2021 (3) TMI 866 - AT - Income Tax

Revision u/s 263 - Addition u/s 69A of the Act read with section 115BBE - HELD THAT - As documents and statement so recorded talks about clandestine removal of manufactured goods without issue of invoice and payment of duty and in other words, unaccounted and out of books sales and not about any stock of goods which is not entered in the books of accounts which was found and can be brought to tax under section 69A - Though one may argue that unaccounted sales and undisclosed investment in stock which has ultimately been sold are related to each other and a presumption can be drawn that where unaccounted sales are found during the course of excise search, it is likely that there is undisclosed investment in stock (which has ultimately been sold by the assessee) and thus, the same needs to be brought to tax. A presumption howsoever strong cannot substitute and take the role of credible and verifiable material/evidence which forms the basis and foundation of fastening the tax liability in hands of the assessee more so where each of these transactions carry different tax liability. Thus, in absence of any material available on record that there was undisclosed investment in stock, the very invocation of provisions of section 69A and section 115BBE by the ld Pr. CIT is not borne out of records and thus, there is no legal and justifiable basis to hold that the order so passed by the AO is erroneous. The show cause notice dated 29.11.2018 talks about the bringing to tax the unaccounted sales and it doesn t talk about any undisclosed investment in stock which has been found during the course of search. Further, we find that during the course of revisionary proceedings, no further show-cause or query has been raised by the ld Pr CIT or for that matter, any discussions/deliberations with the assessee as to the applicability of provisions of section 69A and section 115BBE. The directions of the impugned order are clearly without providing an opportunity of being heard to the assessee and where such findings are recorded by the ld Pr CIT, it renders such findings legally unsustainable due to violation of principal of natural justice. We are of the considered view that the findings and directions of the ld Pr CIT contained are not borne out of material available on record and secondly, the such findings have been recorded without providing any opportunity of being heard to the assessee, therefore, such findings are hereby set-aside and to that extent, the order of the Pr CIT stands modified. Unaccounted turnover - There is no dispute regarding the quantum of unaccounted turnover of ₹ 1,77,95,859. The assessee has declared the same in its return of income and which has been accepted by the AO as well as by ld Pr CIT as there is neither any material on record nor any adverse finding recorded by ld Pr CIT disputing the same. Therefore, as far as the quantum of unaccounted turnover is concerned, the order so passed by the AO cannot be held as erroneous and prejudicial to the interest of Revenue. Therefore, the limited issue that remains to be examined is the rate of profit so declared by the assessee on such unaccounted turnover which has not examined by the AO which renders the assessment order as erroneous and prejudicial to the interest of the Revenue and therefore, to this limited extent, the directions of the ld Pr CIT are sustained and the matter is set-aside to the file of the AO to examine the rate of gross profit so declared by the assessee on such unaccounted turnover and decide as per law.

Issues Involved:
1. Validity of the order passed under Section 263 of the Income-tax Act.
2. Applicability of Section 69A read with Section 115BBE on undisclosed income.
3. Examination of unaccounted turnover and its tax treatment.
4. Opportunity of hearing and principles of natural justice.
5. Limitation and delay in filing the appeal.

Detailed Analysis:

1. Validity of the order passed under Section 263 of the Income-tax Act:
The appeal challenges the order of the Principal Commissioner of Income-tax (Pr. CIT) under Section 263, which held that the assessment made by the Assessing Officer (AO) was erroneous and prejudicial to the interest of the Revenue. The Pr. CIT argued that the AO did not properly inquire into the applicability of Section 115BBE read with Section 69A regarding the undisclosed turnover surrendered before the Central Excise Authorities. The Tribunal found that the AO had indeed verified the books of accounts and the income disclosed by the assessee, thus the order was not erroneous.

2. Applicability of Section 69A read with Section 115BBE on undisclosed income:
The Pr. CIT held that the undisclosed stock of ?1,77,95,858/- should be taxed under Section 69A read with Section 115BBE, disallowing the benefit of unabsorbed depreciation/loss. The Tribunal noted that Section 69A applies to money, bullion, jewellery, or other valuable articles, and since no such items were found, only loose slips indicating unaccounted sales were discovered. Therefore, invoking Section 69A was inappropriate. The amendment to Section 115BBE(2), effective from AY 2017-18, was also not applicable to the assessment year in question.

3. Examination of unaccounted turnover and its tax treatment:
The Tribunal examined whether the AO's acceptance of the gross profit rate of 3.11% on the undisclosed turnover of ?1,77,95,858/- was erroneous. It was established that only the profit embedded in the unaccounted sales could be taxed, not the entire turnover. The Tribunal referred to various judicial precedents, including the Gujarat High Court's decision in DCIT vs. Panna Corporation and the Bombay High Court's decision in CIT vs. Hariram Bhambhani, which supported taxing only the profit element in unaccounted sales.

4. Opportunity of hearing and principles of natural justice:
The Tribunal emphasized that the Pr. CIT must provide an opportunity of hearing before recording findings that render the AO's order erroneous. The findings related to undisclosed investment in stock under Section 69A were recorded without providing the assessee an opportunity to rebut, violating the principles of natural justice. Thus, these findings were set aside.

5. Limitation and delay in filing the appeal:
The Tribunal noted an 18-day delay in filing the appeal, which was condoned after considering the affidavit filed by the assessee, allowing the appeal for adjudication.

Conclusion:
The Tribunal partly allowed the appeal, setting aside the findings of the Pr. CIT related to the invocation of Section 69A and Section 115BBE due to lack of material evidence and violation of natural justice principles. However, it sustained the directions for examining the rate of gross profit on the unaccounted turnover, remanding the matter to the AO for further verification and decision as per law.

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