2023 (10) TMI 548 - AT - Income Tax

Revision u/s 263 - as per CIT AO failed to apply the provisions of Section 115BBE - business income surrendered at the time of survey was liable to be added back under section 68/69/69A/69B/69C - HELD THAT - To buy peace of mind and to avoid litigation the assessee surrendered an amount of Rs. 30,00,000/- over and above his regular income in the year under appeal. The voluntary surrender was not subject to any penal action under any direct tax laws. Thus, it is not clear as to what was the nature of this surrendered amount, whether it was out of business income or out of undisclosed sources. The learned Pr. CIT has not given a clear finding about which provision of law the AO ought to have charged the tax which he failed to do so. CIT has stated that the AO should have considered the surrendered income as income u/s 68/69/69A/69B/69C of the Act. Therefore, in the absence of clear finding by the learned Pr. CIT as to under which provision of law the amount was required to be taxed so as to attract the provisions of section 115BBE by mentioning the multiple provisions does not serve the purpose of law. There has to be clear cut finding by the learned Pr. CIT. As no clear finding has been given by learned Pr. CIT as to under which provision of law the amount surrendered during the course of survey was required to be taxed, the impugned action cannot be sustained. Hence, the impugned order is set aside and the finding of AO is hereby restored. Decided in favour of assessee.

Summary

Issues:
The issues involved in the judgment are the initiation of proceedings under the Income-tax Act, 1961 based on the treatment of surrendered business income and the application of Section 115BBE in the assessment.

Issue 1: Initiation of Proceedings under Section 263:
The appeal was against the order of the Principal Commissioner of Income-tax, Rohtak, under Section 263 of the Income-tax Act, 1961, regarding the assessment year 2017-18. The main contention was the treatment of surrendered business income under sections 68/69/69A/69B/69C of the Act, despite the assessee filing income under section 44AD.

Issue 2: Application of Section 115BBE:
The dispute arose from the failure of the Assessing Officer (AO) to charge tax at the maximum marginal rate of 60% as prescribed under Section 115BBE on the surrendered income of Rs. 30,00,000 during a survey operation. The Principal Commissioner found the AO's order erroneous and prejudicial to the revenue's interest due to the failure to apply this provision.

Detailed Analysis:
The survey operation led to the declaration of additional income by the assessee, which was subsequently assessed by the AO. The Principal Commissioner, invoking Section 263, found fault with the AO's failure to tax the surrendered income at the prescribed rate under Section 115BBE. The AO's treatment of the surrendered amount as normal business income was contested by the Principal Commissioner, who deemed it necessary to apply Section 115BBE for taxation.

The Principal Commissioner's revision was based on the argument that the surrendered income should have been considered under sections 68/69/69A/69B/69C and taxed at 60% under Section 115BBE. The assessee's explanation that the surrendered income was from business and not subject to penal action was not accepted, leading to the revision of the assessment order.

The Tribunal found that the Principal Commissioner did not specify the exact provision under which the surrendered amount should have been taxed, leading to ambiguity. Citing a precedent, the Tribunal emphasized the need for a clear finding on the applicable provision of law for taxation. As the Principal Commissioner's order lacked this clarity, the Tribunal set aside the revision and upheld the AO's assessment.

In conclusion, the Tribunal allowed the assessee's appeal, setting aside the Principal Commissioner's order and restoring the AO's findings. The lack of a clear determination on the provision for taxation led to the decision in favor of the assessee.