TaxTMI 
TaxTMI 
2021 (8) TMI 905
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.... 9,71, 969/-.Stocks as per books amounted to Rs. 2,62,32,509/- and as per physical verification amounted to Rs. 3,12,00,410/-. Stocks were excess by Rs. 49,67,901/- 1. That there was the difference in valuation of the building also, building as per books amounted to Rs. 51,23,155/- whereas as per valuation report it amounted to Rs. 1,40,00,000/- giving a difference of Rs. 88,76,845/-. 5. That the Assessee filed a letter dated 19.2.2014 and surrendered Rs. 1,50,00,000/- for the assessment year 2014-15 for and above the normal business income with the following details:- a) Excess cash in hand : Rs. 9,72,000/- b) Excess stock : Rs. 50,28,000/- c) Building construction : Rs. 90,00,000/- Total : Rs. 1,50,00,000/- 6. The case of the Assessee was selected for scrutiny assessment and the Assessee Officer had issued the notice u/s 142(1) of the Income Tax Act. The Assessee Officer has enquired that there was decline in the profit of the Assessee. 7. That in response to query no. 37, the Assessee was to justify low income shown during the year under consideration. In response to that, the Assessee filed their reply and submi....
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.... Assessee under any provision of this Act, in computing his income referred to in clause (a) of sub-section (1). The perusal of record of the above said case file however revealed that a survey u/s 133A was conducted and the Assessee offered additional income of Rs. 15000000/- at the time of survey u/s 133A. The perusal of record of the case further revealed that the Assessee has adjusted the additional income offered in the profit and loss account where as the additional income surrendered during survey was required to be assessed as per provisions of section 115BBE and no expenditure as well as other deductions were admissible to the Assessee. The Assessee was required to be declared minimum 15000000/- income out of which loss carried forward from previous year to the extent of Rs. 39,31,563/- required to be adjusted and balance Rs. 1,10,68,437/- was required to be assessed instead of Rs. 9968100/-. The omission has resulted in under assessment of income of Rs. 11,00,337/-." 12. That after receiving the notice u/s 154 from the assessing Officer, assessee gave the reply to the notice u/s 154, and it was submitted :- 1)That as per notice mistake proposed to be rectified....
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....he extent of Rs. 3931563/- required to be adjusted and balance Rs. 11068437/- was required to be assessed instead of Rs. 9968100/-. The omission has resulted in under assessment of income of Rs. 1100337/- Our Submissions 1) That from the perusal of the section 115BBE of the Act, your goodself will observe that section 115BBE is attracted if total income includes any income referred to in section 68, 69A, 69B, 69C or 69D which reads as under:- Tax on income referred to in section 68 or section 69 or section 69A or section 69B or section 69C or section 69D. 115BBE. (1) Where the total income of an assessee includes any income referred to in section 68, section 69, section 69A, section 69B, section 69C or section 69D, the income-tax payable shall be the aggregate of- (a) the amount of income-tax calculated on income referred to in section 68, section 69, section 69A, section 69B, section 69C or section 69D, at the rate of thirty per cent; and (b) the amount of income-tax with which the Assessee would have been chargeable had his total income been reduced by the amount of income referred to in clause (a). (2) Notwithstandin....
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....een debited to stock, excess cash debited to cash in hand and Building under construction has been debited with Rs. 90,00,000/- and corresponding amount has been credited to income surrendered with Rs. 1,50,00,000/-. From the perusal of surrender letter and Profit & Loss A/c, it will be observed that Assessee has rightly credited the amount to Profit & Loss A/c being business income since income surrendered was due to cash in hand, stocks and building under construction which clearly related to the business of the Assessee. 5) That it is an established law that that if the surrendered additional income is related to the business carried on by the Assessee, then same is to be assessed as business income and cannot be considered as deemed income mentioned in section 68, 69A, 69B, 69C or 69D. Reliance is being placed on following case laws:- a) DEV RAJ HI-TECH MECHINES LTD. vs.DEPUTY COMMISSIONER OF INCOME TAX (2015) 174 TTJ 0009 (Asr) ((UO)) Unexplained Income-Income from undisclosed sources-Assessee was a Manufacturer of Rice Sheller Machineries and its parts-A survey was carried out on the premises of the Assessee u/s 133A-During the cou....
