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 and declared it under "other sources." AO failed to inquire about applicability of section 115BBE (higher tax rate) despite assessing surrendered income as income from other sources. ITAT found complete lack of inquiry by AO constituted erroneous and prejudicial assessment order. AO directed to reconsider issue in accordance with section 115BBE provisions. Assessee's appeal dismissed.

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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 263

The 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 115BBE

The 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.

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