Neeraj vs. Revenue [TU-DT-04-ITAT-2026]
Background of the Case
The case before the ITAT concerned an individual Appellant engaged in the business of trading in clothes who had filed his return of income for Assessment Year 2012–13 under the presumptive taxation scheme of Section 44AD of the Income Tax Act, 1961. The Appellant declared a turnover of Rs.40,82,300 and offered income of Rs.3,08,880 in accordance with the presumptive provisions. The return was initially accepted by the Assessing Officer after reopening proceedings under Section 147. Subsequently, the Principal Commissioner of Income Tax exercised revisional jurisdiction under Section 263 on the ground that the Assessing Officer had failed to properly verify cash deposits of Rs.29,67,900 appearing in the bank account. According to the revision order, the Assessing Officer should have conducted further inquiries and verified documentary evidence such as purchase bills, sales records, vouchers, and other business records.
The matter was therefore set aside with directions to frame a fresh assessment and examine the deposits as unexplained cash credit under Section 68. Aggrieved by this revisionary action as well as the subsequent assessment proceedings, the Appellant filed appeals before the Income Tax Appellate Tribunal.
Arguments by the Appellant (Assessee)
The applicant strongly challenged the jurisdiction exercised by the Principal Commissioner under Section 263 and argued that the revision order was fundamentally flawed. It was submitted that the Appellant had filed the return under Section 44AD, which provides a presumptive taxation mechanism where income is computed as a prescribed percentage of turnover. Under this scheme, the law specifically dispenses with the requirement of maintaining regular books of accounts for eligible taxpayers. The counsel emphasized that Section 68 dealing with unexplained cash credits can only be invoked when there are entries in the books of accounts maintained by the Appellant. Since the Appellant was operating under Section 44AD and was not statutorily required to maintain books, the very foundation for invoking Section 68 did not exist.
It was further argued that the amendment introducing restrictions relating to cash transactions under Section 44AD came into effect from 1 April 2017 and was not applicable to the assessment year under consideration. Therefore, the revisionary order was without jurisdiction and liable to be quashed.
Respondent’s Response (Revenue)
The Revenue authorities, on the other hand, defended the revisionary order passed by the Principal Commissioner and relied upon the reasoning contained in the order under Section 263. The departmental representative contended that the Assessing Officer had accepted the returned income without conducting adequate verification regarding the substantial cash deposits appearing in the Appellant’s bank account. According to the Revenue, the absence of supporting business documentation such as invoices, purchase bills, transport records, sales registers, or delivery records created serious doubts regarding the genuineness of the business activity claimed by the Appellant.
The Revenue argued that the Assessing Officer had failed to make necessary inquiries and therefore the original assessment order was both erroneous and prejudicial to the interests of the Revenue. In such circumstances, the Principal Commissioner was justified in invoking his revisionary powers under Section 263 and directing the Assessing Officer to reassess the matter after proper investigation.
Court Findings and Decision
The Tribunal carefully examined the facts of the case and the legal position relating to presumptive taxation under Section 44AD. It observed that once an Appellant opts for taxation under Section 44AD, the statute does not require the maintenance of regular books of accounts and the income is determined on a presumptive basis as a percentage of turnover. In such circumstances, the provisions of Section 68 dealing with unexplained cash credits cannot be invoked in the absence of books of accounts containing such entries. The Tribunal also noted that similar issues had been considered in earlier judicial precedents where revisionary action under Section 263 was held to be invalid when the Appellant had filed returns under the presumptive taxation scheme. Following the consistent judicial view and considering that the Revenue had not disputed the applicability of Section 44AD in the present case, the Tribunal concluded that the Principal Commissioner had wrongly assumed jurisdiction under Section 263.
Accordingly, the revision order was quashed and set aside. As a consequence of this finding, the subsequent assessment order passed pursuant to the revision also became infructuous and the Appellant’s appeal was allowed.
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