TaxTMI 
TaxTMI 
2026 (2) TMI 143
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....tal income shown in the return of income filed u/s 148 was also at Rs. 1,00,50,700/-. The aforesaid Assessment order bears No:- ITBA/AST/S/147/2022-23/1051722704(1) and that same is dated 31.03.2023 which is herein after referred to as the "Impugned Assessment order" 2.2 That it is recorded in the "Impugned Assessment order" that the information regarding discrepancies in case as well as stock were found during the course of survey action u/s 133A of the Income tax Act, received in the case of the assessee on the insight portal of Income tax Department which suggested that certain Quantum of income escaped Assessment for AY 2018-19. 2.3 That the Assessee is a Propritor of M/s Laxmandas Radheshyam Saraf, Chintaman Chouraha, Chowk, Bhopal which is engaged in the business of sale & purchase of gold and silver ornaments & money lending business etc. 2.4 That a survey action u/s 133A of the Act was conducted at the business Premises of the Assessee at M/s Laxmandas Radheshyam Saraf [Prop. Shri Radheshyam Agrawal, Marwari Road, Bhopal on 08.03.2018. 2.5 That during the course of survey proceedings, following discrepancies were observed by the Department which are as under:- ....
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....lso seen from the ITR filed for AY 2018-19 that income shown in return is inclusive of income surrender during the course of survey proceedings. It is also found from ITR that tax has not been paid as per the provision of section 115BBE of Income-tax Act and therefore, vide notice u/s 142(1) dt.20.03.2023, the assessee was asked as to why tax rate as per section 115BBE of the IT Act, 1961 should not be levied in his case. 8.1 In this regard, vide reply dt.22.03.2023, the assessee has made submission, which is reproduced as under: 2. During survey at the business premises of the assessee on 08/03/2018, excess stock of Gold and Silver Ornaments was found. It is not in dispute that the assessee is engaged in the business of these metal ornaments. In fact, the entire stock of Gold Ornaments and also the Silver Ornaments available at the business premises of the assessee was weighed and was compared with the weight of stock available in the books of the assessee. The difference between the physical weight and the weight in the books was considered by the Department as excess stock of business, which was accepted by the assessee and was duly incorporated in the books by....
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....ting independently Once this is so then what is not declared to the Department is receipt from business and not any investment as it cannot be co-related with any specific asset. Thus in a case where source of investment/ expenditure is clearly identifiable and alleged undisclosed stock has no independent existence of its own or there is no separate physical identity of such investment/expenditure then what is to be taxed is the undisclosed business receipt invested in unidentifiable unaccounted stock and there is no scope for taxing the same as deemed income u/s 69. 4. In Lovish Singhal and Ors. v/s ITO and Ors. (ITAT Jodhpur Bench) ITA No.142-146/ JODH./2018, the Hon'ble Bench following the decision of Hon'ble Rajasthan High Court in the case of Brajrang Traders in ITA No.258/2017 dated 12/09/2017 observed that in respect of excess stock found during the course of survey and surrender made thereof is taxable under the head Business and Profession and it is not justified to apply section 69 of the Act Hence, there is no justification for taxing such income u/s 115BBE of the Act. 5. In PCIT v Deccan Jewellers (P) Ltd. [2021] 132 taxmann.com 73 (AP)] it was....
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....ing Officer failed to make proper / any enquiry and has passed the order without proper consideration of law & application of mind on the issues discussed above. Consequently, the assessment order passed by him is erroneous and pre-judicial to the interest of revenue. Thus, the case of assessee is clearly covered under clause (a) of Explanation 2 below section 263(1) of IT Act, 1961. For the sake of clarity the same is reproduced herein below: "263. (1) The Principal Commissioner or Commissioner may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by the Assessing Officer is erroneous in so far as it is prejudicial to the interests of the revenue, he may, 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 an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment. Explanation 1.-..... Explanation 2.-For the purposes of this section, it is hereby declared that an order passed by the Asse....
