2022 (8) TMI 377 - AT - Income Tax

Revision u/s 263 - Unexplained income - discrepancies found, confronted and accepted by the assessee during the course of survey attract the deeming provisions of section 68, 69, 69A, 69B 69C and the income referred therein is chargeable to tax at rate prescribed under section 115BBE Act - As per CIT AO has failed to enquire about the source of income in order to assess the income under the appropriate head of income or the relevant deeming provisions and accordingly, the order so passed has been held as erroneous and prejudicial to the interest of Revenue - HELD THAT - Merely stating that excess cash is clearly covered u/s 68 or 69A, excess stock is covered u/s 69 or 69B, construction of Shed/Godown is covered u/s 69B or 69C and advances made to Sundry Parties is covered u/s 69, 69B or 69D is like an open ended hypothesis which is not supported by any specific finding that the matter shall fall under which of the specific sections and how the conditions stated therein are satisfied before the said provisions are invoked. It is like laying a general rule, which to our mind is beyond the mandate of law, that wherever there is a survey and some income is detected or surrendered by the assessee, the deeming provisions are attracted by default and by virtue of the same, provisions of section 115BBE are attracted. The ld PCIT has to record his specific findings as to the applicability of the relevant provisions and how the explanation called for and offered by the assessee is not acceptable in the facts of the present case which is clearly absent in the instant case. Therefore, where the ld PCIT himself is not clear about the applicability of relevant provisions and in the same breath holding the Assessing officer to task by not invoking the said provisions is clearly shooting in the dark which cannot be sustained in the eyes of law and the order so passed therefore cannot be held as erroneous in the eyes of law. There are documents in form of statement of the assessee recorded u/s 133A during the course of survey and the surrender letter dated 21.10.2016 submitted by the assessee at the time of survey and these documents are very much part of the records which is available at the time of assessment as well as at the time of examination by the ld PCIT. In the statement so recorded at the time of survey, the assessee was specifically asked about the source of his income and in response, he has submitted that he is getting income from Gandhi General Store and share of profit from partnership firm, M/s Gandhi Soap and Detergent Industries. Thereafter, in respect of excess cash found at the time of survey, the assessee was asked a specific question to explain the difference and in response, he has submitted that the difference or the excess cash is on account of sales realization during the previous days which he offers over and above his normal business income. AO has duly taken cognizance of statement of the assessee recorded during the course of survey, the surrender letter and the return of income, and after examination thereof and due application of mind has not drawn any adverse inference and income has been rightly assessed under the head business income . In light of the same, we are of the considered view that the order so passed by the Assessing officer cannot be held as erroneous due to lack of enquiry or for that matter, requisite enquiry on the part of the Assessing officer. Where the Assessing officer after due appreciation of facts and circumstances of the case, assessed the income under the head business income and didn t invoke the deeming provisions as so suggested by the ld PCIT, we do not believe that there is any error on part of the Assessing officer and the order so passed by him cannot be held as erroneous The view so taken by the AO is after due application of mind and therefore cannot be held as unsustainable in the eyes of law. In the facts and circumstances of the present case, where there are specific questions asked during the course of survey regarding the nature and source of income and which has been adequately responded to by the assessee and thereafter acted upon in terms of disclosing the income in the return of income under the appropriate head of income and where the same is duly examined and taken into consideration by the Assessing officer during the course of assessment proceedings, the order so passed by the Assessing officer cannot be held as erroneous in nature. - Decided in favour of assessee.

Summary

Issues Involved:
1. Jurisdiction of PCIT under Section 263 of the Income Tax Act, 1961.
2. Adequacy of inquiries and verification by the Assessing Officer (AO).
3. Applicability of Section 115BBE concerning surrendered income during a survey.
4. Classification of surrendered income under Sections 68 to 69D of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Jurisdiction of PCIT under Section 263 of the Income Tax Act, 1961:
The assessee challenged the jurisdiction of the Principal Commissioner of Income Tax (PCIT) under Section 263, arguing that the PCIT wrongly assumed jurisdiction. The PCIT had issued a show cause notice under Section 263, deeming the assessment order erroneous and prejudicial to the interest of the Revenue. The Tribunal examined whether the PCIT had validly assumed jurisdiction and concluded that the PCIT's assumption of jurisdiction was not justified as the AO had conducted adequate inquiries and the assessment order was neither erroneous nor prejudicial to the interest of the Revenue.

2. Adequacy of inquiries and verification by the Assessing Officer (AO):
The assessee argued that the AO had made adequate inquiries and verifications during the assessment proceedings, including examining the books of accounts and documents. The AO had accepted the surrendered income as business income based on the evidence provided. The Tribunal found that the AO had duly considered the statement recorded during the survey, the surrender letter, and the return of income. The AO had assessed the income under the head "business income" after due application of mind. Therefore, the Tribunal held that the AO had conducted the necessary inquiries, and the assessment order was not erroneous due to lack of inquiry.

3. Applicability of Section 115BBE concerning surrendered income during a survey:
The PCIT argued that the surrendered income during the survey should be taxed under Section 115BBE, which entails a higher tax rate for income classified under Sections 68 to 69D. The assessee contended that the surrendered income was business income and not unexplained income under Sections 68 to 69D. The Tribunal noted that the surrendered income was derived from the business activities of the assessee and was duly explained during the survey. The Tribunal emphasized that the burden of proving that the income should be taxed under the deeming provisions lies with the Department, which failed to provide sufficient evidence. Consequently, the Tribunal concluded that Section 115BBE was not applicable to the surrendered income.

4. Classification of surrendered income under Sections 68 to 69D of the Income Tax Act:
The PCIT classified the discrepancies found during the survey under Sections 68, 69, 69A, 69B, and 69C, arguing that the surrendered income should be taxed under these sections. The Tribunal found that the PCIT did not provide specific findings or evidence to support this classification. The Tribunal emphasized that merely stating that excess cash, stock, construction, and advances fall under these sections without specific findings is not sufficient. The Tribunal held that the surrendered income was business income, as explained by the assessee during the survey, and the AO had rightly assessed it as such. Therefore, the Tribunal did not accept the PCIT's classification of the surrendered income under Sections 68 to 69D.

Conclusion:
The Tribunal concluded that the PCIT's order under Section 263 was not sustainable as the AO had conducted adequate inquiries, and the assessment order was neither erroneous nor prejudicial to the interest of the Revenue. The Tribunal set aside the PCIT's order and upheld the AO's assessment order, allowing the appeal of the assessee. The judgment emphasized the importance of specific findings and evidence when invoking deeming provisions and higher tax rates under the Income Tax Act.