ITAT: PCIT Can’t Have Authority to Use Section 263 Under Income Tax for Revision

It was determined that the Principal Commissioner of Income Tax (PCIT) did not have the authority to gather the revisionary requirements of Section 263 of the Income Tax Act, 1961, as determined by the Delhi Bench of the Income Tax Appellate Tribunal (ITAT).

Therefore, the order for reassessment for the Assessment Year 2016-17 was overturned.

The present case involves Navneet Bhardwaj, who received a notice from the PCIT exercising its revisionary power under Section 263 of the Income Tax Act on an issue already decided by the AO. The assessee appealed the PCIT’s order before the Tribunal.

According to the Annual Information Return (AIR), a large cash deposit had been made in the savings account, thereby selecting the case for limited scrutiny. Section 142(1) of the Income Tax Act requires the AO to send notices and a questionnaire to the assessee about their total turnover and other income.

The assessee was asked to explain the source of Rs. 66,87,000 in cash with documentary evidence. In response, the assessee claimed that they were running a school named Mount Litera School, Muzzafarnagar during the year in question and was the settler/president of the Shri Ram Educational Trust, under which the school was operating.

The AR argued that the Assessing Officer had conducted a thorough investigation and correctly accepted the explanation provided by the assessee regarding the source of the cash deposit in the assessment order. Therefore, it cannot be claimed that the order was erroneous and prejudicial to the revenue.

The Departmental Representative (DR) argued that when there is insufficient enquiry, the assessment order can be deemed erroneous and prejudicial to the interest of revenue, making it eligible for revision under Section 263 of the Income Tax Act.

Read Also: CBDT: Scrutiny Not Mandatory When Tax Returns Filed U/S 142(1)

An Assessing Officer issued notices and a questionnaire regarding the source of cash deposited into the assessee’s bank account. The assessee responded to the notices with relevant documentary evidence. A bench consisting of Chandra Mohan Garg as the Judicial Member and M. Balaganesh as the Accountant Member.

After considering and adjudicating the issue, the AO concluded that the cash deposits were made from student fees and deposited into the trust’s existing savings bank account, which was opened while waiting for the new bank account to be opened.

It was held by the Tribunal that the Principal Commissioner of Income Tax (PCIT) had no authority to revise under Section 263 of the Income Tax Act. As a result, the revised assessment order for 2016-17 was set aside and the original assessment order was reinstated, resulting in the assessment appeal being allowed.