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....rrendered income should be treated as business income- AO rejected submission of Assessee and treated surrendered income as deemed income and not as business income- CIT(A) held that AO was fully justified in treating income surrendered during course of survey amounting to Rs. 70 lacs as deemed income and was right in not giving benefit of set off of business losses from this income-Held, as Assessee had also surrendered income of Rs. 10 lacs in assessment year 2005-06 on account of sundry credits, repairs to building and advances to staff, which being relatable to business carried on by Assessee was already included as income from business-AO nowhere disputed business losses incurred by Assessee and books had not been rejected- It was stated at Bar that even at time of survey, in the trading account prepared by survey team, there were losses incurred by Assessee- All these facts had not been disputed by AO-. Further, surrender made by Assessee was on account of cash found during course of survey, discrepancy in cost of construction of building, discrepancy in stock and discrepancy in advances and receivables-By no stretch of imagination, any of these incomes apart from cash could ....
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.... As the additional income of Rs. 1,50,00,000/- declared by the Assessee was unexplained income as admitted by the assessee company itself, the same was to be assessed as per provisions of section 115BBE of the Income Tax Act, 1961 and no expenditure as well other deductions were admissible on this declared income. However, the Assessing Officer, while framing assessment failed to disallow the expenses claimed and to make any enquiries/verifications in the matter." 14. That the Assessee after receipt of the show cause notice, had given various replies including the reply on 15.3.2019, 19.03.2019 and 25.03.2019. However, the Principal CIT was not convinced with the replies given by the Assessee and therefore, the impugned order was passed by the Principal CIT. The relevant finding of PCIT are as under :- " 4 The Assessee vide this office noting sheet entry dated 18.03.2019 was required to file Balance Sheet and Profit and Loss Account and computation of income and last year's computation of income and the case was adjourned to 19.03.2019. The Assessee's counsel Shri Surinder Mahajan, CA attendedgiven to-the Assessing Officer and the same was accepted by him. The A....
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....nd confronted to which the Assessee could give no explanation and the Assessee had no option other than to surrender the same as additional income. In the absence of any explanation regarding the nature and source of the cash and investment, the same cannot be assessed as normal business income eligible for debit of business expenses, rather it is squarely covered under the provisions of section 69/69A as unexplained income/investment to be charged to tax as per section 1158BE of the Act. Reliance is placed on the decision of Hon'ble Punjab & Haryana High Court decision in the case of M/s Kim Pharma (P) Ltd. which is squarely applicable in the present case. In the said decision the honorable court has referred to the decision of the Gujarat High Court in Fakir Mohmed _Hajj_Hasan_y._Commissioner_of_Income-Tax [2001] 247 1TR 290. In that case, interpreting the scope and describing the scheme of Sections 69, 69A, 69B and 69C of the Act, it was observed: "The scheme of sections 69, 69A, 69 and 69C of the Income-tax Act, 1961, would show that in cases where the nature and source of investments made by the Assessee or the nature and source of acquisition of money, bullion et....
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....rresponding deductions which are applicable to the incomes under any of these various heads, will not be attracted in the case of deemed incomes which are covered under the provisions of section 69, 69A and 69C of the Act in view of the scheme of those provisions." Thus, in the absence of any explation regarding the nature and source of the excess cash, investment in building and excess stock found, the same cannot be assessed as business income, rather it is squarely covered under the provisions of section 69/69A as unexplained income/investment not eligible for any deduction and to be charged to tax as per section 115BBE of the Act. In view of the foregoing reasons, it is apparent that while framing assessment, the Assessing Officer failed to hold the surrendered income as unexplained investment/unexplained money u/s 69/69A of the Act and charge income tax as per provisions of section 115BBE of the Act. Therefore, the order passed by the Assessing Officer is held to be erroneous and prejudicial to the interest of the revenue. The case is, therefore, set aside to the file of the A.O. for fresh assessment on the above mentioned issue. ( emphasis supplied ....
