AI Insights
The case revolves around an appeal by Satishbhai Mohanbhai Zalavadia against the order of the Principal Commissioner of Income Tax (PCIT), Rajkot, which revised the assessment order for the Assessment Year 2017-18 under section 263 of the Income Tax Act, 1961. The PCIT had found that the original assessment did not adequately investigate substantial cash deposits made during the demonetization period, totaling Rs. 1,02,62,000 across two bank accounts. The Tribunal examined whether the PCIT was justified in revising the assessment order, focusing on the adequacy of the inquiry conducted by the original assessing officer and the legal validity of the notices issued under sections 143(2) and 142(1) of the Act.
Appeal Details
Counselvise Citation
[2025] 140 COUNSELVISE.COM (IT) 633110 (ITAT-RAJKOT)
Assessee PAN
Bench
Appeal Number
CRN Number
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
10-06-2025
Appeal Filed By
Assessee
Order Result
Allowed
Bench Allotted
DB
Assessment Year
2017-2018
Judgement Text
" IN THE INCOME TAX APPELLATE TRIBUNAL, RAJKOT BENCH, RAJKOT BEFORE DR. A.L. SAINI, AM & SHRI DINESH MOHAN SINHA, JM आयकर अपील सं./ITA No.122/RJT/2022 (Ǔनधा[रण वष[ / Assessment Year: (2017-18) (Physical He aring) Satishbhai Mohanbhai Zalavadia, 2622, Sarvoday Park, Khundh Khundh, Chikhli, Navsari - 396521 Vs. The Pr. CIT – 1, Rajkot èथायीलेखासं./जीआइआरसं./PAN/GIR No.: ACNPP0527F (Appellant) (Respondent) Appellant by : Shri Rajendra Singhal, AR Respondent by : Shri Shramdeep Sinha, CIT-DR Date of Hearing : Heard on 23/07/2024 & Refix for clarification on 24.04.2025 Date of Pronouncement : 10/06/2025 आदेश / O R D E R PER DR. A. L. SAINI, AM: By way of this appeal, the assessee has challenged the correctness of the order passed by the Learned Principal Commissioner of Income Tax - 1, Rajkot [in short ‘Ld. PCIT’], dated 23.02.2022, under section 263 of the Income Tax Act, 1961 [hereinafter referred to as the ‘Act’] for the Assessment Year (AY) 2017-18. 2. The assessee has raised the following grounds of appeal: “1. The grounds of appeal mentioned hereunder are without prejudice to one another. 2. The order passed by Pr. Commissioner of Income-tax, Rajkot -1, (hereinafter referred to as the ‘PCIT) is bad in law, invalid, and requires to be quashed, the same may kindly be quashed.” 3. The Ld. PCIT erred in law and on fact in arriving at a conclusion to the effect that the assessment order passed by the PCIT was erroneous as well as prejudicial to the interests of the Revenue on the ground that such order was passed without Page | 2 ITA No.122/RJT/2022 Satishbhai Mohanbhai Zalavadia making proper enquiries or verification related to cash depositing during the demonetization period amounting to Rs.52,62,000/- in bank account no.22212560000241 held with HDFC Bank and Rs.50,00,000/- in bank account no.306990200000486 held with Bank of Baroda on various dates. Therefore, the order passed by PCIT is required to be quashed and may kindly be quashed. 4. The ld. PCIT erred on facts as also in law setting aside the assessment order dated 20.12.2019 passed u/s 143(3) of the I.T. Act, directing the assessing officer to pass fresh assessment order. The order passed u/s 263 of the Act by the Ld. PCIT is totally unjustified on facts as also in law, therefore the same may kindly be quashed. 5. Your Honour’s appellant craves leave to add, to amend, alter, or withdraw any one or more grounds of appeal on/or before hearing of appeal. 3. The additional grounds raised by the assessee, is reproduced below: “.On the facts and circumstances of the case and in law, the Ld. Pr. CIT erred both on facts and in law in revising the assessment order, which is invalid and non-est as the ld. assessing officer, who passed the assessment order had not issued mandatory statutory notice u/s 143(2) of the Act.” 4. The relevant material facts, as culled out from the material on record, are as follows. The assessee, before us, is an individual and filed the return of income for assessment year (AY) 2017-18, on 17/10/2017, declaring total income of Rs.28,30,501/-. The assessee`s case was selected for complete scrutiny to verify cash deposit in the bank account during the year under consideration. Thereafter, the assessment was completed u/s 143(3) of the Income-tax Act, on 20-12-2019, accepting the returned income of Rs.28,30,501/-. 