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....ed by the Assessing Officer u/s 147 for A.Y. 2018-19 on 31.03.2023 is set aside to the above extent. The Assessing Officer is directed to reframe the assessment de novo to the above extent (leaving the other issues in the original assessment order as such) after conducting proper inquiries in the light of the directions/discussion above and after affording reasonable opportunity of being heard to the assessee." 2.9 That the Assessee being aggrieved by the aforesaid "Impugned order" has filed the instant appeal before this tribunal & and raised following grounds of appeal in the form No. 36 which are as under:- "1. That the order made by the PCIT, Central, Bhopal u/s 263 setting aside the Assessment Order u/s 143(3) stating it to be erroneous and directing the Assessing Office to initiate penalty u/s 271AAC(1) on the surrendered income be held to be erroneous and be quashed. 2. The appellant craves leave to add, amend or alter any Ground of Appeal before or during the course of appellate proceedings." 2.10 That the Assessee has placed on the record of this tribunal following statement of facts which is reproduced by us as below:- "The appellant is pr....
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....cted the Ld. AO to reframe the Assessment denovo to the extend specified in the "Impugned order" at para 10 which we reproduce as under:- "10. Accordingly, after careful examination of the facts placed on record and the legal position discussed as above, I am of the considered opinion that the Assessing Officer has not enquired into and verified and has passed the order without proper consideration of law & application of mind and, accordingly, has not initiated penalty u/s 271AAC(1) on the surrendered income of Rs. 72,84,973/- despite the AO himself having applied provisions of section 69 and 69A r.w.s. 115BBE and he has not carried out inquiries or verification to conclude that initiation / levy of penalty is not called for. More so since the assessee has not paid tax on such surrendered income as per provisions of section 115BBE of the I.T. Act before the end of the relevant previous year and, therefore, the assessee does not get benefit / relief under the proviso below section 271AAC(1);which he should have examined and applied before completing the assessment as was required from him. In view of the above facts, I am satisfied that the order passed by the Assessing Of....
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....nt proceedings are normal business income of the assessee & same is exigible to tax at normal rate of Tax & Ld. AO has wrongly invoked 115 BBE of the Act. It was also submitted that against the "Impugned Assessment order" the Assessee has preferred the first appeal before the Ld. CIT(A) & that the same is pending. The Assessee has paid normal rate of tax on the income so computed & assessed. In brief it was contended that disputed Tax u/s 115 BBE is pending. A bonafide dispute on rate of Tax applicable i.e. normal rate of tax vis a vis tax u/s 115 BBE does not mean that the "Impugned Assessment order" becomes erroneous & prejudicial to the interest of Revenue. The Ld. AR has placed on the record of this Tribunal submissions along with appeal Memo from pages 1 to 2 which we reproduce as under:- BEFORE THE INCOME TAX APPELLATE TRIBUNAL, INDORE BENCH, INDORE Appellant Radheshyam Agarwal Prop. M/s Laxmandas Radheshyam Saraf, Marwari Road, Bhopal-462001 PAN AAOPA5650L Assessment Year 2018-19 SUBMISSION Your Honour, Please refer to the Order u/s 263 dated 15/03/2025 made by PCIT (Central), Bhopal. In the aforesaid order, the Honourable PCIT (C....
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....9;s order. The assessee succeeds in this appeal." 2. The provisions of section 263 are also produced for your kind perusal: 263(1): The Principal Commissioner or Commissioner may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by the Assessing Officer is erroneous in so far as it is prejudicial to the interests of the revenue, he may, 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 an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment. Since, the initiation of penalty is not mandatory and is at the discretion of the Assessing Officer, non-initiation of penalty cannot be held as erroneous in nature and prejudicial to the interests of the revenue. Further, in Additional CIT v JK D'costa (1982) 133 ITR 7 (Delhi) the Honourable Court has held that if the Commissioner finds, while examining the records of an Assessment Order u/s 263, that the A.O. has not initiated pena....
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....ced reliance on the judgment of the Hon'ble Allahabad High Court in case of CIT vs Surendra Prasad Agrawal reported in (2005) 142 taxman 653 (Allahabad) & on para 18 which we reproduce as below:- "18. It is well established that the Assessing Officer has to initiate proceedings for imposition of penalty during the course of the assessment itself. If he fails to initiate or record his satisfaction for the initiation of the penalty proceedings during the course of the assessment proceedings it would be a case where the assessment order can be said to be erroneous as he has not decided a point nor recorded a finding on an issue which ought to have been done or decides it wrongly as held by this Court in the case of Saraiya Distillery (supra). Thus the omission of the Income Tax Officer to initiate penalty proceedings during the course of the assessment renders the assessment order erroneous and prejudicial to the interest of the Revenue." The Ld. DR then invited our attention to yet another judgment of the Hon'ble Allahabad High Court in case of CIT vs Associated contractor's corpn reported in (2005) 145 Tax man 356 (Allahabad) & invited our attention to para 4 & 5 which w....
