format: Date of Denomination of Number of Total Amount deposits Rs.500 & Rs.1000 notes note
Please give details regarding cash balance at the end of every month till the month of December-16 in the following format. Cash Cash received Cash Actual Cash balance available during the withdrawn utilization of at the end of on the month from the from bank cash for the the month opening various business day of the sources activity month excluding bank account i. Cash deposit made between 9th Nov to 31st Dec 2016 ii. Please specify the nature of cash deposit (i.e. out of loan received, repayment of loan, gift, sale or advance for sale of land or any other capital asset, cash received for services rendered, other exempt income, cash in hand or any other) iii. Whether stock register maintained. If yes, please provide monthwise stock position. iv. Details of cash deposits in Bank: Sl No Description Amount 1(a) Total cash deposit in Bank in F.Y. 2015-16 (b) Total cash deposit in Bank from 01.04.2015 to 08.11.2015 (c) Total cash deposit in Bank from 09.11.2015 to 31.12.2015 2(a) Total cash deposit in Bank in F.Y. 2016-17 (b) Total cash deposit in Bank from 01.04.2016 to 08.11.2016 (c) Total cash deposit in Bank from 09.11.2016 to 31.12.2016 3(a) Percentage increase between 2(a) & 1(a) (b) Percentage increase between 2(b) & 1(b) (c) Percentage increase between 2(c) & 1(c) v. Details of Cash Sales Sl No Description Amount 1(a) Total cash sales in F.Y. 2015-16 (b) Total cash sales from 01.04.2015 to 08.11.2015 2(a) Total cash sales in F.Y. 2016-17 (b) Total cash sales from 01.04.2016 to 08.11.2016 3(a) Percentage increase between 2(a) & 1(a) (b) Percentage increase between 2(b) & 1(b) vi. Analysis of month wise cash sales and cash deposits from 01.04.2015 to 08.11.2015 Monthwise Opening Cash Cash Cash Closing cash in sales deposited withdrawal cash on hand in Bank from the hand bank April-15 May-15 June-15 July-15 Aug-15 Sep-15 Oct-15 November till 08.11.2015 vii. Analysis of month wise cash sales and cash deposits from 01.04.2016 to 08.11.2016 Monthwise Opening Cash Cash Cash Closing cash in sales deposited withdrawal cash on hand in Bank from the hand bank April-16 May-16 June-16 July-16 Aug-16 Sep-16 Oct-16 November till 08.11.2016 viii. Please explain the reason for mounting cash in hand in F.Y. 2016-17 till 08.11.2016. viii. Please provide your Quarterly VAT Returns and Year VAT Return. ix. Whether the quarterly VAT Return is revised in the post- demonetisation period. If yes, please provide the copy of the VAT Return along with reason for revision of VAT Return. Your reply in this regard should be reached in this office on or before 12.12.2019 positively
VISHNU PRASAD H ACIT CIRCLE-1, NASHIK”
We find the assessee vide reply dated 12.12.2019 has submitted the details as per pages 41 and 42 of the paper book.
Similarly, we find the assessee vide letter dated 12.12.2019 has furnished the following details before the AO as per pages 43 and 44 of the paper book :
“12.12.2019 To Assistant Commissioner of Income Tax, Circle-1, Nashik Sir, Reference 1. Name – GANGA ELECTRICALS 2. PAN – AAFFG8921M 3. ASSESSMENT YEAR : 2017-18 Subject – Reply to Notice No. ITBA/AST/F/142(1)/2019- 20/1021826432(1), Dated 06.12.2019. With referred to your annexed questionnaire, we are submitting the following details along with the reply : viii. Reason for mounting cash in hand in F.Y.2016-17 till 08.11.2016.
