2020 (12) TMI 15 - AT - Income Tax

Revision u/s 263 - addition as excess stock declared during the course of search - AO did not make any addition or did not bring any income or part of income u/s 69 - Estimation of income - NP determination - AO estimated the income @2.15% on total turnover - HELD THAT - Two views are possible with regard to excess stock found during the course of search 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 or 69A - Since two views are possible on assessment of excess stock as business income as well as unexplained investment as per the views of Ld.Pr.CIT and the assessee, the AO after examining the explanation taken a view that the excess stock required to be assessed as business income, accordingly completed the assessment. Therefore, when two views are possible on the same issue and the AO has taken one of such views, the Pr.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. This view is supported by the decision of Hon ble jurisdictional High Court in the case of Spectra Shares and Scrips (P) Limited 2013 (6) TMI 173 - ANDHRA PRADESH HIGH COURT held that merely because of difference of opinion, Pr.CIT cannot invoke his powers u/s 263. Also in G.V.R. ASSOCIATES 2017 (4) TMI 393 - ITAT VISAKHAPATNAM held that the estimation of the net profit is one of the permissible methods of assessment of income from business. The Assessing Officer had taken a conscious decision of estimating the net profit from business after considering the nature and complexity of the books of account maintained by the assessee. 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. - Decided in favour of assessee.

Summary

Issues Involved:
1. Whether the excess stock found during the search should be taxed as business income or unexplained investment under Section 69 of the Income Tax Act.
2. Whether the provisions of Section 115BBE, which mandates a higher tax rate, should be applied to the excess stock.
3. Validity of the revision order passed by the Principal Commissioner of Income Tax (Pr.CIT) under Section 263 of the Income Tax Act.

Detailed Analysis:

1. Taxation of Excess Stock:
- Background: A search under Section 132 was conducted on 20.09.2016, leading to the assessee admitting additional income of ?15 crores. The assessee initially declared a loss of ?9,43,92,456 in the return filed under Section 139(1). Upon scrutiny, the Assessing Officer (AO) estimated the net profit at ?1,82,75,649 and added ?6,12,46,284 as excess stock, resulting in a total income of ?7,95,21,933 taxed at 30%.
- Pr.CIT's View: The Pr.CIT found that the AO should have taxed the excess stock at 60% under Section 115BBE, treating it as unexplained investment under Section 69.
- Assessee's Argument: The assessee contended that the excess stock should be treated as business income, not unexplained investment, citing various judicial decisions (e.g., Malabar Industries Co. Ltd. vs. CIT, CIT vs. Max India Ltd.). The excess stock was argued to be an accumulation over time, thus forming part of business income.
- Tribunal's Decision: The Tribunal noted that two views were possible: treating the excess stock as business income or as unexplained investment. Since the AO had examined the issue and taken a view to assess it as business income, the Tribunal held that the Pr.CIT could not substitute his opinion to tax the income at a higher rate under Section 115BBE.

2. Application of Section 115BBE:
- Pr.CIT's Argument: The Pr.CIT directed the AO to tax the excess stock at 60% as per Section 115BBE, treating it as unexplained investment.
- Tribunal's Analysis: The Tribunal observed that the AO had considered the explanation provided by the assessee and decided to tax the excess stock as business income at 30%. The Tribunal emphasized that when two views are possible, the Pr.CIT cannot invoke Section 263 merely to impose a higher tax rate based on a different opinion.

3. Validity of Revision under Section 263:
- Assessee's Argument: The assessee argued that the AO had taken a conscious decision, approved by the Jt.CIT under Section 153D, and that the Pr.CIT's revision was based on a difference of opinion, which is not permissible under Section 263.
- Tribunal's Decision: The Tribunal referred to the jurisdictional High Court's decision in Spectra Shares and Scrips (P) Limited vs. CIT, which held that a difference of opinion does not justify revision under Section 263. The Tribunal concluded that the AO's order was neither erroneous nor prejudicial to the revenue's interest, as the AO had applied his mind and conducted a proper enquiry.

Conclusion:
The Tribunal set aside the Pr.CIT's order passed under Section 263, holding that the AO's decision to tax the excess stock as business income at 30% was valid. The appeal of the assessee was allowed, and the order of the Pr.CIT was deemed invalid. The Tribunal emphasized that when two views are possible, the Pr.CIT cannot revise the AO's order merely based on a different opinion.