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2023 (2) TMI 986 - AT - Income TaxRevision u/s 263 - Scope of the notice issued - Unexplained investment made in the excess stock found during survey proceedings - violation of Sec. 69B of the Act attracting provision of Sec. 115BBE to charge tax at 60% of the income - disclosure made by the assessee on account of excess stock and cash found during survey as business income - HELD THAT - More notably in DECCAN JEWELLERA (P) LTD. 2021 (9) TMI 424 - ANDHRA PRADESH HIGH COURT has in identical background of facts held the disclosure of excess stock of gold ,diamond silver jewellery by an assessee dealing in such stock to be in the nature of business income and not income from undisclosed sources and in response to queries raised by the AO seeking explanation as to why the surrender should not be treated as unexplained investment in the said case, the assessee had merely submitted that excess stock was part of its mixed lot of stock both declared and undeclared, invested out of its undisclosed business income of earlier years and further the assessee had disclosed the same as its business income in its Profit and Loss account. This explanation was found to be correctly accepted by the AO, by the Hon ble High Court. In the present case before us the assessee had admitted to the same explanation in statement of partners recorded during survey, reproduced above admitting to the excess stock of gold, silver etc as out of its unaccounted business income and had also reflected the surrendered stock as part of stock of its business and shown the same as its business income. There is in fact no factual distinction between the said case and that before us. Therefore the proposition laid down by the Hon ble High Court will apply to the present case also. It is very much clear, therefore and we agree with the ld.counsel for the assessee, that facts relating to the disclosure in excess stock of the business of the assessee were there before the AO, and he had taken a plausible view on the same by treating it as business income of the assessee. Therefore, we hold, that there was no error in the order of the AO. Pr.CIT had invoked Explanation 2 to section 263 without first confronting the assessee with the same - non-mentioning of Explanation 2 to section 263 in the show cause notice - As section 263 empowers Commissioners/ Pr.Commissioners to exercise revisionary power where they find any order passed by the AO to be erroneous so as to cause prejudice to the interest of the Revenue. Explanation 2 to the section lists circumstances in which the assessment order passed will be deemed to be erroneous, which amongst other, includes an order passed without making inquiries or verification which should have been made as per clause (a) of the Explanation, which clause has been invoked by the ld.Pr.CIT in the present case. Once the ld.Pr.CIT brings to the notice of the assessee the reason why he finds the assessment order to be erroneous, which in the present case was inadequate inquiries conducted by the AO on the nature of disclosure made by the assessee during the survey in excess stock found, he need not specifically point out that he has invoked Explanation-2 to sub-clause (a) to the section which is to the same effect of inadequate inquiries conducted qualifying as error in assessment order. The fact that he clearly brings out the reason why he found assessment order erroneous, is sufficient in itself and self-explanatory. It need not to be technically qualified by pointing out the specific clause in respect to which the reason pertained. The entire objectives of confronting anything to the assessee in the process of rendering justice is to offer an opportunity to other party to come up with his/her arguments or contentions in defense. In the present case, it is not disputed that the assessee had been specifically pointed out the error in the order of the AO of nonconducting inquiry relating to the particular issue. The assessee was required to respond to the same, which he did by pointing out that due inquiry was conducted. As we mentioned above, the Explanation did not expand the scope of section but only explained the scope of section, and therefore, once the specific section has been invoked, it is not necessary to mention any specific Explanation thereto which has been invoked. Therefore, this contention of the ld.counsel for the assessee is rejected outrightly that the order needs to be set aside for the reason that ld.Pr.CIT did not confront the assessee before invoking Explanation 2 to sub-clause (a) to section 263 of the Act. As for the decision of the jurisdictional High Court in the case of Shreeji Prints 2020 (2) TMI 1021 - GUJARAT HIGH COURT , relied upon by the ld.counsel for the assessee in support of this contention, the assessee, we hold, cannot derive any benefit from the same. We hold that the assessee cannot derive any benefit from the judgment of Hon ble High Court in the case of Shreeji Prints P. Ld. (supra), to the effect that non-mentioning of Explanation 2 to section 263 in the show cause notice will render entire revisionary order as non-est in the eyes of law. This contention raised by the ld.counsel for the assessee, is therefore, rejected. Appeal of the assessee is allowed on merits, and the legal contention raised by the assessee is dismissed.