The Assessee Firm is having cash balance of Rs. 16,33,30,867/- as on 08.11.2016. The said cash balance is attributable towards cash sates recorded in the books of accounts. I wish to submit that a survey action u/s.133A has been conducted on 09.08.2016 in the case of the Assessee Firm. I decided to increase Sales to off-set higher Income tax payout due to Survey action. Accordingly, sales have increased in the post survey period leading to high amount of Cash in hand as on 08.11.2016. In this respect I wish to state that the sale is genuine and the same is recorded in the books of accounts. The VAT on such Sales have also been paid. I wish to further submit that Purchases have also increased in sync with Sales. Thus, the Sales recorded is genuine and the cash amount as on 08.11.2016 is sourced out of Cash Sales. In support of the above facts, I am producing Purchase Invoices, Sales Invoices and Stock record for the period 01.04.2016 to 08.11.2016 before your honor. Reason for huge difference in the amount of cash deposited in the bank account during the period 08.11.2016 to 30.12,2016 and the same period of the preceding financial year. As explained in the above paragraph, a survey action has been conducted in the case of the Assessee Firm on 09.08.2016. During the course of Survey action, declaration of income of Rs.l,24,68,709/- has been given for all the group entities including Ganga Electricals. With the view to off set the higher Income tax payment, I decided to earn more income and with this object in mind, I decided to increase Sales by reducing selling price. Accordingly, sales for August 2016 till 08.11.2016 have increased as compared to same period in the preceding year. The increase in Sales have led to increase in Cash in hand on 08.11.2016, demonetization was announced and therefore cash in hand amount has been deposited in the bank account after 08.11.2016. In view of the above facts, there is huge increase in the amount of cash deposited during the period - 08.11.2016 to 30.12.2016 as compared to 08.11.2015 to 30.12.2015. Particulars Amount (Rs.) Opening Cash balance as on 01.04.2016 26,10,872.62 Add: Cash Sales 16,98,49,367/- Add : Cash withdrawn from bank accounts 32,12,470/- Add : Receipt from Debtors 72,28,409/- Less : Cash Expenses 14,37,623/- Less : Cash Sales Return 8,20,929.04 Less : Cash deposited in the bank account 1,73,11,700/- Cash Balance as on 08.11.2016 16,33,30,867/- I wish to further state that cash deposited in the bank accounts during the period 09.11.2016 to 30.12.2016 is sourced out of Cash Sales. The profit earned out of Sales have already been offered for tax in the IT Return filed. I also wish to inform that Ganga Electricals has declared an amount of income of Rs.2.50 crore under PMGKY scheme. Kindly take above on your record and obliged. For GANGA ELECTRICALS.”
Similarly, we find in response to notice dated 20.12.2019, the assessee has given date-wise, invoice-wise sales etc. in the given proforma.
From the above details, it is seen that the AO has conducted due enquiries by calling for various details from the assessee to substantiate the source of cash deposits in Specified Bank Notes during the demonetization period and therefore, it cannot be said that the AO has not applied his mind and has accepted the submissions made by the assessee. Therefore, it can be safely concluded that the present case is not a case of no enquiry or lack of enquiry. The AO in the instant case has made due enquiries which is expected of him and after receiving the replies from the assessee from time to time, has accepted the source of such cash deposits in the bank account during the demonetization period.
We find the Hon‟ble Bombay High Court in the case of CIT Vs. Gabrial India Ltd. (1993) 203 ITR 180 (Bom.) has observed as under :
14. We, therefore, hold that in order to exercise power under sub-section (1) of section 263 of the Act there must be material before the Commissioner to consider that the order passed by the Income-tax Officer was erroneous in so far as it is prejudicial to the interests of the Revenue. We have already held what is erroneous. It must be an order which is not in accordance with the law or which has been passed by the Income-tax Officer without making any enquiry in undue haste. We have also held as to what is prejudicial to the interests of the Revenue. An order can be said to be prejudicial to the interests of the Revenue if it is not in accordance with the law in consequence whereof the lawful revenue due to the State has not been realised or cannot be realised. There must be material available on the record called for by the Commissioner to satisfy him prima facie that the aforesaid two requisites are present. If not, he has no authority to initiate proceedings for revision. Exercise of power of suo motu revision under such circumstances will amount to arbitrary exercise of power. It is well-settled that when exercise of statutory power is dependent upon the existence of certain objective facts, the authority before exercising such power must have materials on record to satisfy it in that regard. If the action of the authority is challenged before the court it would be open to the courts to examine whether the relevant objective factors were available from the records called for and examined by such authority. Our aforesaid conclusion gets full support from a decision of Sabyasachi Mukharji J. (as his Lordship then was) in Russell Properties Pvt. Ltd. v. A. Chowdhury, Addl. CIT . In our opinion, any other view in the matter will amount to giving unbridled and arbitrary power to the revising authority to initiate proceedings for revision in every case and start re-examination and fresh enquiries in matters which have already been concluded under the law. As already stated it is a quasi judicial power hedged in with limitation and has to be exercised subject to the same and within its scope and ambit. So far as calling for the records and examining the same is concerned, undoubtedly, it is an administrative act, but on examination to consider" or in other words, to form an opinion that the particular order is erroneous in so tar as it is prejudicial to the interests of the Revenue, is a quasi-judicial act because on this consideration or opinion the whole machinery of re-examination and reconsideration of an order of assessment, which has already been concluded and controversy which has been set at rest, is set again in motion. It is an important decision and the same cannot be based on the whims or caprice of the revising authority. There must be materials available from the records called for by the Commissioner.
