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2022 (9) TMI 1028 - AT - Income TaxRevision u/s 263 - Additional income towards excess stock - whether the excess stock should be assessed as unexplained expenditure u/s.69C? - HELD THAT - In the given case, in the statement recorded during the course of search the Shri Anand Kumar, one of the partners in the assessee firm, he has admitted that there is difference in the stock recorded in the books and the physical stock and agreed to offer the same as additional income. PCIT has not brought anything contrary to record to state that the amount admitted towards excess stock is from a difference source. When the additional income is offered towards excess stock, the stock being part of the business of the assessee is offered to tax as business income - PCIT has merely substituted his views to the extent that the AO should have done further enquiry when PCIT himself admits that the additional income is from the excess stock. We are of the considered opinion that the revisionary jurisdiction could not be allowed to be exercised by the PCIT either for substituting his own opinion for that of the AO or for making a fishing and roving enquiry. PCIT in the present case has wrongly invoked the jurisdiction under section 263 and the controversy in the present case is fully covered by the judgment of Gabriel India Ltd. 1993 (4) TMI 55 - BOMBAY HIGH COURT - Accordingly the impugned order of the PCIT with regard to the issue of setting the order of AO u/s.143(3) with regard to this issue is quashed. Applicability of section 269ST to the investments made in cash - Mode of undertaking transactions - A.R. submitted that provisions of Section 269ST of the Act is applicable only to the receiver of the amount and not the payer - HELD THAT - The facts of the case here as has been noted by the AO is that the assessee has made payments of Rs.4.50 crores to the shareholders of M/s.Lax Bio Feeds Pvt Ltd., apart from the agreed share price. As per the statement recorded u/s.132(4) from the partner of the assessee the source of the amount paid was the inflated purchases and payments made boat owners and that the said payments have not been recorded in the books of accounts. It is also noted by the AO that the amount invested has already been taxed as undisclosed income is already offered to tax in AY 2017-18. Further from the combined reading of the above provisions it is clear that section 269ST and the penalty provisions for not complying with the said section as contained in section 271DA are applicable to the receiver of the sum. Considering the facts of the case and the relevant provisions of the Act, we are of the view the action of PCIT invoking section 263 stating that the AO s order is erroneous to the extent of AO not verifying whether investments are in violation of section 269ST is not tenable. We therefore quash the order of PCIT with regard to this issue. Assessee appeal allowed.
Issues Involved:
1. Legality of the revision order under Section 263 of the Income Tax Act. 2. Assessment of additional income towards excess stock. 3. Applicability of Section 269ST to investments made in cash. Detailed Analysis: 1. Legality of the Revision Order under Section 263: The assessee challenged the revision order passed by the Principal Commissioner of Income Tax (PCIT) under Section 263 of the Income Tax Act, 1961, arguing that the original assessment order passed under Section 143(3) was pursuant to proper enquiry and there was no error prejudicial to the interests of the Revenue. The assessee contended that the PCIT's direction to re-examine the assessment amounted to ordering fishing and roving enquiries without any material support, making the revision order ultra vires and liable to be cancelled. 2. Assessment of Additional Income Towards Excess Stock: The PCIT noticed that the difference in stock value amounting to Rs. 1,82,70,000/- was offered as additional income by the assessee and accepted by the AO. The PCIT argued that this should be categorized as unexplained investment under Section 69C and taxed at a special rate under Section 115BBE. The assessee contended that: - The additional amount declared was incorrect and made to buy peace with the department. - The excess stock was mistakenly considered due to the inclusion of stock from a sister concern. - The assessee adjusted the inventory in its books, enhancing its profit, which was declared under business income. - The income was declared in the profit and loss account, making Section 115BBE inapplicable. - The AO had made enquiries and treated the additional income as business income. The Tribunal observed that the AO had verified the excess stock and accepted the assessee's declaration as business income. The PCIT's view that further enquiry was necessary did not justify the exercise of revisionary powers under Section 263. The Tribunal noted that the error envisaged by Section 263 should be an actual error of fact or law, not based on guesswork. The Tribunal quashed the PCIT's order, stating that the revisionary jurisdiction could not be exercised for substituting the PCIT's opinion for that of the AO or for making a fishing and roving enquiry. 3. Applicability of Section 269ST to Investments Made in Cash: The PCIT argued that the investment of Rs. 4.5 crores in cash violated Section 269ST, which the AO failed to verify. The assessee contended that Section 269ST applies only to the receiver of the amount, not the payer. The AO had already noted that the amount was disclosed as undisclosed income and assessed accordingly in AY 2017-18. The Tribunal agreed with the assessee, stating that Section 269ST and the penalty provisions under Section 271DA apply to the receiver of the sum. The Tribunal quashed the PCIT's order, stating that the AO's order was not erroneous for not verifying the applicability of Section 269ST. Conclusion: The Tribunal allowed the appeal filed by the assessee, quashing the PCIT's revision order under Section 263. The Tribunal held that the AO had made proper enquiries and the excess stock was rightly treated as business income. The Tribunal also ruled that Section 269ST was not applicable to the payer of the amount, and the AO's order was not erroneous in this regard.
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