2021 (9) TMI 1560 - AT - Income Tax

Revision u/s 263 - assessment of excess stock u/s 69 - HELD THAT - It is asserted on behalf of the assessee that in the course of survey, no other activity/other source of income was found in the hands of the assessee except the ongoing jewellery business. The excess stock declared as business income in the statement u/s133A of the Act was reflected in the return of income. AO issued a specific show cause notice dated 18.12.2019 wherein the identical question was raised and the assessee was required by the A.O. to show cause as to why the amount be not treated as unexplained investment u/s 69 of the Act and tax rate under section prescribed under section 115BBE need not apply. A reply thereof was furnished (dated 19.12.2019) to the A.O. On consideration of the facts and circumstances narrated in the reply and original submissions, the AO found merit in the plea of the assessee and dropped the issue and did not disturb the position taken by the assessee. Certain case laws are relied upon to support the stance taken by the assessee. As contended that statement taken u/s 133A should either be relied in full or not relied upon - A part of statement cannot be read differently. On appraisal of the facts narrated on behalf of the assessee, it is manifest that the assessee has taken a consistent position on submission of excess stock from business activities and thus a business income in ordinary course right from survey proceedings till filing return of income and subsequent completion of assessment. Significantly, the AO has made specific query in this regard and found the reply of the assessee in sync with the factual matrix. Thus the action of the AO was after due application of mind. We further notice that similar issues have cropped up in other cases as well and judicial view is available on subject matter of dispute in similar circumstances. In Bajaj Sons Limited 2021 (5) TMI 956 - ITAT CHANDIGARH also answered the issue in favour of the assessee therein and held that surrender of undisclosed business income would not attract provisions of section 115BBE of the Act. Similar view has been taken in the case of PCIT vs. Subarna Rice Mills 2018 (8) TMI 1475 - CALCUTTA HIGH COURT . Thus, taxability of such income under the head business income has been endorsed by the judicial view and hence could not have been disregarded outrightly by the AO in departure with the statement u/s 133A while performing quasi judicial function. The issue thus cannot be said to be, at least, free of debate. Clearly, the AO having applied the mind to the facts of the case and has taken a view which cannot be said to be wholly unsustainable in law. Therefore, the action of the AO cannot be branded as erroneous per se on this issue. The invocation of section 263 is thus unjustified on this point. Mismatch between figures appearing in the Trial Balance viz-a-viz audited Balance Sheet towards purchases - AO has examined the books. The PCIT himself could have called for records again and looked into the explanation offered by the assessee himself. On a perusal of the purchase figures under various heads, we find justification in the explanation of the assessee towards regrouping of certain purchase entries. For instance, under the head Inside State Ornaments (URD) purchases appearing in the Trial Balance seem to have been clubbed under the head New Ornament Old Ornament making it comparable. Once the transfer entries are passed, the figures as per Trial Balance and audited account stands at the near vicinity and purchase shown in the Trial Balance appears to be in conformity with the Balance Sheet subject to time difference. PCIT, under such circumstances, ought to have been circumspect while putting the assessee with the burden of further enquiry without having any cogent case for doing so. Secondly, we also find merit in the other line of argument that once the books of accounts are rejected, the individual entries of expenses etc. lose its relevance. Hence, we see no perceptible error in the action of the A.O. The directions of the PCIT in this regard deserve to be set aside and quashed. Appeal of the assessee is allowed.

Summary

Issues:
Challenge to revisional order under section 263 of the Income Tax Act concerning Assessment Year 2017-18.

Detailed Analysis:
The appeal was filed against the revisional order of the Principal Commissioner of Income Tax (PCIT) under section 263 of the Income Tax Act. The PCIT directed the Assessing Officer (A.O.) to reframe the assessment order for A.Y. 2017-18. The assessee contested the jurisdiction of the PCIT, claiming the assessment order was not erroneous or prejudicial to revenue. The assessee, engaged in trading of precious metals, declared excess stock as taxable income during survey proceedings. The A.O. added an amount to the returned income due to a lower net profit ratio. The PCIT, after reviewing the assessment records, sought to set aside the A.O.'s order for re-adjudication based on lack of proper enquiry.

The PCIT proposed revision on two counts: treatment of excess stock as unexplained investment under section 69 and reconciliation of purchase figures in audited accounts with the Trial Balance. The assessee argued that the excess stock was from business activities, consistently treated as business income. The A.O. issued a show cause notice, and after considering the reply and case laws, did not disturb the position taken by the assessee. Judicial views supported treating such income as business income. The A.O.'s decision was found to be reasonable, and the invocation of section 263 was deemed unjustified.

Regarding the alleged mismatch in purchase figures, the assessee explained the differences due to accounting practices and the dynamic nature of the business. The PCIT's lack of understanding of accounting practices was highlighted. The rejection of books by the A.O. and estimation of profits rendered the alleged difference inconsequential. The Tribunal found merit in the assessee's contentions, stating that the figures of different dates would naturally vary. The PCIT's directions were deemed unwarranted, and the A.O.'s actions were considered appropriate.

In conclusion, the Tribunal allowed the appeal of the assessee, setting aside the PCIT's revisional order. The judgment was pronounced on 29.09.2021 in accordance with the Income Tax Appellate Tribunal Rules, 1963.