2024 (10) TMI 916 - AT - Income Tax

Revision u/s 263 - assessee while filing the return of income had included excess stock of Diamonds found during the course of survey action under the head Income from Other Sources and has paid normal tax - PCIT was of the view that since the assessee has accepted the said income towards unexplained stock of loose diamonds the income should be added u/s 69B as unexplained investments and to be taxed u/s 115BBE - HELD THAT - AO completed the assessment by making certain small additions. It is relevant to mention here that the AO in the assessment order has not mentioned anything about the survey operations conducted in assessee's case and nothing is stated with regard to the income offered towards unexplained stock of diamonds. The argument of the assessee is that the AO has examined and has taken a conscious decision to accept the income declared. However we are unable appreciate this contention of the assessee since the AO's order does not even mention the fact that there has been survey and therefore the claim that the AO has applied his mind while accepting the income offered by the assessee towards unexplained diamonds found during survey does not have merit. As decided in the case of Malabar Industrial Co. Ltd 2000 (2) TMI 10 - SUPREME COURT held that non- enquiry before allowing the claim would make the order of the AO amenable to jurisdiction u/s 263 - In the given case, the ld AR did not bring anything on record to show that the AO has raised any query with regard to the income declared by the assessee from the survey operations and that the assessee furnished any details which were examined by the AO. AO has completely ignored the fact that the assessee was subject to survey and has declared certain income under the head Income from Other Sources towards unexplained stock found during survey. Therefore in our considered view the PCIT is justified in invoking the powers of revision under section 263 on the ground that the AO has not done any proper enquiry which ought to have been done. Whether the income should be subject to normal tax or under section 115BBE since the AO has not examined the issue at all we modify the order passed u/s. 263 with a direction to the AO to examine the issue afresh by calling for the relevant details and decide the taxability of the income offered during survey in accordance with law. Appeal by the assessee is dismissed.

Summary

Issues:
1. Whether the order passed under section 263 of the Income Tax Act 1961 should be cancelled.
2. Whether the provisions of sections 68, 69, 69A, 69B, 69C, and 69D of the Income-tax Act, 1961 apply when income is voluntarily included in the Return of Income.
3. Whether section 69B of the Act applies to the facts of the case.
4. Whether the AO should have assisted the assessee in taking a correct stand regarding inventory of diamonds found.
5. Whether the provisions of section 263 of the Act apply if the AO has taken a view which is one of the many possible views.
6. Whether penalty proceedings should have been initiated against the appellant.

Analysis:

Issue 1:
The appeal by the assessee is against the order of the Principal Commissioner of Income Tax, Mumbai, passed under section 263 of the Income Tax Act 1961. The grounds of appeal raised by the assessee include challenging the order of the Principal Commissioner and seeking cancellation of the order passed under section 263 of the Act.

Issue 2:
The Principal Commissioner held that the provisions of sections 68, 69, 69A, 69B, 69C, and 69D of the Income-tax Act, 1961 should apply to the case, despite the income being voluntarily included in the Return of Income filed by the assessee. The assessee argued against the applicability of these sections, claiming that the income was part of the business income and should not be taxed under section 115BBE.

Issue 3:
The Principal Commissioner found that section 69B of the Act applied to the facts of the case, which the assessee disputed. The assessee claimed that section 115BBE should not be applicable to the facts of the case.

Issue 4:
The assessee contended that the Assessing Officer should have assisted in determining the correct treatment of the inventory of diamonds found, relating it to business income. The Principal Commissioner disagreed, holding that the AO should have treated the excess stock of diamonds as unexplained investments under section 69B and taxed it under section 115BBE.

Issue 5:
The Principal Commissioner held that if the AO failed to conduct proper inquiries, the assessment order may be considered erroneous. Citing relevant case law, the Principal Commissioner found that the AO had not properly examined the issue, justifying the invocation of revision under section 263.

Issue 6:
Regarding penalty proceedings, the Principal Commissioner directed the AO to revise the premature direction to initiate penalty proceedings against the appellant, emphasizing that penalty should only be imposed if facts justified such action.

Conclusion:
The Appellate Tribunal dismissed the appeal by the assessee, upholding the decision of the Principal Commissioner under section 263 of the Income Tax Act 1961. The Tribunal directed the Assessing Officer to re-examine the issue of taxability of the income offered during the survey in accordance with law, as the original assessment order was found to be erroneous and prejudicial to the interest of revenue due to lack of proper inquiry by the AO.