2022 (8) TMI 1167 - AT - Income Tax

Revision u/s 263 - Correct source of income - As per CIT income of the assessee should have been assessed as unexplained cash credit, rather than business income and added back as income u/s. 68 taxed at special rate u/s. 115BBE - PCIT noticed the fact that the assessee has admitted Rs.3 crores as business income in the hands of the assessee during the search proceedings and no explanation as regards the source and nature of receipts was submitted - HELD THAT - In the present case, the PCIT has not brought out any material on record to substantiate that the source of the amount declared during the search proceedings is anything other than the income from business of the assessee. The AO has given a clear finding with respect to additional income offered by the assessee as business income. PCIT in his order has stated that further enquiry would have revealed that the additional income is from an undisclosed source and would have resulted in unexplained income to be taxed u/s.115BBE - view of the ld. PCIT, in our opinion, is not the right reason for exercising revisionary powers u/s. 263 as the error envisaged by Section 263 of the Act is not one that depends on possibility as a guess work, but it should be actually an error either of fact or of law. Assessee has no other source of income other than business income which fact has been repeatedly submitted by the assessee before the lower authorities. AO has conducted enquiry and perused the details submitted and has taken a decision to accept the explanation provided by the assessee after proper application of mind. It is also to be noted that impugned sum is already offered to tax as business income and when the only source of income is business income, then the provisions of section 115BBE cannot be invoked to tax the income as deemed income . PCIT has stated that the AO ought to have treated the income as unexplained cash credit that should have been added u/s.68. This contention is not tenable since for the purpose of invoking section 68, the cash credit should have been recorded in the books of accounts of the assessee for which he offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the AO, satisfactory. In assessee s case Rs.3 crores is not recorded in the books of accounts and directly offered to tax in the statement of computation (page 12 of paper book) as additional income under the head profits and gains of business or profession. We are of the considered view that the PCIT is not justified in setting aside the order of the AO for examining the source of income Already offered to tax as business income. Accordingly the impugned order of the PCIT is quashed. Appeal of assessee allowed.

Issues Involved:
1. Validity of the order passed under Section 263 of the Income-tax Act, 1961.
2. Justification of the Principal Commissioner of Income Tax (PCIT) in setting aside the assessment order.
3. Adequacy of the Assessing Officer's (AO) inquiry and verification of additional income.
4. Classification of additional income as business income versus unexplained cash credit.
5. Applicability of Section 115BBE for taxing additional income.

Issue-wise Detailed Analysis:

1. Validity of the Order Passed under Section 263 of the Income-tax Act, 1961:
The tribunal examined whether the PCIT's order under Section 263 was valid. Section 263 allows the PCIT to revise an order if it is erroneous and prejudicial to the interests of the revenue. The tribunal noted that the twin conditions of the order being erroneous and prejudicial must be satisfied. The tribunal cited the Bombay High Court in Gabriel India Ltd., which stated that an order is not erroneous if it is in accordance with the law and cannot be revised simply because the PCIT disagrees with the AO's conclusions.

2. Justification of the Principal Commissioner of Income Tax (PCIT) in Setting Aside the Assessment Order:
The PCIT set aside the AO's assessment order, arguing that the AO did not make adequate inquiries into the source of the additional income of Rs. 3 crores. The PCIT believed this income should have been assessed as unexplained cash credit under Section 68 and taxed at a higher rate under Section 115BBE. However, the tribunal found that the PCIT did not provide any material evidence to substantiate that the additional income was from an undisclosed source.

3. Adequacy of the Assessing Officer's (AO) Inquiry and Verification of Additional Income:
The tribunal reviewed the AO's actions during the assessment. The AO had issued a notice under Section 143(2) and conducted a detailed inquiry, including verifying documents and explanations provided by the assessee. The AO accepted the additional income as business income after proper verification. The tribunal emphasized that the AO's inquiry was thorough and adequate, and the PCIT's claim of inadequate inquiry was not supported by evidence.

4. Classification of Additional Income as Business Income versus Unexplained Cash Credit:
The tribunal noted that the assessee had declared the additional income of Rs. 3 crores as business income in the return of income. The assessee's managing partner had stated during the search proceedings that the additional income was from unaccounted receipts out of real estate business. The tribunal found that the AO had appropriately classified the additional income as business income, given that the assessee had no other source of income.

5. Applicability of Section 115BBE for Taxing Additional Income:
The PCIT argued that the additional income should be taxed under Section 115BBE as unexplained cash credit. However, the tribunal found that Section 115BBE applies to income assessed under Sections 68, 69, 69A, 69B, 69C, or 69D, which was not the case here. The additional income was directly offered as business income, and there was no evidence to suggest it was unexplained cash credit. The tribunal concluded that the PCIT's invocation of Section 115BBE was incorrect.

Conclusion:
The tribunal quashed the PCIT's order under Section 263, stating that the AO had conducted a thorough inquiry and the additional income was rightly classified as business income. The appeal by the assessee was allowed, and the tribunal pronounced the judgment in favor of the assessee on August 24, 2022.

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