2023 (3) TMI 305 - AT - Income Tax

Revision u/s 263 by CIT - Surrender of excess stock and business related receipts and any other discrepancy in this business etc. hence, the surrendered income was clearly under the head business income - application of provisions of section 115BBE on the Income offered during survey which was replied in detail and after considering that reply, the AO has taken a possible view and, therefore, the order of Ld. PCIT for setting aside the already completed assessment u/s 143(3) - HELD THAT - We are of the view that in the peculiar facts of the present case in order to address the grievance of the assessee posed against the impugned order what primarily needs to be seen is whether the order passed by the AO can be said to be erroneous and prejudicial to the interests of the Revenue. For considering the same, it need be evidenced from the record whether the order has been passed without considering the relevant facts and provisions. It need be seen from the record of the AO whether any queries have been raised by the AO on the issues and whether on facts considering the replies of the assessee, the view formed by the AO can be said to be a plausible view or not. It is only after considering the same, the Revisionary Authority can come to the conclusion whether the order passed was a carelessly passed order by the AO thus constituting an error by sheer lack of enquiry or absence of relevant enquiry by the AO which causes not only an error but also a prejudice to the interests of the Revenue. It is only after such an enquiry is made that the Revisionary Authority can be held to be justified in setting aside the order. On a consideration of the entire factual matrix of the present case, we find ourselves unable to subscribe to the view taken by the Revisionary Authority. We have taken into consideration the arguments advanced on behalf of the assessee that the amount surrendered in the course of the survey on 04.08.2016 was honored by the assessee which is not an issue in the present proceedings. We find that on the levy of higher rate of tax in terms of amendment of Section 115 BBE which received the Hon'ble President s assent on 15.12.2016, the AO in the course of the assessment proceedings considering the queries raised and the replies received on the ITBA Portal itself, it is evident that before the passing of the order dated 21.12.2019 the AO was very much conscious of the nature and counts on which the surrender stood made in the Survey. It is evident from the record that he was very much conscious of the fact that the case was selected for compulsory scrutiny for this specific purpose. We have seen that he has also enquired into the nature of income of the assessee. The surrender letter of the assessee placed before the AO is available before us as it has also been relied upon before the Revisionary Authority. On perusal of the same it is evident that notwithstanding possibly the confused response of the assessee as noticed in the impugned order on the applicability of Section 115 BBE provisions. The fact remains that even after the survey having been conducted, the record has been seen by the Tax Authorities wherein we find that despite this there is not even a whisper of any allegation on record of any other source of income of the assessee. It is for the Revenue to prove that there were some other sources noticed. We cannot expect the assessee to prove the negative. In the peculiar facts of the present case as available on record we find that the surrender was from the normal business income of the assessee. In the facts of the present case, the ledger entries and the treatment of the surrender made in the books of account of the assessee has not only been considered by the AO it has also been made available to the Revisionary Authority and has also been placed before us. On a consideration thereof, we find that in the facts of the present case the action of the Revisionary Authority in re-looking at the very same facts and position of law solely to bring a higher rate of tax to the kitty of the Revenue cannot be countenanced in the Revisionary proceedings. It would tantamount to being legally unsustainable. The powers cannot be exercised merely because on the same set of facts, the view found by the ld. PCIT is at variance with the AO. Unless and until the view taken by the AO is shown to be an incorrect view, the said action cannot be supported. In the facts of the present case, we find ourselves unable to hold that the assessment order has been passed without a proper enquiry. We have seen that the AO was duly conscious of the issues which he was required to consider. Replies have been taken on record. They are seen to be having a legal support. We find that the appeals of the assessee have to be allowed. We further support our conclusion relying upon the decision of the Apex Court in the case of Parshuram Potteries 1976 (11) TMI 1 - SUPREME COURT Accordingly, the respective orders passed by the ld. PCIT are quashed and appeals of the assessee are allowed.

Summary

Issues Involved:
1. Assumption of jurisdiction under Section 263 of the Income Tax Act, 1961.
2. Validity of the assessment order passed by the Assessing Officer (AO).
3. Application of Section 115BBE on the surrendered income.
4. Consideration of audit objections by the Principal Commissioner of Income Tax (PCIT).
5. Whether the PCIT can substitute his view with that of the AO.

Issue-Wise Detailed Analysis:

1. Assumption of Jurisdiction under Section 263:
The assessees challenged the jurisdiction assumed by the PCIT under Section 263, arguing that the assessment order passed by the AO was neither erroneous nor prejudicial to the interest of the revenue. The PCIT set aside the AO's order, claiming it was passed without due diligence and proper enquiries. The Tribunal found that the AO had made specific enquiries and considered the replies of the assessee, thus exercising due application of mind. Therefore, the assumption of jurisdiction by the PCIT was deemed invalid.

2. Validity of the Assessment Order:
The Tribunal examined whether the AO's order was passed after making due enquiries and with proper application of mind. The AO had issued statutory notices and received detailed replies from the assessee. The assessment was concluded after considering these submissions. The Tribunal held that the AO had taken a plausible view based on the facts and law, and the order was valid and not erroneous.

3. Application of Section 115BBE on the Surrendered Income:
The PCIT argued that the AO failed to apply the provisions of Section 115BBE, which mandates a higher tax rate on certain incomes. The assessee contended that the surrendered income was part of the regular business income and should be taxed at normal rates. The Tribunal noted that the AO had specifically enquired about the applicability of Section 115BBE and considered the assessee's replies. The Tribunal concluded that the AO's decision to tax the surrendered income at normal rates was a plausible view and could not be set aside merely because the PCIT held a different opinion.

4. Consideration of Audit Objections:
The assessees argued that the PCIT assumed jurisdiction based on audit objections, which is not permissible. The Tribunal found that the PCIT's action was indeed influenced by audit objections. It was held that the PCIT could not assume jurisdiction under Section 263 solely based on audit objections, especially when the AO had already made due enquiries and taken a considered view.

5. Substitution of PCIT's View with that of AO:
The Tribunal emphasized that the PCIT cannot substitute his view with that of the AO unless the AO's view is shown to be erroneous. The AO had made specific enquiries, considered the replies, and applied the law correctly. The Tribunal held that the PCIT's action of setting aside the AO's order amounted to a mere substitution of his opinion, which is not permissible under Section 263.

Conclusion:
The Tribunal quashed the orders passed by the PCIT and allowed the appeals of the assessees. The AO's assessment orders were upheld as valid, having been passed after due enquiries and proper application of mind. The Tribunal reiterated that the powers under Section 263 cannot be exercised arbitrarily and must be based on concrete evidence of error and prejudice to the revenue.