AO's acceptance of surrendered income as business income upheld, PCIT's section 263 revision order set aside

ITAT Jaipur set aside PCIT(Central)'s revision order u/s 263 regarding excess stock found during survey proceedings. The tribunal held that AO's acceptance of surrendered income as business income was a plausible view after proper examination of survey findings, documents, and assessee's statement. PCIT failed to establish how AO's order was erroneous, merely stating that section 115BBE provisions were attracted to excess stock found during survey. The tribunal found AO conducted requisite inquiry and took sustainable view considering facts and circumstances. Appeal allowed, revision order cancelled.

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Issues Involved:
1. Legality of the order passed by the Principal Commissioner of Income Tax (PCIT) under Section 263.
2. Whether the assessment order dated 23.04.2021 was erroneous and prejudicial to the interest of revenue.
3. Applicability of Section 115BBE for taxation of excess stock found during survey proceedings.

Issue-wise Detailed Analysis:

1. Legality of the order passed by the Principal Commissioner of Income Tax (PCIT) under Section 263:
The assessee challenged the legality of the order passed by the PCIT under Section 263, arguing that the order was illegal and bad in law. The PCIT had invoked clause (a) and clause (b) of Explanation 2 to Section 263, which deems an order to be erroneous if it is passed without making necessary inquiries or verification. The PCIT issued a show cause notice stating that the assessment order was erroneous as the excess stock found during the survey was not taxed under Section 115BBE. The assessee contended that the excess stock was part of the regular business activity and should be taxed under normal provisions. The Tribunal found that the PCIT did not provide a clear basis for how the AO's view was unsustainable in law and set aside the PCIT's order, concluding that the AO had taken a plausible view.

2. Whether the assessment order dated 23.04.2021 was erroneous and prejudicial to the interest of revenue:
The PCIT argued that the assessment order was erroneous and prejudicial to the interest of revenue because the AO did not apply Section 115BBE to the excess stock of Rs. 23,62,332/-. The PCIT noted that the AO accepted the income returned by the assessee without proper verification. The Tribunal observed that the AO had considered the facts, including the survey findings, the assessee's statement, and the return of income, and concluded that the income from excess stock was part of the business income. The Tribunal held that the AO's view was a plausible one and that the PCIT did not demonstrate how the AO's order was unsustainable. Therefore, the Tribunal concluded that the assessment order was not erroneous or prejudicial to the interest of revenue.

3. Applicability of Section 115BBE for taxation of excess stock found during survey proceedings:
The PCIT contended that the excess stock found during the survey should be taxed under Section 115BBE as unexplained expenditure under Section 69C. The assessee argued that the excess stock was part of the regular business activity and should be taxed under normal provisions. The Tribunal referred to various case laws, including decisions from the Rajasthan High Court and ITAT Jaipur Bench, which supported the view that excess stock related to regular business activity should be taxed as business income. The Tribunal found that the AO had taken a plausible view by taxing the excess stock at normal rates and that the PCIT did not provide a valid reason to invoke Section 263. Consequently, the Tribunal set aside the PCIT's order and allowed the appeal of the assessee.

Conclusion:
The Tribunal concluded that the order passed by the PCIT under Section 263 was not justified as the AO had taken a plausible view by taxing the excess stock as business income at normal rates. The Tribunal set aside the PCIT's order and allowed the appeal of the assessee. The assessment order dated 23.04.2021 was upheld, and the excess stock was deemed taxable under normal provisions, not under Section 115BBE.

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