Issues Involved:
1. Whether the Principal Commissioner of Income Tax (Pr. CIT) erred in revising the scrutiny assessment order under section 263 of the Income Tax Act, 1961. 2. Whether the assessment order was erroneous and prejudicial to the interest of the revenue due to the treatment of excess stock and cash found during survey as business income instead of unexplained investment under section 69B. 3. Applicability of section 115BBE for taxing the excess stock and cash found at a higher rate. 4. Applicability of penalty provisions under section 271AAC instead of section 270A. 5. Whether the Pr. CIT relied on judgments with a different set of facts. Detailed Analysis: 1. Revision of Scrutiny Assessment Order under Section 263: The assessee contended that the Pr. CIT erred in revising the scrutiny assessment order, which was neither erroneous nor prejudicial to the interest of revenue. The Pr. CIT exercised revisionary jurisdiction under section 263 of the Act, noting that the disclosure of surplus stock and cash found during the survey was accepted by the Assessing Officer (AO) as business income. The Pr. CIT argued that since the source of investment in the excess stock was unexplained, it should have been treated as unexplained investment under section 69B and taxed at a higher rate under section 115BBE, with penalty under section 271AAC. 2. Erroneous and Prejudicial Assessment Order: The Pr. CIT found the AO's acceptance of the disclosure as business income erroneous and prejudicial to the revenue. The AO did not conduct proper inquiries or verification regarding the source of the investment in the excess stock. The Pr. CIT directed the AO to pass a fresh assessment order considering the issues discussed in the section 263 order. 3. Applicability of Section 115BBE: The assessee argued that the excess stock found during the survey was part of its business income and not unexplained investment. The AO accepted this view, which was supported by judicial pronouncements treating excess business stock as business income. The Pr. CIT, however, held that the excess stock should be taxed under section 69B at a higher rate under section 115BBE. 4. Penalty Provisions under Section 271AAC: The Pr. CIT held that the penalty should be levied under section 271AAC, applicable to income determined under section 69B, rather than section 270A. The assessee argued that the AO's acceptance of the disclosure as business income was a plausible view, supported by judicial decisions, and thus, the penalty under section 270A was appropriate. 5. Reliance on Different Judgments: The assessee contended that the Pr. CIT relied on judgments with a different set of facts. The assessee pointed out that during the survey, the partners had admitted that the excess stock was unaccounted business income. The excess stock was reflected in the profit and loss account and audited balance sheet as part of the closing stock. The AO issued questionnaires during the assessment proceedings, and the assessee provided due replies, leading the AO to accept the disclosure as business income. Tribunal's Findings: 1. The Tribunal noted that all facts relating to the disclosure were before the AO, who took a plausible view by treating the excess stock as business income. The partners' statements during the survey and the inclusion of the excess stock in the profit and loss account supported this view. Judicial pronouncements also supported treating excess business stock as business income. 2. The Tribunal found no error in the AO's order, holding that the Pr. CIT's assumption of jurisdiction under section 263 was not in accordance with the law. 3. The Tribunal rejected the assessee's contention that the Pr. CIT should have confronted them with the invocation of Explanation 2 to section 263. The Tribunal held that the Pr. CIT's notice clearly pointed out the error of inadequate inquiries, which was sufficient. 4. The Tribunal distinguished the case of Shreeji Prints P. Ltd., noting that the decision was based on the facts of that case, where the AO had made full inquiries. 5. The Tribunal concluded that the AO's acceptance of the disclosure as business income was a plausible view, and there was no error in the assessment order. The Tribunal set aside the Pr. CIT's order under section 263. Conclusion: The Tribunal allowed the appeal of the assessee on merits, holding that the AO's order was not erroneous or prejudicial to the interest of the revenue. The Tribunal dismissed the legal contention regarding the invocation of Explanation 2 to section 263 without prior confrontation. The appeal was allowed, and the Pr. CIT's order under section 263 was set aside.
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