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....of assessment under s. 143 of the Act, the ITO is expected to apply his mind to the facts attracting the provisions contained in s. 271(1)(a) of the Act. Learned counsel appearing for the assessee on the other hand contended that s. 263 of the Act confers jurisdiction on the Commissioner only in cases where there is any error in the order passed by the ITO and that error is prejudicial to the interests of the revenue. He contended that the orders of assessment passed by the ITO in the instant case have not been found to be erroneous as apparently it could not be contended that there is any error in those orders under s. 143 of the Act. He contended that what their Lordships of the Supreme Court in the two cases cited by learned counsel for the revenue held was that it is in the proceedings for assessment that jurisdiction could be exercised for imposition of penalty as, according to their Lordships, the term "assessment" is used in a wider sense. But learned counsel contended that it could not be said that if the ITO has failed to notice certain facts which could attract the provisions contained in s. 271(1)(a), the order of assessment is erroneous, He, therefore, contende....
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.... the income deemed to have been distributed as dividend, section 23B deals with assessment in case of departure from taxable territories, section 24B deals with collection of tax out of the estate of deceased persons, section 25 deals with assessment in case of discontinued business, section 25A with assessment after partition of Hindu undivided families and sections 29, 31, 33 and 35 deal with the issue of demand notices and the filing of appeals and for reviewing assessment and section 34 deals with assessment of incomes which have escaped assessment. The expression "assessment" used in these sections is not used merely in the sense of computation of income and there is in our judgment no ground for holding that when by section 44, it is declared that the partners or members of the association shall be jointly and severally liable to assessment, it is only intended to declare the liability to computation of income under section 23 and not to the application of the procedure for declaration and imposition of tax liability and the machinery for enforcement thereof. Nor has the expression, 'all the provisions of Chapter IV shall so far as may be apply to such assessment' a r....
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....ous instead of limiting the operation only to 'levy, assessment and collection'. In the view of the High Court, imposition of penalty was not a necessary concomitant or incident of the process of assessment, levy and collection of tax. The High Court proceeded upon the view that by saving the Hyderabad Income-tax Act for the purposes of levy, assessment and collection of income-tax, the entire procedure for imposing liability to pay tax and for collection of tax was saved, but penalty not being tax, provisions relating to imposition of and collection of penalty did not survive the repeal of the Hyderabad Income-tax Act." and thereafter following the decision in C.A. Abraham v. ITO [1961] 41 ITR 425 (SC) quoted with approval (at p. 127): "The expression 'assessment' used in these sections (provisions of Chapter IV of the Indian Income-tax Act) is not used merely in the sense of computation of income and there is in our judgment no ground for holding that when by section 44, it is declared that the partners or members of the association shall be jointly and severally liable to assessment, it is only intended to declare the liability to computation of....
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....t clear as to what is the scheme of assessment in that law. So far as the I.T. Act is concerned, the scheme of assessment as considered by their Lordships of the Supreme Court is not restricted to the mere computation of income and tax but a number of other things and, therefore, in the proceedings for assessment if the ITO fails to take notice of the facts attracting the provisions contained in s. 271(1)(a), it could not be said that his failure to take notice of the facts which were before him attracting the provisions of s. 271(1)(a) does not amount to an error prejudicial to the interests of the revenue. It was contended by learned counsel that even if the ITO omitted to take note of the facts attracting the provisions under s. 271(1)(a) during the proceedings of assessment it may be that some error in the proceedings has been committed. But so far as the order of assessment is concerned, according to learned counsel, failure to take action under s. 271(1)(a) could not be said to be an error if the order of assessment otherwise is found to be in order. This contention of learned counsel for the assessee cannot be accepted in view of the wide meaning given to the term "....
