2024 (7) TMI 824 - AT - Income Tax

Revision u/s 263 - income surrendered in survey action u/s 133A - Addition u/s 68 made by CIT - assessee being in medical practice, had made such surrender and returned the same as his professional receipts, taxed at the normal rate i.e. 30% plus surcharge at 12% - As per CIT AO not charged the undisclosed income with wrong application of law HELD THAT - Assessee had surrendered income in the statement recorded during survey as pertaining to his unaccounted professional receipts. Department had not come across any assets or expenditure, which could be termed as incriminating in nature, on confronting which the assessee had made impugned surrender. The statement reveals that the surrender was voluntarily made by the assessee in response to the query as to what is to be its income for the year. In the absence of any material found during survey provoking surrender by the assessee, and in light of the fact that the assessee had voluntarily surrendered its professional receipt, disclosed the same in its financial statements, which was duly audited, the acceptance of the same by the AO as professional receipts evidently was in accordance with judicial pronouncements and therefore justified. PCIT, has ignored all the above facts as well as legal propositions which were very much part of record before him, and went on to hold that no inquiry was conducted by the AO on the issue of surrender of income during survey by the assessee. DR was unable to controvert the above facts pointed out for the assessee before us. PCIT s finding of non inquiry vis-a-vis the documents and statements recorded during survey, is not based on any hard facts. In fact, the facts on record reveal AO having conducted due inquiry on the issue of surrender made by the assessee and considering the statement of the assessee during survey making voluntary surrender of professional unaccounted receipts, his acceptance of the surrender as business income is in accordance with law. PCIT has merely stated no inquiry conducted by the AO on the records of survey before him, but not pointed out how and on what basis he arrived at this finding.Merely stating that the AO has not examined the records/documents pertaining to the survey cannot be basis for finding the assessment order erroneous. The documents pertaining to the survey form part of the record which was there before the PCIT also and was required to be examined by him for finding error in the assessment order. He was duty bound to go through these records, and point out how the documents pertaining to the survey revealed the acceptance of Rs.15 lakhs surrender made by the assessee as business income, to be an error on the part of the AO. CIT could have arrived at a valid finding of error on the basis of his own examination of records including document or statement recorded of the assessee during survey action undertaken by him u/s 133A. He has not pointed out as to how the documents pertaining to survey could not have lead to a reasonable belief as entertained by the AO that the income surrendered pertained to his professional receipts. We therefore hold that there is no basis for the finding of error by the PCIT of no inquiry by AO in the assessment framed in the present case and the facts on record reveal otherwise. The order passed u/s.263 of the Act is therefore held to be without valid jurisdiction and is therefore not sustainable in law.

Summary

Issues involved:
1. Jurisdiction and validity of the order passed under section 263 of the Income Tax Act, 1961.
2. Applicability of section 115BBE on the surrendered income.
3. Adequacy of inquiry conducted by the Assessing Officer (AO) regarding the nature of the surrendered income.

Issue-wise Analysis:

1. Jurisdiction and Validity of the Order Passed under Section 263 of the Income Tax Act, 1961:
The appellant challenged the jurisdiction and validity of the order passed by the Principal Commissioner of Income Tax (PCIT) under section 263, which set aside the assessment framed under section 143(3) as erroneous and prejudicial to the interest of the revenue. The Tribunal held that the order passed under section 263 was not sustainable. It was noted that the PCIT did not provide a valid basis for finding an error in the assessment order, as the records revealed that due inquiry was conducted by the AO, who accepted the surrendered income as business income liable to tax at 30%.

2. Applicability of Section 115BBE on the Surrendered Income:
The PCIT contended that the surrendered income of Rs. 15 lakhs during the survey should have been treated as unexplained income under section 68 and taxed at a higher rate of 60% as prescribed under section 115BBE. The Tribunal found that the AO had made specific inquiries regarding the nature of the surrendered income and accepted it as professional receipts. The Tribunal referenced judicial pronouncements indicating that where the surrendered income is related to business or professional receipts and no other identifiable assets or expenditure are found, section 115BBE could not be invoked. Therefore, the PCIT's view of invoking section 263 on this aspect was not justified.

3. Adequacy of Inquiry Conducted by the AO Regarding the Nature of the Surrendered Income:
The PCIT argued that the AO had not conducted any inquiries or applied his mind regarding the applicability of sections 69A and 115BBE. However, the Tribunal noted that the AO had issued a specific query during assessment proceedings, asking the assessee about the declaration of unaccounted receipts and why it should not be taxed under section 69 read with section 115BBE. The assessee provided a detailed response, explaining that the surrendered amount was unaccounted professional receipts, which was accepted by the officials during the survey. The Tribunal found that the AO had conducted due inquiry and considered the statement recorded during the survey, which indicated that the surrendered income was professional receipts. The Tribunal concluded that the AO's acceptance of the surrendered income as business income was a plausible view and in accordance with law.

Conclusion:
The Tribunal held that the order passed by the PCIT under section 263 was without valid jurisdiction and not sustainable in law. The AO had conducted adequate inquiries and taken a plausible view in accepting the surrendered income as professional receipts. Therefore, the appeal of the assessee was allowed, and the order of the PCIT was set aside.