CHANDER BHAN, PATIALA V. PCIT, PATIALA

ITA 502/CHANDI/2022

AI Insights

The case involves an appeal by Shri Chander Bhan against the order of the PCIT, Patiala, which had set aside the assessment order passed by the AO for the assessment year 2017-18. The PCIT had deemed the assessment order as erroneous and prejudicial to the interest of the Revenue, primarily due to inadequate inquiries regarding the sources of cash deposits during the demonetization period and the repayments of squared-up loans. The Tribunal examined the submissions and evidence presented during the original assessment proceedings and the subsequent revisionary proceedings under section 263 of the Income Tax Act. The Tribunal concluded that the AO had indeed conducted a thorough examination and made appropriate inquiries, thus reversing the PCIT's order.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 127598 (ITAT-CHANDIGARH)
• Duration Of Justice: 10 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-04-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 25-04-2023
• Assessment Year: 2017-2018
• Appeal Filed On: 29-05-2022
• Laws Referred To: Income Tax Act
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Revision of order; Assessment record; Set aside
• Section: 263; 2; 142(1)

Judgement Text

आयकर अपील य अ धकरण,च डीगढ़ यायपीठ “ए” , च डीगढ़ IN THE INCOME TAX APPELLATE TRIBUNAL, CHANDIGARH BENCH “A”, CHANDIGARH ी आकाश द प जैन, उपा य एवं ी #व$म &संह यादव, लेखा सद+य BEFORE: SHRI. AAKASH DEEP JAIN, VP & SHRI. VIKRAM SINGH YADAV, AM ITA NO. 502/Chd/ 2022 Assessment Year : 2017-18 Shri Chander Bhan Prop. M/s Shree Krishna Industries Alipur Road, Patiala Jhill Chowk Patiala- 147001, Punjab The PCIT Patiala PAN NO: AEVPB6100K Appellant Respondent ! " Assessee by : Shri Rakesh Cajla, Advocate # ! " Revenue by : Shri Vivek Nangia, CIT, DR $ % ! & Date of Hearing : 26/04/2023 '()* ! & Date of Pronouncement : 28/04/2023 आदेश/Order PER VIKRAM SINGH YADAV, A.M. : This is an appeal filed by the assessee against the order of the Ld. Pr. CIT, Patiala dt. 25/03/2022 wherein the assessee has taken the following grounds of appeal: 1. The order passed by the Ld. PCIT Patiala is bad in law and against the facts of the case. 2. That the Ld. PCIT Patiala is erred in considering the order passed by the Assessing Officer as erroneous as well as prejudicial to the interest of the revenue. 3. That the Ld. PCIT Patiala is erred in passing the order u/s 2653(1) of the Income Tax Act on the ground that the assessment order was passed without making any queries or verification, whereas the order was passed after making the full inquiries and with due application of mind. 4. That the Ld. PCIT Patiala is not justified in passing the order under section 263(1) without considering the reply/documents during the proceedings before him. 5. That the Ld. PCIT Patiala failed to conduct the inquiry while exercising the revisional power u/s 263 of the Income Tax Act. 2 6. That the assessee craves leave, to add or amend any of the ground(s) of appeal before it is finally heard. 2. At the outset, it is noted that there is a delay in filing the present appeal by six days as pointed out by the Registry. After taking into consideration the affidavit filed by the assessee as well as hearing the Ld. DR who had not raised any specific objection, the delay is hereby condoned and the appeal is admitted for adjudication. 3. Briefly the facts of the case are that the assessee filed his return of income declaring total income of Rs. 7,47,934/-. Subsequently, notice under section 143(2) and 142(1) were issued alongwith questionnaire and after taking into consideration the submissions filed by the assessee through the ITBA e-filing portal, the return of income was accepted. Subsequently, the assessment records were called for by the Ld. Pr. CIT and a show cause dt. 25/01/2022 was issued regarding source of repayment of squared up loans taken by the assessee from M/s Rakesh Traders as well as M/s Tata Finance and secondly regarding source of the cash deposit during the demonetization period. 3.1 In response, the assessee filed his submission which were considered but not found acceptable to the Ld. Pr. CIT and the assessment order was held to be erroneous in so far as prejudicial to the interest of the Revenue and the same was set aside to the file of the AO for passing afresh order in accordance with law in respect of the matter discussed in the impugned order after providing opportunity to the assessee. 4. Against the said findings and directions of the Ld. Pr. CIT, the assessee is in appeal before us. 5. During the course of hearing, the Ld. AR submitted that the case of the assessee was selected through CASS on the issue of cash deposit during the demonetization period. In this regard, necessary inquiries were made by the AO about the source of cash deposit and specific queries were raised which were 3 duly explained by the assessee and after being satisfied with the submission and explanation so furnished by the assessee, the assessment proceedings were completed wherein the returned income was accepted. 