Wrong Legal Advice Explains 543-Day Delay; ITAT Still Upholds PCIT’s Section 263 Revision on Demonetisation Cash Deposits
Pranav B Prem
The Ahmedabad Bench of the Income Tax Appellate Tribunal has condoned a substantial delay of 543 days in filing an appeal against a revisionary order passed under Section 263 of the Income Tax Act, 1961, accepting the assessee’s plea that the delay was caused due to wrong professional advice. However, on merits, the Tribunal upheld the Principal Commissioner of Income Tax’s decision to revise the assessment, holding that the Assessing Officer had failed to carry out adequate enquiries into large cash deposits made during the demonetisation period.
The Bench comprising Suchitra Kamble (Judicial Member) and Annapurna Gupta (Accountant Member) was dealing with an appeal pertaining to Assessment Year 2017–18. The assessee’s original assessment was completed under Section 143(3) on 22 December 2019. Thereafter, the PCIT, Ahmedabad-1, invoked his revisionary jurisdiction under Section 263 by order dated 3 March 2022, holding that the assessment order was erroneous and prejudicial to the interests of the Revenue.
The PCIT noted that the assessee had deposited cash aggregating to ₹78.56 lakh in bank accounts during the demonetisation period. During assessment proceedings, the assessee had explained that the cash deposits were made out of earlier withdrawals from banks. This explanation was accepted by the Assessing Officer without verifying whether such withdrawals were actually available as cash or had been utilised elsewhere. According to the PCIT, the withdrawals appeared to have been made from overdraft or loan facilities, and the Assessing Officer had not examined whether the funds were used for business expenses, personal use, or other purposes.
Aggrieved by the revisionary order under Section 263, the assessee approached the Tribunal with a delay of 543 days. Seeking condonation of delay, the assessee submitted that his earlier chartered accountant had not advised him to file an appeal against the Section 263 order due to lack of expertise in income tax litigation. It was only after a consequential assessment order dated 23 September 2023 was passed—making an addition of ₹5.80 crore under Section 69—that the assessee consulted a litigation specialist, who advised filing the present appeal. Both the assessee and his former consultant filed sworn affidavits admitting that the delay was caused due to incorrect or inadequate professional advice.
The Tribunal observed that the explanation offered by the assessee remained uncontroverted by the Revenue. Relying on earlier decisions where delays were condoned on account of wrong legal advice, the Bench held that the assessee had demonstrated “sufficient cause” for the delay. It reiterated that courts have consistently taken a liberal view in cases where delays occur due to bona fide mistakes of counsel, particularly when no mala fides or negligence on the part of the taxpayer is established. Accordingly, the delay of 543 days was condoned and the appeal was admitted for adjudication.
On merits, the Tribunal examined whether the PCIT was justified in invoking Section 263. It noted that during the original assessment, the Assessing Officer had accepted the assessee’s explanation regarding demonetisation cash deposits merely on the basis of bank statements and a general explanation, without calling for or examining a cash book to establish that the earlier withdrawals remained unutilised and were redeposited. The Tribunal agreed with the PCIT that such an approach amounted to lack of enquiry.
The Tribunal further held that the PCIT’s directions to examine possible utilisation of withdrawn cash, including potential “on-money” payments in property transactions, were not beyond the scope of the revisionary proceedings. It observed that these directions were intrinsically linked to verifying the correctness of the assessee’s explanation regarding cash deposits and did not amount to introducing a new or independent issue beyond the show-cause notice.
Rejecting the assessee’s contention that the issue had already been examined during assessment proceedings, the Tribunal held that mere furnishing of bank statements without corroboration through a cash book or verification of utilisation of funds could not be treated as a proper enquiry. The Assessing Officer’s failure to conduct such enquiries rendered the assessment order erroneous and prejudicial to the interests of the Revenue.
The Tribunal also dismissed the department’s argument that since the assessee had already appealed against the consequential assessment order, he could not separately challenge the Section 263 order. It clarified that the two remedies operate in different spheres—while an appeal against the consequential assessment challenges additions on merits, an appeal against the Section 263 order questions the very foundation of the reassessment itself. In the result, while the ITAT condoned the inordinate delay of 543 days in filing the appeal, it ultimately dismissed the assessee’s appeal on merits and upheld the PCIT’s revisionary order under Section 263 of the Income Tax Act.
Cause Title: Vineetsingh Gulabsingh Rore Versus PCIT
Case No.: I.T.A. No. 868/Ahd/2023
Coram: Suchitra Kamble (Judicial Member) and Annapurna Gupta (Accountant Member)
