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TMI Blog2022 (8) TMI 791X X X X Extracts X X X X X X X X Extracts X X X X ..... acts on record. Hence, the proceedings initiated u/s 263 of the Act and the impugned order are hereby quashed. Thus, ground of appeal decided in favour of assess and against the revenue. Assumption of jurisdiction u/s 263 for not initiating penalty proceedings u/s 271AAC - CIT held that the additional income was also subjected to penalty u/s 271AAC of the Act and accordingly set aside the subjected assessment order - HELD THAT:- After hearing both the parties and perusing the materials available on record as well as judicial pronouncements cited by both the parties, we at the outset have no hesitation to hold that the issue involved is no more res integra in as much as the in the case of CIT vs Keshrimal Parasmal [ 1985 (5) TMI 34 - RAJASTHAN HIGH COURT] - We are of the considered view that the ld. Pr. CIT acted beyond jurisdiction in holding that the additional income was subjected to penalty u/s 271AAC - Ground No. 3 of the assessee is allowed - ITA No. 7/JP/2021 - - - Dated:- 16-8-2022 - SHRI SANDEEP GOSAIN, JM And SHRI RATHOD KAMLESH JAYANTBHAI, AM Assessee by : Shri Mahendra Gargieya, Advocate Revenue by: Shri Sanajy Dhariwal, CIT ORDER PER: SA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed 25.02.2019 despite there being complete application of mind by the AO on the subjected issues and it was nothing but a case of change of opinion, based on which, assumption of jurisdiction u/s 263 is not permissible. The impugned order dt. 22.02.2021 therefore, lacks valid jurisdiction u/s 263 of the Act and hence, the same kindly be quashed. 2.1 Apropos Ground No. 1, 2 4, Brief facts of the case are that the assessee filed her return of income on 7-11-2017 declaring total income of Rs.41,09,530/- which was processed u/s 143(1) by the CPC, Bangalore. The case of the assessee was selected for limited scrutiny through CASS. Notice u/s 143(2) of the Act was issued on 10-08-2018 which was transmitted to the assessee through E-Mail address as per returned income filed. Subsequent thereto, Notice u/s 142(1) of the Act alongwith specific questionnaire, calling for necessary details was issued on 01-02-2019 to the assessee s E-Mail address. In response to the notice u/s 143(2) and subsequent thereto notice u/s 142(1) dated 01-02-2019 alongwith specific questionnaire by electronic mail, was issued to the assessee by which necessary details were called for. In response to the not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he IT. Act. It is further seen that the penalty proceedings u/s 271AAC of the I.T. Act was also required to be initiated and imposed by the AO as per section 115BBE of the IT Act which he has failed to do. The ld. Pr. CIT, taking into consideration the points observed hereinabove noted that it is clear that the AO did not verify / examine these issues and has completed the assessment without going into these issues. Due to incorrect and incomplete appreciation of facts and law, the AO passed the assessment order without making any enquiries or verification, the assessment order u/s 143(3) of the I.T. Act for AY 2017-18 dated 25.02.2019 has been rendered erroneous in so far as it is prejudicial to the interest of revenue. Therefore, this assessment order u/s 143(3) of the I.T. Act. for A.Y. 2017-18 was proposed to be suitably modified/ enhanced cancelled by invoking the provisions of section 263 of the 1.T. Act. However, before doing so, a notice u/s 263 of the Income Tax Act was issued on 14.12.2020 through ITBA vide DIN, to the assessee for giving opportunity of being heard as well as requiring the assessee to furnish its submissions in this regard on 29.12.2020. However, n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was to be charged @60% u/s 115BBE, however, the assessee has failed to offer her income for correct rate of tax and the the AO has failed to charge proper rate of tax on the above income of Rs. 28,95,000/- in the order u/s 143(3) of the I.T. Act dated 25.02.2019 for the A.Y. 2017-18, which has resulted in undercharge of Income Tax of Rs. 13,41,971/- (Rs. 24.31.566 Rs. 10,89.595) having total tax effect of Rs. 16.50,608/- including interest of Rs. 3,08,637/- u/s 234B of the I.T. Act. Thus, according to the ld. Pr. CIT, the above AO s order is erroneous in so far as it is prejudicial to the interest of revenue. The ld. Pr. CIT noted that the assessee vide para 3 of submission filed on 30.01.2021 has herself stated that surrendered income wrongly considered u/s 68 and/ or 69A as income from other sources, stating that it is a matter of common knowledge that in the real estate transactions, the involvement of black money is always there and the transacting parties used to settle the deal with the help of cash movement. The unrecorded advance towards the purchase of property and the available cash not recorded in the accounts was nothing but a result of generation of the unrecorded pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5.02.2019 has thus been rendered erroneous and prejudicial to interest of revenue on this issue. The same is therefore set-aside / canceled and restored back to the file of AO on the issue of charging of tax on the income of Rs. 28,95,300/- declared during survey which was to be charged under u/s 68 and/or 69A of the I.T. Act @60% u/s 115BBE of the I.T. Act and also subject to penalty u/s 271AAC of the I.T. Act., with the direction to pass fresh assessment order after conducting proper verification and examination on the above issue and thereafter appropriate action may be taken as per law. However, an opportunity of being heard should be given to the assessee before passing the order. 