TaxTMI 
TaxTMI 
2025 (2) TMI 437
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.... income of Rs. 50,00,000/- by way of excess stock found during the course of survey was not assessable under the head "Profit and loss of the business" but as deemed income under section 69 r.w.s. 115BBE of the act. 3. That the Ld. PCIT has erred in law in invoking the provisions of section 263 without there being any specific charge of no enquiry having been made the AO. 4. The Ld. PCIT-Central Circle Ludhiana has erred both on fact and law in not properly considering the submission made before him and further erred in assuming the jurisdiction u/s 263 of the IT Act, 1961 despite the fact that the assessing officer has conducted detailed inquiry before passing the assessment order. That the PCIT has failed to appreciate that the excess stock calculated by the survey team was to be inventorized at cost instead or MRP. 5. That the Ld. PCIT has erred in facts and in law in assuming jurisdiction u/s 263 by alleging that AO did not make any enquiries to verify the source of funds used for surrender on account of excess stock of Rs 50,00,000/- during the year. The Learned Principal Commissioner of Income Tax (PCIT) has failed to appreciate the fact that during....
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....ed in wholesale and retail trading of "cosmetics" and has been regularly filing her return of income for earlier years, u/s 44AD of the Act 61. In course of survey u/s 133A of the Act 61, conducted at the business premises of the assessee on 7th February, 2019, excess stock of cosmetics, valued at Rs. 49,98,000/- was found and inventorised by the survey team and as per observation in the survey report u/s 133A(1), dated 08/02/2019, some loose papers and diaries were impounded as evidence of purchase and sales, out of books of accounts, even though no cash book was found at the business premises. 4. In course of survey, the assessee voluntarily disclosed an amount of Rs. 50 lakhs, as business income, over and above her normal profits derived from the said business, to cover up and settle the alleged discrepancy of stock, and the same is also evidenced by her replies to the statements recorded by the survey team in course of survey. 5. Subsequently, the return of income filed by the assessee in due course disclosing a total income of Rs. 56,05,590/-, which included the normal business profits and the additional income disclosure of Rs. 50 lakhs, (after considering deductions un....
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....y of survey report, computation of income and copy of statement of the assessee recorded by survey team, and other supporting papers. 10. The Ld AR of the assessee, at the onset, submitted that the determination of excess stock at Rs. 50 Lakhs (Rs. 49,98,000/-), by the survey team itself is technically incorrect, because the same has been inventorised and valued at MRP instead of cost price. It was submitted that the inventory process conducted by the department consisted of about 60 pages, and the closing stock as on date of survey was calculated by drawing up a trading account by taking into consideration the gross profit rate for earlier years and the difference has been arrived at by taking into consideration the value of stock inventory noted by the department at MRP and closing stock calculated by applying GP rate as on date of survey. He further submitted that if the said stock is properly valued at cost price (instead of MRP) the calculation of excess stock value will be Rs. 17. 77 lakhs only (and not Rs. 50 lakhs) which is narrated as under, and the same has been duly brought to the notice of the AO vide letter dated 13/09/2021: Stock calculated by department at MRP ....
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....explaining the fact with supporting sales invoices, that inventory has been prepared on the basis of MRP, which is valued at much on the higher side and in fact the excess stock rolling in business is much less around Rs. 17 lakhs (approx), which the Ld AR argued is directly co related to the unrecorded purchase and sales invoices found in course of survey, pertaining to cosmetics. 15. He further referred to the survey report u/s 133A(1) of the Act dated 08/02/2019, where there has been a clear finding of the survey team (in col- 15 of the report) "Assessee has been found in the practice of purchase/ sales out of books of accounts ", to put forth his argument that the assessee is not engaged in any other business, other than cosmetics and the excess stock so found is also of the same nature and type which is regularly traded by the assessee and no other business activity or income generating activity has been found by the survey team, other than trading of cosmetics, and the excess stock found, is the excess that is rolling in the same business and has been acquired out of unrecorded purchase and sales of the same goods, and as such the additional income disclosed is to be asses....
