Delhi HC quashes Revision of Assessment on failure to enquire about Unexplained Cash Deposit found credited in Bank Account [Read Order]

The Delhi High Court quashed the revision of assessment on failure to enquire about unexplained cash deposit found credited in bank account. The moot question which arises for consideration is whether the Principal Commissioner of Income Tax (PCIT), in passing the order under Section 263 of the Income Tax Act, 1961 had correctly exercised his revisionary power or not. The PCIT, “cancelled” the assessment order to the extent the Assessing Officer (AO) had failed, according to him, to enquire about the “unexplained cash deposit” found credited in the respondent’s/assessee’s, Kalxon Trading Pvt Ltd, bank account.

The respondent/assessee was incorporated in 1992, and since then, it has been trading in metal, including gold. In the AY in issue, the respondent/assessee filed its Return of Income (RoI) on 28.09.2013. The income declared in the return by the respondent/assessee was Rs. 59,99,560/-. A search and seizure action were conducted against the “Dua Group”. The respondent/assessee, concededly, belongs to the Dua Group. The respondent/assessee, among other things, adverted to the fact that it maintained proper books of accounts, which had been audited under the provisions of the prevailing statutes. Furthermore, it was brought to the notice of the AO that the audited financial accounts, the auditor’s report and the relevant bank statements had been submitted to his office. Besides this, reference was also made to the fact that a stock summary of all items, including gold items.

Regarding cash deposits, the respondent/assessee averred that they were cash sales proceeds made during the period in issue. It was also emphasised that the cash sales had been declared revenue from operations. A Division Bench comprising Justices Rajiv Shakdher and Girish Kathpalia observed that “The PCIT, in our view, wrongly equated a case of “no enquiry” with what he construed as “inadequate enquiry”. The respondent/assessee had offered an explanation with regard to cash deposits. In the course of the assessment proceedings, the AO had accepted the explanation given by the respondent/assessee that the source of the cash deposits was cash sales.” “The AO, having been satisfied with the explanation given, chose not to make any addition with regard to the cash deposit. The PCIT on the other hand, without making any enquiry at his end, chose to cancel the assessment order with a direction to pass a fresh assessment order. In our opinion, the PCIT had to reach a conclusion in the fact situation obtaining in the instant case, that the assessment order was erroneous by conducting an enquiry before passing an order under Section 263 of the Income Tax Act.”

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