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....o this extent to the file of the Assessing Officer to pass fresh order after making necessary enquiries/investigations in the light of the discussions made above and after giving due opportunity to the Assessee of being heard." 18. That the Ld. AR contended that no specific direction was given by the Ld. PCIT to the assessing Officer and further, PCIT had to fail to point out how the Order passed by the Ld. Assessing Officer was erroneous in nature. It was the contention of the Ld. AR that the issue of applicability of section 115BBE was duly considered by the Ld. Assessing Officer during the original assessment order as well as whileconsidering the rectification u/s 154. It was submitted that once the assessing Officer made the sufficient enquiry, the PCIT does not have any jurisdiction to initiate the proceeding u/s 263 of the Act based on audit objection. He relied upon the following decisions to buttress are given: - a) COMMISSIONER OF INCOME TAX vs. KANDA RICE MILLS HIGH COURT OF PUNJAB AND HARYANA (1989) 178 ITR 0446 b) COMMISSIONER OF INCOME TAX vs. UNIQUE AUTOFELTS (P) LTD. HIGH COURT OF PUNJAB AND HARYANA (2009) 30 DTR 0231 c) SATISH KUMAR ....
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....y invoked the decision relied upon by the Assessee pertaining to the pre amended section 263 would no way hold good." 21. He argued that explanation 2 in section 263 is not applicable retrospectively. He relied upon the decisions in SATISH KUMAR VS PR CIT ITA NO. 258/ASR/2019, A.V. Industries vs. ACIT ITA No.3469/M/2010 and Metacaps Engineering &Mahendra Construction Co. vs. CIT I.T.A. No. 2895/Mum/2014. 22. That the Ld. AR had further submitted that amendment to section 115BBE of the Act towards no deduction in respect of any expenditure or allowance is applicable w.e.f. A.Y. 2017- 18 and not for the A.Y. 2014-15 and therefore, finding of the PCIT in paragraph 5 to the following effect was incorrect: - "Thus, in the absence of any explanation regarding the nature and source of the excess cash, investment in building and excess stock found, the same cannot be assessed as business income, rather it is squarely covered under the provisions of section 69/69A as unexplained income/investment not eligible for any deduction and to be charged to tax as per section 115BBE of the Act." 23. He relied upon the following decisions for those purposes: - a) FAMINA KNIT....
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....tock have been debited to stock, excess cash debited to cash in hand and Building under construction has been debited with Rs. 90,00,000/- and corresponding amount has been credited to income surrendered with Rs. 1,50,00,000/. From the perusal of surrender letter and Profit & Loss A/c, it will be observed that Assessee has rightly credited the amount to Profit & Loss A/c being business income since income surrendered was due to cash in hand, stocks and building under construction which clearly related to the business of the Assessee." 27. That from the reading of the reply and the notice issued u/s 154, it is abundantly clear that the assessing Officer had made enquiry about the applicability of section 115BBE and the treatment given by the Assessee of the surrendered income during the survey, however, the assessing Officer, was satisfied on account of the reply given by the Assessee as well as after consideration the decision of the jurisdiction Tribunal in the matter of DEV RAJ HI-TECH MECHINES LTD. vs.DEPUTY COMMISSIONER OF INCOME TAX (2015) 174 TTJ 0009 (Asr) ((UO)), have dropped the proceedings under Section 154. Thus, the proceedings before the Assessing Officer cannot be ....
