2022 (11) TMI 122 - AT - Income Tax

Revision u/s 263 by CIT - unexplained investment u/s. 69 - addition made by the AO towards difference in stock is an unexplained investment for which the assessee failed to provide satisfactory explanation and therefore the undisclosed stock should have been considered as an unexplained investment u/s. 69 which is required to be tax at special rate u/s. 115BBE - HELD THAT - AO has conducted a detailed enquiry with regard to the deviations in stock and has made the addition under the head business income. Further, 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. Additional income is offered towards the difference in stock by the assessee. The 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. We are of the opinion that the 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 the Hon'ble Bombay High Court in the case of Gabriel India Ltd. 1993 (4) TMI 55 - BOMBAY HIGH COURT Accordingly the impugned order of the PCIT is quashed. Appeal is allowed in favour of the assessee .

Issues Involved:
1. Legality and justification of the Principal Commissioner of Income Tax (PCIT) setting aside the assessment order under Section 263 of the Income Tax Act.
2. Allegation of double taxation on the sum of Rs. 50,00,000.
3. Classification of excess stock as unexplained investment under Section 69 and its taxation under Section 115BBE.
4. Adequacy of the Assessing Officer's (AO) inquiries and verification regarding the excess stock.

Detailed Analysis:

1. Legality and Justification of PCIT Setting Aside the Assessment Order:
The appeal contested the order of the PCIT, Central, Bengaluru, which set aside the assessment order passed under Section 143(3) dated 11.12.2019. The PCIT invoked Section 263, arguing that the assessment order was erroneous and prejudicial to the interests of the revenue due to the AO's failure to classify the excess stock of Rs. 50,00,000 as unexplained investment under Section 69 and tax it under Section 115BBE. The Tribunal observed that for the PCIT to exercise revisional jurisdiction under Section 263, the order must be both erroneous and prejudicial to the interests of the revenue. The Tribunal found that the PCIT did not provide sufficient material to substantiate that the excess stock was from an undisclosed source and not from the business income of the assessee. The AO had made a detailed inquiry and concluded that the additional income was business income arising from the excess stock. Thus, the Tribunal quashed the PCIT's order, deeming it an improper exercise of jurisdiction.

2. Allegation of Double Taxation:
The appellant argued that the PCIT's order resulted in double taxation of the sum of Rs. 50,00,000, which was already taxed as business income in the original assessment order. The Tribunal noted that the AO had considered the additional income offered by the assessee during the survey as business income and had set it off against the returned loss. The Tribunal found that the PCIT's order to treat the same sum as unexplained investment under Section 69 would indeed result in double taxation, which is not permissible.

3. Classification of Excess Stock as Unexplained Investment:
The PCIT contended that the excess stock should be classified as unexplained investment under Section 69 and taxed under Section 115BBE, which disallows any set-off of losses. The Tribunal, however, found that the AO had already classified the additional income from the excess stock as business income, considering the detailed submissions and explanations provided by the assessee regarding the stock discrepancies. The Tribunal held that the PCIT's view to reclassify the income without any new material evidence was not justified.

4. Adequacy of AO's Inquiries and Verification:
The PCIT argued that the AO did not make adequate inquiries or verification regarding the excess stock. The Tribunal reviewed the AO's assessment order and found that the AO had conducted a thorough inquiry, including detailed discussions on the stock discrepancies, retraction of statements, and reconciliation of book stock and physical stock. The AO had concluded that the additional income was business income arising from the excess stock. The Tribunal cited the case of Gabriel India Ltd., emphasizing that an order cannot be deemed erroneous merely because the PCIT believes further inquiry was needed. The Tribunal concluded that the AO had exercised his quasi-judicial powers appropriately, and the PCIT's invocation of Section 263 was unwarranted.

Conclusion:
The Tribunal allowed the appeal in favor of the assessee, quashing the PCIT's order under Section 263. The Tribunal held that the AO had conducted adequate inquiries and correctly classified the additional income as business income. The PCIT's attempt to reclassify the income without new evidence and the resulting double taxation were deemed improper. The Tribunal emphasized that revisional jurisdiction under Section 263 should not be exercised to substitute the PCIT's opinion for that of the AO or to conduct a fishing and roving inquiry.

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