TaxTMI 
TaxTMI 
TaxTMI 
2023 (2) TMI 986
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..... Pr. CIT erred in law and on facts holding order erroneous on the alleged ground that the order was framed without any inquiry or verification to examine the source of investment made in the excess stock found during survey proceedings which could be considered as made out of undisclosed sources of income. 3. Ld. Pr. CIT erred in law and on facts in passing impugned order on the alleged ground of possible violation of Sec. 69B of the Act attracting provision of Sec. 115BBE to charge tax at 60% of the income. 4. Ld. Pr. CIT further erred in law and on facts holding scrutiny assessment order as erroneous in so far as prejudicial to the interest of revenue on the alleged ground of AO charging penalty u/s 270A of the Act whereas income was required to be charged u/s 69B attracting penalty u/s 271AAC of the Act. 5. Ld. Pr. CIT erred in law and on facts revising scrutiny assessment order relying on Hon'ble Delhi high court judgments on completely different set of facts." 3. The ld.counsel for the assessee began by pointing out that revisionary power ,under section 263 of the Act ,was exercised by the ld.Pr.CIT on noticing from the records before him that disclosuremade by the....
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....hat all proper disclosure regarding the surrender made during survey and regarding source of investments therein, was made by the assessee, and was there before the AO, who after considering the same, had allowed claim of the assessee of treating the disclosure as "business income" of the assessee. ii) That considering the fact of the surrender relating to excess stock of business and cash found, the view taken by the AO of treating the disclosure as "business income" of the assessee was in conformity with judicial pronouncements and hence a probable view. That therefore there was no error in the order of the AO accepting disclosure of the surrender made by the assessee as its business income; iii) That since the stand taken by the assessee of returning surplus stock and cash surrendered during survey as business income was supported by various judicial decisions the AO , by accepting the same, had taken one of the possible view which could not be said to be in error. iv) That ld.Pr.CIT had applied Explanation 2 to section 263 of the Act without confronting the assessee of invoking the same in the show cause notice issued and the Hon'ble jurisdictional High Court had held suc....
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....al rate on which taxes were paid by the assessee by including the same as being part of its business income. Further, penalty as per the law, on such unexplained investment was tobe levied as per the provisions of section 271AAC which specifically dealt with the levy of penalty in case of income determined under section 69B of the Act. The ld.Pr.CIT found that the AO had conducted no inquiry on the source of these investments in stock as disclosed by the assessee, and therefore, by accepting them as "business income", the assessment order passed was in error ,causing prejudice to the Revenue. 14. We shall now deal with the various contentions raised by the ld.counsel for the assessee against the said revisionary order by the ld.Pr.CIT. 15. The first contention of the ld.counsel for the assessee, * That the matter had been examined during assessment proceedings and all facts relating to the disclosure, as to the nature and source of the investment, being there before the AO which showed clearly that such investments were made from the undisclosed business income of the assessee, therefore the AO had rightly accepted the disclosure made by the assessee, as being in the nature of ....
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.... of Shri Nilaykumar Soni another partner in the firm recorded during survey placed before us at PB Page no.13 to 19, more particularly page no.19 where at question no.20, it was pointed out that the assessee was asked to explain discrepancy in cash as under: Ques: As per books of account cash-in-hand is Rs.33,13,803 whereas cash found physically is Rs.16,98,550/- . Please justify the difference ? Ans: At the time of taking customer booking orders, some customers are giving old ornaments as part of order advance. The said advance is received in old ornaments. However, the same is wrongly entered in the books as cash receipt. Further, some partners withdrawal may not be 4entered in the books. Expenses may be pending for recording. So due to those three reasons, physical cash in hand is less than cash shown in the books. 19. Thereafter to question nos.22 and 23 the assessee was asked to explain discrepancy in gold as under: "Ques.22 : As per physical stock of record, stock of gold ornaments & bullions is 44716.945 gms. However, as per books of accounts stock of gold ornaments, bullion and 18 carat gold ornaments is 41325.864 gms. So there is physical difference of gold stock is....
