ITAT Quashes Revision in Demonetisation Cash Deposit Case; No ‘Lack of Inquiry’ Found

Sikka Infrastructure Pvt. Ltd. filed its return for AY 2017-18 declaring NIL income. The original assessment under Section 143(3) was completed without additions. The case was later reopened under Section 148 due to cash deposits of Rs. 2.06 crore during demonetisation. In reassessment proceedings, the Assessing Officer examined the issue and accepted the assessee’s explanation that the deposits were sourced from imprest/staff advances of Rs. 2.35 crore reflected in the audited balance sheet under “Advances Recoverable.”

The Principal Commissioner of Income Tax invoked Section 263, holding that the reassessment order was erroneous and prejudicial for failure to properly verify Rs. 1.95 crore of deposits, and directed addition under Section 68 read with Section 115BBE.

Issue Before ITAT: Whether Section 263 could be invoked on the ground of inadequate inquiry into demonetization cash deposits when the Assessing Officer had already examined and accepted the explanation during reassessment.

ITAT’s Decision: The Tribunal quashed the revision order and held that the twin conditions laid down in Malabar Industrial Co. Ltd. v. CIT, that the order must be both erroneous and prejudicial to the interests of the revenue, were not satisfied. It found that the reassessment itself was initiated to examine cash deposits and that the Assessing Officer had conducted a due inquiry before accepting the explanation based on audited balance sheet entries. Mere difference in accounting classification did not make the source unexplained.

Relying on CIT v. Sunbeam Auto Ltd., the Tribunal reiterated the distinction between “lack of inquiry” and “inadequate inquiry.” As the Assessing Officer had made inquiries and adopted a plausible view, Section 263 could not be invoked merely because the PCIT preferred another view. The Tribunal set aside the revision order as invalid in law.

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