5. Later on, the Learned Principal Commissioner of Income Tax - 1, Rajkot [in short ‘Ld. PCIT’], exercised his jurisdiction, under section 263 of the Income Tax Act, 1961. The learned PCIT, on verification of the records, noticed that the assessee had deposited cash of Rs.52,62,000/-, in bank account No. 22212560000241 held with HDFC Bank and Rs.50,00,000/- in bank account No.306902000000486 held with Bank of Baroda, on various dates during the period of demonetization, the details of which are as under: Page | 3 ITA No.122/RJT/2022 Satishbhai Mohanbhai Zalavadia 6. On verification, it was found by ld.PCIT that there was no plausible reason on assessee's part to deposit the cash in 7 installments on different dates. As per the bank statement, it is noticed that the most of the cash had been deposited in middle of the November 2016. If the assessee indeed had cash in hand, before the demonetization, then he would have deposited the entire amount of Rs.1,02,62,000/-, at one go instead of multiple times. However, it was observed by learned PCIT that during the assessment proceeding, the assessing officer has ignored this fact and has not gone into the source of such cash in hand, which was deposited in the bank account and no proper explanation from the assessee, in the matter has been submitted in the assessment proceedings. The possibilities of depositing the undisclosed cash of the assessee in the bank accounts cannot be ruled out and the same was requiring in depth investigation by assessing officer. Thus, it is amply evident that the issue of such amount of cash deposits in bank accounts remained unexplained. Therefore, in view of the above, the assessment order passed by the assessing officer is erroneous and also prejudicial to the interest of revenue, as source of cash deposited remained unexplained in aforementioned bank accounts of the assessee. In view of the above, a show cause notice dated 17-01-2022 was issued proposing to subject the assessment order of the assessing officer to revision u/s 263 of the Income tax Act. 7. In response to the above notice of the learned PCIT, the assessee has filed its written submission on 19-02-2022, before the ld.PCIT. The assessee Page | 4 ITA No.122/RJT/2022 Satishbhai Mohanbhai Zalavadia has submitted before ld. PCIT that the issue under consideration has already been examined by the assessing officer, during the course of assessment proceedings and now taking a different view would tantamount to change of opinion which is not permissible. The assessee further submitted before learned PCIT that assessing officer has adopted one of the plausible views and he has not made any error in the assessment proceedings. The assessing officer has applied his mind so it cannot be treated, as the case of no inquiry. The assessee also relied upon certain judgements in support of his submission. 8. However, the ld PCIT rejected the above contention of the assessee and observed that the application of mind of the assessing officer does not find place in the records. The assessing officer has not carried out any in- depth and detailed inquiry, during the course of assessment proceedings. It may be mentioned that two essentials condition for invoking the provisions of section 263 of the Act are that the order passed by the assessing officer is erroneous and prejudicial to the interest of revenue. Considering the facts of the case it is evident that there was incorrect application of law. It is settled position that incorrect application of law constitutes an error and as such the assessment is erroneous and prejudicial to the interests of the Revenue since there is loss of revenue. As per the Explanation - 2, the order passed by the Assessing Officer shall be deemed to be erroneous in so far as it is prejudicial to the interest of the revenue if the order is passed allowing any relief without inquiring into