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....udicial to the interest of the revenue' and expression 'erroneous' are simultaneously fulfilled. In the absence of any of the above condition, the provisions of section 263 stand vitiated. 19. The Principal Commissioner of Income Tax (PCIT) has exercised jurisdiction under Section 263 without satisfying the twin conditions prescribed by the section and as interpreted by various courts. Specifically, the condition of an order being "erroneous" can only be established if the Assessing Officer (AO) fails to conduct any enquiry, which is not applicable in the present case. It is pertinent to note that the appellant has provided detailed replies to the questionnaire, specifically addressing the issue of the source of the excess stock surrendered. That summary of the replies submitted on these specific points as contained in replies filed are as follows:- Particulars Comments Page No Statement dated 08.02.2019 admitting the fact that the appellant was making sale outside books of accounts Question No 4 of statement dated 08.02.2019 51 Survey report dated 08.02.2019 stating the fact that the appellant was in practice of making sales outside books of accounts Ann....
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....rice. It was highlighted that MRP, as per the Standard Weight & Measurement Act, incorporates taxes such as GST, and no additional charges can be levied from the customer beyond this. It was further clarified that the MRP includes GST element and is further subject to adjustment on account of margin on selling price. The correct value of excess stock as per cost as submitted before the AO is worked out and the assessee has put an alternate argument to demonstrate that the revenue is not prejudiced: "Additional argument on the aspect of prejudicial to the interest of revenue: That the appellant vide reply dated 17.03.2021 specifically requested the AO to consider the correct stock. (copy at page no 8-9 of the PB). In order to substantiate the same, the AO specifically asked the appellant to provide purchase bills and the same were also submitted vide reply dated 14.09.2021 (page 14 of PB). The AO framed the assessment u/s 143(3) without making any addition by stating that the appellant had duly considered the amount surrendered in the return of income filed. That the same facts were presented before the PCIT and it was submitted that even if the correct ex....
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....g judgments for support. 25. It is a matter of record that proper enquiry was made by the AO and therefore, it cannot be stated that no enquiry was made by the AO. In this regard reliance is being placed upon the order of Delhi High Court in Geevee Enterprises v. Addl. CIT 99 ITR 375 (Del.)that order would be erroneous only when the AO makes no enquiries during the course of assessment proceedings. In arriving at this decision, the Delhi High Court drew strength from the principles laid down by the Supreme Court in Rampyari Devi Saraogi v. CIT [1968] 67 ITR 84 and Smt. Tara Devi Aggarwal v. CIT [1973] 88 ITR 323 (SC). The underlying principle which emerges from these judgments is that if an assessment order is passed without making any enquiring, then such an order would be erroneous. 26. This provision cannot be invoked to correct each and every type of mistake or error committed by the Assessing Officer; it is only when an order is erroneous as also prejudicial to revenue's interest, that the provision will be attracted. An incorrect assumption of the fact or an incorrect application of law will satisfy the requirement of the order being erroneous. The phrase 'prejudici....
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....s while invoking his powers under section 263 - Whether twin conditions for invoking powers under section 263 i.e. not only order should be erroneous, but it should also be prejudicial to interest of revenue were not met, therefore, Tribunal was justified in setting aside impugned revision order of Principal Commissioner - Held, yes [Paras 14 and 16 to 18] [In favour of assessee] C) [2022] 141 taxmann.com 512 (Gujarat) HIGH COURT OF GUJARATPrincipal Commissioner of Income-tax v. Shukla Dairy (P.) Ltd.* II. Section 40A(3), read with section 263, of the Income-tax Act, 1961 and rule 6DD of Income-tax Rules, 1962 - Business disallowance - Cash payment exceeding prescribed limit (Rule 6DD) - Assessment year 2013-14 - Assessee-company was engaged in business of manufacturing of dairy products - Assessee filed return and Assessing Officer passed assessment order after making certain additions - Principal Commissioner observed that assessee made cash payment in excess of Rs. 20,000 to milk sellers who were traders and said sellers would not be eligible for rule 6DD - Principal Commissioner invoked section 263 and remanded matter on ground that Assessing Officer failed to....
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....dicial to interest of revenue are satisfied and then issue a show-cause notice to assessee - Held, yes - Whether where there was nothing on record to show that such an exercise was done by Principal Commissioner and rather, initiation of proceedings under section 263 on ground that assessee could not establish genuineness of transactions to prove that it had not indulged in any dubious share transactions meant to account for undisclosed income under garb of long term capital gain (LTCG) to claim exemption under section 10 (38) was based on a proposal given by Assessing Officer, exercise of jurisdiction under section 263 was not justified - Held, yes [Paras 8 and 9] [In favour of assessee] 27. The Ld AR further argued on applicability of clause(a) of explanation 2 to section 263 and relied upon the Judgment of Sh. Narayan Tatu Rane Vs. ITO, I.T.A. No. 2690/2691/Mum/2016, 70 taxmann.com 227 dt. 06.05.2016 in which ITAT has held that what is relevant for clause (a) of Explanation 2 to sec. 263 is whether the AO has passed the order after carrying our inquiries or verification, which a reasonable and prudent officer would have carried out or not. It does not authorize or give unfett....
