Genuineness of Source of Cash Deposit having Direct Relationship with Withdrawal cannot be Questioned without any Shred of Evidences Adverse to Assessment: ITAT sets aside Revisional Order

The Delhi Bench of Income Tax Appellate Tribunal (ITAT) held that source of cash deposit in the instant case is having direct relationship with the immediate withdrawal before such deposits and doubting the genuineness of such deposit is without any shred of evidence adverse to the assessee is uncomprehensive to the core.

The assessee Nanak Chand & Co e-filed his income tax return for Assessment Year 2017-18 declaring taxable income at Rs.1,75,930. The return filed was subjected to scrutiny assessment under Section 143(3) of the Income Tax Act, 1961 whereby the returned income was assessed without any modification.

As per the assessment order, the return of assessee was selected under complete scrutiny with verification of cash deposits during demonetization period as central issue.

After the completion of the assessment, the Principal Commissioner of Income Tax (PCIT) observed that the impugned assessment order is erroneous in so far as it is prejudicial to the interest of the revenue.

A show cause notice was issued to the assessee in this regard by the PCIT. As per the show cause notice, the revisional commissioner alleged that the Assessing Officer (AO) has failed to carry out requisite verification in respect of cash deposits in bank account during the demonetization period aggregating to Rs.36 lakh and also failed to objectively enquire into reasons for fall in GP(Gross Profit) ratio and the correctness of book results.

The PCIT however ultimately set aside the assessment order and directed the AO to conduct necessary inquiries on the aforesaid points in the case and frame fresh assessment order in terms of the directions of the revisional order.

Aggrieved by the order the assessee has agitated the revisional order before the Tribunal.

The Authorised Representative of the assessee (AR) made various submissions and pointed out that the assessment order is neither shown to be erroneous nor prejudicial to the interest of the revenue.

The AR also submitted that when a reasonable inquiry was carried out and a reasonable view has been taken thereon, merely because the PCIT may have a different opinion on the decision making process, that by itself will not be sufficient to invoke the revisional power.

The Departmental Representative (DR) for the Revenue on the other hand supported the order of the PCIT and contended that the AO has merely accepted the facts as placed before him by the assessee without probing into the facts so placed.

The Bench observed that the facts of withdrawal immediately before deposit itself speaks the source of cash deposit and the observation of the PCIT that AO ought to have made inquiry to pierce the veil on the account and that such deposits seem to have been camouflaged, is farfetched and wholly premised on surmises and conjectures.

It was also noted that source of cash deposit in the instant case is having direct relationship with the immediate withdrawal before such deposits and doubting the genuineness of such deposit is without any shred of evidence adverse to the assessee is uncomprehensive to the core.

The Bench comprising of Saktijit Dey, Vice President and Pradip Kumar Kedia, Accountant Member observed that the factum of withdrawal immediately prior to deposit provides reasonable basis to the AO in his quasi-judicial capacity to accept the contentions in the course of the assessment, and so the action of the AO cannot be regarded to be wholly erroneous in such fact situation to invite the revisional proceedings.

Thus the action of the PCIT rather appeared to be in the realm of surmises and conjectures without any compelling evidence to assert a lack of bona fides in the explanation offered. Therefore the action of the PCIT was incomprehensible and thus cannot be countenanced in the absence of any ‘error’ per se in the assessment.

It was held that the the supervisory jurisdiction exercised under Section 263 of the Income Tax Act was not sustainable in law. Consequently, the revisional order was quashed and set aside, so the appeal of the assessee was allowed.

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