2023 (11) TMI 786 - AT - Income Tax

ITAT sets aside revision order under section 263 for income surrendered during survey proceedings

ITAT Chandigarh set aside Pr. CIT's revision order u/s 263 regarding income surrendered during survey proceedings. Assessee surrendered amounts for ... Revision u/s 263 - nature of income surrendered in survey proceedings - deeming provision r.w.s 115BBE - Higher Rate of Tax - certain discrepancy were observed and confronted to the assessee and in response, the assessee offered towards unexplained cash in hand, towards unexplained advances and towards furniture, fixture and equipment - HELD THAT:- Assessee has been asked specific questions not just regarding the discrepancy found during the course of survey but the nature and source thereof during the course of survey and it is clearly emerging that the source of such income so surrendered is from the assessee’s business of running Orthopaedics and Dental Clinic operation which he is running since 2014. No doubt, these transactions were not recorded at the time of survey thus qualify as unrecorded transactions satisfying one of the essential conditions, at the same time, the assessee has provided the necessary explanation about the nature and source of such unrecorded transactions and the necessary nexus with assessee’s business has been established, thus, it cannot be said that these are unexplained transactions thus, doesn’t satisfy the second condition for invoking the deeming provisions of section 69-69D - AO has duly taken cognizance of the findings of the survey team, the documents found during the course of survey, the statement of the assessee, the surrender letter and the return of income and after examination thereof and due application of mind, the income has been rightly assessed under the head business income. The order so passed by the AO cannot be held as erroneous due to lack of inquiry or for that matter requisite inquiry on the part of the AO. As we have held above, there is no findings recorded by the Ld. Pr. CIT as to how the deeming provisions are applicable in the instant case and the order so passed by the AO is erroneous. We therefore find that merely stating that there was survey operation at the business premises of the assessee and provisions of Section 115BBE of the Act are attracted, the same can be a basis for exercise of jurisdiction under section 263 of the Act. In view of the same, order so passed by the Ld. Pr. CIT under section 263 is set aside and that of the AO is restored. Decided in favour of assessee. Issues Involved:1. Jurisdiction under Section 263 of the Income Tax Act, 1961.2. Applicability of Section 115BBE on surrendered income.3. Nature and source of surrendered income.4. Audit objections and their impact on Section 263 proceedings.5. Validity of the assessment order under Section 143(3).Summary:1. Jurisdiction under Section 263 of the Income Tax Act, 1961:The Assessee challenged the jurisdiction of the Ld. PCIT to issue notice under Section 263, arguing that the original assessment order was passed after due application of mind by the Assessing Officer (AO). The Tribunal noted that the AO had indeed conducted a detailed inquiry and accepted the surrendered income as part of the business income, thus the assumption of jurisdiction under Section 263 by the Ld. PCIT was not justified.2. Applicability of Section 115BBE on surrendered income:The Ld. PCIT contended that the surrendered income should be taxed under Section 115BBE, which applies to income deemed under Sections 68, 69, 69A, 69B, 69C, and 69D. The Tribunal held that the surrendered income was related to the Assessee's business and not unexplained income, hence Section 115BBE was not applicable. The Tribunal emphasized that the foundational requirement for invoking Section 115BBE is the applicability of the deeming provisions, which was not satisfied in this case.3. Nature and source of surrendered income:The Assessee had surrendered Rs. 70,00,000/- during the survey under Section 133A, which included amounts for miscellaneous advances, cash in hand, and furniture, fixtures, and equipment. The Tribunal found that the surrendered income was related to the Assessee's business operations and was offered as business income in the return of income. The AO had accepted this view after due verification, thus the surrendered income was correctly taxed at the normal rate.4. Audit objections and their impact on Section 263 proceedings:The Assessee argued that the Ld. PCIT assumed jurisdiction under Section 263 based on audit objections, which is incorrect. The Tribunal noted that the Ld. PCIT did not conduct any further inquiry or investigation beyond the audit objections, and merely relying on audit objections does not justify the invocation of Section 263.5. Validity of the assessment order under Section 143(3):The Tribunal concluded that the assessment order passed under Section 143(3) was valid as the AO had conducted a proper inquiry and applied his mind to the nature and source of the surrendered income. The Tribunal set aside the order of the Ld. PCIT under Section 263 and restored the assessment order passed by the AO.Conclusion:The Tribunal allowed the appeal of the Assessee, holding that the Ld. PCIT erred in invoking jurisdiction under Section 263 and in applying Section 115BBE to the surrendered income, which was correctly assessed as business income by the AO. The assessment order under Section 143(3) was restored.