2.3 During the course of hearing, the ld. AR of the assessee prayed that invoking of provisions of Section 263 of the Act by the ld. PR CIT is not justified as the AO has completely examined the details as required by him in the annexure sent to the assessee. The ld. AR further submitted that requisite details as to the case of the assessee was produced /furnished before the AO who verified them and taken the print out of the desired details as demanded during the assessment proceedings. The l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Kindly refer Malabar Industrial Co. Ltd. v/s CIT (2000) 243 ITR 83 (SC). 1.2 Also kindly refer CIT v/s Max India Ltd. (2007) 295 ITR 282 (SC) wherein it is held 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. For example, when the Assessing Officer adopts one of two courses permissible in law and it has resulted in loss of revenue, or where two views are possible and the Assessing Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the Revenue, unless the view taken by the Assessing Officer is unsustainable in law. 1.3 In CIT v/s Ganpat Ram Bishnoi (2005) 198 CTR (Raj) 546 held that from the record of the proceedings, in the present case, no presumption can be drawn that the AO had not applied its mind to the various aspects of the matter. In such circumstances, without even prima facie laying fou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AO has examined) each any every documents submitted by assessee during scrutiny proceedings, is reproduced below: The case was selected for Limited Scrutiny through CASS, Notice u/s 142(1)of the Act alongwith the specific questionnaire, by which necessary details were called for was issued......... In response Shri R.S. Mittal, CA, furnished the requisite details time to time . The details furnished by the assessee/ the authorized representative of the assessee were verified, printout of the same were taken and were placed on record 2.3 Further, a perusal of questionnaire it is revealed that the AO raised specific query w.r.t. cash deposit in Bank as under (PB 1-7): 1. Abnormal increase in Cash Deposits in Bank Account(s) during the demonization period/Large Cash Deposits in Bank Account(s) during the year: Accordingly, the assessee filed detailed submission dated 15.02.2019 (PB 8-12) before the AO and a categorical submission was made in Pr-3(iii) as under Sources of Cash Deposit: The income Tax Survey was conducted on the premises of the assessee on dated 04.07.2016 at the time of survey assessee surrendered the income of Rs.1,75,04,250/- a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ances of Rs. 19,15,000/- and cash resulting from the same business of Rs. 9,80,300/- it is submitted that advances were given during the course of the property business and hence it directly related to the said business only. Moreover, (cash of Rs. 9,80.300/-, was a necessary consequence / generation of undisclosed profit form the Real Estate Business. It is a matter of common knowledge that in the real estate transactions, the involvement of black money is always there and the transacting parties used to settle the deal with the help of cash movement. The unrecorded advance towards the purchase of property and the available cash not recorded in the accounts was nothing but a result of generation of the unrecorded profit form the real estate business. In fact, a bare reading of the related questions answers clearly shows that the husband of the assesse has even admitted such income as a result of the real estate business activities. There is no mention or whisper in these statements that such surrendered income was something beyond or in addition to the real estate business or that there was some other source of income giving rise to such undisclosed Income. In these circum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 14 with S. 56 of the Act makes is evidently clear that for the assessment of an income it must have to be classified under four heads of income as enumerated u/s 14 and if it doesn't fall under any specific head of income as per item A to E of S. 14, such income has to be assessed under the residuary head of income i.e. item F of S. 14. Therefore, income added u/s 68 or 69 etc. has to be given a specific head in terms of S. 14, 4.3 The Hon'ble Supreme Court in case of Karanpura Development Co Ltd vs. CIT [1962] 44 ITR 362 (SC) held that these heads are in a sense exclusive to one another and income which falls within one head cannot be brought to tax under another head. Further, the Hon'ble Supreme Court in case of Nalinikant Ambalal Mody v CIT [1966] 61 ITR 428, has held that whether an income falls under one head or another is to be decided according to the common notions of practical man because the Act does not provide any guidance in the matter. Of course, lot of judicial precedents are available to a taxpayer to arrive at a conclusion about determination of appropriate head of income. 