2016 (7) TMI 968 - HC - Income Tax

Revision u/s 263 - expenditure out of undisclosed source allowed to be set off against the business expenditure by AO - ITAT setting aside the order u/s 263 on the ground that the said order of CIT(A) is a change of opinion - Held that - Assessing Officer while making the addition as disclosed by the assessee essentially taxed the profit element where as the Revenue desired that it should be the entire amount which should be taxed. By now it is well settled that even in case of unaccounted receipts of a businessman, it is only the profit element embedded in the business which can be taxed and not the entire amount. In other words, if the assessee can point out that even on unaccounted receipts, expenditure was also incurred for the purpose of business, it would be only the reasonable profit on such receipts which should be taxed. In view of this, we do not see any error in the view of the Tribunal particularly considering the fact that the commissioner was exercising limited power of revision under section 263 of the Act. - Decided in favour of assessee.

Summary

Issues:
Appeal against judgment of the Income Tax Appellate Tribunal regarding the order passed under section 263 of the Income Tax Act for the assessment year 2006-2007.

Analysis:
The issue in consideration revolves around the power exercised by the Commissioner of revision under section 263 of the Income Tax Act. The respondent assessee, engaged in the transportation business, admitted an expenditure of &8377; 77.01 lacs from an undisclosed source during survey proceedings. The Assessing Officer allowed set off against business expenditure, which was revised by the Commissioner. The Tribunal held that the Commissioner's order under section 263 was a change of opinion, as the Assessing Officer had considered unpaid freight and liability without making any addition under section 69C of the IT Act. The Tribunal set aside the Commissioner's order, emphasizing that the revision was based on similar facts considered by the Assessing Officer, thus constituting a change of opinion.

Upon reviewing the documents on record, it was observed that the Assessing Officer had taxed the profit element from the undisclosed income of the assessee, while the Revenue sought to tax the entire amount. The principle was reiterated that only the profit element embedded in unaccounted receipts could be taxed, not the entire amount. The Tribunal's view was upheld, considering the limited power of revision under section 263. Reference was made to the decision in the case of Fakir Mohmmed Haji Hasan, which was further explained in the case of Deputy CIT v. Radhe Developers India Ltd. The Tribunal's decision was supported by the court, emphasizing that the powers under section 263 should not be exercised when two views are possible.

The judgment further delves into the interpretation of the phrase 'prejudicial to the interests of the revenue' in conjunction with erroneous orders passed by the Assessing Officer. Citing relevant case laws, it was highlighted that every loss of revenue due to an Assessing Officer's order cannot be deemed prejudicial unless the view taken is unsustainable in law. The court dismissed the tax appeal, concluding that no question of law arose, and upheld the Tribunal's decision, ultimately dismissing the appeal.

In conclusion, the High Court dismissed the tax appeal, affirming the Tribunal's decision and emphasizing the importance of sustainable views in exercising powers under section 263 of the Income Tax Act.