2025 (3) TMI 252 - AT - Income Tax

Revision u/s 263 - assessee was surveyed and he surrendered a sum comprising of undisclosed debtors excess cash found and unaccounted construction - HELD THAT - PCIT has to be satisfied the twin conditions namely the order of the AO sought to be revised is erroneous; and it is prejudicial to the interests of the Revenue. If any one of them is absent i.e. if the assessment order is not erroneous but it is prejudicial to the Revenue Sec.263 cannot be invoked. While filling the return of income assessee has admitted the additional income disclosed in the survey proceedings. While conducting the assessment proceeding the AO initiated a specific enquiry to the assessee and a show cause notice was issued proposing the variation in the assessment asking the assessee-appellant as to why the provision of section 115BBE should not be applied vide notice dated 24.09.2021. There is not the case of the revenue that the assessing officer has not raised the issue and has not conducted any enquiry but while doing so he has applied his mind and taken a plausible view on the matter. That view so taken being not erroneous and prejudicial ld. PCIT merely cannot impose her view that the ld. AO should have considered that income so offered u/s 69 as Unexplained Investment for Rs. 66, 50, 000 (45, 50, 000 21, 00, 000) and Rs. 9, 50, 000/- (Unexplained Money) u/s 69A of the Act. It is noted that even the amendment i.e.Expl. 2(a) does not confer blind powers and it is held that despite there being an amendment enlarging the scope of the revisionary power of the ld. PCIT u/s 263 to some extent it cannot justify the invoking of the Expl. 2(a) in the facts of the present case. Thus it is not at all a case where the subjected assessment should be alleged to be erroneous in so far as prejudicial to the interests of the revenue. There is neither error of law nor of facts. There is no erroneous assumption by the AO of either the facts or of law as alleged by the ld. PCIT. Decided in favour of assessee.

Summary

The judgment revolves around the invocation of Section 263 of the Income Tax Act by the Principal Commissioner of Income Tax (PCIT), Udaipur, against an assessment order passed by the National Faceless Assessment Centre (NaFAC) for the assessment year 2019-20. The core issues pertain to whether the assessment order was erroneous and prejudicial to the interests of the revenue, justifying the PCIT's revisionary powers under Section 263.

1. Issues Presented and Considered

The primary issues considered were:

• Whether the PCIT was justified in invoking Section 263, alleging that the assessment order was erroneous and prejudicial to the interests of the revenue.
• Whether the additional income disclosed during the survey under Section 133A should be taxed under Sections 69 and 69A as unexplained investments and money, and consequently under Section 115BBE at a higher tax rate.
• Whether the Assessing Officer (AO) conducted adequate inquiries and applied the correct legal framework in assessing the additional income as business income.

2. Issue-Wise Detailed Analysis

Issue 1: Invocation of Section 263 by PCIT

The PCIT invoked Section 263, arguing that the assessment order was erroneous and prejudicial to the revenue because the AO failed to verify the sources of additional income disclosed during the survey. The PCIT contended that the income should have been taxed under Sections 69 and 69A, leading to a higher tax rate under Section 115BBE.

Relevant Legal Framework and Precedents:

• Section 263 of the Income Tax Act allows the PCIT to revise an order if it is erroneous and prejudicial to the interests of the revenue.
• Explanation 2 to Section 263 deems an order erroneous if it is passed without necessary inquiries or verification.
• Precedents such as Malabar Industrial Co. Ltd. v/s CIT and CIT v/s Max India Ltd. establish that an order is not erroneous if the AO has taken a plausible view.

Court's Interpretation and Reasoning:

• The Tribunal examined whether the AO conducted sufficient inquiries and whether the PCIT's invocation of Section 263 was justified.
• The Tribunal noted that the AO issued a show-cause notice regarding the applicability of Section 115BBE and received detailed submissions from the assessee, indicating that the AO applied his mind to the issue.

Key Evidence and Findings:

• The AO had issued a show-cause notice to the assessee about the applicability of Section 115BBE and received a detailed response.
• The assessee's response argued that the additional income was business income, supported by judicial precedents and the nature of the income.

Application of Law to Facts:

• The Tribunal found that the AO's decision to treat the additional income as business income was a plausible view, supported by the assessee's explanations and judicial precedents.
• The Tribunal concluded that the PCIT's invocation of Section 263 was not justified as the AO had conducted adequate inquiries and applied a plausible view.

Issue 2: Taxability of Additional Income

The PCIT argued that the additional income should be taxed under Sections 69 and 69A, leading to a higher tax rate under Section 115BBE. The assessee contended that the income was from business activities and should be taxed as business income.

Relevant Legal Framework and Precedents:

• Sections 69 and 69A pertain to unexplained investments and money, typically taxed at higher rates under Section 115BBE.
• Judicial precedents, such as CIT vs Bajargan Traders and Chokshi Hiralal Maganlal vs DCIT, support treating additional income related to business activities as business income.

Court's Interpretation and Reasoning:

• The Tribunal examined whether the additional income had a direct nexus to the assessee's business activities.
• The Tribunal considered the assessee's explanation that the income arose from regular business activities and was accounted for in the business's books.

Key Evidence and Findings:

• The assessee provided detailed explanations linking the additional income to business activities, supported by judicial precedents.
• The Tribunal found no evidence that the income was unexplained or unrelated to the business.

Application of Law to Facts:

• The Tribunal concluded that the additional income was correctly treated as business income, not falling under Sections 69 and 69A.
• The Tribunal found that the AO's decision was supported by the facts and legal precedents.

3. Significant Holdings

The Tribunal held that the PCIT's invocation of Section 263 was not justified as the AO conducted adequate inquiries and applied a plausible view. The Tribunal emphasized that:

• "The phrase 'prejudicial to the interests of the Revenue' in S. 263 of the Income Tax Act, 1961, has to be read in conjunction with the expression 'erroneous' order passed by the Assessing Officer."
• "Every loss of revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interests of the Revenue."
• The AO's decision to treat the additional income as business income was a plausible view, supported by facts and judicial precedents.

The Tribunal quashed the PCIT's order under Section 263, upholding the AO's assessment order. The decision underscores the importance of adequate inquiries and the AO's discretion in adopting a plausible view when assessing income.