the claim. However, the assessing officer did not conduct any such inquiries or verification, as outlined above and simply accepted the assessee's submission. Therefore, the order passed by the assessing officer is erroneous and prejudicial to the interest of revenue to that extent. Therefore, ld PCIT directed the assessing officer to make fresh assessment keeping in view the observations made above, after conducting necessary verifications and inquiries and after providing proper opportunity of being heard. Page | 5 ITA No.122/RJT/2022 Satishbhai Mohanbhai Zalavadia 9. Aggrieved by the order of Ld. PCIT, the assessee is in appeal before us. 10. Shri Rajendra Singhal, Learned Counsel for the assessee, vehemently argued on the additional ground raised by the assessee, stating that during the assessment proceedings, notice u/s 143(2) of the Act, was not issued, therefore assessment order is itself invalid, therefore Ld. PCIT cannot assume the jurisdiction to revise the order u/s 263 of the Act. The Learned Counsel further submitted that this additional ground of appeal arises out of impugned order, and goes to the roots of the case, and all facts are on record. It is settled law that in absence of a notice u/s 143(2) of the Act, the consequential notices and assessments framed by the assessing officer, are invalid, void ab initio and non-est in the eye of law. In the assessee`s case, the assessing officer, who passed the assessment order had not issued a notice u/s. 143(2) of the Act and therefore, assessment order, as well as, subsequent revision proceedings, initiated by the ld. PCIT under section 263 of the Act, are invalid and non-est in the eye of law. Accordingly, the ld. Pr. CIT cannot revise assessment order, under section 263 of the Act. Perusal of the records would show that the assessing officer i.e. the DCIT, who had made the assessment in assessee`s case, did not issue a notice u/s. 143(2) of the Act at all, hence the impugned assessment proceedings, and the subsequent assessment order and notices, including revisionary order are invalid, bad in law and liable to be annulled. Thus, the subsequent order u/s. 263 of the Act is also bad in law and deserves to be quashed. 11. On the other hand, Learned Departmental Representative (Ld. DR) for the Revenue submitted that the statutory notice u/s 143(2) was issued by the Assessing Officer. Later on, the assessee’s case was transferred to another Assessing Officer for making the assessment order, therefore it cannot be said that in assessee’s case no notice u/s 143(2) has been issued, in fact, notice under section 143(3) of the Act, was issued at the beginning. For that, Ld. DR for the Revenue relied on the following judgments: Page | 6 ITA No.122/RJT/2022 Satishbhai Mohanbhai Zalavadia (i) Amarjit Singh Tut. vs. UOI, 8 taxmann.com 149 (P & H – HC) (ii) CIT vs. Greenworld Corporation, 181 Taxman 111 (SC) (iii) Chatturam vs. CIT, 15 ITR 302 (FC) 12. In rejoinder, the Learned Counsel for the assessee, submitted that issue relating to notice under section 143 (3) of the Act, is covered by the judgment of the Co-ordinate Bench of ITAT, Raipur in the case of ACIT vs. M/s Rajdhani Jewelleres and Gems Pvt. Ltd., in ITA No.79/Rpr/2020, dated 24.01.2024, wherein it was held as follows: “27. We, therefore, are of the considered view that assessment order passed u/s 143(3) dated 20.12.2017 by ACIT, Circile-4(1), Raipur, on the basis of proceedings initiated vide notice u/s 143(2) dated 13.04.2016 by ITO,W-1(1),Raipur, who at the relevant point of time was not vested with valid jurisdiction over the case of the assessee, cannot be sustained, thus, the same is liable to be quashed, thus, we do so.” 13. On merit, the Learned Counsel for the assessee submitted that order passed by the Assessing Officer is neither erroneous nor prejudicial to the interest of Revenue, the reason being, that during the assessment proceedings, the Assessing Officer has conducted enquiry by way of issuing notice u/s 142(1) of the Act and in response to the notice u/s 142(1) of the Act, the assessee submitted its reply, therefore, Assessing Officer has