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....017, On verification of Copy "Statement of Oth" and other details, it is found that Excess of stock of Gold ornament & silver is found in Survey and the same accepted by an Assessee as Income of the year. Further excess Cash on Hand is also found during the Survey and the same is also accepted as current year income. Total Excess Cash found during Survey is of Rs.1,09,045/- (One Lakhs Nine Thousand Forty Five). The same is taken as Direct Income in Books of Accounts. Excessof Gold Ornament found during Survey is 3391.081 grams and the same is recorded in books of account by considering rate of Rs.2830 per gram. So total value of excess gold stock recorded in books is Rs.95,96,759/- (i.e. 2830 x 3391.081 grams) similarly excess stock of silver ornaments found during the survey is 4111.00 grams at rate of Rs.39.00 per gram of Silver Ornaments (Rs.39,000/- per kg.) is taken. So Rs.1,60,329/- (39 x 4111 grams) is recorded as Income in Books of Account. Further, Income treated due to difference in Frame Valuation is Rs.1,24,252/- and Amount treated as income due to other irregularities is Rs.1,06,374/-. So total declaration in Survey is, Excess gold Ornaments Rs.95,96,759.00/- Excess Ca....
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....tentions and record perused. I have also carefully gone through the orders of the authorities below. I have also deliberated on the judicial pronouncements referred by the lower authorities in their respective orders as well as cited by the ld AR during the course of hearing before the ITAT in the context of factual matrix of the case. From the record, I find that during the course of survey, income was surrendred by the assessee on account of stock, excess cash found out of sale of stock and also in respect of incriminating documents. As per judicial pronouncements cited by the ld. AR and also the decision of Hon'ble Rajasthan high court in the case of Bajrang Traders in Income Tax Appeal No. 258/2017 dated 12/09/2017 I observe that the Hon'ble High Court in respect of excess stock found during the course of survey and surrender made thereof was found to be taxable under the head 'business and profession'. Similarly in respect of excess cash found out of sale of goods in which the assessee was dealing was also found to be taxable as business income. Applying the proposition of law laid down in the judicial pronouncements as discussed above, I hold that the lower authorities we....
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....tion 115BBE, as noted above, we are of the view that business activity related income may not ordinarily get placed u/s 68 to section 69D of the Act. In the assessee's case under consideration, the assessee submitted before the assessing officer that deposits of Rs. 91,48,326/- in bank account No. 21956697434, were business receipts. The relevant para of the assessment order is reproduced below: "On being confronted the assessee made submission on 27/12/2016 stating that out of aggregate deposits of Rs. 95,33,717/- made in the said bank account A/c No. 2195697434 Rs. 91,48,326/-was his business receipt, Rs. 3,73,870/- are maturity proceeds of daily deposit accounts and Rs. 11,521/- was interest Income on savings account. After his father's death, the assessee was started doing business using the above bank account in question, which was not reflected in his Return of income." 15. We note that assessing officer in his assessment order has also treated the undisclosed amount in bank account as undisclosed business receipts/turnover. We reproduce the relevant para of assessment order where assessing officer treated the undisclosed amount as undisclosed business receipts/tu....
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....axman.com 73(Andhra Pradesh) pointing that the issue was identical with the facts of the assesses case and the hon'ble court had set aside the order passed u/s 263 of the Act holding that in view of the consistent view of judicial authorities, the excess stock of gold and diamond jewellery surrendered by the assessee, dealing in the same, could not be treated as unexplained investments u/s 69B of the Act. Copy of the order was placed before us. 28. The Ld.DR though pointed out that no pointed queries relating to the stock surrendered by the assessee was made by the AO and therefore it could not be said that inquiries were conducted on the issue by the AO.As for the reliance on the decision of the Hon'ble Andhra Pradesh High Court, Ld.DR stated that the same was distinguishable on facts since in the said case it was noted that the AO had conducted inquiries on the stock surrendered regarding their nature and source. 29. We have gone through all the above and we find merit in the contention of the ld.counsel for the assessee. Though the ld.DR has argued that it is a clear cut case of no inquiries made since no pointed queries with respect to the source of disclosure made by the ass....
