2024 (10) TMI 1474 - AT - Income Tax

Revision u/s 263 - as per CIT assessment order passed by AO u/s 143(3) r.w.s 153A is found to be erroneous in so far as it is prejudicial to the interest of the revenue - addition made by AO towards the undisclosed cash sales should be taxed as unexplained money u/s 69A r/w section 115BBE - HELD THAT - PCIT did not find error or prejudiced with the quantum and the manner the assessment proceeding is carried out by the ld. AO. PCIT merely initiated proceeding just to amend the rate of tax to be charged on the disputed addition. As we note that the addition has been made by making the extrapolation and no clear finding on facts of undisclosed amount. As there is no clear material which is to be charged at special rate merely the inference about the sales based on the those seized record taking weighted average will not suggest that the amount as unexplained money. It is not the case of the revenue that the assessee is found in possession of any money, bullion, jewellery or other valuable article and such money, bullion, jewellery or valuable article is not recorded in the books of account, if any, maintained by him for any source of income, and the assessee offers no explanation about the nature and source of acquisition of the money, bullion, jewellery or other valuable article, or the explanation offered by him is not, in the opinion of the AO satisfactory. As is not disputed about the source of money wherein the revenue contended that the same whatsapp chat suggest part of the money reflected in the books and part not. Thus, the source of addition made is explained by the assessee and ld. AO has taken a plausible view on the matter. Not only that the amount of addition is disputed and as supported by the seized material it is merely mathematical calculation which is disputed by the assessee and therefore, the case of the assessee is squarely covered by the decision of our High Court in the case of Manna Trust 2022 (1) TMI 693 - RAJASTHAN HIGH COURT Not only that as regard the chargeability of disclosed income the Gujarat High Court in the case of PCIT Vs. Dharti Estate 2024 (1) TMI 1197 - GUJARAT HIGH COURT has held that when the assessing officer has made sufficient inquiry and as such during the course of assessment included. The Hon ble Gujarat High Court also held that there was nothing stated in either pre-amended or post amended provisions of section 115BBE that when the assessee surrendered undisclosed income during the search action for the relevant years, higher tax rate is required to be charged. When the order passed by the ld. AO is perfectly dealing with the issue and there is no error or prejudice as such ld. PCIT cannot invoke the provision of section 263 just to say different rate of levy of the tax when ld. AO was already aware about the issue on hand of cash sales. Provisions of explanation 2 of section 263 PCIT should have at list satisfied herself before invoking the provisions, that in fact the assessee is found to be the owner of any money, bullion, jewellery or other valuable article the answer is no even the quantification of cash sales is on extrapolation of taking weighted average of sales based on the instances found at the time of search and the assessee challenged the finding of the ld. AO. Thus, the addition made by the ld. AO being under disputed and while making the addition the ld. AO has not discussed or referred the section 69A of the Act the ld. PCIT cannot hold here view when that of the view of the ld. AO when the ld. AO has consciously added the said sum as business income. AO made the addition after giving a specific show-cause notice to the assessee wherein the ld. AO based on the seized material extrapolated the income on weighted average and considered the cash sales. Thus, it was not the case of revenue for undisclosed income apparen and evident. The assessee challenged that addition before the ld. CIT(A) and therefore, the matter is under dispute. On that disputed addition ld. CIT(A) intend to levy the rate of addition for section 68, 69, 69A,B, C D of the Act. When the addition is under dispute and while making that addition ld. AO did not invoke those provisions consequent thereupon, ld. PCIT cannot impose upon her view on the ld. AO when the ld. AO with his open eyes considered the addition as unrecorded cash sales as business income of the assessee. On that pages it is apparent that he intend to tax cash sales which was in part cheque and part in cash so one transaction cannot be considered for separate two treatment under the Act. We also note that it was not the case of the revenue on the variation in stock was found, variation in the investment in the assets, no loan taken or given out of books were found and no proof of unaccounted purchase were found. Thus, merely on sum slip found in the whatsapp, addition were made and that cannot be considered as unexplained credit in the hands of the assessee company. It is not a cash of revenue that ld. AO was not aware about the provision of section 115BBE, AO was conscious about the provision of section 115BBE of the Act, because while dealing with the addition of unaccounted cash found for an amount was added and while doing so he invoked the provision of section 115BBE of the Act while dealing with the subsequent year case. Here also while invoking the provision of section 263 there is no variation was proposed in the computation of income of the assessee, but only for rate of tax and that with the facts already on record being disputed and not crystallized the order is neither erroneous nor prejudicial to the interest of the revenue. Not only that as argued by assessee their case is also covered with the decision of M. P. High Court in the case of PCIT Vs. Prakhar Developers P. Ltd. 2024 (4) TMI 498 - MADHYA PRADESH HIGH COURT as held that once order has been passed taking prior approval then again invoking the provision of section 263 was not correct. Similar view was taken by Patna High Court in Gyan Infrabuild P. Ltd. 2024 (5) TMI 732 - ITAT PATNA Ld. PCIT on the same very issue out of other year selected only for two year and other order on the same very issue could not found the order erroneous and has not proposed any action when the nature of addition being same. AO has already invoked the provision of section 11BBE for A. Y. 2020-21 while dealing with the addition and while making cash sales addition he has taken a conscious decision not to invoke that provision. Even the view and the addition being debatable and the matter was under dispute before ld. CIT(A) ld. PCIT should not considered merely on the charge of rate of tax order as prejudicial and that too without proving that it was in fact erroneous or prejudicial to the interest of the revenue. In the search no corresponding assets was found and the addition was made merely on slip found to be recorded in the iphone and the working of sales made based on the weighted average. Ld. AO consciously not invoked the deemed provision and not charged the income under the other income head and has added cash sales. Thus, we do not agree with PCIT as the order has been passed without proving that order of the ld. AO is erroneous and prejudicial to the interest of revenue and therefore we see not reasons to sustain the same. Assessee appeal allowed.