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.... "5. On the contrary, the Ld. Departmental Representative (DR) submitted that omission by the Assessing Officer to initiate penalty proceedings has squarely rendered the assessment order erroneous and prejudicial to the interest of Revenue. In support, he relied on the Hon'ble Allahabad High Court in the case of CIT v. Surendra Prasad Agrawal [2005] 142 Taxman 653 (Allahabad). 6. We have heard rival submission of the parties on the issue-indispute and perused the relevant material on record. According to the Ld. PCIT, the Assessing Officer failed to make inquiries on the issue of initiating penalty proceedings u/s 270A of the Act and said action of the Assessing Officer is without application of the mind. Before the Ld. PCIT, it was submitted on behalf of the assessee that all material facts were disclosed before the Assessing Officer. It was further submitted that case of the assessee falls within the exclusion mentioned u/s 270A(6) of the Act and therefore addition made cannot be considered as under reporting of the income for the purpose of section 270A of the Act and it was possible that Assessing Officer had after considering the fact of the case and excl....
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....l for the respondent submitted that omission to initiate penalty proceedings under section 273(1) of the Act by the Income Tax Officer while passing the assessment order did not amount to an order which could be revised by the Commissioner of Income Tax under section 263 of the Act. While supporting the decision of the Tribunal he relied upon the following decisions: 1. Adell. CIT v. J.K. D'Costa (19821 133 ITR 7 (Delhi) 2. Addl. CIT v. Achai Kumar Jain (1983) 142 ITR 606 (Delhi) 3. CIT v. Nihal Chand Rekyan (20001 242 INTR 45 (Delhi). 8. Having heard the learned counsel for the parties we find that the Delhi High Court in the case of J.K. D'Costa (supra) has held that the assessment cannot be said to be erroneous or prejudicial to the interest of the revenue because of the failure of the Income Tax Officer to record his opinion about the leviability of penalty in the case. It has held as follows: The only question before us is whether the Tribunal was right in revoking the order of the Addl. Commissioner in so far as it pertains to the question of penalties under sections 271(1)(a) and 273(b). Here, we find ourselves in complete....
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....tly followed by the Delhi High Court in the cases of Achal Kumar Jain (supra), P.C. Puri v. CIT (1985) 151 ITR 584 (Delhi), Addl. CIT v. Precision Metal Works (1985) 156 MIR 6934, CWT v. A.N. Sarvaria (1986) 161 ITR 694, Addl. CIT v. Sudershan Talkies (1993).200 ITR 153, CIT v. Sudershan Talkies [19931.201 ITTR 289 and Nihal Chand Rekvan (supra). 10. Similar view has been taken by the Rajasthan High Court in the case of CIT v. Keshrimal Parasmal (1986) 157 ITR 484, Gauhati High Court in the case of Surendra Prasad Singh v. CIT (1988) 173 ITR 610, Calcutta High Court in the case of CIT v. Linotype & Machinery Lid. (1991) 192 ITR 337 and Madras High Court in the case of CIT v. C.R.K. Swami (2002) 254 ITR 1584. 11. On the other hand the Madhya Pradesh High Court has taken a contrary view in the case of Addl. CIT v. Indian Pharmaceuticals [(1980) 123 ITR 874 Addl. CIT v. Kantilal Jain (19801 125 ITR 3735, Addl. CWT v. Nathoolal Bala Ram (1980). 125 ITR 596 & and CIT v. Narpat Singh Malkhan Singh (1981) 128 ITR 777 12. This Court in the case of Saraiva Distillery (supra) has held that an order can be said to be erroneous either when it does not decide a point ....
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....th notices, concealment of income, etc. 271. (1) If the Assessing Officer or the Commissioner (Appeals)) any proceedings under this Act, is satisfied that nay person- (b) (c) has concealed the particulars of "his income or so*** "furnished inaccurate particulars of 81/such income, or/7 (d)he may direct that such person shall pay by way of penalty,- (1) [****] 84 (i) in the cases referred to in clause (b), & in addition to tax, if any, payable) by him, la sum of ten thousand rupees) for each such failure; ST (ii) in the cases referred to in clause (c) & or clause (d)), in addition to tax, if any, payable) by him, a sum which shall not be less than, but which shall not exceed three times), the amount of tax sought to be evaded by reason of the concealment of particulars of his income 9 or fringe benefits) or the furnishing of inaccurate particulars of such income or fringe benefits). Section 270A 270A. (1) The Assessing Officer or the Commissioner (Appeals) or the Principal Commissioner or Commissioner may, during the course of any proceedings under this Act, direct that any person who has under-reported his inco....
