AO's treatment of excess stock as business income upheld, PCIT's revision order u/s 263 overturned

The ITAT Raipur allowed the assessee's appeal against PCIT's revision order u/s 263. The tribunal held that AO's assessment treating excess stock as business income rather than unexplained investment u/s 69 was not erroneous, as the assessee consistently declared it as business income from survey proceedings through return filing. The AO had specifically examined this issue and accepted the assessee's explanation after due application of mind. The tribunal noted judicial precedents supporting taxation of surrendered business income under normal rates rather than u/s 115BBE. Regarding purchase figure mismatches between trial balance and audited balance sheet, the tribunal found the assessee's explanation of regrouping entries justified and held PCIT's direction for further enquiry was unwarranted.

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Issues:
Challenge to revisional order under section 263 of the Income Tax Act concerning Assessment Year 2017-18.

Detailed Analysis:
The appeal was filed against the revisional order of the Principal Commissioner of Income Tax (PCIT) under section 263 of the Income Tax Act. The PCIT directed the Assessing Officer (A.O.) to reframe the assessment order for A.Y. 2017-18. The assessee contested the jurisdiction of the PCIT, claiming the assessment order was not erroneous or prejudicial to revenue. The assessee, engaged in trading of precious metals, declared excess stock as taxable income during survey proceedings. The A.O. added an amount to the returned income due to a lower net profit ratio. The PCIT, after reviewing the assessment records, sought to set aside the A.O.'s order for re-adjudication based on lack of proper enquiry.

The PCIT proposed revision on two counts: treatment of excess stock as unexplained investment under section 69 and reconciliation of purchase figures in audited accounts with the Trial Balance. The assessee argued that the excess stock was from business activities, consistently treated as business income. The A.O. issued a show cause notice, and after considering the reply and case laws, did not disturb the position taken by the assessee. Judicial views supported treating such income as business income. The A.O.'s decision was found to be reasonable, and the invocation of section 263 was deemed unjustified.

Regarding the alleged mismatch in purchase figures, the assessee explained the differences due to accounting practices and the dynamic nature of the business. The PCIT's lack of understanding of accounting practices was highlighted. The rejection of books by the A.O. and estimation of profits rendered the alleged difference inconsequential. The Tribunal found merit in the assessee's contentions, stating that the figures of different dates would naturally vary. The PCIT's directions were deemed unwarranted, and the A.O.'s actions were considered appropriate.

In conclusion, the Tribunal allowed the appeal of the assessee, setting aside the PCIT's revisional order. The judgment was pronounced on 29.09.2021 in accordance with the Income Tax Appellate Tribunal Rules, 1963.

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