2023 (12) TMI 1258 - AT - Income Tax

Assessment order set aside for failing to apply section 115BBE on surrendered income from excess stock found during survey

ITAT Indore upheld Pr. CIT's revision order u/s 263 setting aside AO's assessment. During survey proceedings, assessee surrendered income for excess stock ... Revision u/s 263 - as per CIT AO has not conducted due inquiry on the issue of applicability of provisions of section 115BBE in respect of surrendered income on account of excess stock found during the survey - HELD THAT:- AO has issued a limited query to verify the quantum of surrendered income declared during the proceedings u/s 133A and in reply also the assessee has given details of the total amount of income declared by the assessee. As it is apparent and manifest from the show cause notice issued u/s 142(1) as well as reply filed by the assessee that the AO has not taken up the issue of higher rate of tax u/s 115BBE of the Act while passing the assessment order. The assessment order is completely silent about any such query raised or inquiry undertaken by the AO. During the course of survey proceedings the assessee in the statement has surrendered this amount on account of excess stock and also promise to pay the due tax as per provisions of Income Tax Act. The Authorised Officer of survey though calculated the tax liability on the surrendered amount at normal rate of tax however, if the said calculation is not in accordance with the provisions of the Income Tax Act the same would not be binding on the decision of the AO while passing the assessment order. The surrendered income on account of excess stock was declared by the assessee under the head ‘other sources’ and the same was assessed by the AO as income from other sources. There is no quarrel on the point that if the AO has raised the query on this issue of applicability of provision of section 115BBE which was replied by the assessee then question of lack of inquiry does not arise. However, in the case of the assessee the AO has not even taken up this issue despite the income was assessed as income from other sources and therefore, this case does fall in the category of complete lack of inquiry on the part of the AO. Pr. CIT has referred and relied upon various decisions including the decision of the jurisdictional High Court in case of CIT vs. Deepak Garg [2007 (5) TMI 186 - MADHYA PRADESH HIGH COURT] Accordingly in the facts and circumstances of the case we do not find any error or illegality in the impugned order of the Pr. CIT setting aside the order of the AO on the issue of applicability of the provisions of section 115BBE as there is a complete lack of inquiry on the part of the AO on this issue. The decisions relied upon by the Ld.AR of the assessee will not help the case of the assessee when there is a complete lack of inquiry on the part of the AO. The AO shall consider and decide this issue in accordance with provisions of section 115BBE of the Act after considering relevant facts and in accordance with law. We have not expressed any view on the merits of the issue.Appeal of the assessee is dismissed. Issues Involved:1. Whether the Pr. CIT erred in setting aside the assessment order by invoking the provisions of section 263 of the Income-Tax Act, 1961.2. Whether the surrendered income on account of excess stock should be taxed under section 115BBE of the Income-Tax Act, 1961.Summary:Issue 1: Pr. CIT's Invocation of Section 263The Assessee appealed against the Pr. CIT's order dated 28.03.2023, which set aside the assessment order passed by the AO under section 143(3) r.w.s 143(3A) and 143(3B) of the Income-Tax Act, 1961. The Pr. CIT found the AO's order erroneous and prejudicial to the interest of the revenue because the AO did not apply the provisions of section 115BBE to the surrendered income of Rs. 1,35,43,914/- on account of excess stock found during a survey. The AO had accepted the returned income without applying the higher tax rate under section 115BBE. The Tribunal noted that the AO had not conducted due inquiry regarding the applicability of section 115BBE, and the assessment order was silent on this issue. Consequently, the Pr. CIT's invocation of section 263 was upheld.Issue 2: Applicability of Section 115BBEThe assessee, a partnership firm engaged in the business of trading jewelry, surrendered an income of Rs. 1,35,43,914/- during a survey for excess stock and declared it as income from other sources in the return of income. The AO accepted this declaration and taxed it at the normal rate. The Pr. CIT, however, argued that the surrendered income should be treated as unexplained investment under section 69/69A and taxed under section 115BBE, which prescribes a higher tax rate. The Tribunal found that the AO had failed to make the necessary inquiries or verification regarding the nature and source of the surrendered income, thus justifying the Pr. CIT's direction to reassess the income under section 115BBE. The Tribunal dismissed the assessee's appeal and directed the AO to reframe the assessment order after considering the issue of section 115BBE and giving the assessee a proper opportunity to be heard.