2015 (11) TMI 1375 - AT - Income Tax

Revision u/s 263 - taxation of surrendered income u/s 69A - whether the surrender made by assessee can be considered as business income or can be taxed as deemed income under section 69A - Held that - As regards surrendered income, the assessee has clearly credited the same to the Profit & Loss account over and above the normal profits of the concern. Therefore, in our opinion the Assessing Officer has taken a plausible view as the assessee had surrendered the income as business income which was separately credited to Profit and Loss account. The assessee had surrendered income over and above the normal profits of the concern and not as income from other sources. Assessing Officer had taken a plausible view and the power exercised by learned Commissioner of Income Tax is not as per settled law. - Decided in favour of assessee.

Issues Involved:
1. Whether the income surrendered by the assessee during the course of survey is business income or deemed income under Section 69A of the Income Tax Act.
2. Whether the Assessing Officer (AO) conducted adequate inquiries and applied his mind while passing the assessment order.
3. Whether the Commissioner of Income Tax (CIT) was justified in invoking Section 263 of the Income Tax Act to revise the assessment order.

Detailed Analysis:

Issue 1: Nature of Surrendered Income
The primary issue is whether the surrendered income during the survey is business income or deemed income under Section 69A of the Income Tax Act. The CIT observed that the surrendered income should be taxed under Section 69A, as the assessee failed to explain the sources and business connection of the surrendered amount, particularly the Rs. 85.60 lakhs under the 'Directors' imprest account'. The CIT held that the income was not business income due to the lack of satisfactory explanations and verifiable evidence, thus falling under the deeming provisions of Section 69A.

The Tribunal, however, noted that the surrender letter indicated the surrendered income was over and above the normal profits of the concern, implying it was business income. The Tribunal emphasized that the surrendered income was credited to the Profit and Loss account, aligning with the treatment of business income.

Issue 2: Adequacy of AO's Inquiry
The Tribunal examined whether the AO conducted adequate inquiries during the assessment proceedings. The AO had specifically raised the issue of the surrendered income and the assessee had provided detailed explanations regarding the lower returned income compared to the surrendered income, citing increased depreciation and bank interest. The AO considered these explanations and passed the assessment order without making any additions on the surrendered income.

The Tribunal referenced the case of CIT vs. Gabriel India Ltd., where it was held that an AO's order cannot be deemed erroneous merely because it lacks detailed discussion if inquiries were made and explanations were provided. The Tribunal found that the AO had made adequate inquiries and accepted the explanations, making the assessment order a plausible view.

Issue 3: Justification for Section 263 Invocation
The CIT invoked Section 263, arguing that the AO's failure to add the surrendered income to the taxable income was erroneous and prejudicial to the interests of the Revenue. The CIT directed the AO to re-compute the taxable income by considering the surrendered income under Section 69A without allowing any business losses or deductions.

The Tribunal, however, held that the AO had taken a plausible view by treating the surrendered income as business income, supported by the detailed explanations provided by the assessee. The Tribunal cited various judicial pronouncements, including CIT vs. Anil Kumar Sharma and CIT vs. Deepak Mittal, which distinguish between lack of inquiry and inadequate inquiry, and held that a different opinion by the CIT does not justify revisional jurisdiction under Section 263 if the AO's view is plausible.

The Tribunal also referred to Khushi Ram & Sons Pvt. Ltd. vs. CIT, where it was held that the AO's detailed inquiries and acceptance of explanations cannot be substituted by the CIT's opinion. The Tribunal concluded that the AO had conducted proper inquiries and the CIT's invocation of Section 263 was not justified.

Conclusion:
The Tribunal allowed the appeal of the assessee, setting aside the order of the CIT and upholding the AO's assessment order. The Tribunal concluded that the AO had taken a plausible view by treating the surrendered income as business income, and the CIT's invocation of Section 263 was not in accordance with settled law. The appeal filed by the assessee was allowed, and the order pronounced in the open court on 7.10.2015.

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