2023 (7) TMI 124 - AT - Income Tax

Revision u/s 263 - income offered during the course of survey - Applicable rate of tax - Normal rate of tax or such income is to be taxed u/s 115BBE - what is nature and source of income surrendered by the assessee during the course of survey? - PCIT held that the moment any income representing any excess stock/investment/receivables/cash/bullion etc is found during survey/search and not recorded at that point in time in books of accounts, the same being in nature of deemed income as mentioned u/s 68/69/69A/69B/69C etc, the provisions of section 115BBE are attracted HELD THAT - The mere fact that survey/search proceedings have been initiated at the business premises of the assessee doesn t mandate the Assessing officer to automatically invoke the deeming provisions and before invoking the deeming provisions, he has to call for the explanation of the assessee and only where the explanation so offered is not found satisfactory, he can proceed and invoke the deeming provisions. There is difference between the undisclosed income and unexplained income and the deeming provisions are attracted in respect of undisclosed income however, the condition before invoking the same is that the assessee has either failed to disclose the nature and source of such income or the AO doesn t get satisfied with the explanation so offered by him and the relevant findings. In this case PCIT without taking into consideration the findings of the survey team, the documents found during the course of survey, the statement of the assessee company, the surrender letter and subsequent enquiry and examination conducted by the AO during the course of assessment proceedings has recorded a finding that the deeming provisions read with provisions of section 115BBE are applicable in the instant case. As the picture which is clearly emerging from the material available on record is the nature of surrender is excess cash arising out of his past business dealings and advance given to farmers against procurement of agriculture produce regularly dealt with by the assessee in normal course of its business and which have not been recorded in the books of accounts. Where the assessee has subsequently recorded the same in his books of accounts as part of business income, it cannot be said that the said action on part of the assessee is not in accordance with accepted accounting methodology and the nature of such income is other than business income. Deeming provisions are not applicable in the instant case - here a different point of view has been expressed by the ld PCIT though without any corroborative evidence, in any case, the same doesn t lead to the conclusion that the view taken by the Assessing officer as erroneous as the AO has taken into consideration the entirety of facts and circumstances of the case, the explanation offered by the assessee during the course of survey regarding the source of such income and thereafter, has assessed the income under the head business income . The view so taken by the Assessing officer is after due application of mind and therefore cannot be held as unsustainable in the eyes of law. Given that deeming provisions are not applicable in the instant case and consequently, normal tax rate are applicable and the tax rate as per section 115BBE, which is contingent on invocation of deeming provisions, doesn t arise. Decided in favour of assessee.

Summary

Issues Involved:

1. Jurisdiction of the Principal Commissioner of Income Tax (PCIT) under Section 263.
2. Applicability of Section 115BBE to the surrendered income.
3. Validity of the assessment order passed by the Assessing Officer (AO).

Summary:

1. Jurisdiction of the PCIT under Section 263:
The assessee contested the jurisdiction of the PCIT in issuing a notice under Section 263 of the Income Tax Act, 1961. The argument was that the original assessment was completed by the AO after due application of mind and consideration of all relevant facts. The PCIT's assumption of jurisdiction was challenged as being "bad in law" since the original assessment had already accounted for the surrendered income as business income, taxed at the normal rate.

2. Applicability of Section 115BBE to the Surrendered Income:
The core issue was whether the surrendered income of Rs. 90,00,000/- should be taxed under Section 115BBE, which imposes a higher tax rate on unexplained income. The assessee argued that the surrendered amount was business income, duly recorded in the profit and loss account, and thus should not attract the provisions of Section 115BBE. The AO had accepted this view during the original assessment, but the PCIT contended that the surrendered income should be taxed as unexplained income under Sections 68-69C, invoking Section 115BBE.

3. Validity of the Assessment Order Passed by the AO:
The Tribunal examined whether the AO had conducted adequate inquiry and applied due diligence in accepting the surrendered income as business income. It was noted that during the survey under Section 133A, the assessee had surrendered the amount, which was subsequently included in the return of income. The AO had issued specific show-cause notices and considered the assessee's explanations regarding the nature and source of the surrendered income. The Tribunal found that the AO had made a conscious decision after due application of mind, and the PCIT had not provided sufficient grounds to deem the AO's order as erroneous or prejudicial to the interest of the Revenue.

Conclusion:
The Tribunal concluded that the AO had conducted a thorough inquiry and had rightly assessed the surrendered income as business income. The PCIT's invocation of Section 263 was deemed unjustified, as the AO's order was neither erroneous nor prejudicial to the interest of the Revenue. Consequently, the Tribunal set aside the PCIT's order under Section 263 and upheld the AO's original assessment. Both appeals filed by the assessees were allowed.