Brought forward debit balance can not make assessment erroneous and prejudicial to the interest of the Revenue – ITAT

Brought forward debit balance can not make assessment erroneous and prejudicial to the interest of the Revenue – ITAT quashes Revisionary Order 

ABCAUS Case Law Citation:
ABCAUS 2469 (2018) 08 ITAT

In this appeal, the assessee had challenged the correctness of the order of the Principal Commissioner of Income Tax (PCIT) framed u/s 263 of the Income-tax Act, 1961 [the Act].  

The  assessee was running a petrol pump. His return of income for the relevant assessment year was selected for scrutiny and after examining the books of accounts of the assessee on test check basis with relevant documentary evidences, the AO framed assessment u/s 143(3) of the Act.

However, later on, assuming powers under the provisions of section 263 of the Act, the PCIT issued notice u/s 263 of the Act. The said notice identified two issues.

According to the first reason, from the balance sheet filed by the assessee it was observed that the assessee had shown a sundry debtors which was outstanding in the balance sheet for the previous assessment year also meaning that no payment was received by the assessee from this debtor.

Secondly, it was noticed that as per the balance sheet, the bank balance also included an amount as trestchest account. As per the provisions of law the cash should be kept either in hand or at bank.

According to the PCIT, the exact nature and genuineness of amount of both sundry debtors and trestchest account along with corresponding liability side was required to he examined by the AO. The PCIT was of the view that the AO had not made any enquiry on this issue and therefore, the assessment order passed by the Income Tax Officer was erroneous and prejudicial to the interest of revenue.

The Tribunal noted that it was specifically pointed out to the PCIT that the assessee had expired. In spite of this, the PCIT, in his wisdom, framed the order in the name of the deceased assessee, which means that the order u/s 263 of the Act was on a dead person.

The Tribunal opined that the irder of the PCIT could be set aside on this very issue itself. However, for the sake of completeness of the adjudication, it considered the points raised by the PCIT in his revisonary notice.  

Regarding the balance of sundry debtor, the Tribunal observed that it could be seen from the notice itself that the PCIT himself had admitted that this was a brought forward debit balance. The Tribunal disagreed with the issue and stated that it beyond comprehension how the brought forward balance could make the present assessment erroneous and prejudicial to the interest of the Revenue, keeping in mind that the brought forward balance was a debit balance.

In the second issue, the Tribunal opined that the PCIT had completely misunderstood the facts. The assessee had shown cash in hand and bank balance in the balance sheet. The cash in hand further included an amount as trestcheck account.

According to the Tribunal in this line of trade upto the banking hours the cash sales received are deposited in the bank. After the banking hours, petty cash is kept in the petrol pump itself and balance is either kept in chest in the petrol pump itself or is taken to the residence for safety purposes. Moreover, the cash in hand is generated out of the cash sales, which is invariably done in this line of trade.

The Tribunal opined that once the books of account had been examined and no adverse inference had been drawn in so far as the sales were concerned, it was not understandable how a debit entry can make the assessment order erroneous and prejudicial to the interest of the Revenue.

Accordingly, the Tribunal set aside the revisonary order of the PCIT passed u/s 263 of the Act.

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