Revision under s.263 quashed as AO properly examined invoices and stock; s.115BBE tax deemed covered

ITAT AMRITSAR allowed the appeal and set aside the PCIT's revision under s.263. The Tribunal found the AO had made proper enquiry, examined invoices, impounded papers and stock, and reasonably concluded the surrendered amounts arose from the assessee's cosmetics business rather than unexplained investments. Valuation at cost reduced the alleged excess and any tax computed under s.115BBE would be covered by tax already paid. The revision was held unjustified, the AO's order was not erroneous or prejudicial to revenue, and the s.263 order was quashed.

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Issues: Whether the Principal Commissioner of Income Tax was justified in invoking jurisdiction under section 263 of the Income-tax Act, 1961 and setting aside the assessment order passed under section 143(3) on the ground that the Assessing Officer failed to examine the source of funds for excess stock found in survey and that the surrendered amount should be taxed under deeming provisions (section 69B/section 115BBE) instead of as business income.

Analysis: The Tribunal examined whether both conditions for exercise of revisionary power under section 263 that the assessment order is erroneous and prejudicial to the interests of revenue were satisfied. The factual matrix shows a survey under section 133A where excess stock of cosmetics was inventoried, the assessee voluntarily surrendered an amount in the return and the Assessing Officer issued repeated notices under section 142(1), called for purchase bills, considered replies and documentary evidence (including purchase/sales invoices and impounded loose papers) and completed scrutiny assessment under section 143(3) treating the surrender as business income at normal rates. The assessee also demonstrated that departmental valuation at MRP overstated stock and that valuation at cost materially reduced the excess stock figure. The Tribunal applied settled principles that section 263 cannot be invoked where the Assessing Officer has made enquiries and taken one of two plausible views; Explanation 2 to section 263 permits revision only where inquiries or verifications that a prudent officer would have made were not carried out, and the Principal Commissioner must demonstrate lack or inadequacy of such enquiries. On the record the AO conducted specific enquiries, verified documents and adopted a legally tenable view that the surrendered amount arose from the same business and is assessable as business income; no independent source or asset was identified to treat the amount as unexplained investment under deeming provisions. The Tribunal also noted that even if the lower figure (valuation at cost) were taxed under section 115BBE, the tax liability would be covered by tax already paid, so no prejudice to revenue arose.

Conclusion: The invocation of section 263 by the Principal Commissioner was not justified; the assessment order under section 143(3) was neither erroneous nor prejudicial to the interests of revenue and the revisionary order is set aside in favour of the assessee.

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