Invocation of S. 263 Not Permissible where ITR filed u/s 44AD: ITAT holds S. 68 Inapplicable without Books [Read Order]

The Income Tax Appellate Tribunal (ITAT),Delhi Bench, held that invocation of revisionary jurisdiction under section 263 of the Income Tax Act, 1961, is not permissible where the assessee has filed return of income under Section 44AD. The Tribunal clarified that in the absence of books of accounts, Section 68 relating to unexplained cash credits cannot be applied.

Neeraj, the appellant, engaged in the business of trading in clothes, had filed return of income under Section 44AD declaring income on a presumptive basis. The return was initially accepted.

The case was later reopened and the PrincipalCommissioner of Income Tax (PCIT) exercised revisionary jurisdiction under Section 263 of Income Tax Act, and directed the Assessing Officer (AO) to re-examine cash deposits and treat them as unexplained under Section 68.

Narender Chhillar, Counsel for the appellant contended that the assumption of jurisdiction under Section 263 was erroneous in law. It was submitted that once income is declared under Section 44AD, there is no statutory requirement to maintain books of accounts.

The counsel for the appellant further submitted that the relevant amendment imposing restrictions on cash transactions under Section 44AD was not applicable to the assessment year in question.

Rajinder Kaur, representing the Revenue Departmental, supported the order of the PCIT, contending that the AO had failed to conduct proper enquiry into substantial cash deposits. It was submitted that the absence of verification rendered the assessment order erroneous and prejudicial to the interests of the Revenue.

Yogesh Kumar U.S, Judicial Member and Amitabh Shukla Accountant Member, observed that presumptive taxation grants relief from maintaining books of accounts, and therefore, directing enquiry into such non-existent records or invoking Section 68 is legally untenable.

The Tribunal reiterated that revisionary powers cannot be exercised merely on the ground of inadequate enquiry when the statutory framework itself does not mandate such enquiry.

In light of facts and circumstances, the Tribunal quashed the order passed under section 263 of Income Tax Act.

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