5.1 In this regard, our reference was drawn to the notice dt. 18/04/2019 issued under section 142(1) of the Act wherein the AO has asked to furnish the source of the cash deposit made during the demonetization period alongwith documentary evidence and secondly regarding the confirmation from loan creditors including squared up loan accounts alongwith copies of the relevant bank statements and returns of income of the loan creditors. 5.2 It was submitted that in response to the said notice, the assessee filed his submission wherein it was submitted that during the demonetization period, the assessee had deposited Rs. 38,30,000/- in his bank account out of the sale proceeds and realization from the debtors and during the year, assessee has reported total turnover of Rs. 7,80,98,933/-. 5.3 It was submitted that thereafter another notice under section 142(1) dt. 29/10/2019 was issued by the AO wherein the AO has asked complete detail of all bank accounts maintained by the assessee alongwith copies of the statement for the period 01/04/2016 to 31/03/2017, complete name and address of the debtor from whom you have received amount totaling to Rs. 38,30,000/- as well as the date on which the said amount was received and whether the amount has been received in old currency or a new currency. 5.4 In response, the assessee filed necessary submissions which are forming part of the assessment record. It was accordingly submitted that the necessary details were called for and duly submitted by the assessee and on due examination thereof and application of mind, the AO has completed the assessment therefore the findings of the Ld. Pr. CIT that the assessment order has been passed without making inquiries or verification is not correct and the order 4 so passed deserves to be set aside. In this regard, our reference was drawn to the submissions made before the ld PCIT which read as under: Kindly refer to your notice dated 25.01.2022 on the subject noted above. 2. In the notice your goodself has pointed out that loan taken from Rakesh Traders amounting to Rs. 1850000/- has been squared up and the source of this squared up account has not been obtained and examined by the A.O. 2.1 In this regard it is humbly submitted that the query regarding squared up account was raised by the Ld. Income Tax Officer vide notice u/s 142 dated 18.04.2019, which is as under: - "Confirmation from loan creditors including squared up loan accounts along with copies of relevant bank statement and return of income of loan creditors." It was old unsecured loans outstanding as on 31.03.2016, which was repaid during the year through bank channels and with issuance of invoices. In this regard detailed ledger account indicating the payment made to the M/s Rakesh Traders was submitted before the Ld. Income Tax Officer. The copy of the ledger account is again enclosed herewith for your reference along with the bank statement of H.D.F.C. vide account no.CA-50200019025176 for the month of May, 2016 is enclosed herewith indicating there in the repayment to the unsecured loan. Since this query was raised and replied therefore may not be within scope of section 263 (1) of the Income Tax Act, Regarding repayment of Rs.58100/- to M/s Tata Finance, it was loan against vehicle, which was repaid through bank channel. The copy of ledger and repayment schedule are enclosed herewith for your reference. Hope this will serve the purpose. 3. At para no.3 your goodself has pointed out that the assessee had deposited Rs.56,14,800/- during the demonetization period and out of which the assessing officer has not examined the source of cash deposit amounting to Rs. 19,84,800/-. 3.1 In this regard it is humbly submitted the query regarding deposit of cash during the demonetization period was specifically raised by the Ld. Income Tax Officer vide notice u/s 142 (1) dated 29.10.2019. The complete detail of source of cash deposit along with cash book from 08.11.2016 to 31.12,2016 was furnished. During this period the assessee had deposited Rs.38,30,000/, in hdfc bank vide account no.cc 50200019377314-. The detailed reply was submitted before the Ld. Income Tax Officer vide reply dt.23.07.2019 giving therein the explanation regarding deposit of cash during the demonetization period. 3.2 The copy of the reply, cash flow statement are enclosed herewith for your reference. The soft copy of bank statement is enclosed. 5 Since all the queries as pointed out by your goodself in the notice u/s 263 (1) was raised by the Ld. Income Tax Officer during the assessment proceeding and replied in detail along with documentary evidence, therefore, the order passed by the assessing officer dated 25.12.2019 u/s 143 (1) of the Income Tax Act, 1961 cannot be termed as erroneous so far;as prejudicial to the interest of revenue. It is therefore, requested the proceedings u/s 263 (1) of the Income Tax Act may kindly be withdrawn. 