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....placed at paper book page 35 raised this issue vide para-11. The assessee filed a detailed reply under the heading justification of taxable income wherein it explained as to why the taxable income had decreased as compared to surrendered income. As per paper book page-39, the main reason for decrease in taxable profits was due to increase in depreciation and increase in bank interest. The Assessing Officerafter considering this explanation had passed the assessment order, however, he did not mention the fact of considering this explanation in the assessment order. The only none mentioning of certain enquiries and explanations thereof. in the assessment order in itself does not give a right to Commissioner to pass order under section 263. The Hon'ble Bombay High Court in the case of CIT vs. Gabriel India Ltd.(supra) has held that where the Assessing Officer had made enquiries in regard to nature of expenditure incurred by assessee and assessee had given detailed explanation in that regard and Assessing Officer had accepted the explanation of the assessee, the decision of Assessing Officer could not be held to be erroneous simply because in his order he did not make an elaborate ....
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....ing Officer, was justified in granting the special deduction under section 80-IB. The order of revision disallowing the special deduction was not valid." 9. The Hon,ble Chandigarh Tribunal in the case of Khushi Ram & Sons Pvt. Ltd. (supra) has decided similar issue wherein the assessee had surrendered an amount of Rs. 80 lacs during the course of survey on account of building renovation, office equipment and sundry receivables and claimed set off of unabsorbed losses for the assessment years 2007-08 and 2006-07 and Assessing Officer allowed the same. The learned Commissioner invoked jurisdiction under section 263 of the Act, on the ground that the AssessingOfficer had failed to make enquiries in respect of claim of set off on unabsorbed losses, fall in gross profit rate and depreciation and wrongly allowed the claim against the surrendered income which was erroneous and prejudicial to the interest of the Revenue. The Hon'ble Tribunal has held as under: "Held, allowing the appeal, that the Assessing Officer had made detailed enquiry at the assessment stage with regard to the fall in gross profit rate, set off the brought forward losses and depreciation....
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.... increase in interest costs and further the reasons for increase in the electricity charges was also explained in the same letter. Therefore, the assessee had submitted all details and the Assessing Officer had examined all factors leading to decrease in normal profits as compared to earlier year. As regards surrendered income, the assessee has clearly credited the same to the Profit & Loss account over and above the normal profits of the concern. Therefore, in our opinion the Assessing Officer has taken a plausible view as the assessee had surrendered the income as business income which was separately credited to Profit and Loss account. 10. The case law of Kim Pharma Ltd. vs. CIT (supra) as relied upon by the learned DR is not applicable to the facts and circumstances of the present case as in that case the Hon'ble Court had reproduced the findings of Tribunal that assessee during the course of survey had surrendered the income as incomefrom other sources. Whereas in the present case the assessee had surrendered income over and above the normal profits of the concern and not as income from other sources. The findings of Tribunal as recorded by Hon'ble Punjab & Ha....
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....declared such surrender over and above, the normal profits of the concern, therefore, the case laws relied upon by the learned DR is also in favour of the assessee. 12. In view of the above facts and circumstances, and in view of judicial pronouncements as noted above, we are of the considered opinion that Assessing Officer had taken a plausible view and the power exercised by learned Commissioner of Income Tax is not as per settled law. In view of the above, we allow the appeal of the assessee and set aside the order of Commissioner of Income Tax and upheld the order of Assessing Officer." 30. We may rely upon the decision of Shri Abdul Hamid & Shri Abdul Hannan ITA Nos.46 & 47/Gau/2019 decided on 17.7.2020 wherein it was held as under :- " 14. Next ground on which ld PCIT has exercised jurisdiction under section 263 of the Act was that the Assessing officer had failed to tax the undisclosed income of Rs. 3,65,933/- as per provisions of section 115BBE of the Income-tax Act, 1961. In order to understand whether the provisions of section 115BBE are applicable to the assessee or not, let us first go through the provisions of section 115BBE of the Act, which reads....
