2022 (11) TMI 1427 - AT - Income Tax

ITAT sets aside revision order on tax rate for surrendered income during survey operations under section 263

The ITAT Delhi set aside the PCIT's revision order u/s 263 regarding tax rate on surrendered income during survey operations. The PCIT contended that ... Revision u/s 263 - Addition u/s 68 on amount surrendered during the survey operation - tax rate should have been 60% instead of 30% - As per CIT as amount shown in the return of income as ‘income’ from other sources’ be taxed as per provisions of section 115BBE, the order of the AO is erroneous and prejudicial to the interest of the Revenue - whether the amendment is prospective or retrospective as on the date of survey he amended provisions were not there in the statute? - HELD THAT:- This is clearly a debatable issue which cannot be subject matter of assumption of jurisdiction u/s 263 of the Act. A perusal of section 115BBE of the Act shows that where the total income of the assessee includes any income referred to in sections 68, 69, 69A, 69B, 69C or 69D, the income tax payable shall be @ 30% on income so referred to in the said sections. In terms of amended provisions of section 115BBE of the Act by Taxation Laws, Second Amendment Act 2016, it provides that where the total income of the assessee includes any income referred to in sections 68, 69, 69A, 69B, 69C, and 69D and reflected in the return of income furnished under section 139 or total income of the assessee determined by the assessing officer, any income referred to in sections 68, 69, 69A, 69B, 69C, or 69D if such income is not reflected in the return of income furnished under section 139 of the Act, income tax payable shall be @ 60% on income so referred in the said section. Change which has been brought about in the provisions relates to income so referred to in the afore-stated sections so defined which is either not reflected in the return of income or determined by the assessing officer and in both the cases it will be covered by the provisions of section 115BBE of the Act and the rate of taxation has been increased from 30% to 60% on such specified income. There is, therefore nothing stated in the pre-amended or post amended provisions of section 115BBE of the Act that where the assessee surrenders undisclosed income during search action for the relevant year, the tax rate has to be charged as per provisions of section 115BBE of the Act. Therefore, the applicability of the amended provisions which prompted the PCIT to assume jurisdiction under section 263 of the Act is highly debatable issue, and therefore, in our understanding of the law, the PCIT has wrongly assumed jurisdiction. The assessee is surrendering the income in addition to his regular income, which is business income and, therefore, the income surrendered by the assessee is also part of business income. Merely because in the return of income inadvertently an amount has been shown under the head “Income from other sources”, would not change the colour of income surrendered. Where there are two possible views and the Assessing Officer has taken one of the possible views, no action to exercise powers of revision can arise, nor can revisional power be exercised for directing a fuller enquiry to find out if the view taken is erroneous. This power of revision can be exercised only where no enquiry, as required under the law, is done. It is not open to enquire in case of inadequate inquiry. See SHRI NIRAV MODI [2016 (6) TMI 1004 - BOMBAY HIGH COURT] Thus we set aside the order of the PCIT and restore that of the Assessing Officer dated 23.12.2019 framed under section 143(3) - Decided in favour of assessee. Issues Involved:1. Jurisdiction under Section 263 of the Income-tax Act, 1961.2. Erroneous and prejudicial order by the Assessing Officer.3. Taxability of surrendered income under Section 115BBE.4. Applicability of amended provisions of Section 115BBE.5. Nature of surrendered income and its classification.Detailed Analysis:1. Jurisdiction under Section 263 of the Income-tax Act, 1961:The primary issue is whether the Principal Commissioner of Income Tax (PCIT) correctly assumed jurisdiction under Section 263 of the Act. The PCIT issued a show-cause notice stating that the assessment order dated 23.12.2019 was erroneous and prejudicial to the interests of the Revenue. The PCIT believed that the surrendered income should have been taxed at a higher rate under Section 115BBE, which was not done by the Assessing Officer (AO).2. Erroneous and prejudicial order by the Assessing Officer:The PCIT argued that the AO's failure to tax the surrendered income at 60% under Section 115BBE rendered the assessment order erroneous and prejudicial to the interests of the Revenue. The AO had accepted the assessee's income as declared in the return without applying the higher tax rate under the amended Section 115BBE.3. Taxability of surrendered income under Section 115BBE:The core contention was whether the surrendered income during the survey should be taxed under Section 115BBE. The PCIT believed it should be taxed at 60% as per the amended provisions, while the assessee argued that the amendment was not applicable retrospectively.4. Applicability of amended provisions of Section 115BBE:The Tribunal noted that the amendment to Section 115BBE, which increased the tax rate to 60%, was effective from the assessment year 2017-18. However, the survey was conducted on 15.09.2016, before the amendment took effect. The Tribunal opined that the applicability of the amended provisions was a debatable issue and could not be a ground for assuming jurisdiction under Section 263.5. Nature of surrendered income and its classification:The Tribunal examined whether the surrendered income should be classified as 'income from other sources' or business income. The Tribunal found that the surrendered income was part of the business income, as the assessee had clearly stated that the additional income was from the jewelry business. The mere classification under 'income from other sources' in the return did not change the nature of the income.Conclusion:The Tribunal concluded that the PCIT wrongly assumed jurisdiction under Section 263. The issue of taxability under the amended Section 115BBE was debatable and could not be a ground for revision. The Tribunal restored the AO's order dated 23.12.2019 and set aside the PCIT's order. The appeal of the assessee was allowed.Final Order:The appeal of the assessee in ITA No. 826/DEL/2022 is allowed, and the order of the PCIT is set aside. The AO's order dated 23.12.2019 is restored. The order was pronounced in the open court on 30.11.2022.