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....orities and the AO had therefore taken a plausible view on the matter. That therefore there was no question of any error in the order of the AO so as to justify exercise of revisionary power by the Ld.PCIT in the said case. Though the Ld.DR has pointed out factual distinction in the said case as proper inquiries were noted to be conducted by the AO on the issue, but we find that the same is of no consequence and does not alter the applicability of the said decision to the facts of the present case before us. We have noted that in the said case in response to queries raised by the AO seeking explanation as to why the surrender should not be treated as unexplained investment in the said case, the assessee had merely submitted that excess stock was part of its mixed lot of stock both declared and undeclared, invested out of its undisclosed business income of earlier years and further the assessee had disclosed the same as its business income in its Profit and Loss account. This explanation was found to be correctly accepted by the AO, by the Hon'ble High Court. In the present case before us the assessee had admitted to the same explanation in statement of partners recorded during surv....
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....y, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, [including,- (i) an order enhancing or modifying the assessment or cancelling the assessment and directing a fresh assessment; or (ii) an order modifying the order under section 92CA; or (iii) an order cancelling the order under section 92CA and directing a fresh order under the said section]. Explanation 1.-For the removal of doubts, it is hereby declared that, for the purposes of this sub-section,- .... ..... ..... .... Explanation 2.-For the purposes of this section, it is hereby declared that an order passed by the Assessing Officer [or the Transfer Pricing Officer, as the case may be,] shall be deemed to be erroneous in so far as it is prejudicial to the interests of the revenue, if, in the opinion of the Principal [Chief Commissioner or Chief Commissioner or Principal] Commissioner or Commissioner,- (a) the order is passed without making inquiries or verification which should have been made; (b) the order is passed allowing any relief without inquiring into the cl....
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.... to clear up any ambiguity in the section. They only clarify an existing law. Normally Explanations do not enlarge the scope of the section but only explain the scope. Explanation 2 to section 263, clearly provides additional support to the dominant object of section 263, specifically pointing out situations where assessment orders will be deemed to be erroneous. The main provision of the section and its import has not been altered by the explanation. Therefore where section 263 itself has been invoked and the reason for finding the assessment order erroneous clearly pointed out to the assessee during revisionary proceedings to the effect that adequate inquiries were not conducted by the AO on the issue in question , Explanation 2 to section 263 (a) also being to the same effect of assessment orders being deemed to be erroneous on account of lack of adequate inquiry, we see no reason why pointedly the Explanation also needs to be brought to the notice of the assessee while applying it to the case. 36 Once the ld.Pr.CIT brings to the notice of the assessee the reason why he finds the assessment order to be erroneous, which in the present case was inadequate inquiries conducted by ....
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....e validly invoked without first confronting it to the assessee. In the case before Hon'ble High Court in the decision relied upon by the Ld.AR, the Revenue had proposed the following questions as substantial question of law before the Hon'ble High Court: "(a) Whether on the facts and in the circumstances of the case and in law, the Hon'ble ITAT is correct in holding that the PCIT was not empowered and entitled to revise assessment order u/s. 263 of the Act r/w Explanation 2 thereto by ignoring that the order passed by the AO is erroneous in so far as it is prejudicial to the interest of revenue in as much as the Assessing Officer has passed the assessment order without making inquires/verification in the light of the unsecured loans of Rs. 2.49 Crores received from M/s. Georgette Tradecom Pvt. Ltd (GTPL) and M/s. PurbaAgro Food Pvt. Ltd (PAFPL)? (b) Whether on the facts and in the circumstances of the case and in law, the Hon'ble ITAT is correct in cancelling the impugned order u/s. 263 of the I.T. Act and allowing all the grounds of the Assessee?" 40. The Revenue had challenged the order of the ITAT setting aside the order passed by the ld.Pr.CIT under section 263 of ....