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2024 (9) TMI 861 - AT - Income TaxRevision u/s 263 - case during survey proceedings was found - Applicability of Section 115BBE for taxation of excess cash and stock found during survey proceedings - HELD THAT - As in response to the question stated that the difference amount was income of M/s Sahil Paints earned from undisclosed sources during the year under consideration AO has ordered the said income liable to taxed under as per provision of section 115BBE of the Act but did not compute the tax in accordance with that provision of the Act. Therefore, on this aspect of the matter we consider the order of the ld. AO prejudicial to the interest of the revenue. Even the ld. AO issued 154 notice but since the proceeding u/s. 263 started it has not been clarified by the either party that order was passed by the ld. AO as per provision of section 154 of the Act or not. Since that aspect has not been disputed we considered the order of the ld. AO prejudicial to the interest of the revenue to that extent as the ld AO while passing the order already ordered to charge that income as per provision of section 115BBE of the Act but the same was not charged. Excess stock found , the bench noted that on this aspect statement of Shri Harsh Gupta was recorded. He was asked to give justification of excess stock found. In response to the question, he stated that he was unable to give justification on the excess stock found and surrendered the amount as income for the year under consideration. In the assessment proceedings, the assessee vide notice u/s 142(1) was asked to give justification as to how the undisclosed income is shown in the ITR filed. The reply of the assessee has been considered and AO noticed that on the same date a survey was also conducted on M/s Mahawar Electric Store related to the family member of the assessee wherein statement of husband of the assessee was recorded stated that at the godown situated at Vikas Colony, Rajgarh the stock of M/s Sahil Paints and M/s Mahawar Electric Store was lying. However, quantum was not differentiated then. Now, assessee submitted that the stock of Rs. 52,76,668/- found during the physical verification includes the stock of Rs. 12,34,965/- related to M/s Mahawar Electric Store. In support of this submission he furnished copy of bills vouchers of the items of the stock that is related to M/s Sahil Paints i.e. Rs. 38,35,321/- (5276668 - 1234965)/- and supporting bills vouchers of items mentioned in stock inventory that related to M/s Mahawar Electric Store for Rs. 12,34,965/-. To that extent the submission of the assessee is found acceptable by the ld. AO. Also the purchase bills of Rs. 2,59,282/- was not entered on the date of survey and the reply to the effect was given vide letter dated 13.10.2017. The assessee in support of it, has not filed supporting bills and the copy of the said letter. Also, the letter is also not found available on record. Thus, the submission of the assessee for the bills of Rs. 2,59,282/- said to be not entered in the books was not acceptable by the ld. AO. Therefore, the excess stock of Rs. 1,83,259/- is found from the business premises of the assessee for which the assessee fails to offer any proper justification. Since the assessee has already disclosed the amount on account of short stock income in the ITR, therefore, the amount of Rs. 1,70,335/- (Rs. 1,83,259 - Rs. 12,924) is held as income of the assessee for the year under consideration on account of unaccounted purchase and added in the total income of the assessee. Since on that aspect of the matter ld. AO consciously not considered to charge that income as per provision of section 115BBE of the Act. Thus, we are of the view that on this aspect of the matter the ld. AO has already applied his mind to considered that income emerges out of the business of the assessee and therefore, on this aspect of the matter we do not consider that the provision of section 263 of the Act shall apply, as the ld. AO has already taken a plausible view on the matter. Thus, ground raised by the assessee stands partly allowed.
Issues Involved:
1. Legality of the order passed by the PCIT under Section 263 of the Income Tax Act. 2. Applicability of Section 115BBE for taxation of excess cash and stock found during survey proceedings. 3. Examination of whether the assessment order was erroneous and prejudicial to the interest of the revenue. 4. Validity of parallel proceedings under Sections 154 and 263. 5. Impact of pending appeal before CIT(A) on the invocation of Section 263. 6. Applicability of presumptive taxation under Section 44AD and its impact on the assessment. Issue-wise Detailed Analysis: 1. Legality of the Order Passed by the PCIT under Section 263: The appeal challenges the order of the PCIT passed under Section 263 of the Act. The PCIT found the assessment order dated 13.04.2021 to be erroneous and prejudicial to the interest of the revenue. The PCIT noted that the AO did not apply the correct provisions of the Act, specifically Sections 69A and 115BBE, on the income declared and offered in the return of income filed by the assessee. The PCIT issued a show cause notice, considered the detailed reply filed by the assessee, and concluded that the assessment order was passed without proper verification and was liable to revision under Explanation (2) clauses (a) and (b) of Section 263. 2. Applicability of Section 115BBE for Taxation of Excess Cash and Stock: During the survey proceedings, excess cash of Rs. 3,31,735/- and excess stock of Rs. 1,83,259/- were found. The AO initially held that the excess cash should be taxed under Section 115BBE but charged it at normal rates in the computation sheet. Similarly, the excess stock was treated as unexplained investment under Section 69, but tax was charged at normal rates. The PCIT observed that the AO failed to apply Sections 69A and 115BBE correctly, leading to the invocation of Section 263. 3. Examination of Whether the Assessment Order was Erroneous and Prejudicial: The PCIT found that the AO did not verify the details required under the scope of scrutiny and passed the assessment order in a routine and casual manner. The PCIT held that the order was erroneous and prejudicial to the interest of the revenue as the AO did not apply the applicable sections of the Act correctly. The PCIT set aside the assessment order to be made afresh, requiring the AO to verify the applicability of Sections 69A and 69 after allowing reasonable opportunity to the assessee. 4. Validity of Parallel Proceedings under Sections 154 and 263: The assessee argued that the initiation of parallel proceedings under Sections 154 and 263 on the same issue was illegal and bad in law. The AO issued a notice under Section 154 stating that the tax on excess cash should be charged under Section 115BBE, but it was charged at normal rates. The PCIT also initiated proceedings under Section 263 on the same issue. The assessee relied on various judicial decisions to support the contention that parallel proceedings on the same issue cannot sustain. 5. Impact of Pending Appeal before CIT(A) on the Invocation of Section 263: The assessee argued that the addition made by the AO, which was also the subject matter of 263 proceedings, was pending appeal before CIT(A). Clause (c) of Explanation 1 to Section 263 provides that where the assessment order is subject to any appeal, the powers of the PCIT shall extend only to such matters as had not been considered and decided in such appeal. The assessee relied on the decision of the Allahabad High Court in CIT Vs. Vam Resorts & Hotels (P) Ltd., where it was held that the exercise of revisional jurisdiction by the CIT was invalid when the assessment was subject to appeal. 6. Applicability of Presumptive Taxation under Section 44AD: The assessee filed the return opting for presumptive taxation under Section 44AD. The assessee argued that under Section 44AD, they were not required to maintain books of accounts and were not liable to explain each expense. The assessee relied on judicial decisions to support the contention that additions under Sections 68 and 69A could not be made when income was offered under Section 44AD. The PCIT dropped the proceedings under Section 263 in similar cases, and the assessee argued that the same should apply to their case. Conclusion: The Tribunal partly allowed the appeal of the assessee. It held that the AO's order was prejudicial to the interest of the revenue concerning the excess cash found, as the AO did not compute the tax under Section 115BBE correctly. However, concerning the excess stock, the Tribunal found that the AO had already applied his mind and considered the income as business income, thus not warranting the invocation of Section 263 for this aspect. The Tribunal dismissed the ground for awarding costs and did not adjudicate on general grounds. The appeal was partly allowed, and the assessment order was set aside for fresh verification concerning the excess cash as per the provisions of Section 115BBE.
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