2025 (2) TMI 225 - AT - Income Tax

Revision u/s 263 - income declared by the assessee during the survey should have been taxed u/s 115BBE rather than at the normal rates - HELD THAT - Question of applicability of tax rate will come into picture if the assessee would have not declared prior to the conclusion of the assessment proceedings but in the present case on the survey proceedings itself the assessee has declared the income and the same is not denied by the Pr. CIT being the income from business out rightly only has given his opinion it should have been treated as income from other sources. As decided in DHARTI ESTATE 2024 (1) TMI 1197 - GUJARAT HIGH COURT during the course of assessment proceedings as the AO had made due inquiries and was aware of the fact that the assessee had disclosed the income as business income in his return of income in respect of which it had claimed expenditure in relation to interest and remuneration paid to partners and after making inquiries AO allowed the claim of the assessee by treating undisclosed income found during the survey as assessee s business income. The purview and scope of section 263 do not envisaged the Pr. CIT to go into the adjudication on merit of the assessment which is made by the Assessing Officer after proper verification of the evidences. CIT has to only look into the issue whether the assessment order is erroneous or prejudicial to the interest of revenue or not. Therefore the Pr. CIT was not right in invoking Section 263 of the Act in the present assessee s case. Decided in favour of assessee.

1. ISSUES PRESENTED and CONSIDERED

The core issues considered in this judgment revolve around the legality and appropriateness of the Principal Commissioner of Income Tax's (Pr. CIT) invocation of Section 263 of the Income Tax Act, 1961. The specific questions are:

Whether the assessment order passed under Section 143(3) was erroneous and prejudicial to the interest of the revenue, thereby justifying the Pr. CIT's order under Section 263.
Whether the Pr. CIT correctly identified and addressed any deficiencies in the assessment proceedings conducted by the Assessing Officer.
Whether the income declared by the assessee during the survey should have been taxed under Section 115BBE, rather than at the normal rates.
Whether the Pr. CIT's order constituted a permissible exercise of revisionary powers under Section 263 or amounted to an impermissible second opinion.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Legitimacy of the Section 263 Order

Legal Framework and Precedents: Section 263 of the Income Tax Act empowers the Pr. CIT to revise an assessment order if it is deemed erroneous and prejudicial to the revenue's interest. The Pr. CIT must demonstrate that the Assessing Officer failed to conduct adequate inquiries or applied the law incorrectly.
Court's Interpretation and Reasoning: The Tribunal emphasized that the Pr. CIT's role under Section 263 is not to conduct a review of the assessment's merits but to determine if the assessment was erroneous and prejudicial to revenue. The Tribunal found that the Pr. CIT's order was based on a second opinion rather than identifying genuine errors.
Key Evidence and Findings: The Tribunal noted that the Assessing Officer had conducted thorough inquiries during the assessment proceedings, including examining the impounded material and the income declared during the survey.
Application of Law to Facts: The Tribunal concluded that the Assessing Officer's decision to tax the declared income at normal rates was a conscious and informed decision, not an oversight or error.
Treatment of Competing Arguments: The Tribunal considered the Pr. CIT's argument that the income should have been taxed under Section 115BBE but found that this was a matter of opinion rather than an error in the assessment.
Conclusions: The Tribunal held that the Pr. CIT's invocation of Section 263 was unjustified as the original assessment was neither erroneous nor prejudicial to the revenue.

Issue 2: Taxation under Section 115BBE

Legal Framework and Precedents: Section 115BBE imposes a higher tax rate on income deemed unexplained under Sections 68, 69, 69A, 69B, 69C, or 69D. The application of this section requires a determination that the income is unexplained.
Court's Interpretation and Reasoning: The Tribunal found that the income was declared by the assessee during the survey and was included in the return of income. The Assessing Officer's decision not to apply Section 115BBE was based on the evidence and explanations provided by the assessee.
Key Evidence and Findings: The Tribunal observed that the assessee had provided detailed responses and documentation during the assessment proceedings, which the Assessing Officer considered.
Application of Law to Facts: The Tribunal determined that the income was explained and accounted for in the books, thus not warranting the application of Section 115BBE.
Treatment of Competing Arguments: The Tribunal rejected the Pr. CIT's assertion that the income should automatically be considered unexplained, emphasizing the Assessing Officer's discretion and judgment in the matter.
Conclusions: The Tribunal concluded that the Pr. CIT's directive to apply Section 115BBE was an overreach and not supported by the facts of the case.

3. SIGNIFICANT HOLDINGS

Core Principles Established: The Tribunal reinforced the principle that the Pr. CIT's powers under Section 263 are limited to correcting genuine errors that are prejudicial to the revenue and do not extend to substituting the Assessing Officer's judgment with their own unless a clear error is demonstrated.
Final Determinations on Each Issue: The Tribunal set aside the Pr. CIT's order under Section 263, affirming the validity of the original assessment order passed under Section 143(3). The Tribunal emphasized that the assessment was conducted with due diligence and that the Pr. CIT's intervention was unwarranted.
Verbatim Quotes of Crucial Legal Reasoning: The Tribunal stated, "The purview and scope of section 263 do not envisage the Pr. CIT to go into the adjudication on merit of the assessment which is made by the Assessing Officer after proper verification of the evidences."

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