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2023 (12) TMI 1408 - AT - Income TaxRevision u/s 263 - assessee has surrendered income on discrepancies found during the course of survey action - AO treated the surrender amount as the business income of the assessee - AR submitted that the case of the assessee was selected for compulsory scrutiny only on the issue of the amount surrendered during the course of survey action - HELD THAT - During the course of assessment proceedings, the AO in the notice issued u/s 142(1) has asked the assessee to show-cause why the surrendered income in terms of excess stock of Rs 40 lacs and excess cash of Rs 10 lacs found during the course of survey may not be brought to tax under the deeming provisions r.w.s. 115BBE. In response to the notice so issued, the assessee has filed his submission stating that he has surrendered the excess stock and cash which is related to his business and offer of surrender was accepted by the department team at the time of survey and pursuant thereto, the assessee has not back tracked from his offer and has paid taxes as per law prevailing on the date of survey and this income was duly shown in income tax return and duly reported for tax purposes. AO taking cognizance of the findings of the survey team, the documents found during the course of survey, the statement of the assessee, and the return of income and after examination thereof and due application of mind, has accepted the explanation so offered by the assessee and the returned income was accepted wherein the surrendered income has been offered under the head business income. We therefore find that the assessee has been asked specific questions during the course of assessment proceedngs, after due examination and being satisfied with the explanation of the assessee, the same has been accepted and thus, it is not a case of lack of enquiry on part of the AO or for that matter, accepting the explanation of the assessee on face value. The AO has duly enquired in the matter and thereafter, has taken a view in the matter. No doubt, these transactions were not recorded at the time of survey thus qualify as unrecorded transactions satisfying one of the essential conditions, at the same time, the assessee has provided the necessary explanation about the nature and source of such unrecorded transactions and the necessary nexus with assessee s business has been established, thus, it cannot be said that these are unexplained transactions thus, doesn t satisfy the second condition for invoking the deeming provisions of the Act. Thus, the view taken by the AO is clearly a plausible view considering the facts and circumstances of the present case and nothing has been pointed out as to how the view so taken is unsustainable in the eyes of law. The order so passed by the AO cannot be held as erroneous due to lack of inquiry or for that matter requisite inquiry on the part of the AO. As we have held above, there is no findings recorded by the Ld. Pr. CIT as to how the deeming provisions are applicable in the instant case and the order so passed by the AO is erroneous. We therefore find that merely stating that there was survey operation at the business premises of the assessee and provisions of Section 115BBE of the Act are attracted, the same can be a basis for exercise of jurisdiction u/s 263 of the Act. In view of the same, order so passed by the Ld. Pr. CIT under section 263 is set aside and that of the AO is restored. Assessee appeal allowed.
1. ISSUES PRESENTED and CONSIDERED The judgment considered the following core legal questions:
2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Legality of the Revision under Section 263 Relevant legal framework and precedents: Section 263 allows the PCIT to revise an order if it is erroneous and prejudicial to the interests of the revenue. The legal standards for invoking Section 263 include a lack of inquiry by the AO or an incorrect application of law. Court's interpretation and reasoning: The Tribunal emphasized that for Section 263 to apply, the PCIT must demonstrate how the AO's order is erroneous and prejudicial. It is not enough to have a difference of opinion; there must be a clear error in the AO's judgment or a lack of inquiry. Key evidence and findings: The Tribunal noted that the AO had issued specific queries regarding the surrendered income and received detailed responses from the assessee, indicating that the AO conducted a thorough inquiry. Application of law to facts: The Tribunal found that the AO had exercised due diligence and applied his mind to the facts and circumstances of the case, making the revision under Section 263 unjustified. Treatment of competing arguments: The Tribunal considered the PCIT's argument that the AO failed to apply Section 115BBE but found that the AO had a plausible view based on the information available. Conclusions: The Tribunal concluded that the revision under Section 263 was not warranted as the AO's order was neither erroneous nor prejudicial to the revenue. Issue 2: Applicability of Section 115BBE Relevant legal framework and precedents: Section 115BBE imposes a higher tax rate on unexplained income under Sections 68 to 69D. The amendment to Section 115BBE, effective from AY 2017-18, was considered. Court's interpretation and reasoning: The Tribunal highlighted that the deeming provisions (Sections 68 to 69D) must be satisfied for Section 115BBE to apply. The AO had to determine whether the surrendered income was unexplained and fell under these provisions. Key evidence and findings: The Tribunal noted that the assessee had explained the nature and source of the surrendered income as business-related, and the AO accepted this explanation. Application of law to facts: The Tribunal found that the AO's decision to treat the surrendered income as business income was reasonable and based on the evidence and explanations provided. Treatment of competing arguments: The PCIT argued that the surrendered income should be taxed under Section 115BBE due to its unexplained nature. However, the Tribunal found that the AO's acceptance of the business income explanation was a plausible view. Conclusions: The Tribunal concluded that the AO's decision to tax the surrendered income as business income at normal rates was justified, and Section 115BBE was not applicable. 3. SIGNIFICANT HOLDINGS Preserve verbatim quotes of crucial legal reasoning: "The very basis of invocation of jurisdiction under section 263 suffers from serious fallacies in the sense that the unexplained income found and surrendered during the course of survey proceedings have been sought to be brought to tax straightway under section 115BBE of the Act." Core principles established: The Tribunal reinforced that an AO's order cannot be revised under Section 263 merely due to a difference of opinion. There must be a demonstrable error or lack of inquiry. The applicability of Section 115BBE requires satisfying the deeming provisions of Sections 68 to 69D. Final determinations on each issue: The Tribunal set aside the PCIT's order under Section 263 and restored the AO's order, confirming that the surrendered income was correctly taxed as business income at normal rates.
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