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....nt as undisclosed business receipts/turnover. We reproduce the relevant para of assessment order where assessing officer treated the undisclosed amount as undisclosed business receipts/turnover: "Accordingly, the amount of Rs. 91,48,326/-, which was not accounted for gross turnover in the profit & loss account in the Return of Income of the assessee, has been considered as undisclosed business receipt or turnover of the assessee for the financial year 2013-14 relevant to the assessment year 2014-15 o v e r & above the gross turnover declared by him. The margin of net profit has been taken @ 4% on audited gross turnover in the Return of Income filed by the assessee. Accordingly, margin of profit has been taken @ 4% on undisclosed turnover of Rs. 91,48,326/- which comes to Rs. 3,65,933/- and added back as undisclosed business income to the returned income." Since, the assessing officer has applied his mind and treated the undisclosed amount in bank account as undisclosed business receipt or turnover of the assessee, therefore provisions of section 115BBE does not apply to the assessee. 16. Even, ld PCIT while exercising his jurisdiction under section 263 of the Act treated t....
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....mount in bank account as undisclosed business receipts / turnover. The assessing officer while giving appeal effect of the order of ld PCIT under section 263 of the Act, vide order under section 143(3)/263 of the Act dated 28.11.2019, treated undisclosed amount as undisclosed business receipts/turnover. Since the Department itself accepting the undisclosed amount of assessee in his bank account as undisclosed business receipts/turnover, therefore, section 115BBE does not attract here and hence order passed by the assessing officer, after application of mind, under section 143(3) dated 30.12.2016 is neither erroneous or prejudicial to the interest of revenue." 31. In our considered opinion the revenue has failed to demonstrate that the order passed by the assessing officer was erroneous and prejudicial to the interests of the revenue.Under the provisions of the Act, the CIT may call for and examine the record of any proceeding this Act and pass an order only if the twin conditions are satisfied, namely, the order passed by the Assessing Officer is erroneous; and also prejudicial to the interest of the revenue. The Hon'ble Supreme Court in the case of Malabar Industrial Co. Ltd. V....
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.... the interests of the Revenue unless the view taken by the Income-tax Officer is unsustainable in law." 32. A similar view has also been taken by the Hon'ble Apex Court in the case of CIT Vs Max India Ltd. (2007) 295 ITR 282 (supra), wherein it has been held as under: "The phrase "prejudicial to the interests of the Revenue" in section 263 of the Income-tax Act, 1962, has to be read in conjunction with the expression "erroneous" order passed by the Assessing Officer, Every loss of revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interests of the Revenue. For example, when the Assessing Officer adopts one of two courses permissible in law and it has resulted in loss of revenue, or where two views are possible and the Assessing Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the Revenue, unless the view taken by the Assessing Officer is unsustainable in law." 33. In the matter ITO v. D.G. Housing Projects Ltd. 2012 (343) ITR 329 (Delhi), wherein it has been observed as under:- 16. Thus, in cases of wrong opinion or finding on merits, the....
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....directing a fuller inquiry to find out if the view taken is erroneous, when a view has already been taken after inquiry. This power of revision can be exercised only where no inquiry as required under the law is done. It is not open to enquire in cases of inadequate inquiry 35. The principles that emerge out of the above cited decisions are that the twin requirement of the order being erroneous and prejudicial to the interests of revenue should be satisfied and that the CIT should invoke the powers u/s 263 only after an enquiry by him to establish the twin conditions. 36. Further we are also the opinion that merely the assessing officer has formed an opinion which is not in line of thinking of the revisional Commissioner and there are two possible views, then also the revisional Commissioner cannot exercise the power for provision under section 263. For the above said purposes we rely upon the decision of the Bombay High Court in the matter of C.I.T. Vs. Gabriel India Ltd. 203 ITR 108 (Bom) has held that: "The Income Tax Officer in this case had made enquiries in regard to the nature of the expenditure incurred by the assessee. The assessee had given a detailed expla....