taken a considered view and hence the order passed by the Assessing Officer is neither erroneous nor prejudicial to the interest of Revenue. For that, the Learned Counsel for the assessee relied on the following judgments: (i) CIT vs. Sunbeam Auto Ltd., 189 Taxman 439 (Delhi) (ii) CIT vs. Gabriel India Ltd., 71 Taxman 585 (Bombay) (iii) Reliance Payment Solutions Ltd. vs. PCIT, 139 taxmann.com 277 (Mum – Trib) (iv) PCIT vs. Canara Bank Securities Ltd., 114 taxmann.com 545 (SC) Page | 7 ITA No.122/RJT/2022 Satishbhai Mohanbhai Zalavadia (v) CIT vs. Nirma Chemicals Works (P.) Ltd., 182 Taxman 183 (Guj) (vi) CIT vs. International Travel House Ltd., 194 Taxman 324 (Del) (vii) Manju Jain HUF vs. PCIT, ITA No.392/Chd/2022 14. On the other hand, on merit, the Ld. DR for the Revenue, stated that on verification, by the ld PCIT, it was found that there was no plausible reason on assessee's part to deposit the cash in 7 installments on different dates. As per the bank statement, it is noticed that the most of the cash had been deposited in middle of the November 2016, therefore, it raises doubt. The assessing officer did not conduct in-depth enquiry, to find out the source of cash deposit in the bank account. Just to issue notice under section 142(1) of the Act, and reply by the assessee, in response to the notice of the assessing officer, is not sufficient, and therefore order passed by the assessing officer is not sustainable in the eye of law. 15. We have heard both the parties and carefully gone through the submissions put forth on behalf of the assessee along with the documents furnished and the case laws relied upon, and perused the facts of the case including the findings of the ld. PCIT and other material brought on record. We note that solitary reason to exercise the jurisdiction, by Learned PCIT, under section 263 of the Act, was that the assessing officer has not carried out any in- depth and detailed inquiry, during the course of assessment proceedings. It means, enquiry was conducted by the assessing officer, during the assessment proceedings by issuing notice under section 142(1) of the Act, and assessee submitted its detailed reply along with documentary evidences, before the assessing officer, in response to the notice under section 142(1) of the Act. Having examined the reply of the assessee, during the assessment proceedings, the assessing officer took a plausible view and framed the assessment order. In the case of the assessee, there is no denying the fact, as detailed above and acknowledged in the assessment order u/s. 143(3) dated Page | 8 ITA No.122/RJT/2022 Satishbhai Mohanbhai Zalavadia 20.12.2019, that in response to notices u/s. 143(2)/142(1) and further requisitions made during the course of assessment proceeding, the A/R of the assessee appeared from time to time and produced/ submitted necessary details/documents as per requisitions in relation to the issues raised by the Ld. Pr. C.I.T., which were examined by Assessing Officer. Therefore, it is the appraisal of the same records which are already with the Ld. A.O. and the Ld. Pr. C.I.T. took a different view than adopted by the A.O. on the same set of facts, which is not permissible u/s. 263 of the Act. In the above circumstances, the view taken by the A.O. was one of the plausible views and the assessment order passed by him could not be held to be erroneous and prejudicial to the interests of revenue. There is difference between ‘Lack of enquiry’ and ‘inadequate enquiry’. It is for the AO to decide the extent of enquiry to be made as it is his satisfaction as what is required under law. Reliance is placed on the decision of CIT v. Sunbeam Auto Ltd. [(2010) 332 ITR 167], wherein Hon’ble Delhi High Court has held that if there was any inquiry, even inadequate, that would not by itself, give occasion to the Commissioner to pass order u/s 263 of the Act, merely because the Commissioner has a different opinion in the matter and that only in cases where there is no enquiry, the power u/s 263 of the Act can be exercised. The ld. PCIT cannot pass the order u/s 263 of the Act on the ground that further or