2021 (10) TMI 612 - AT - Income Tax

Revision u/s 263 by CIT - AO had accepted the surrendered income of the assessee without conducting any inquiry regarding their source - survey u/s 133A - HELD THAT - What transpires from a bare reading of the statement of the assessee is that he had merely made a surrender over and above his normal income for the year. Nothing more can be read into the statement more particularly to the effect, as canvassed by assessee, that the surrender specifically was stated to be on account of his business or profession - For the sake of arguments, even if it is accepted so, the assessee cannot derive any benefit from a mere oral submission/statement made by him as the same is not sufficient to explain the source of advance. Therefore, this contention for the assessee is also rejected. Assessee that the assessee had paid advance taxes on the surrendered income at the normal rate is also of no relevance, in our view, since merely paying taxes at the normal rates on a particular income will not determine its character as being from explained sources. We are in agreement with the Ld. Pr. CIT that the AO had accepted the surrendered income of the assessee as being from the business or profession without making any enquiries regarding the same despite the fact that the documents/material found during search did not reveal the nature of the income at all and no explanation was offered by the assessee during assessment proceedings, nor in the statement recorded during search. Even before the Ld. Pr. CIT during revisionary proceedings when asked to explain the source the assessee, we find, was unable to prove the source as being business and profession - the findings of the CIT that the order passed by the AO in the light of the above facts and circumstances was erroneous and prejudicial to the interest of the Revenue, we hold is correct. The order of the Ld. Pr. CIT passed u/ s 263 of the Act is, therefore, upheld - Appeal of the assessee is dismissed.

Issues:
1. Jurisdiction of Principal Commissioner under section 263 of the Income Tax Act, 1961.
2. Tax treatment of surrendered income at normal rate versus higher rate under section 115BBE.
3. Adequacy of explanation regarding the source of surrendered income.
4. Relevance of advance tax payments on determining the character of income.

Analysis:

Issue 1: Jurisdiction of Principal Commissioner under section 263
The appeal was filed against the order of the Principal Commissioner of Income Tax, Patiala, exercising revisionary jurisdiction under section 263 of the Income Tax Act, 1961. The Principal Commissioner set aside the assessment order passed by the Assessing Officer (AO) for not taxing the surrendered income at a higher rate as prescribed under section 115BBE. The appellant challenged the jurisdiction of the Principal Commissioner, arguing that the assessment was completed after due application of mind by the AO. However, the Tribunal upheld the Principal Commissioner's order, stating that the AO had not made necessary inquiries regarding the surrendered income, leading to the order being erroneous and prejudicial to the Revenue.

Issue 2: Tax treatment of surrendered income
The crux of the matter revolved around the tax treatment of the surrendered income of ?50 lakhs by the assessee during a survey conducted under section 133A of the Income Tax Act. The AO accepted the income as business income and taxed it at normal rates, making only a minor addition. However, the Principal Commissioner held that the income should have been taxed at the higher rate of 77.25% under section 115BBE for unexplained incomes. The Tribunal concurred with the Principal Commissioner, emphasizing that income from unexplained sources must be taxed at a higher rate as prescribed by law.

Issue 3: Adequacy of explanation for the source of surrendered income
The Tribunal analyzed the documents and explanations provided by the assessee regarding the source of the surrendered income. The documents presented during the survey did not satisfactorily disclose the source of the income as being from the medical profession, as claimed by the assessee. The Tribunal found discrepancies in the explanations offered, both during the assessment proceedings and before the Principal Commissioner. The Tribunal rejected the arguments that the surrendered income was related to the profession of the assessee, as the documents did not support such claims.

Issue 4: Relevance of advance tax payments
The appellant contended that the advance tax payments made on the surrendered income at normal rates indicated its character as being from explained sources. However, the Tribunal dismissed this argument, stating that paying taxes at normal rates does not determine the source of income. The Tribunal emphasized the importance of establishing the source of income, especially in cases of unexplained income, to ensure proper tax treatment.

In conclusion, the Tribunal upheld the Principal Commissioner's order under section 263, dismissing the appeal of the assessee. The judgment highlighted the significance of taxing unexplained income at higher rates and the necessity of establishing the source of income to avoid erroneous tax assessments.

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