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.... during the year under consideration taxable income of the company came to Rs. 1,37,99,660/- which was set off with brought forward losses amounting to Rs. 39,31,563/- and taxable income came to Rs. 98,68,097/-. c) That now coming to comparison of income with reference to amount surrendered at Rs. 1,50,00,000/- please note : Particulars 2012-13 2013-14 Net profit as per profit & loss account 15,51,697 1,57,22,250 Add: Depreciation 2803213 3417550 Add: bank charges & interest & exchange difference and interest to depositors 4152311 8373657 N.P before bank charges & interest & exchange difference & interest to depositors & depreciation 8507221 27513457 From the above chart, your goodself will observe that income declared by the assessee is much more as compared to previous year, keeping in view amount surrendered at Rs. 1,50,00,000/- during the year under consideration." 39. Further, the assessee in rectification proceeding under section 154 had submitted the manner in which the amount of Rs. 1.5 crore was treated in the accounts of the assessee. After considering all the aspect and considering the decision of the Trib....
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....ered by the assessee and was accepted by the Assessing Officer. We are, therefore, of the considered opinion that it is not a case of no enquiry and as a matter of fact, it was specifically brought to the notice of the Ld. Assessing Officer that the interest earned was adjusted against the project expenditure. 13. Further, it is an admitted fact that in this case, the business of the assessee was commenced in this case, unlike the facts in the case of M/s. Tuticorin Alkali Chemicals and Fertilizers Ltd.(supra). The Mumbai Bench of Tribunal while noticing the decision of jurisdictional High Court in the case of CIT vs. Sunbeam Auto Ltd, 332 ITR 167 and the case of Nagesh knitwear Pvt. Ltd., 355 ITR 135 observed that the Explanation- 2 to section 263 inserted by Finance Act, 2015 w.e.f. 01.04.2015 would not impact the assessment earlier to 2014-15 and such a decision was followed by the Delhi Bench of Tribunal in the case of Arun Kumar Garg (HUF) vs. PCIT in ITA No. 3391/Del/2018 for the assessment year 2014-15 and by order dated 08.01.2019 held that Explanation 2 to section 263 of the Act is only prospective in nature. 14. In the case on hand, the ld. PCIT while re....
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....er Section 263 of the Act can be invoked to interdict an assessment order. The observations made in this behalf, by the Division Bench of this Court, in Commissioner of Income-tax vs. Sunbeam Auto Ltd., [2010] 189 Taxman 436 (Delhi)/[2011] 332 ITR 167 (Delhi) being apposite, are extracted hereafter. "12. We have considered the rival submissions of the counsel on the other side and have gone through the records. The first issue that arises for our consideration is about the exercise of power by the Commissioner of Income-tax under section 263 of the Signature Not Verified Digitally Signed By:VIPIN KUMAR RAI Signing Date:06.07.2021 10:30:10 Income-tax Act. As noted above, the submission of learned counsel for the revenue was that while passing the assessment order, the Assessing Officer did not consider this aspect specifically whether the expenditure in question was revenue or capital expenditure. This argument predicates on the assessment order which apparently does not give any reasons while allowing the entire expenditure as revenue expenditure. However, that by itself would not be indicative of the fact that the Assessing Officer had not applied his mind on the issue. T....
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....d. v. ITO[1977] 106 ITR 1 (SC) at page 10]. ****** From the aforesaid definitions it is clear that an order cannot be termed as erroneous unless it is not in accordance with law. If an Income-tax Officer acting in accordance with law makes a certain assessment, the same cannot be branded as erroneous by the Commissioner simply because, according to him, the order should have been written more elaborately. This section does not visualise a case of substitution of the judgment of the Commissioner for that of the Income-tax Officer, who passed the order unless the decision is held to be erroneous. Cases may be visualised where the Income-tax Officer while making an assessment examines the accounts, makes enquiries, applies his mind to the facts and circumstances of the case and determines the income Signature Not Verified Digitally Signed By:VIPIN KUMAR RAI Signing Date:06.07.2021 10:30:10 either by accepting the accounts or by making some estimate himself. The Commissioner, on perusal of the records, may be of the opinion that the estimate made by the officer concerned was on the lower side and left to the Commissioner he would have estimated the income at a figure higher th....