in-depth/ detailed enquiry should have been made by AO. 16. We note that in the assessee`s case, notice under section 143(2) was issued by the assessing officer, which is placed at paper book, page No.44. The Notice under section 142(1) of the Act, was issued by the assessing officer, which is placed at paper book page No.46 to 52. In response to these notices, the assessee submitted two replies, along with documentary evidences and explanation, which are placed at paper book page number 53 to 58 and page number 59 to 60 of the assessee`s paper book. These facts clearly state that assessing officer not only conducted enquiry, but he had conducted Page | 9 ITA No.122/RJT/2022 Satishbhai Mohanbhai Zalavadia further enquiry also during the assessment proceedings as the assessee submitted two replies during the assessment proceedings. Thus, from the assessee`s facts, it is abundantly clear that during the assessment stage, the Assessing Officer asked the assessee to furnish the details and documents and in response, the assessee submitted reply. Thus, all the documents, details and the explanations required by the Assessing Officer were submitted by the assessee. Just because the Assessing Officer does not bring these documents and details in his assessment order does not mean that assessing officer has not conducted proper enquiry during the assessment stage. In fact, assessing officer has applied his mind. The Learned Counsel for the assessee is right in his submission that one has to keep in mind the distinction between \"lack of inquiry\" and \"inadequate inquiry\". If there was any inquiry, even inadequate, that would not by itself, give occasion to the Commissioner to pass orders under section 263 of the Act, merely because he has different opinion in the matter. If an Income-tax Officer acting in accordance with law makes a certain assessment, the same cannot be branded as erroneous by the Commissioner simply because, according to him, the order should have been written more elaborately. Therefore, in the assessee`s case, it cannot be said that it is a case of 'lack of inquiry'. In view of the facts of the case and judicial pronouncements relied upon, it is well established that the impugned order passed u/s. 143(3) of the Act dated 20.12.2019, was passed by assessing officer, after calling for relevant information and after detailed examination of the same. The Assessing Officer has passed the assessment order after calling for details on the issue and after considering the reply and documents and after verification of the same and after due application of mind passed the assessment order, so it cannot be termed as erroneous and prejudicial to the interest of the revenue. So, the Ld. PCIT’s finding fault, with the order of the Assessing Officer is erroneous as well as prejudicial to the interest of revenue, on account of lack of inquiry, has to fail. Based on these facts and Page | 10 ITA No.122/RJT/2022 Satishbhai Mohanbhai Zalavadia circumstances, we quash the order dated 23.02.2022, passed by the ld PCIT, under section 263 of the Act. 17. Since, we have adjudicated the issue on merit, and quashed the order of the ld.Pr.CIT, therefore, additional ground raised by the assessee on technical issue of non-issuance of notice u/s.143(2) of the Act, in the impugned assessment proceedings, is rendered academic and infructuous. 18. In the result, the appeal filed by the assessee is allowed. Order is pronounced in the open court on 10/06/2025 Sd/- Sd/- (DINESH MOHAN SINHA) (Dr. A.L. SAINI) JUDICIAL MEMBER ACCOUNTANT MEMBER Rajkot Ǒदनांक/ Date: 10 / 06 /2025 "
Other Referred Cases
CIT vs. Sunbeam Auto Ltd., CIT vs. Gabriel India Ltd., Reliance Payment Solutions Ltd. vs. PCIT, PCIT vs. Canara Bank Securities Ltd., CIT vs. Nirma Chemicals Works (P.) Ltd., CIT vs. International Travel House Ltd., Manju Jain HUF vs. PCIT, ACIT vs. M/s Rajdhani Jewelleres and Gems Pvt. Ltd.
Laws Referred To
Income Tax Act, 1961
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Guide to Charitable Trusts: Formation, Benefits, and Compliance
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