Wrong Legal Advice Justifies 543-Day Delay; But ITAT Upholds PCIT’s Section 263 Revision Over Demonetisation Cash Deposits

The Ahmedabad Bench of the Income Tax Appellate Tribunal (ITAT) 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 of wrong professional advice. The bench of Suchitra Kamble (Judicial Member) and Annapurna Gupta (Accountant Member) upheld the Principal Commissioner of Income Tax’s (PCIT) decision to revise the assessment, holding that the Assessing Officer (AO) had failed to conduct adequate enquiries into large cash deposits made during the demonetisation period. The dispute pertained to Assessment Year 2017–18. The assessee’s original assessment was completed under Section 143(3) on 22 December 2019. Subsequently, the PCIT, Ahmedabad-1, invoked his revisionary powers under Section 263 on 3 March 2022, finding the assessment order to be erroneous and prejudicial to the interests of the Revenue. The PCIT noted that the assessee had deposited cash amounting to over ₹78 lakh in bank accounts during the demonetisation period. During assessment proceedings, the assessee explained that the deposits were made out of earlier cash withdrawals from banks. This explanation was accepted by the AO without verifying whether such withdrawals were actually available as cash or had been utilised elsewhere. Aggrieved by the Section 263 order, the assessee eventually approached the ITAT, though with a delay of 543 days. The assessee sought condonation of delay, stating 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. Only after a consequential assessment order was passed on 23 September 2023—making an addition of ₹5.80 crore under Section 69—did the assessee consult a litigation specialist, who advised filing the present appeal. Both the assessee and his former consultant filed sworn affidavits admitting that the failure to appeal in time was due to incorrect or inadequate professional advice. The Tribunal observed that this explanation remained uncontroverted by the Revenue. Relying on earlier ITAT decisions where delays were condoned on account of wrong legal advice, the Bench held that the assessee had shown “sufficient cause” for the delay. It emphasised that courts have consistently taken a liberal view where delays arise from bona fide mistakes of counsel, especially when no mala fides or negligence on the part of the taxpayer is established. Accordingly, the 543-day delay was condoned. On merits, the Tribunal examined whether the PCIT was justified in holding the original assessment to be erroneous and prejudicial to the Revenue. The PCIT had found that large cash deposits during demonetisation were accepted by the AO without proper verification. The assessee did not produce a complete cash book to establish that earlier withdrawals remained unutilised and were redeposited. Withdrawals appeared to have been made from overdraft or loan facilities, raising doubts about their availability as idle cash. The AO failed to examine whether withdrawn funds were used for business expenses, personal use, or investments, including possible “on-money” payments in property transactions. The PCIT set aside the assessment and directed the AO to conduct detailed enquiries, including examination of cash books, employee details, personal expenses, comparative cash flow of earlier years, and even reference to the valuation cell to verify property transactions. The assessee argued that the issue of cash deposits had already been examined during assessment proceedings and that the PCIT had travelled beyond the show-cause notice by directing enquiry into property investment. The Tribunal held that mere furnishing of bank statements and a general explanation did not amount to proper enquiry by the AO. In the absence of a cash book and verification of utilisation of withdrawals, the AO’s acceptance of the explanation was unsustainable. The PCIT’s directions regarding property transactions were not an independent new issue but were linked to verifying possible utilisation of withdrawn cash, which was central to the explanation given by the assessee. The Tribunal concluded that the AO’s lack of enquiry rendered the assessment order erroneous and prejudicial to the interests of the Revenue, justifying invocation of Section 263. The department argued that since the assessee had already appealed against the consequential assessment order, he should not be allowed to challenge the Section 263 order separately. The Tribunal rejected this argument, clarifying 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. While the ITAT condoned the inordinate delay in filing the appeal, it ultimately dismissed the assessee’s appeal on merits and upheld the PCIT’s revisionary order under Section 263. Case Details Case Title: Vineetsingh Gulabsingh Rore Versus PCIT Case No.: I.T.A. No. 868/Ahd/2023 Date: 05/01/2026 Counsel For Appellant: Sunil Maloo, AR Counsel For Respondent: Prathvi Raj Meena, CIT.DR Click Here To Read Order Read More: ITR Non-Filing by Suppliers Alone Can’t Justify Disallowance of Purchases: ITAT Deletes of Rs. 25.55 Crore Addition

Wrong Legal Advice Justifies 543-Day Delay; But ITAT Upholds PCIT’s Section 263 Revision Over Demonetisation Cash Deposits

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