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....urt and high court judgements in favour of the appellant: 1. The Honourable Supreme Court in case of Malabar Industrial Co. Ltd. V. Commissioner of Income Tax, (2000) 243 ITR 83 (SC) held that: "The phrase prejudicial to the interests of the revenue has to be read in conjunction with an erroneous order passed by the Assessing Officer. Every loss of revenue as a consequence of an order of Assessing Officer cannot be treated as prejudicial to the interests of the revenue, for example, when an Income-tax Officer adopted one of the courses permissible in law and it has resulted in loss of revenue; or where two views are possible and the Income tax Officer has taken one" view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the revenue unless the view taken by the Income-tax Officer is unsustainable in law." 2. (SC) :(1973) 88 ITR 192 :(1973) 2 CTR 177 in case of Commissioner of Income- tax v. Vegetable Products Ltd. the SUPREME COURT OF INDIA held that: There is no doubt that the acceptance of one or the other interpretation sought to be placed on section 271(1)(a)(i) by the partie....
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....Assessing Officer to initiate penalty proceedings under section 271(1)(c) of the Act." 4. In view of the above judgements, since there is more than one tenable view/ opinion of the high courts, in such a case the construction which favours the assessee must be adopted. It is therefore humbly submitted that the Order u/s 263 dated 15/03/2025 made by PCIT(Central), Bhopal may please be dropped or set aside. Submitted, Sd/- Yours faithfully, CA Govind Rinwa, AR Place: Bhopal Dated: 06/01/2026 At the rejoinder stage the Ld. AR laid emphasis on the judgement of the Hon'ble Supreme Court in case of Vegetable Product case too. The matter was heard & concluded. 4. Observations Findings & Conclusions 4.1 We now have to decide the legality validity & proprietary of the "Impugned order" basis records of the case & the rival submissions canvassed before us. 4.2 We have carefully perused the records of the case & have heard the submissions. 4.3 We basis records of the case & after hearing & upon examining the rival contentions of the Ld. AR & the Ld. DR canvassed before us, are of the considered opinion that "Impugned order" u/s 263 of the A....
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....the same was treated as deemed income u/s 69/69A rws 115BBE of the Act & taxed accordingly, we are of the considered view that in such a gross situation the Ld. AO ought to have initiated the penalty proceedings u/s 271AAC(1) of the Act by recording satisfaction/initiation after due inquiry in this regard & since he failed, the "Impugned order" is correctly made. The initiation of penalty proceedings u/s 271AAC(1) & recording a satisfaction ipsofacto is not imposition of penalty u/s 271AAC(1) as penalty proceedings are treated as separate but it has linkages & nexus with the entire gamut of the case of the assessee including his submissions, etc which are all recorded basis which the Ld. AO is required to take a call also on which provisions of the act are at least prima facie infringed by the assessee, though later on by due process he may impose a penalty for such infraction of law, which is a separate & an independent penalty provision wherein too the due process of law is required to be followed as stipulated under the Act. The core issue in the "Impugned order" is non-initiation of penalty u/s 271AAC(1) of the act & no inquiry in this regard. It is this in action of the Ld. AO....
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.... does not mean that he should not examine & conduct the inquiry, verification etc at least primafacie to arrive at a perse view or satisfaction that the penalty is required to be initiated or not. This exercise is absent in the "Impugned Assessment order" hence Ld. PCIT in the impugned order has exercised his power u/s 263 correctly. 4.6 In brief we are of the considered opinion that for imposition of penalties various expression are used in the Act but nevertheless there must be a finding if not conclusively but at least primafacie/perse whether in the Assessment proceeding or during the course of any other proceedings Prior to actual imposition of penalty which proceedings are separate & independent, that there exists a reasonable ground for the initiation of penalty proceeding under the Act. We feel that this is the scheme under the Act when the act is read as a whole. Accordingly we hold that non-initiation of penalty u/s 271AAC(1) of the Act in the impugned Assessment order without there being any whisper on it renders the same has erroneous & prejudicial to the interest of revenue. Accordingly we upheld the "impugned order". 4.7 The Ld. AR has placed reliance on few jud....