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2020 (11) TMI 1110 - AT - Income TaxRevision u/s 263 - taxability of additional income in tobacco stock as declared in search u/s 132 - two possible views on the issue - PCIT noticed that the AO taxed the undisclosed income representing unexplained stock @30% instead of 60% as required u/s 115BBE - Whether additional income admitted by the assessee should not be treated as undisclosed investment u/s 69? - HELD THAT - There are two possible views with regard to excess stock found during the course of search/survey in the premises of the assessee. According to the decisions relied upon by the assessee, the same forms part of business income and the same cannot be assessed u/s 69 - There are two possible views on assessment of business stock as business income as well as unexplained investment as per the views of Pr.CIT and the assessee. AO after examining the explanation taken a view that the excess stock required to be assessed as business income, accordingly completed the assessment. When there are two possible views and one of the possible view is taken by the AO, the CIT is not permitted to substitute his view to tax the assessee at higher rate by applying the provisions of section 115BBE of the Act in the proceedings u/s 263. As decided in Spectra Shares and Scrips (P) Limited 2013 (6) TMI 173 - ANDHRA PRADESH HIGH COURT merely because of difference of opinion, Pr.CIT cannot invoke his powers u/s 263. Once the Assessing Officer had taken a conscious decision and acted in accordance with law and made the assessment, the same could not be branded as erroneous by the Commissioner, simply because according to him, the Assessing Officer should have made further enquiries - See G.V.R. Associates. v. Income-tax Officer, Ward-1(3), Vijayawada. Thus we hold that there is no case for revision u/s 263 made - Decided in favour of assessee.
Issues Involved:
1. Whether the excess stock found during the search should be taxed as business income or as unexplained investment under Section 69 of the Income Tax Act, 1961. 2. Whether the Principal Commissioner of Income Tax (Pr.CIT) was justified in invoking Section 263 of the Income Tax Act to revise the assessment order passed by the Assessing Officer (AO). Detailed Analysis: Issue 1: Taxation of Excess Stock The primary issue revolves around the classification of the excess stock found during the search under Section 132. The assessee declared an additional income of Rs. 7,60,53,000/- in tobacco stock for the A.Y. 2017-18 and filed a return of income declaring a total income of Rs. 34,47,92,320/-. The AO taxed the entire income at 30%, treating it as business income. However, the Pr.CIT contended that the excess stock should be taxed as unexplained investment under Section 69 and thus be subject to a 60% tax rate as per Section 115BBE. The assessee argued that the excess stock should be treated as business income, relying on various judicial decisions that support the classification of excess stock as business income. The assessee cited several rulings, including those from the ITAT and High Courts, which held that excess stock found during searches should be considered part of business income. The assessee further argued that the AO had examined this issue during the assessment proceedings and had consciously decided to tax the income at the normal rate of 30%. Issue 2: Invocation of Section 263 by Pr.CIT The Pr.CIT invoked Section 263, arguing that the AO's assessment order was erroneous and prejudicial to the interest of revenue because it did not apply Section 115BBE to the excess stock, which should be taxed at 60%. The Pr.CIT relied on several judicial decisions to support the view that the excess stock should be treated as unexplained investment under Section 69. The assessee countered by stating that the AO had already examined the issue and taken a conscious decision, which was approved by the Jt.CIT under Section 153D. The assessee argued that the Pr.CIT's action amounted to a difference of opinion, which is not a valid ground for invoking Section 263. The assessee cited the jurisdictional High Court's decision in Spectra Shares and Scrips (P) Limited Vs. CIT, which held that a mere difference of opinion does not justify revision under Section 263. Tribunal's Findings The Tribunal observed that there are two possible views regarding the classification of excess stock: as business income or as unexplained investment. The AO had taken a view that the excess stock should be treated as business income, which is a plausible view supported by various judicial decisions. The Tribunal held that when two views are possible, and the AO has taken one of the possible views, the Pr.CIT cannot substitute his view in the proceedings under Section 263. The Tribunal cited the jurisdictional High Court's decision in Spectra Shares and Scrips (P) Limited, which held that the Pr.CIT cannot invoke Section 263 merely because he entertains a different opinion. The Tribunal also referred to its own decision in G.V.R. Associates v. ITO, where it was held that a conscious decision by the AO, even if it involves estimating net profit, cannot be branded as erroneous simply because the Pr.CIT believes further inquiries should have been made. Conclusion The Tribunal concluded that the AO had taken a conscious decision to treat the excess stock as business income and taxed it at 30%. Since this was a plausible view supported by judicial decisions, the Pr.CIT's invocation of Section 263 was not justified. The Tribunal set aside the order of the Pr.CIT and allowed the appeal of the assessee. Final Judgment The appeal of the assessee was allowed, and the order of the Pr.CIT passed under Section 263 was set aside. The excess stock found during the search was to be taxed as business income at the normal rate of 30%, and not as unexplained investment under Section 69 subject to a 60% tax rate under Section 115BBE.
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