Summary

Issues Involved:
1. Validity of the initiation and passing of an order under Section 263 of the Income Tax Act by the Principal Commissioner of Income Tax (PCIT).
2. Classification of unaccounted cash sales as unexplained money under Section 69A and its taxability under Section 115BBE.
3. Condonation of delay in filing the appeal by the assessee.
4. Examination of the assessment order's correctness and its prejudicial nature to the interest of revenue.

Issue-wise Detailed Analysis:

1. Validity of the Order under Section 263:
The assessee challenged the PCIT's order under Section 263, arguing that the assessment order was neither erroneous nor prejudicial to the interest of the revenue. The PCIT had initiated proceedings under Section 263 to correct the classification of unaccounted cash sales, which the Assessing Officer (AO) had taxed at normal rates instead of under Section 69A r.w.s. 115BBE. The Tribunal found that the AO had consciously treated the cash sales as business income, and there was no basis for the PCIT to invoke Section 263 merely to change the tax rate. The Tribunal cited the principle that Section 263 can only be invoked when both conditions of error and prejudice are satisfied, as established in the case of Malabar Industrial Co. Ltd. v. CIT.

2. Classification and Taxability of Unaccounted Cash Sales:
The PCIT contended that the unaccounted cash sales should be taxed as unexplained money under Section 69A, subject to a higher tax rate under Section 115BBE. However, the Tribunal noted that the AO had already considered the cash sales as part of the business income, and the source of the money was explained. The Tribunal emphasized that the AO's decision was a plausible view, and the PCIT could not impose a different interpretation without proving the AO's order was erroneous. The Tribunal relied on judicial precedents, including the Gujarat High Court's decision in PCIT v. Dharti Estate, which held that unexplained income surrendered during a search does not automatically attract a higher tax rate under Section 115BBE.

3. Condonation of Delay:
The assessee filed an application for condonation of a 41-day delay in filing the appeal, citing oversight and technical issues. The Tribunal found merit in the assessee's explanation, supported by an affidavit and circumstantial evidence. The delay was condoned in view of the Supreme Court's decision in Collector, Land Acquisition v. Mst. Katiji, which emphasizes a lenient approach towards condonation when a party is prevented by sufficient cause.

4. Examination of the Assessment Order:
The Tribunal scrutinized the AO's assessment order, which added Rs. 22,40,32,276/- as unaccounted cash sales to the assessee's income. The AO's decision was based on seized materials and statements during the search, indicating that the sales were part of the business income. The Tribunal found that the AO had conducted a thorough inquiry and that the PCIT's invocation of Section 263 was not justified, as the AO's order was neither erroneous nor prejudicial to the revenue's interest. The Tribunal highlighted that the AO's assessment was approved by the Additional Commissioner under Section 153D, and the PCIT had not contested this approval.

Conclusion:
The Tribunal quashed the PCIT's order under Section 263, allowing the assessee's appeal. It emphasized that the AO's treatment of unaccounted cash sales as business income was a conscious decision, and the PCIT could not revise the order merely to change the tax rate without demonstrating error and prejudice. The Tribunal's decision was guided by established judicial principles, ensuring that the AO's plausible view was respected.