2023 (3) TMI 780 - AT - Income Tax

Revision u/s 263 by CIT - Addition u/s 68 r.w.s 115BE - debatable issue - surrendered amount by the assessee during the survey proceedings is credited and the source of such credit is not explained - whether the amount surrendered during survey operation which has been shown in the return of income as business income be taxed as per the provisions of section 115BE - HELD THAT - A perusal of section 115BBE shows that where the total income of the assessee includes any income referred to in sections 68, 69, 69A, 69B, 69C or 69D, the income tax payable shall be @ 30% on income so referred to in the said sections. Amended provisions of section 115BBE of the Act by Taxation Laws, Second Amendment Act 2016 provides that any income referred to in sections 68, 69, 69A, 69B, 69C, or 69D if such income is not reflected in the return of income furnished under section 139 of the Act, income tax payable shall be @ 60% on income so referred in the said section. Change which has been brought about in the provisions relates to income so referred to in the afore-stated sections so defined which is either not reflected in the return of income or determined by the assessing officer and in both the cases it will be covered by the provisions of section 115BBE and the rate of taxation has been increased from 30% to 60% on such specified income. Nothing stated in the pre-amended or post amended provisions of section 115BBE that where the assessee surrenders undisclosed income during search action for the relevant year, the tax rate has to be charged as per provisions of section 115BBE - Therefore, the applicability of the amended provisions which prompted the PCIT to assume jurisdiction under section 263 is highly debatable issue, and therefore, in our understanding of the law, the PCIT has wrongly assumed jurisdiction. Appeal of assessee allowed.

Summary

Issues Involved:
1. Jurisdiction of PCIT under section 263 of the Income Tax Act, 1961.
2. Validity of the assessment order dated 11.06.2019.
3. Application of section 115BBE to the surrendered income.
4. Assumption of jurisdiction by PCIT based on audit objection.
5. Nature and taxation of the surrendered income.

Summary:

1. Jurisdiction of PCIT under section 263:
The primary issue was whether the Principal Commissioner of Income Tax (PCIT) was justified in exercising jurisdiction under section 263 of the Income Tax Act, 1961. The assessee argued that the assessment order dated 11.06.2019 was neither erroneous nor prejudicial to the interest of revenue. The Tribunal concluded that the PCIT wrongly assumed jurisdiction under section 263, as the surrendered income was already scrutinized and accepted by the Assessing Officer (AO).

2. Validity of the Assessment Order:
The Tribunal reviewed the detailed replies and documents provided by the assessee during the assessment proceedings. The AO had completed the assessment after a thorough examination of the books of account, bills, and vouchers. The Tribunal found no evidence of unexplained credits or investments in the books of account, thereby validating the assessment order dated 11.06.2019.

3. Application of Section 115BBE:
The PCIT's assumption that the surrendered amount of Rs. 10 crores should be taxed under section 115BBE was found to be incorrect. The Tribunal noted that the surrendered amount was related to discrepancies in the books of account and not unexplained credits, investments, or expenditures. Therefore, the provisions of section 115BBE were not applicable.

4. Assumption of Jurisdiction by PCIT Based on Audit Objection:
The Tribunal highlighted that the PCIT's jurisdiction was assumed based on an audit objection without independent application of mind. The audit party had presumed the surrendered amount as unexplained credit, which was not supported by the facts of the case. The Tribunal emphasized that the AO's proposal for revision under section 263, based on the audit objection, lacked statutory sanction and was not a valid basis for invoking section 263.

5. Nature and Taxation of the Surrendered Income:
The Tribunal observed that the surrendered income of Rs. 10 crores was offered to cover discrepancies in business income and was not unexplained income. The Tribunal also noted that the amendment to section 115BBE, which increased the tax rate to 60%, was not in effect at the time of the survey and was a debatable issue. Consequently, the PCIT's direction to tax the surrendered income under section 115BBE was unfounded.

Conclusion:
The Tribunal set aside the order of the PCIT and restored the assessment order dated 11.06.2019, allowing the appeal of the assessee. The judgment emphasized that the PCIT's assumption of jurisdiction under section 263 was unjustified and that the surrendered income was rightly assessed as business income at the normal tax rate.