We may now examine the facts of the present case in the light of the powers of the Commissioner set out above. The Income-tax Officer in this case had made enquiries in regard to the nature of the expenditure incurred by the assessee. The assessee had given detailed explanation in that regard by a letter in writing. All these are part of the record of the case. Evidently, the claim was allowed by the Income-tax Officer on being satisfied with the explanation of the assessee. Such decision of the Income- tax Officer cannot be held to be "erroneous" simply because in his order he did not make an elaborate discussion in that regard. Moreover, in the instant case, the Commissioner himself, even after initiating proceedings for revision and hearing the assessee, could not say that the allowance of the claim of the assessee was erroneous and that the expenditure was not revenue expenditure but an expenditure of capital nature. He simply asked the Income-tax Officer to re-examine the matter. That, in our opinion, is not permissible. Further inquiry and/or fresh determination can be directed by the Commissioner only after coming to the conclusion that the earlier finding of the Income-tax Officer was erroneous and prejudicial to the interests of the Revenue. Without doing so, he does not get the power to set aside the assessment. In the instant case, the Commissioner did so and it is for that reason that the Tribunal did not approve his action and set aside his order. We do not find any infirmity in the above conclusion of the Tribunal.”
We find the Hon‟ble Delhi High Court in the case of CIT Vs. Sunbeam Auto Ltd. has observed as under :
Thus, in cases of wrong opinion or finding on merits, the CIT has to come to the conclusion and himself decide that the order is erroneous, by conducting necessary enquiry, if required and necessary, before the order under section 263 is passed. In such cases, the order of the Assessing Officer will be erroneous because the order passed is not sustainable in law and the said finding must be recorded. CIT cannot remand the matter to the Assessing Officer to decide whether the findings recorded are erroneous. In cases where there is inadequate enquiry but not lack of enquiry, again the CIT must give and record a finding that the order/inquiry made is erroneous. This can happen if an enquiry and verification is conducted by the CIT and he is able to establish and show the error or mistake made by the Assessing Officer, making the order unsustainable in Law/ In some cases possibly though rarely, the CIT can also show and establish that the facts on record or inferences drawn from facts on record per se justified and mandated further enquiry or investigation but the Assessing Officer had erroneously not undertaken the same. However, the said finding must be clear, unambiguous and not debatable. The matter cannot be remitted for a fresh decision to the Assessing Officer to conduct further enquiries without a finding that the order is erroneous. Finding that the order is erroneous is a condition or requirement which must be satisfied for exercise of jurisdiction under section 263 of the Act. In such matters, to remand the matter/issue to the Assessing Officer would imply and mean the CIT has not examined and decided whether or not the order is erroneous but has directed the Assessing Officer to decide the aspect/question. This distinction must be kept in mind by the CIT while exercising jurisdiction under section 263 of the Act and in the absence of the finding that the order is erroneous and prejudicial to the interest of Revenue, exercise of jurisdiction under the said section is not sustainable. In most cases of alleged inadequate investigation", it will be difficult to hold that the order of the Assessing Officer, who had conducted enquiries and had acted as an investigator, is erroneous, without CIT conducting verification/inquiry. The order of the Assessing Officer may be or may not be wrong. CIT cannot direct reconsideration on this ground but only when the order is erroneous. An order of remit cannot be passed by the CIT to ask the Assessing Officer to decide whether the order was erroneous. This is not permissible. An order is not erroneous, unless the CIT hold and records reasons why it is erroneous. An order will not become erroneous because on remit, the Assessing Officer may decide that the order is erroneous. Therefore CIT must after recording reasons hold that the order is erroneous. The jurisdictional precondition stipulated is that the CIT must come to the conclusion that the order is erroneous and is unsustainable in law. We may notice that the material which the CIT can rely includes not only the record as it stands at the time when the order in question-was passed by the Assessing Officer but also the record as it stands at the time of examination by the CIT [see CIT vs. Shree Manjunathesware Packing Products, 231 ITR 53 (SC)]. Nothing bars/prohibits the CIT from collecting and relying upon new/additional material/evidence to show and state that the order of the Assessing Officer is erroneous.”