6. Per contra, the Ld. CIT/DR has relied on the findings of the Ld. Pr. CIT and our reference was drawn to Para 4, 5 and 5.1 of the impugned order which read as under: 4. I have carefully considered the submissions made by the counsel of the assessee which are not tenable. The same are not tenable due to the following reasons:- a) The case of the assessee was selected for scrutiny for the reasons (i) Large Squared up loans during the year (ii) High value receipt of cash shown from third parties in response data- cash deposits during demonetization. During the course of assessment proceedings, the AO had not obtained and examined the source of these squared up loans as nothing is placed on record to justify the mode of repayment of loans. Now the assessee provided the copies of the ledger accounts in which it is shown that the loans were repaid through banking channels but the assessee has not, furnished copies of his bank statements which reflect the details of credits in the books of the assessee. Therefore, the source of the repayment of the loan creditors remained unexplained in the absence of any documentary evidence. b) Regarding cash deposits of Rs.56,14,800/-, the assessee had stated to have deposited cash of Rs.38,30,000/- in HDFC bank during demonetization out of sale proceeds and realization from the debtors but furnished only names of the debtors without PANs before the AO. with a note "All these receipts are against sale and all these debtors are not having PAN". The AO had not made confirmation from the debtors and accepted the version of the assessee. The actual cash deposits made during demonetization were Rs.56,14,800/- and the AO had also not obtained and examined the source regarding the balance cash deposits of Rs. 19,84,000/-. Also, no adequate enquiry was made during the assessment proceedings for the reason of selection of the case for scrutiny i.e. high value receipt of cash shown from third parties. Now, the assessee has provided only the copies of cash book for the period 08.11.2016 to 31.12.2016, in which name and amount received in cash is mentioned. Further confirmation from the parties needs to be made to verify the source of deposits. Therefore, cash deposits of Rs.56,14,800/- made during specified period remained unexplained in the absence of any documentary evidence and confirmation from the sundry debtors from whom the cash payments were raised. 6 From the above, it is evident that the assessment order was passed without making inquiries or verification. The A.O. did not enquire/verify about the complete details and documentary evidences of aforesaid issues. 5. Under the aforesaid circumstances, the order of the A.O. is erroneous as A.O. did not enquire/verify about the complete details and documentary evidences of aforesaid issues and also is prejudicial to the interests of the revenue being unexplained squared up loans/cash deposits escaped for taxation. 5.1 Detailed and deep enquiries were required to be made on the issues discussed above before accepting claim of the assessee. In this regard, it is worthwhile to refer to provisions of Explanation 2 to Section 263(1) of the Income Tax Act, 1961 according to which an order passed by the A.O. shall be deemed to be erroneous in so far as it is prejudicial to the interest of revenue for various reasons including the fact that if in the opinion of Principal Commissioner or Commissioner the order is passed without making any enquiry or verification which should have been done and also includes the order which is passed allowing any relief without enquired into the claim.” 7. We have heard the rival contentions and purused the material available on record. Firstly, regarding the two squared up loan accounts of M/s Rakesh Traders and M/s Tata Finance, the ld PCIT has returned a finding in para 4(a) that though the assessee has filed copy of ledger accounts reflecting the repayment of loan through the banking channel however copy of bank statement reflecting the credits in the bank account have not been furnished. If we look at the contents of para 3 of the impugned order where the ld PCIT has referred to the submissions and documentation filed by the assessee, it is noted that there is a clear mention of filing of copy of statement of the bank account maintained by the assessee with HDFC bank. We therefore find that the findings of the ld PCIT that no bank statement has been submitted by the assessee is clearly in conflict with the ld PCIT own narration of assessee’s submission of filing of the bank statement. Further, on perusal of the assessee’s submissions before the ld PCIT available as APB page 33, we find that the assessee did submit copy of ledger accounts alongwith bank statement. In view of the same, we find that where the matter has been enquired into by the AO, where all relevant documents are on record and there is no finding recorded by the ld PCIT as to how the source of repayment of the aforesaid two loan transactions remain 7 unexplained and what further enquiries or verification are required, the order so passed by the AO cannot be held as erroneous in so far as prejudicial to the interest of the Revenue. 