ITAT Delhi vacates revision order under section 263, finds AO conducted adequate enquiry on surrendered income

ITAT Delhi ruled in favor of the assessee in a revision case under section 263. The CIT contended that surrendered income constituted unexplained cash and stock taxable under section 115BBE at 60%, claiming the AO failed to make proper enquiries. The Tribunal found the AO had conducted adequate enquiry through questionnaires, statutory notices, written replies, and verification of books of account. Following precedent in Shri Bharat Malhotra case, ITAT vacated the PCIT's order and restored the original assessment under section 143(3).

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Issues Involved:

1. Legality of the Principal Commissioner of Income Tax's (PCIT) jurisdiction under section 263 of the Income Tax Act, 1961.
2. Validity of the assessment order passed by the Assessing Officer (AO) under section 143(3).
3. Applicability of section 115BBE of the Income Tax Act, 1961 to the surrendered income.
4. Adequacy of the AO's inquiry during the assessment proceedings.

Summary:

1. Legality of PCIT's Jurisdiction under Section 263:

The assessee challenged the order passed by the PCIT under section 263 of the Income Tax Act, 1961, arguing that the PCIT's action in assuming jurisdiction was illegal, bad in law, and without jurisdiction. The assessee contended that the prerequisite twin conditions under section 263'namely, the assessment order being erroneous and prejudicial to the interest of revenue'were not satisfied.

2. Validity of the Assessment Order Passed by AO:

The PCIT directed the AO to make a fresh assessment, claiming the AO failed to invoke provisions of sections 68/69/69A/69B/69C/69D on the income of Rs. 90,63,000/- surrendered by the assessee. The PCIT also stated that the AO failed to inquire why the assessee paid taxes at the normal tax rate instead of the maximum marginal rate as per section 115BBE.

3. Applicability of Section 115BBE to the Surrendered Income:

The PCIT argued that the surrendered income was in the nature of unexplained stock and cash, which should be taxed under section 115BBE at 60%. The assessee contended that section 115BBE could only be invoked if the income was reflected under sections 68, 69, 69A, 69B, 69C, or 69D, which was not the case here. The assessee also argued that the amendment to section 115BBE came into effect after the survey date, making its applicability debatable.

4. Adequacy of AO's Inquiry:

The Tribunal noted that the AO had issued statutory notices and questionnaires, received written replies and documents from the assessee, and verified the books of account. Therefore, it was not a case of no inquiry. The Tribunal found that the AO had conducted adequate inquiries during the assessment proceedings.

Tribunal's Decision:

The Tribunal followed its earlier decision in a similar case (Shri Bharat Malhotra) and held that the applicability of the amended provisions of section 115BBE was a debatable issue. The Tribunal concluded that the PCIT had wrongly assumed jurisdiction under section 263. The Tribunal vacated the order of the PCIT and restored the assessment order passed by the AO under section 143(3). The appeal of the assessee was allowed.

Order Pronounced:

The order was pronounced in the open court on 11th September 2023.

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