TaxTMI 
TaxTMI 
2025 (2) TMI 1264
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....uch the order passed u/s 263 of the ITA, 1961 is erroneous. 3. The learned PCIT-1, Nashik erred in law and on facts in invoking provisions of section 69 r.w.s 115BBE of the ITA, 1961 on amount of Rs. 50,00,796/- for undisclosed stocks; and taxing the same @ 60% instead of regular rate of 30%. 4. The learned PCIT-1, Nashik erred in law and on facts in considering the undisclosed stocks amounting to Rs. 50.01 Lakhs as unexplained investments u/s 69 of the ITA, 1961 in spite of the fact that the appellant has declared the stock in ROI i.e. already declared source of income. Appellant contents that, provisions of section 69 of the ITA, 1961 are not applicable to the present facts. 5. Appellant craves leave to add / amend /modify/delete all / any of the grounds of appeal." 3. Briefly stated, the assessee is an individual, engaged in the business of trading and repairing of various machinery tools and hardware in the name of his proprietary concern M/s. Indian Tools. For AY 2019-20, the assessee filed his return of income on 31.12.2019 declaring total income of Rs. 47,92,860/-. A survey action u/s 133A of the Act was conducted at the business ....
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....ld have been taxed applying the provisions of section 115BBE of the Act. He, therefore concluded that the impugned order passed by the Ld. AO is erroneous in so far as it is prejudicial to the interest of the revenue because the assessment has been made without making inquiries or verification which should have been made. Accordingly, the Ld. PCIT issued notice u/s 263 of the Act to show cause as to why the impugned order of the Ld. AO be not set aside. In response thereto, the assessee neither attended the hearing nor filed any written submission. Therefore, one more opportunity was granted calling for certain information mentioned in the notice. The assessee responded and filed written submissions to the said notice, the relevant portion of which has been reproduced in para 5 and 5.1 by the Ld. PCIT in his order and the same are reproduced below : "05. In response to the opportunity letter, the assessee filed written submission received in this office on 16.02.2024. The relevant portion of the submissions of the assessee filed during the proceedings u/s 263, is as under : "That the appellant the original assessee in the assessment proceedings filed before the Li....
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....as per the provisions of section 44AD of the income-tax Act, 1961 and for all these years assessee's turnover was not exceeded the threshold limits for maintained the books of accounts and getting it audited. The assessee has maintained only purchase and sale details for the business carried out by him. 3.2 In the case of the assessee an action under section 133A of the Income tax Act, 1961 was conducted by the Authorized Officer at the business premises of the assessee between 25.2.2019 to 27.02.2019 During the course of survey action, an inventorisation of the stock was physically taken and also statement under section 131 of the Income-tax Act, 1961 was also recorded in respect of Proprietary Mohammad Haroon Motiwala dated 27.02.2019. The Authorised Officer vide question No. 11 of the aforesaid statement had asked to explain the discrepancies/difference found in the value of stock. The aforesaid Question No. 11 and its reply of the assessee is reproduced below :- "Q11 During the course of survey proceedings, an inventory of physical stock was taken in your premises amounting to Rs. 60, 13,780/- at cost price, whereas, the closing stock as on ....
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....amounting to Rs 60,13,786/- was considered and accordingly an amount of Rs 45,10,230/- was computed while filing the return of income on account of income offered during the course of survey out of regular business income activities of the present assessment year under consideration to buy peace of mind in view of this position, assessee filed the return of income in ITR-4 on dated 31.12.2019 declaring total income amounting to Rs. 48,33,063/- which includes regular income amounting to Rs. 3.22,833/- on presumptive basis under section 44AD of the Income-Tax Act, 1961 and Rs. 45. 10,230/- as business income of the current year. 3.4 The case of the assessee was manually selected for scrutiny and accordingly notices under section 143 (2) and 142 (1) of the income-tax Act, 1961 were issued by the AO NAFC asking the reason of short declaration of income amounting to Rs. 4,90,566 In response to the same it was categorically submitted before the AO NFAC that, the assessee had declared current year's business income amounting to Rs. 50.00,796, however, the value of dead/dumped stock having no market value has accordingly reduced by following factual pr....
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....on of income is wholly and exclusively relates to the eligible business activities of the assessee and not from any other undisclosed activities detected by the Department. Since the assessee had disclosed the surrendered income in his return of income under the head income from business and categorically explained the sources of such income earned from the business activities. The Learned AO NAFC after examination and having been satisfied with the declaration made and income offered accepted the said amount as income from business activities of the assessee for current year while passing the assessment under section 143(3) of the Income-tax Act, 1961 dated 8.9.2021 without applying deeming provisions of section 698 of the Income-tax Act, 1961 and also subsequent provisions of section 115BBE of the Income-tax Act, 1961. 6. In light of the above discussion assessee submits the following judicial precedents wherein the Courts have held that when the sources of income are explained in relation to surrendered income then invoking of deeming provisions under sections 68, 69, 69A to 69D is not warranted and consequently the higher rate of tax under section 1158BE is not applica....
