2023 (9) TMI 1305 - AT - Income Tax

Revision u/s 263 - taxability of income surrendered in the course of survey prescribed u/s 115BBE - as per CIT AO inter alia took note of the additional income included by the assessee in its e-return of income and accepted the e-return without any adjustment while framing the e-assessment order u/s 143(3) after making a brief reference to factum of survey and inclusion of additional income in the ROI - Pr.CIT observed on the basis of perusal of case record that the additional income offered are largely in the nature of unexplained cash, excess stock and unexplained advances as on the date of survey which is liable to be assessed u/s 68/69/69A/69B/69C and consequently the tax payable on such undisclosed income is susceptible to enhanced tax rate of 60% as per Section 115BBE - HELD THAT - Determination of true nature and character of income is highly contextual and law has not devised any straight jacket formula in this regard. The classification of income under a particular head of income may significantly vary having regard to the nuanced facts of each case. When seen contextually, the additional income in instant case was conceded by the assessee in the course of survey operations at her business premises. The income surrendered is sort of lumpsum figures offered in the form of excess stock, unaccounted advance to staff, excess cash generated etc. from business operations. Such additional income confessed in survey at business premises gives a facial impression of business attributes. In the light of assertions made in statement in survey and post survey proceedings placed in the paper book, the assessee appears to have made out an arguable case that such income is concomitant of business activities and thus impressed with the character of business income as correctly disclosed in the ROI. Action of AO is not open to attack as erroneous where a view taken is in the realm of a possible view and not found to be wholly incongruous to facts or law. One can not say without any reservation that no plurality of opinion can exist on the point and such additional income cannot be treated as business income at all as adjudged by AO. This makes the action of the AO is the league of being plausible. The power of review cannot be exercised to collect more taxes merely owing to the reason that the law now provides for penal and steep rate of taxation by bringing such income within the ambit of S. 68/69 etc. Significantly, the PCIT, while seeking to set aside the action of AO and remitting the matter back for further enquiries, did not bring any definite material to show any incorrect assumption of such facts on this score. Besides, no observations are found in the impugned revisional order suggesting a course to be adopted towards manner of determining true character of additional income or the nature of enquiries expected from AO. Taking into account the entire conspectus of the matter, we thus find merit in this plea. The pre-requisites of S. 263 are clearly not found to be fulfilled. Admittedly, while the survey was conducted prior to substitution/ modification of S. 115BBE, the assessment year concerned continues to be AY 2017-18. The ROI was filed after the substituted amendment had come into force. The amended provision also came into force w.e.f 01.04.2017 i.e. AY 2017-18 notwithstanding the fact that it was substituted in Dec., 2016. Section 4 of the Act postulates that the law applicable at the beginning of an assessment year would apply to all income of the previous year unless excluded by express enactment. It is a cardinal principle of the tax law that the law to be applied is that in force in the assessment year unless otherwise provided expressly or by necessary implication. There is no question of the assessee possessing any vested right under the law as it stood before the amendment.The plea that substituted provision of S. 115BBE is not applicable for the earlier period in the same previous year thus fails at the threshold. In this view of the matter, we are dis-inclined to agree with the second plea for lack of jurisdiction for revision exercised by the PCIT u/s 263 of the Act. Assessee contends that the income arising after 31.03.2017 would only face the wrath of penal rate of S. 115BBE of the Act and would thus apply to AY 2018-19 onwards - We do not see any merit in this plea either. The substituted provision of S. 115BBE has come into effect w.e.f. 1-4-2017 and would thus apply to all transaction covered in the previous year relevant to AY 2017-18, to the extent applicable. The press release referred is in the context of setting right the default in relation to unaccounted banned notes. The press release does not in any manner reads down the substituted provisions of S. 115BBE which are far wider in its scope and ambit. The salutary principles of charging Section 4 discussed in para 13 above would apply mutatis mutandis . The plea towards applicability of substituted provision of S. 115BBE from AY 2018-19 instead of AY 2017-18 provided in the Act thus fails. In conclusion, in the light of discussion the approach adopted by the AO being plausible, the action of the Assessing Officer cannot be labeled as erroneous although it may be prejudicial to the interest of the revenue. Thus, twin conditions of Section 263 are not simultaneously satisfied in the instant case. The jurisdiction usurped by the Pr.CIT under Section 263 thus fails on this parameter and hence the revisional order cannot be sustained in law. Consequently, the revisional order passed under Section 263 is quashed. Appeal of the assessee is allowed.

Summary

Issues Involved:
1. Jurisdiction of the Principal Commissioner of Income Tax (Pr.CIT) under Section 263 of the Income Tax Act.
2. Classification of surrendered income and applicability of Section 115BBE of the Income Tax Act.

Summary:

1. Jurisdiction of the Pr.CIT under Section 263 of the Act:
The assessee challenged the revisional order passed by the Pr.CIT under Section 263 of the Income Tax Act, arguing that the assessment order was neither erroneous nor prejudicial to the interest of the Revenue. The Tribunal noted that Section 263 confers power upon the Pr.CIT to revise any order that is erroneous and prejudicial to the interest of the Revenue. However, both conditions must be satisfied simultaneously. The Tribunal observed that the Assessing Officer (AO) had accepted the surrendered income as business income and taxed it at the normal rate. The Tribunal emphasized that if the AO's view is legally plausible, the Pr.CIT cannot invoke Section 263 merely because another view is possible. The Tribunal concluded that the AO's action was a plausible view and not erroneous, thus the jurisdiction under Section 263 was not validly exercised.

2. Classification of Surrendered Income and Applicability of Section 115BBE:
The Pr.CIT argued that the surrendered income, being unexplained cash, excess stock, and unexplained advances, should be taxed under Section 68/69/69A/69C at a penal rate of 60% as per Section 115BBE. The assessee contended that the surrendered income was attributable to business operations and should be taxed as business income at the normal rate. The Tribunal found merit in the assessee's argument, stating that the surrendered income had a proximate nexus to business activities and was correctly offered as business income. The Tribunal also addressed the argument regarding the applicability of the amended Section 115BBE, which came into force on 01.04.2017. The Tribunal held that the law applicable at the beginning of the assessment year would apply to all income of the previous year, and thus the amended Section 115BBE was applicable for AY 2017-18.

Conclusion:
The Tribunal concluded that the AO's assessment order was not erroneous, although it might be prejudicial to the interest of the Revenue. Since the twin conditions of Section 263 were not satisfied, the jurisdiction exercised by the Pr.CIT under Section 263 was invalid. Consequently, the revisional order was quashed, and the appeal of the assessee was allowed.