Chandigarh ITAT: Higher Official Can’t Use Revisionary Authority U/S 263 if AO Conducted a Proper Investigation

Finding that the taxpayer operates seasonal trade in hosiery items duly backed by documentary proof, which AO investigated accepting the said transactions and resultant profit has been carried to tax, the Chandigarh ITAT said that the PCIT cannot be allowed to invoke his jurisdiction under section 263 only because he assumes that there is the certain imperfection in the documentation so maintained and provided by the taxpayer.

The Bench of Aakash Deep Jain (Vice President) and Vikram Singh Yadav (Accountant Member) witnessed that “where the AO has carried out the necessary enquiry and investigation, and formed a reasonable view and passed a speaking order, in order to disturb the findings of the AO and more so, holding the assessment order as erroneous in so far as prejudicial to the interest of Revenue, certain minimum inquiries ought to have been conducted by the PCIT which apparently has not happened in the instant case”. (Para 18)

In the matter, the taxpayer filed its return declaring a total income of Rs. 3,44,820 which was appointed for scrutiny, and notice u/s 143(2) and 142(1) along with a questionnaire were issued.

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Subsequently acknowledging the submission filed via the taxpayer, the income return was accepted. Pr. CIT examined the assessment records and he was of the prima facie view that the order so passed by the AO was wrong till now as prejudicial to the interest of the Revenue and a show cause under section 263(1) was issued and subsequently acknowledging the submission filed by the taxpayer but not specifying it acceptable, AOs passed order was set aside for passing a fresh order under law after providing sufficient chance of hearing to the taxpayer.

The show-cause under section 263 was been issued by PCIT mentioning that the taxpayer had deposited the cash amounting to Rs 38.37 lacs in old currency notes at the time of demonetization and at the time of assessment proceedings, the taxpayer sought to elaborate on the cash deposit source and in response the taxpayer had furnished that the source was out of sale proceeds from trading in knitted cloth.

Hence the PCIT mentioned that to verify the claim of cash sales, the taxpayer does not provide any supporting documentation beyond the period of demonetization no cash was deposited in the bank account, and basis the same, PCIT issued the show cause.

The Bench discovered that the AO had recorded the fact that the sales were made in cash and a copy of the cash book describing the individual sales and related particulars formed part of the assessment record.

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The Bench discovered that the case connecting to purchases and sales and the source of cash deposit has been duly enquired by the AO, essential inquiries have been incurred, and based on examination, out of sale proceeds the source of cash deposit as emerging has been accepted by the AO and in respect of which, the taxpayer shows profit and paid taxes.

As part of the assessment records basis the exact material and documentation available, particular findings have been recorded by the PCIT which are more like apprehension and suspicion in terms of mode and way to function the business by the taxpayer, Bench stated.

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The Bench observed that no new material has arrived to the notice of the PCIT and based on re-appreciation of the identical material, he has come to a distinct finding.

The bench went on to elaborate that just mentioning that detailed and deep enquiries are needed shall result in taking away a granted right of the taxpayer in terms of completed assessment where it has already gone through the strict examination by the AO and it could not be upheld in the eyes of law even attracting support from the explanation 2(a) to Section 263 until it is indicated as to which inquiry or verification was not incurred via AO before passing the assessment order.

During monitoring where the case about the source of cash deposit during the demonization period has been duly examined by the AO and there is the due application of mind, the ITAT (Income Tax Appellate Tribunal) concluded that no justifiable basis to invoke the revisionary jurisdiction under section 263, and permitted the taxpayer’s appeal.