8. Regarding source of cash deposited during the demonization period, we find that the matter has been enquired into by the AO wherein specific queries were raised initially vide notice dated 18/04/2019 wherein the assessee submitted that cash amounting to Rs 38,30,000/- was deposited during the demonization period out of sale proceeds and realization from debtors and thereafter, by notice dated 29/10/2019, the AO has further enquired about the name and address of the debtors, the dates when the amount has been realized from the debtors, whether the amount has been realized in old currency or new currency along with copies of bank statements and other documentary evidence and in response, the assessee filed requisite submissions in form of name and address of debtors, copy of bank statement and the fact that the amount has been deposited in old currency. The same were thereafter examined and taken into consideration by the AO and the explanation of the assessee regarding quantum as well as source of cash deposit during the demonization period was accepted. 9. During the revisionary proceedings, the submissions so made were reiterated and as per ld PCIT, the AO should have sought confirmation from the debtors as well and given that no confirmation has been sought by the AO, the assessment order so passed by the AO was held to be erroneous in so far as prejudicial to the interest of the Revenue. 10. We therefore find that the matter was duly enquired into by the AO and being satisfied with the explanation of the assessee and submissions and related documentation so filed by the assessee, the AO accepted the said explanation and didn’t record any adverse findings regarding the quantum and source of cash deposited during the demonization period and in his wisdom may not 8 have felt the need for seeking external confirmation from the debtors. Therefore, where the matter has been examined and a view has been taken by the AO accepting the nature and source of deposits being from the assessee’s regular business activities and collection from the debtors, it cannot be held that cash deposits remain unexplained and the AO has not made adequate enquiries. 11. Further, we find that on perusal of submissions and documentation so filed by the assessee in support of his explanation, all the ld PCIT has stated is that the AO should have called for confirmation from the debtors as well but at the same time, nothing has been stated as to the reasons for his suspicion or arriving at such a finding which in his opinion require further enquires by way of seeking confirmation and that too from all the debtors. The question is whether in all such cases where the assessee is coming with an explanation that the source of cash deposited is from collection of debtors, the AO by default should seek confirmation from all the debtors irrespective of nature and size of the assessee’s business/turnover, quantum and volume of transactions, maintenance of books of accounts, etc. and where such an exercise has not been conducted by the AO, the order so passed by him would by default result in an erroneous order which deserve to be set-aside. In our understanding, there cannot be any standard yardstick which can be fixed which can be applied in all cases and it depends upon facts and circumstances of each individual matter, the level and quality of documentation which has been maintained by the respective assessees and whether the books of accounts have been audited or not and what level of information is sought and supplied by the assessee during the course of assessment proceedings, surrounding circumstances and the comparative data analysis for previous and subsequent period in terms of realization of debtors in cash/through banking channel and only on thorough analysis thereof, where there are indications and deviations, if any which are noticed, the matter can be examined in further detail by seeking external 9 validation and that too, by identifying a sample data set and not across the whole spectrum of debtors unless the deviations are of such magnitude that all the transactions are under suspect and are of doubtful/questionable nature. 12. In light of aforesaid discussions, we are of the considered view that the matter has been duly enquired into and examined by the AO and the assessment order so passed therefore cannot be held to be erroneous in so far as prejudicial to the interest of the Revenue. In view thereof, the order so passed by the ld PCIT is set-aside and that of the AO is sustained. 13. In the result, the appeal of the assessee is allowed. Order pronounced in the open Court on 28/04/2023. Sd/- Sd/- आकाश द प जैन #व$म &संह यादव (AAKASH DEEP JAIN) ( VIKRAM SINGH YADAV) उपा य / VICE PRESIDENT लेखा सद+य/ ACCOUNTANT MEMBER AG Date: 28/04/2023 ( + ! , - . - Copy of the order forwarded to : 1. The Appellant 2. The Respondent 3. $ / CIT 4. $ / 0 1 The CIT(A) 5. - 2 ग 4 5 & 4 5 678 ग9 DR, ITAT, CHANDIGARH 6. ग 8 : % Guard File ( + $ By order, ; # Assistant Registrar