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....ent physical existence, it cannot be treated as 'undisclosed investment under Section 698 of the Income-tax Act, 1961. 9. In response to the elaborate explanation offered by the assessee in response to queries raised while recording the statement under section 131 of the Act specifically stating that, the offered income pertains to the business activities of the assessee, which were fortifiable by consistent views by various Benches of the Tribunal as well as the High Courts. The Assessing Officer, upon consideration, accepted the explanation and taxed the additional income as 'business income at the rate of 30% instead of 60% as per Section 115BBE of the Income-tax Act, 1961. ............................... 12. In view of the above written submission, factual aspect of the case and decisions of the Honourable High Court and various Tribunals, it is humbly requested not to invoke the provisions of section 263 of the Income-tax Act, 1961 and drop the proceedings initiated" 4.1 The above submissions of the assessee were not acceptable to the Ld. PCIT. Considering the provisions of section 69 of the Act, the Ld. PCIT was of the opinion that the pr....
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....by him is not, in the opinion of the [Assessing Officer] [Substituted by Act 4 of 1988, Section 2, for Income-tax Officer" (w.e.f. 1.4.1988).], satisfactory, the value of the investments may be deemed to be the income of the assessee of such financial year. During the assessment proceedings, the AO has failed to consider the same by adding the whole amount of declaration of Rs. 50,00,796/- by applying the provisions u/s 115BBE of the Act. Considering the overall facts of the case, it is clearly established that all these details have escaped proper scrutiny in the hands of A.O. Therefore, it can be inferred safely that AO has failed to cause proper inquiries and consequential verifications which rendered assessment order erroneous and prejudicial to the interest of revenue. 07. In the light of the detailed discussion made hereinabove, I am of the considered opinion that the assessment order passed u/s. 143(3) r.w.s. 144B of the Act for Assessment Year 2019-20 on 08.09.2021 by the then AO, is erroneous in so far as it is prejudicial to the interests of Revenue, because the assessment has been made not only without proper verification but also without applying ....
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....at you have taken the stock as per the cost price but certain stock is dead stock which is dumped. I am unable to explain the difference in correct manner. In addition to the above I have not also recorded the proper details of the stock including the purchases and sales in certain instances. Therefore, to sum up the discrepancies, I am offering the difference in stock amounting to Rs. 50,00,796/- over and above regular income on account of inventories for F.V. 2018-19 (AY. 2019-20) to buy peace of mind which is my regular income arose out of the only business activities." 6.1 He submitted that only after considering the above response of the assessee, the Ld. AO proceeded to complete the assessment by accepting the amount of Rs. 45,10,230/- as business income of the assessee taxing the same at the normal rate of 30% and of Rs. 4,90,566/- claimed as dead stock @ 60% under the provisions of section 115BBE of the Act out of the total stock of Rs. 50,00,796/- declared as excess stock during the course of survey proceedings conducted at the business premises of the assessee. The Ld. AR submitted that the assessee has challenged the addition of Rs. 4,90,566/-....
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....llowed by the Ld. AO. In doing so, the Ld. AO, in fact, followed the consistent view of various judicial authorities binding on him, namely, where excess stock found in the course of survey is neither separately identifiable nor had independent physical existence, it cannot be treated as 'undisclosed investment' u/s 69B of the Act. In light of the elaborate explanation offered by the assessee in response to queries raised while recording the statement u/s 131 of the Act specifically stating that, the offered income pertains to the business activities of the assessee, which were fortifiable by consistent views by various Benches of the Tribunal as well as the High Courts, the Ld. AO, upon consideration, accepted the explanation and taxed the additional income as 'business income' at the rate of 30% instead of 60% as per section 115BBE of the Act. 6.4 The Ld. AR relied on the following case laws in support of its arguments. i. Hema Raman Vs. PCIT in ITA No. 1012/DEL/2022 for AY 2017-18, dated 12.05.2023; ii. PCIT Vs. Deccan Jewellers in I.T.T.A. Nos. 8, 9 and 14 of 2021 (AP HC); and iii. Ashokkumar Kesherchand Pande Vs. ACIT in ITA ....
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....ional order. The Tribunal also observed that the approach adopted by the Assessing Officer being plausible, the action of the Assessing Officer cannot be labeled as 'erroneous' although it may be prejudicial to the interest of the revenue. Thus, twin conditions of Section 263 are not simultaneously satisfied hence the revisional order cannot be sustained in law. The relevant findings and observations of the Tribunal are as under : "11. In this backdrop, turning to the facts, the Assessing Officer in the assessment order duly noted the factum of survey operation carried out under Section 133A of the Act at the business premises of the assessee on 16.04.2016. In the course of survey proceedings, certain loose documents were found and impounded on the basis of which the assessee surrendered Rs. 40 lakh during the year as his unaccounted income. It is also an admitted position that assessee has duly reflected the aforesaid amount in his income tax return and has paid taxes thereon albeit at normal rate. Thus, the controversy as per the revisional order hinges on a narrow compass. The assessment order has been sought to be revised on the ground that undisclosed income in t....
