TaxTMI 
TaxTMI 
2021 (8) TMI 905
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....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 submitted that:- "Reply to question no. 37 that as regards your query regarding jus....
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....ecord 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 is as under:- Assessee had surrendered additional income of Rs. 15000000/- during the survey operations and as per the records Assessee....
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....7/- 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) Notwithstanding anything contained in this Act, no deduction in respect of any expenditure or allowance shall be allowed to the Assessee under any provision of this Act in computing his income referred to in clause (a) of sub-section (1).] Section 68, 69A, 69B, ....
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....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 course of survey, the Assessee surrendered an additional income of Rs. 1,25,00,700/- over and above the normal income for the year under consideration-Assessee had filed its return of income and declared income-Assesses case was selected for scrutiny-During the survey, the Assessee had surrendered an income of Rs. 1,25,00,700/- and such surrendered income was to be taxed under the....
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....ee 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 be considered as income under any head other that 'business income'- Nowhere in his order AO had been able to bring on record fact that income surrendered during course of survey was not out of business of Assessee--Also nowhere AO objected to heads under which Assessee had surrendered these amounts, i.e. cash, construction of building, discrepancy in stock and discrepancy in advances and receivabl....
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.... 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 Assessee has also referred the decision of Hon'ble ITAT, Amritsar in the case of Dev Raj Hi Tech Machines Ltd wherein' 263 has been set aside on the similar issue of treating surrendered income as unexplained 69/69A. 5. On perusal of the records it is found that; in the course of survey u/s 133A of the Act conducted at business premises of the Assessee and some discrepancies were found which the Assessee was unableto explain....
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....n 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 etc., owned by the Assessee or the source of expenditure incurred by the Assessee are not explained at all, or not satisfactorily explained, then, the value of such investments and money or the value of articles not recorded in the books of account or the unexplained expenditure may be deemed to be the income of such Assessee. It follows that the moment a satisfactory explanation is given about such nature and source by the Assessee, then the source would stand disclosed and wi....
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....r 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 by us ) 6. In view above facts and discussions, I am satisfied that the assessment order passed by the assessing Officer on 24.11.2016 is erroneous in so far as it is prejudicial to the revenue,. Therefore, the said order passed on 24.11.2016 is set aside to this extent the file assessing Officer to pass fresh order after making necessary. Enquires /investigations in the light discussions made above and after giving due opportunity to the Assessee of being heard. 15. Now the Assessee in appeal befo....
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....sing 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 VS PR CIT ITA NO. 258/ASR/2019 d) VARDHMAN INDUSTRIES LTD. vs. DEPUTY COMMISSIONER OF INCOME TAX IN THE ITAT CHANDIGARH (2016) 181 TTJ 0017 (Chd) ((UO)) e) LAJ EXPORTS vs. DEPUTY COMMISSIONER OF INCOME TAX IN THE ITAT CHANDIGARH (2012) 20 ITR 0111 f) SHRI SARTAJ SINGH VS. PR. CIT I.T.A NO.154(ASR)/2015 g) COMMISSIONER OF INCOME TAX vs. SOHANA WOOLLEN MILLS HIGH COURT OF PUNJAB AND HARYANA (2008) 296 ITR 0238 h) B & A PLANTATION & INDUSTRIES LTD. & ANR. vs. COMMISSIONER OF INCOME TAX & ORS. HIGH COURT OF GAUHATI (2007) 290 ITR 0395 19. That the Ld. AR had submitted that words erroneous....
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....CIT 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 FABS AND ANR. vs. ASSISTANT COMMISSIONER OF INCOME TAX AND ANR IN THE ITAT CHANDIGARH BENCH 'A' (2019) 198 TTJ 0258 (Chd) b) M/S. GODWIN RESORT & HOTEL PVT. LTD. vs. ASSISTANT COMMISSIONER OF INCOME TAX IN THE ITAT DELHI BENCH 'G' (2019) 57 CCH 0138 DelTrib c) Circular No. 11/2019 dated 19.06.2019 24. Lastly, the Ld. AR had submitted that in the identical facts, the Hon'ble Amritsar Tribunal in the case of DEV RAJ HI-TECH MECHINES LTD. VS. DEPUTY COMMISSIONER OF INCOME TAX (2015) 174 TTJ 0009 (ASR) ((UO) and Hon'ble Chandigrah Tribunal in the case of GAURISH STEELS P. LTD. VS. ASSISTANT COMMISSIONER OF INCOME TAX(2015) 173 TTJ 0764, had held that the business i....
