2022 (11) TMI 195 - AT - Income Tax

Tribunal upholds Section 263 for taxing surrendered income under Section 115BBE

Vikas Kumar, C/o. M/s. Mittan Misthan Bhandar, Harayana Versus Pr. CIT, Rohtak

The Tribunal upheld the Pr. CIT's invocation of Section 263 of the Income Tax Act, 1961, finding the AO's order erroneous for not properly examining the ... Revision u/s 263 - Excessive cash of inventory - applicability of Section 115BBE - statement of the assessee recorded during the course of survey proceedings - invoking the deeming provisions u/s 69, 69A, 69B and 69C - HELD THAT:- What has occurred in the present case is that the Ld. AO has not attempted to enquire as to if the surrendered amount was actually income from business only. AO accepted the surrendered amount as assessee had filed return and paid tax upon the amount of surrender. Ld. AO on the basis of surrendered amount merely proceeded to revalue the reported quantum of sales and in that attempt escaped considering applicability of provisions of Section 115 BBE. As apparent that during survey the information collected had nothing to do with the business turn over alone and the investments were in jewellery and properties were also disclosed. The onus was on the assessee to establish that income from the business alone was used to acquire these and to the contrary that the AO had assumed the turn over exceeded the declared turn over to justify the surrendered income in the form of property and jewellery. Thus, there was failure on the part of the AO to accept the return of the assessee without enquiring as to if the income disclosed was actually business income only. In that way the assessment order was erroneous and prejudicial to the interest of revenue and rightly interfered by the PCIT. In the case in hand the difference in stock inventory was merely Rs. 3,75,000/-, difference in cash inventory was 9,75,000/-, advances to suppliers were 6,35,000/- which may be considered to be having nexus with the business but the investments of Rs. 38 lakhs in the plot and Rs. 3,46,500/- in jewellery have not been examined by the ld. AO as to if they were also proceed of undisclosed sales so as to be accepted in the return of income and on the rate of tax paid or to otherwise invoke provisions of 115BBE of the Act. ACIT has fairly directed the AO to inquire about applicability of Section 115BBE along with explanation 2 inserted by Finance Act, 2015. In the light of aforesaid discussion, the Bench is of considered opinion that impugned order does not require interference. There is no substance in the grounds. The appeal is dismissed. Issues Involved:1. Invocation of Section 263 of the Income Tax Act, 1961.2. Treatment of surrendered income as normal business income versus unexplained income.3. Applicability of Section 115BBE of the Income Tax Act, 1961.4. Inclusion of investment by the assessee's wife in the surrendered income.5. Applicability of the principle that when two views are possible, the one beneficial to the assessee should be taken.Issue-wise Detailed Analysis:1. Invocation of Section 263 of the Income Tax Act, 1961:The Assessee challenged the invocation of Section 263 by the Pr. CIT, arguing that the Assessing Officer (AO) had taken a possible view, which should not be overruled by the Pr. CIT. The Tribunal observed that the AO failed to consider whether the surrendered income was indeed business income, leading to an erroneous and prejudicial order. The Pr. CIT's invocation of Section 263 was justified as the AO did not properly examine the nature of the surrendered income.2. Treatment of Surrendered Income as Normal Business Income versus Unexplained Income:The Pr. CIT held that the surrendered income, which included unexplained cash, advances to suppliers, and investments in plots and jewelry, should not be treated as normal business income. The Tribunal agreed, noting that the AO did not investigate whether the surrendered income was genuinely from business activities. The AO's acceptance of the surrendered amount as business income without proper inquiry was erroneous.3. Applicability of Section 115BBE of the Income Tax Act, 1961:The Pr. CIT argued that the surrendered income should be taxed at the maximum marginal rate under Section 115BBE, which applies to unexplained income. The Tribunal noted that the AO failed to apply Section 115BBE to the surrendered income, which was clearly unexplained. The Tribunal supported the Pr. CIT's view that the AO's failure to apply the correct tax rate was prejudicial to the revenue.4. Inclusion of Investment by the Assessee's Wife in the Surrendered Income:The Assessee contended that the investment in property by his wife should not be included in his surrendered income. The Tribunal observed that the AO did not accept the claim that the property investment was from the wife's resources. The Tribunal upheld the Pr. CIT's direction to the AO to investigate the source of the investment and its inclusion in the surrendered income.5. Applicability of the Principle that When Two Views are Possible, the One Beneficial to the Assessee Should be Taken:The Assessee argued that the AO had taken a possible view, which should be upheld. However, the Tribunal noted that the AO did not take any view on the applicability of Section 115BBE or the nature of the surrendered income. The Tribunal emphasized that the AO's order was erroneous and prejudicial to the revenue, justifying the Pr. CIT's intervention.Conclusion:The Tribunal dismissed the Assessee's appeal, supporting the Pr. CIT's invocation of Section 263 and the need to apply Section 115BBE to the surrendered income. The Tribunal found that the AO failed to properly investigate the nature of the surrendered income and apply the correct tax provisions, leading to an erroneous and prejudicial order. The Pr. CIT's directions to the AO to reassess the surrendered income under the correct provisions were upheld.