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....d in detail at para no 1 of brief synopsis. 2. [2015] 60 taxmann.com 60 (Kolkata - Trib.) IN THE ITAT KOLKATA BENCH 'B' Subhlakshmi Vanijya (P.) Ltd. v. Commissioner of Income-tax-I, Kolkata Section 68, read with section 263, of the Income-tax Act, 1961 - Cash credit (Share capital) - Assessment years 2008-09 to 2010-11 - Assessee filed return offering meagre income and issued share capital at huge premium, while making large investments in new companies at much higher price than their real worth - Upon reassessment, Assessing Officer did not invoke section 68, hence, Commissioner exercising his revisionary power under section 263 set aside assessment orders directing Assessing Officer to make fresh assessment after conducting detailed enquiry and upon satisfying on genuineness of transaction - Whether order of Commissioner was not based on irrelevant considerations and further in present circumstances, he was not obliged to positively indicate deficiencies in assessment order on merits on question of issue of share capital at a huge premium - Held, yes - Whether since inadequate enquiry conducted by Assessing Officer was as good as no enquiry making order er....
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.... that case surrendered Rs. 2.15 crores during the survey but only declared Rs. 1.35 crores as taxable income in the return, which led the Commissioner to set aside the assessment for further examination. In contrast, in the present case, the assessee has surrendered the exact same amount of income in the return as was admitted during the survey. There is no discrepancy between the amount of excess stock surrendered and the income declared in the return. The Assessing Officer (AO) conducted a thorough enquiry and considered the correct figures, and thus the case law cited does not parallel the current facts. The proper application of Section 145, read with Sections 133A and 263, requires that the conditions of the case law be met, which is not the situation here. 4 [2013] 29 taxmann.com 70 (Hyderabad - Trib.) IN THE ITAT HYDERABAD BENCH 'B' Mahalakshmi Liquor Promoters (P.) Ltd v. Commissioner of Income-tax-IV, Hyderabad Section 263, read with sections 2(47) and 14A, of the Income-tax Act, 1961 - Revision - Of order prejudicial to interest of revenue - Scope of jurisdiction - Assessment year 2007- 08 - Commissioner in exercise of power under section 263, set aside a....
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....vision for gratuity. As such, the order was erroneous and prejudicial to the interests of the revenue. Therefore, the conditions precedent for assuming jurisdiction under section 263 did exist in the facts of the instant case. [Para 4] In the case relied upon by the Principal Commissioner of Income Tax (PCIT), the Assessing Officer (AO) failed to make any enquiry, which was a key factor leading to the revisional order. However, in the present case, the AO conducted a thorough and proper enquiry. The AO duly verified all the documents furnished by the appellant and considered the explanations provided during the assessment proceedings. Therefore, the circumstances of the current case are materially different, as the AO actively engaged in the scrutiny of the appellant's records, unlike in the cited case. This distinction renders the case law relied upon by the PCIT inapplicable to the present situation. 6 [2011] 11 Taxmann.com 183(Ranchi) IN THE ITAT CIRCUIT BENCH, RANCHI Dr. Rabindra Kumar Singh v. Commissioner of Income-tax (Central), Patna Section 263 of the Income-tax Act, 1961 - Revision - Of orders prejudicial to interest of revenue - Assessment years 199....
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....ion 115BBE are not applicable in the present case and also relied upon the various judgements passed ITAT and high Courts. [Refer reply dated 14.09.2021 at page no 13 of the PB] 4. The AO further asked to submit more purchase bills to substantiate the claim of the appellant that the inventory was worked out by applying MRP. The appellant submitted the same vide reply dated 14.09.2021 which is enclosed at page no 14 of the PB. 5. Thereafter, the AO time and again issued notices to verify the claim of the appellant and only after careful examination of documents brought on record, completed the assessment for the AY 2019-20 vide order passed u/s 143(3) on 17.09.2021 whereby the returned income of Rs. 5605590/- was duly accepted. 6. In the case law replied upon the A.O. has not made proper enquiry from the relatives on the contrary in extant case proper enquiry was made. 7 [2005] 95 ITD 326 (PUNE) IN THE ITAT PUNE BENCH Ambika Agro Suppliers v. Income- tax Officer, Wd. 2(6), Jalgaon Section 263 of the Income-tax Act, 1961 - Revision - Of orders prejudicial to interest of revenue - Assessment year 1995-96 - Commissioner set aside assessment order on grounds that....
