2022 (3) TMI 1636 - SCH - Income Tax

Tax Case: Undeclared Tobacco Stock Investments Challenge Reveals Complexities in Income Tax Authority's Power to Reassess

The Pr. Commissioner of Income Tax (Central) Versus M/s. Deccan Tobacco Company

SC examined a tax case involving undeclared tobacco stock investments. The Managing Director acknowledged Rs. 7,60,53,000/- as unexplained investment in ... Revision u/s 263 - Unaccounted and excess stock found during the course of search - whether be assessed as business income at the rate of 30% - whether Tribunal is correct in law in endorsing the erroneous order of the A.O as an order after taking one of the possible views? - as decided by HC [2021 (9) TMI 424 - ANDHRA PRADESH HIGH COURT] elaborate explanations were offered by the assessees, which were fortifiable by consistent views by various Benches of the Tribunal as well as the High Courts - Assessing Officer, upon consideration, accepted the explanation and taxed the additional income as ‘business income’ @ 30% instead of 60% as per Section 115BBE of the Act - no case of perversity or lack of enquiry on the part of the Assessing Officer is made out so as to render his decision erroneous under Explanation 2 of Section 263 of the Act. HELD THAT:- Petitioner would point out the statement made by the Managing Director of the respondent- assessee which indicates that the amount in question (Rs. 7,60,53,000/-) is declared on account of unexplained investment in Tobacco stocks of Deccan Tobacco Company. He also refers to the answer given by the same employee that as he is not in a position to explain the source of excess stock of 6,01,672 Kgs valuing to Rs. 7,60,53,000/- (Rate @ 126.40/- per Kg) found in the godowns of the Deccan Tobacco Company, he voluntarily offered the same as undisclosed income in the hands of the company. Petitioner also would point that it is after the search that the balance sheet relied upon by the assessee came to be finalized. Therefore, he would submit that it is not a case where two opinions were possible based on which reasoning both the ITAT and the High Court has interfered with the proceedings u/s 263 of the Income Tax Act, 1961. Issue notice. The Supreme Court, with Hon'ble Mr. Justice K.M. Joseph and Hon'ble Mr. Justice Hrishikesh Roy presiding, addressed a case involving the petitioner represented by Mr. Balbir Singh, Additional Solicitor General, among other advocates, and the respondent-assessee, who was not represented.The petitioner highlighted a statement from the Managing Director of the respondent-assessee, acknowledging an amount of Rs. 7,60,53,000/- as 'unexplained investment' in tobacco stocks of Deccan Tobacco Company. This was based on an excess stock of 6,01,672 Kgs valued at Rs. 7,60,53,000/- found in the company's godowns. The Managing Director admitted the inability to explain the source of this excess stock and voluntarily declared it as 'undisclosed income.'Mr. Balbir Singh argued that the balance sheet, which the assessee relied upon, was finalized only after the search, suggesting that the interference by the ITAT and the High Court under Section 263 of the Income Tax Act, 1961, was not justified, as it was not a case of differing opinions. The Court issued a notice in response to these submissions.