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....ability 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 said to be inadequate. The observation of the PCIT that no enquiry was made, in our view was incorrect, as the sufficient enquiry were made in the assessment proceedings as well as under the proceeding's u/s 154 by the Assessing Officer, as well as in the rectification application. 28. The PCIT at page 11 of her order had duly noticed the reliance of Assessee onthe decision of Dev Raj Hi Tech Machines Ltd and in paragraph 4 of the impugned order it was mentioned as under :- "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 ....
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....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 discussion in this regard. In the present case, the Assessing Officer raised an enquiry and assessee filed detailed reply and thereafter, Assessing Officer accepted the explanation and did not make any addition on that account. The order of Assessing Officer cannot be said to be erroneous as he has taken a plausible view, keeping in view the facts and circumstances of the case. The Hon'ble Delhi High Court in the case of CIT vs. Anil Kumar Sharma 335 ITR 83 has held as under: "There is a distinction between "lack of inquiry" and 'inadequate inquiry" If there was any inquiry, even inadequate that would not by itself give occasion to the Commissioner to pass orders under section 263 of the Income-t....
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....bsorbed 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. The Assessing Officer called for complete details with regard to manufacturing process, month-wise production, consumption, quantitative sales and justification of major expenses. The assessee furnished complete details and replies before the Assessing Officer and there was no infirmity in the replies of the assessee. The nature of business of the assessee revealed that it might not be possible to give the exact details of manufacturing large number of sweets of different quantities or of the closing stock. Hence, the assessee submitted complete details before the Assessing Officer at the assessment stage regarding all the issues which had been raised by the Commissioner in the order under section 263 of the Act. The Assessing Officer was satisfied wit....
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....rcumstances 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 & Haryana High Court are reproduced as under: " In the facts of the present case, we find that assessee during the course of survey had surrendered the income as income from other sources though a plea has been raised by the assessee that the income was surrendered as income from job work but no evidence to prove that stand of the assessee has been brought on record. The assessee had also surrendered additional 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 included as income from business. However, in respect of cash found during survey, which was not reflected in the books of account, no source was declared by the assessee and in the ....
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....s 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 as follows: "15BBE. Tax on income referred to in section 68 or section 69 or section 69A or section 69B or section 69C or section 69D. 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. Notwithstanding anything contained in this Act, no deduction in respect of any expenditure or allowance shall be....
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....e." 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 the undisclosed amount in bank account as undisclosed business receipts/turnover, vide para No. 2 of the order of ld PCIT, which is reproduced below for ready reference: "2.Proposal for revision u/s 263 of the Income Tax Act, 1961 was received on the issue (a) low rate of net profit was considered on undisclosed business turnover and........" Shri Abdul Hamid & Shri Abdul Hannan ITA Nos.46 & 47/Gau/2019 Assessment Year:2014-15 11 Since, ld PCIT has himself treated the amount of undisclosed bank account as undisclosed business receipts/turnover, therefore the question of application of the provisions of section 115BBE does not apply to the assessee under consideration. 17. Furthermore, the assessing officer while giving appeal effect to the order of ld PCIT under section 263 of the Act, had shown the undisclosed amount of bank account under the head business ....
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.... 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. Vs CIT (2000) 243 ITR 83 (supra) has held that both of the above conditions have to be satisfied. It has been held that, !"A bare reading of section 263 of the Income-tax Act, 1961, makes it clear that the prerequisite for the exercise of jurisdiction by the Commissioner suo motu under it, is that the order of the Income-tax Officer is erroneous in so far as it is prejudicial to the interests of the Revenue. The Commissioner has to be satisfied of twin conditions, namely, (i) the order of the Assessing Officer sought to be revised is erroneous; and (ii) it is prejudicial to the interests of the Revenue. If one of them is absent-if the order of the Income-tax Officer is erroneous but is not prejudicial to the Revenue or if it is not erroneous but is prejudicial to the Revenue-recourse cannot be had to section 263(1) of the Act. The provision cannot be invoked to correct each and every typ....
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....ejudicial 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 CIT has to come to the conclusion and himself decide that the order is erroneous, by conducting necessary enquiry, if required and necessary, before the order under Section 263 is passed. In such cases, the order of the Assessing Officer will be erroneous because the order passed is not sustainable in law and the said finding must be recorded. CIT cannot remand the matter to the Assessing Officer to decide whether the findings recorded are erroneous. In cases where there is inadequate enquiry but not lack of enquiry, again the CIT must give and record a finding that the order/inquiry made is erroneous. This can happen if an enquiry and verification is conducted by the CIT and he is able to establish and show the error or mistake made by the Assessing Officer, making the order unsustainable in Law. In some cases possibly though rarely, the CIT can also show and establish that the facts on record or inferen....
