2021 (5) TMI 795 - AT - Income Tax

Revision u/s 263 by CIT - receipt of unaccounted income of the firm in the form of on-money - PCIT has rejected the contention of the assessee and held that in respect of either non-applicability of sections 68, 69, 69A to 69D or in respect of allowance of claim of expenses u/s 40(b) of the Act is not found to be acceptable and are accordingly rejected, therefore, the assessment order u/s 143(3) was found to be erroneous in so far as it is prejudicial to the interest of Revenue - HELD THAT - It is undisputed fact in this case that a survey u/s 133A of the Act was carried out at the business premises of the assessee on 04.12.2014. During the survey, certain facts were discovered and statement of Shri Odhavjibhai Shamjibhai Pagdar, one the partners of the firm, was recorded on oath u/s 131 of the Act. In the statement so recorded, an amount was disclosed as 'income over and above regular income of the assessee firm' ( for F.Y. 2014-15 relevant to AY 2015-16). It is also undisputed in this case that the said amount has been disclosed in the profit and loss account under the head 'income disclosed'. However, after claiming deduction u/s 40(b) of the Act towards interest paid to partners net income in the return was declared by the assessee, which was accepted by the AO in the impugned assessment order passed u/s 143(3) of the Act on 11.12.2017. Thus, it is abundantly clear from the order of assessing officer, as noted above, that assessing officer has examined the issue of on-money and applied his mind, therefore, his order should not be subjected to revision proceedings under section 263. As during the assessment stage, the assessee submitted the books of accounts and other documents.. The books of accounts of the assessee are audited by a chartered accountant. The assessing officer examined the books of accounts, survey documents and evidences submitted by the assessee and applied his mind. The assessing officer conducted sufficient inquiry. To gather more information and then prove the claim of the assessee wrong is not the object of section 263 of the Act. The object of section 263 is to examine whether order passed by the AO is erroneous as well as prejudicial to the interest of revenue. Therefore, based on this factual position, the order passed by the AO under section 143(3) should not be erroneous. As decided in the case of Plastic Concern 1997 (6) TMI 44 - ITAT CALCUTTA-E mere possibility of gathering more material to prove the claim of the assessee wrong would not make the concluded assessment erroneous so long as the ld. A.O. had acted judiciously and conducted enquiries in the course of assessment proceedings. Therefore, based on the factual position narrated above, we quash the order of ld PCIT under section 263. Appeal of the assessee is allowed.

Summary

Issues Involved:
1. Invocation of provisions of section 263 of the Income Tax Act by the Principal Commissioner of Income Tax (PCIT).
2. Legality of the set-aside order directing the Assessing Officer (AO) to frame the assessment de novo.
3. Examination of the 'on-money' receipt of ?4,75,00,000 and its treatment under section 115BBE of the Income Tax Act.
4. Allowance of expenses claimed against the disclosed income, specifically interest paid to partners under section 40(b).

Detailed Analysis:

1. Invocation of Provisions of Section 263 by the PCIT:
The PCIT exercised jurisdiction under section 263 of the Income Tax Act, 1961, to revise the assessment order passed by the AO. The PCIT noted that during the survey conducted under section 133A, the assessee admitted to receiving unaccounted 'on-money' of ?4,75,00,000, which was disclosed as income. However, the assessee declared a total income of ?4,42,80,220 in the return, claiming ?32,19,780 as expenses against the disclosed income. The PCIT objected to this deduction, citing section 115BBE, which disallows any deduction in respect of any expenditure or allowance in computing the income referred to in sections 68, 69, 69A, 69B, 69C, or 69D. The PCIT deemed the AO's assessment as erroneous and prejudicial to the interest of the Revenue.

2. Legality of the Set-Aside Order Directing AO to Frame the Assessment De Novo:
The PCIT issued a show cause notice to the assessee, proposing to pass an order under section 263. The assessee responded, arguing that the income of ?4,75,00,000 was business income and that the AO had duly considered and allowed the interest paid to partners as per section 40(b). The PCIT rejected the assessee's contention, holding that the AO's order was erroneous and prejudicial to the Revenue's interest. Consequently, the PCIT set aside the assessment order and directed the AO to frame the assessment de novo.

3. Examination of the 'On-Money' Receipt of ?4,75,00,000 and its Treatment Under Section 115BBE:
The assessee argued that the 'on-money' receipts were business income and, therefore, deductible expenses, including interest paid to partners, should be allowed. The AO, during the assessment, had examined the 'on-money' issue and accepted the assessee's claim. The PCIT, however, contended that the 'on-money' should be assessed under section 69A, disallowing any deductions under section 115BBE. The ITAT noted that the AO had scrutinized the 'on-money' receipts and allowed the deduction after due application of mind.

4. Allowance of Expenses Claimed Against the Disclosed Income:
The assessee claimed that the interest paid to partners was allowable under section 40(b) and that the net income declared was correct. The ITAT observed that the AO had examined the books of accounts, which were audited, and allowed the interest expenditure after due consideration. The ITAT held that the AO's order was not erroneous as it was based on a thorough examination of facts and application of relevant provisions.

Conclusion:
The ITAT concluded that the AO had conducted a proper inquiry and applied his mind while passing the assessment order. The mere possibility of gathering more material to prove the assessee's claim wrong does not make the concluded assessment erroneous. Therefore, the ITAT quashed the PCIT's order under section 263, restoring the AO's original assessment order.

Result:
The appeal of the assessee was allowed, and the order of the PCIT under section 263 was quashed. The AO's assessment order dated 11.12.2017 was upheld.