We find the Mumbai Bench of the Tribunal in the case of DK Associates has observed as under :
We have examined Explanation 2 to section 263 which is inserted by the Finance Act, 2015 with effect from 01/06/2015. This explanation empowers the CIT from 01.06.2015 to invoke the provision of section 263 to the assessment order to be erroneous in so far as it is prejudicial to the interest of the revenue, if, in the opinion of the Principal CIT. No doubt clause (a) of this explanation deems the order to be erroneous and prejudicial to the interest of the revenue in case order is passed without making enquiries or verification which should have been made in the opinion of the Principal Commissioner or Commissioner. In our opinion, for the applicability of clause (a) of Explanation, it is necessary that the Principal Commissioner must mention in the order what inquiries or verification the Principal Commissioner desires to have been earned out by the Assessing Officer. The Principal Commissioner in this case even though stated that the Assessing Officer failed to examine during the course of the assessment proceedings the affect of change in the accounting policy on the Revenue not disclosed by the assessee but did not point out what type of inquiry or verification should have been earned out in this regard by the AO. How non examination of this aspect has resulted in under assessment. The order passed by the AO, in our opinion, shall be deemed to be erroneous in so far as prejudicial to the interest of the Revenue if the Principal Commissioner would have specifically pointed out which of the inquiries or verification should have been carried out by the AO in this regard and the AO failed to carry out those inquiries and verification as desired by the Principal Commissioner.
It has been held in various decisions that for invoking the 28. provisions of section 263, the order passed by the AO must be both erroneous and prejudicial to the interest of the Revenue the twin conditions must be satisfied and absence of any one condition cannot empower the Pr.CIT to invoke the jurisdiction us/.263 of the Act. The order passed by the AO in the instant case may be prejudicial to the interest of the Revenue but cannot be termed as erroneous in view of the various notices issued by him calling for various details from the assessee to substantiate the source of such huge cash deposits during the demonetization period. Further, the Pr.CIT in the instant case, despite having all the material, has not examined the details himself and came to a definite conclusion but has merely set-aside the matter to the file of the AO for afresh assessment. The various decisions relied on by the ld. Counsel for the assessee in the case law compilation support his case to the proposition that where the AO had conducted enquiries regarding the source of cash deposits made during the demonetization period and has taken a possible view, the Pr.CIT was not justified in invoking the revision powers u/.s.263 of the Act by merely directing the AO to carry out enquiries afresh without himself conducting further enquiries. So far as the various decisions relied on by the ld. DR are concerned, these are all distinguishable and not applicable to the facts of the present case. Since the AO in the instant case has made detailed enquiries regarding the source of cash deposits made during the demonetization period and after being satisfied has taken a possible view, therefore, we are of the considered opinion that the ld. Pr.CIT is not justified in invoking the provisions of section 263. We, therefore, set aside the same. The grounds raised by the assessee are accordingly allowed.
In the result, the appeal filed by the assessee is allowed.
Order pronounced in the open Court on 26.07.2024.