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.... investigation, verification, and probe after receiving directions from the Commissioner (Appeals) to review the contract receipts. As a result, the AO's order was found to be patently erroneous and prejudicial to the interests of revenue. In contrast, the AO in the present case actively conducted a thorough investigation and verification of the appellant's records. The AO diligently reviewed and scrutinized all documents and explanations provided by the appellant, including those related to the surrender of excess stock. The assessment was carried out with due diligence and care, ensuring that all relevant facts and figures were appropriately considered. Therefore, unlike the AO in the cited case, the AO in this case did not exhibit any failure to investigate or verify, making the cited case law inapplicable to the current situation. 31. Therefore, the Ld AR rested his arguments by submitting that based on judicial pronouncements, the order passed u/s 263 be annulled, considering the facts and circumstances of the case and in the interest of natural justice. 32. We have heard the rival submissions and considered the materials on record and the paper book submitted by ....
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....own and is part and parcel of the normal business stock and what is not declared to the department is the receipt from business (and not any investment) because it cannot be co-related with any specific assets . 34. On this aspect of the matter we would like to refer to the observation of the coordinate Bench decision in the case of of M/s A.P. Knit Fab Vs. DCIT in ITA No. 732/Chd/2022, dated 15.02.2024 are as follows; relevant portion is reproduced below: I.T.A.No.178/Asr/2024 Assessment Year: 2019-20 (relevant portion reproduced) "8.12. In the instant case as well, there is no physicaldistinction between the accounted stock and unaccounted stock. No such physical distinction was found by the Revenue either. We therefore find that the difference in stock so found out by the authorities has no independent identity and is in terms of value terms only and thus part and parcel of entire stock therefore, it cannot be said that there is an undisclosed asset which existed independently and thus, what is not declared tothe department is receipt from business and not any investment as it cannot be co-related with any specific asset and the difference should thus be treated as b....
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....ase of Rajmal Kanwar vs CIT (2017) 82 taxmann.com119 (Jaipur ITAT No 142(JP)of 2015, where the AO has made sufficient enqueries, considered survey records, and surrender made by assessee and after considering submissions of assessee completed assessment proceedings u/s 143(3), assessment order could not be held to be an erroneous order which was prejudicial to the interest of revenue. (3) ITAT Amritsar Bench in the case of M/s Active Tools Pvt Ltd vs DCIT -II, Jallandhar [2021] 8 TMI 905 ITA No: 260/ ASR/2019, where in an almost identical case it has been held that when two views are possible, then the view taken by the assessing officer cannot be said to be wrong as the same was not to the liking of the opinion of the Ld PCIT, for which the Hon'ble bench relied on Supreme court in the case of Max India [2007]11 TMI 12- Supreme Court. 36. Now, coming further to the issue of valuation of the stock as done by the survey team, it is seen that the assessee in course of assessment proceedings has specifically demonstrated with supporting sales invoices and calculation of the entire inventory of stock, that if the said excess stock is valued at COSTS, the difference will only be of an....
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....sis to invoke the provisions of section 263 to revise the assessment. 40. We further observe that various High courts has laid down the law that powers of revision cannot be exercised on the ground that the assessing officer should have gone deeper into the matter or should have made a more elaborate discussion . 41. Some of the judgments all expressing almost the similar views in the matter are as under: (1) CIT vs Hindusthan Marketing and Advertising Co Ltd 196 taxmann 368 (Delhi High Court): Whether in view of the fact that ITO had made reasonably detailed enquiries, had collected relevant materials and discussed facets of case with assessee, order of Commissioner to direct fresh assessment by going deeper into matter would not form a valid or legal basis to exercise jurisdiction under section 263 - Held YES. (2) CIT vs Jain Uday fabrics pvt ltd [2024] 165 taxmann.com 833 Punjab and Haryana High Court, (3) PCIT vs Anindita Steels Ltd [2022] 137 taxmann.com 203 (Calcutta High Court) (4) CIT vs Goyal Private family Specific Trust [1987] 35 taxmann.522 (Allahabad) 42. Lastly, it is also observed by us that neither the survey team in cour....