Kolkata ITAT Rejects Revenue's Revision Order in Cash Deposit Case

Kolkata ITAT Rejects Revenue's Revision Order in Cash Deposit Case

The Income Tax Appellate Tribunal (ITAT) in Kolkata has issued a favourable verdict for the assessee (taxpayer) in a case involving a reassessment initiated by the Principal Commissioner of Income Tax (PCIT) under Section 263 of the Income Tax Act. The judgment was delivered by a two-member ITAT bench consisting of Judicial Member Sanjay Garg and Accountant Member Rajesh Kumar.

The assessee's tax case was reopened based on information from the Deputy Director of Income Tax (Investigation) regarding high-value cash deposits made into their bank account. During reassessment proceedings conducted under Sections 143(3) and 147, the Assessing Officer (AO) determined that the deposited funds were later transferred to other entities via checks and electronic transfers. The AO then applied an 8 per cent profit margin on the total cash deposits to estimate the assessee's business income.

The PCIT disagreed with the AO's approach. They argued that the AO should have treated the entire cash deposit as unexplained investment or cash under Section 69 of the Act, rather than estimating income based on a percentage. The PCIT deemed the AO's assessment order to be erroneous and prejudicial to the revenue department's interests. Consequently, the PCIT issued a show cause notice under Section 263 and subsequently passed a revision order setting aside the original assessment. This revised order directed the AO to reassess the income by treating the cash deposits as unexplained investments.

The assessee contested the PCIT's revision order, arguing that the AO had already conducted an investigation into the deposits and recorded a statement from the person who claimed ownership of the funds. The ITAT noted that this other individual had admitted to fraudulently opening bank accounts under the assessee's name using the assessee's KYC documents.

The ITAT further observed that the income from these deposits had already been assessed in the other individual's case, where a minimal profit margin of 0.10% was applied. The ITAT also considered the Supreme Court's decision in Malabar Industrial Co. Ltd. vs. CIT, which established that invoking Section 263 requires both the order to be erroneous and prejudicial to revenue interests. Since the ITAT found neither condition met in this case, they deemed the PCIT's assumption of jurisdiction and revision order invalid.

Based on the above findings, the ITAT bench allowed the assessee's appeal and set aside the reassessment order issued by the PCIT.