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....remises gives a facial impression of business attributes. In the light of assertions made in statement in survey and post survey proceedings placed in the paper book, the assessee appears to have made out an arguable case that such income is concomitant of business activities and thus impressed with the character of business income as correctly disclosed in the ROI. The action of AO is not open to attack as erroneous where a view taken is in the realm of a possible view and not found to be wholly incongruous to facts or law. On the face of available facts, one can not say without any reservation that no plurality of opinion can exist on the point and such additional income cannot be treated as business income at all as adjudged by AO. This makes the action of the AO is the league of being plausible. The power of review cannot be exercised to collect more taxes merely owing to the reason that the law now provides for penal and steep rate of taxation by bringing such income within the ambit of S. 68/ 69 etc. 13.1 Significantly, the PCIT, while seeking to set aside the action of AO and remitting the matter back for further enquiries, did not bring any definite material to sho....
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....onsidered and accepted such explanation and taxed the additional income as 'business income' @ 30%, which was approved by the Joint Commissioner, Income Tax, Central Range under Section 153D of the Act. In all the aforesaid cases, the Principal Commissioner invoked revisional powers under Section 263 of the Act purportedly on the ground that the decision of the Assessing Officer was erroneous and prejudicial to the interest of the revenue and assessment orders were set aside with a direction to review the assessment orders as per law. The said orders were appealed before the Income Tax Appellate Tribunal (for short, 'the Tribunal'), which set aside the orders of Principal Commissioner in all these cases holding the decision of the Assessing Officer was a possible view on the matter and could not have been revised under Section 263 of the Act. Challenging the said orders, Ms. M. Kiranmayee, learned Senior Standing Counsel for Income Tax, argues that the additional excess stock found in the course of search in these cases ought to have been treated as 'undisclosed investment under Section 69 of the Act. The Assessing Officer did not cons....
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....nd the assessee offers no explanation about the nature and source of the investments or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the value of the investments may be deemed to be the income of the assessee of such financial year." The above section provides investments would fall within the definition of 'undisclosed investment' in the event the following conditions are satisfied: (a) Such investment is made in the course of the financial year and not reflected in the books of account, if any, maintained by the assessee for any source of income, (b) No explanation is offered by the assessee about the nature and source of investments, and (c) Such explanation is not found to be satisfactory in the opinion of the Assessing Officer. As explanations pursuant to the Show-cause notices issued by the Assessing Officer had been submitted claiming that the nature and source of the excess stock fell under the heading 'Profits and Gains of the Business' and such stock was not specifically identifiable from the profits which had accumulated from earlier years and such explanations b....
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....ther perverse or contrary to law. In view of such matter, we are constrained to hold no case of perversity or lack of enquiry on the part of the Assessing Officer is made out so as to render his decision erroneous under Explanation 2 of Section 263 of the Act. Thus, the revisional powers under the said provision were illegally invoked by the Principal Commissioner and his order was rightly set aside by the Tribunal. For the aforesaid reasons, we are of the opinion that no substantial question of law is made out in the factual matrix. Hence, we are not inclined to admit the appeals." 10. The assessee has also placed reliance on the decision of Co-ordinate Bench of the Pune Tribunal in the case of Ashokkumar Kesherchand Pande Vs. ACIT (supra) wherein the Tribunal under similar set of facts reversed the order passed by the Ld. AO and CIT (A) and directed the Ld. AO not to tax the additional income under the provisions of section 115BBE of the Act. The relevant findings and observations of the Tribunal is as under : "7. We heard the rival submissions and perused the material on record. The issue in the present appeal relates to the applicability of provisions of se....
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....the provisions of section 263 of the Act is that the 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 should be simultaneously satisfied. In Malabar Industrial Co. Ltd. vs. CIT (2000) 243 ITR 83(SC), the Hon'ble Supreme Court observed as under:- "A bare reading to section 263 of the Income Tax Act, 1961, makes it clear that the pre-requisite for the exercise of jurisdiction by the Commissioner suomoto under it, is that the order of the ITO is erroneous insofar 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 ITO 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 type of mistake or error committed by the ITO, it is only when an order is erroneous tha....
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....f assessment passed by an Assessing Officer, therefore, it should not be interfered with only because another view is possible." 13. In CIT Vs. Amitabh Bachhan (2016) 384 ITR 200 (SC), the Hon'ble Supreme Court held that so long as the view taken by the Assessing Officer is a possible view it ought not to be interfered with by the Commissioner merely on the ground that there is another possible view of the matter. 14. The Finance Act, 2015 has inserted Explanation 2 w.e.f. 01.06.2015 and CBDT in Circular No. 19 of 2015, dated 27.11.2015: (2015) 379 ITR (st) 19 has explained that interpretation of the expression "erroneous in so far as it is prejudicial to the interests of the revenue" has been a contentious one. In order to provide clarity on the issue, section 263 of the Income Tax Act has been amended to provide that an order passed by the Assessing Officer 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 Commissioner or Commissioner the order is passed without making inquiries or verification which, should have been made. Thus, by the above amendment an assessment order passed without ma....