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....bay 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 explanation in that regard by a letter in writing. All these were part of the record of the case. Evidently, claim was allowed by the Income tax Officer on being satisfied with the explanation of the assessee. This decision of the Income tax officer could not be held to be "erroneous" simply because in his order he did not make an elaborate discussion in that regard." "When exercise of statutory power is dependent upon the existence of certain objective facts, the authority before exercising such power must have material on record to satisfy it in this regard." "if then an order is erroneous but not prejudicial to the interest of the revenue ,then the power of suo moto revision cannot be exercised. Any and every erroneous order cannot be subject matter of revision because the second requirement must be fulfilled." 37. In the present case, additional incomewas surrendered at the time of the survey as business income, which is ....
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....ner 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 Tribunal, the assessing officer has not proceeded against the assessee. 40. In our view the decision of the Tribunal in the matter of Dev Raj Hi Tech Machines Ltd ( supra) was clearly applicable to the facts of the present case. In fact the said case was referred by thePrinciple CIT , however she had neither distinguished nor discussed while passing the impugned order. The Ld. PCI had simply relied upon the explanation 2 to section 263 of Act and wrongly held that the assessing officer did not make sufficient inquiries. 41. As mentioned hereinabove, the order passed by the PCIT cannot be upheld because the assessing officer had made sufficient enquiries and had correctly taken income surrendered by the assessee as business income and after due considerations of reply. Secondly the view taken by the assessing officer was supported by the view of the Tribunal in the case of Dev Raj Hi Tech Machines Ltd (supra), thus it cannot be said that the view taken by the assessing officer was not a plausible view ,hence it was erroneous. Ad....
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....19 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 reading the provisions of section 263 of the Act and the decision of Hon'ble Apex Court in the case of M/s. Tuticorin Alkali Chemicals and Fertilizers Ltd.(supra) reached a conclusion that inasmuch as there was no specific inquiry by the Assessing Officer, the assessment order was erroneous in so far as it is prejudicial to the interest of Revenue. He does not conduct any independent enquiry to reach the conclusion that the assessment order was erroneous in so far as it is prejudicial to the interest of Revenue. If we accept the submission of the ld. DR that since all the material was available on record, there was no need for the PCIT to conduct any further inquiry, it also inures to the benefit of the assessee because all these things are available on record and the assessee specifically submitted that the difference in the ITR and 26AS occurred because of the adjustment of the interest received against the project expenditure. Admittedly, this is the only project conducted by the assessee and there is no other project. In such an event, it is not ....
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....ld not be indicative of the fact that the Assessing Officer had not applied his mind on the issue. There are judgments galore laying down the principle that the Assessing Officer in the assessment order is not required to give detailed reason in respect of each and every item of deduction, etc. Therefore, one has to see from the record as to whether there was application of mind before allowing the expenditure in question as revenue expenditure. Learned counsel for the assessee is right in his submission that one has to keep in mind the distinction between "lack of inquiry" and "inadequate inquiry". If there was any inquiry, even inadequate, that would not by itself, give occasion to the Commissioner to pass orders under section 263 of the Act, merely because he has different opinion in the matter. It is only in cases of "lack of inquiry", that such a course of action would be open. In Gabriel India Ltd.'s case (supra), law on this aspect was discussed in the following manner : ". . . From a reading of sub-section (1) of section, it is clear that the power of suo motu revision can be exercised by the Commissioner only if, on examina- tion of the records of any proceedings und....
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.... and left to the Commissioner he would have estimated the income at a figure higher than the one determined by the Income-tax Officer. That would not vest the Commissioner with power to re-examine the accounts and determine the income himself at a higher figure. It is because the Income-tax Officer has exercised the quasi-judicial power vested in him in accordance with law and arrived at conclusion and such a conclusion cannot be termed to be erroneous simply because the Commissioner does not feel satisfied with the conclusion. . . . There must be some prima facie material on record to show that tax which was lawfully exigible has not been imposed or that by the application of the relevant statute on an incorrect or incomplete interpretation a lesser tax than what was just has been imposed. ****** We may now examine the facts of the present case in the light of the powers of the Commissioner set out above. 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 detailed explanation on that regard by a letter in writing. All these are part of the record of the case. Evidently, the claim wa....