4.4 It is submitted that whatever, was disclosed was nothing but ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ual accounts, the purchases of Rs. 70,04,814/2 were finally reflected as part of total purchases amounting to Rs. 33,47,19,658/in the profit and loss account and the same also found included as part of the closing stock amount to Rs. 1,94,42,569/- in the profit/loss account since the said stock of rice was not sold out. In addition to the purchase and the closing stock, the amount of RS. 70,04,814/- also found credited in the profit and loss account as income from undisclosed sources. The net effect of this double entry accounting treatment is that firstly the unrecorded stock of rice has been brought on the books and now forms part of the recorded stock which can be subsequently sold out and the profit/loss therefrom would be subject to tax as any other normal business transaction. Secondly, the unrecorded investment which has gone in purchase of such unrecorded stock of rice has been recorded in the books of accounts and offered to tax by crediting the said amount in the profit and loss account. Had this investment been made out of known source, there was no necessity for assessee to credit the profit/loss account and offer the same to tax. Accordingly, we do not see any infirmit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... investment or asset or expenditure is unexplained and unidentified, satisfying the mandate of the law. 5.4 In case of Shri Lovish Singhal vs ITO (ITA No 142 to 146/Jodh/2018 for AY 2014-15 dated 25.05.2018) (DPB 14-32), the Jodhpur Tribunal applying the proposition of law laid down by the Hon'ble Rajasthan High Court in the Bajargan Traders (supra), held that the lower authorities were not justified in taxing the surrender made on account of excess stock and excess cash found U/s 69 of the Act and accordingly held that there is no justification for taxing such income u/s 115BBE of the Act. 5.5 There apart, there are many decisions available taking such a view in favor of the assesse on dated 21.02.2019 when the subjected assessment was framed by the AO.The above very relevant and crucial facts and the legal position was well available before the AO and there is nothing on record to show that he did not consider the same. 5.6 Since the AO acted in accordance with the law prevailed on the date of the passing assessment order hence, no fault can be found in his action and in particular, proceeding u/s 263 cannot be invoked in such a case. Kindly refer CIT vs. G.M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case of CIT that there was a complete/total lack of inquiry: There is no such whisper in the impugned order. He himself stated that there was incomplete appreciation of facts and law, which implies that some enquiry was made but no proper enquiry was made as per CIT. However, law is well settled that the Assessment order cannot be held to be erroneous simply on the allegation of inadequate enquiry unless there is an established case of total lack of enquiry. Kindly refer CIT vs. Sunbeam Auto Ltd. (2011) 332 ITR 167 (Del) wherein Delhi High Court was considering the aspect, when there is no proper or full verification, and it was held that one has to see from the record as to whether there was application of mind before allowing the expenditure in question as revenue expenditure. Learned counsel for the assessee is right in his submission that one has to keep in mind the distinction between lack of inquiry and inadequate inquiry . If there was any inquiry, even inadequate that would not by itself give occasion to the CIT to pass orders under S. 263 of the Act, merely because he has a different opinion in the matter. It is only in cases of lack of inquiry that such a course of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Expl. 2(a) in the facts of the present case. Before referring to that Explanation, one has to understand what was the true meaning of the Explanation in the context of application of mind by a quasi-judicial authority. 8.3.2 In the case of Narayan Tatu Rane Vs. ITO Itat, (2013) 7 NYPTTJ 1493 (Mum) it was held that newly inserted Explanation 2(a) to S. 263 does not authorize or give unfettered powers to Commissioner to revise each and every order, if in his (subjective) opinion, same has been passed without making enquiries or verification which should have been made. As submitted above here also the AO having already applied its mind (directly or indirectly), the assessment order was not erroneous. 9. Adverse Observations and Objections raised by the Ld. CIT: 9.1 No estoppel against law: Further, showing surrendered income under the head Income from Other Sources is not a valid ground to invoke S. 263. One of the reasons adopted is that after making a surrender of the subjected income of Rs. 28,95,300/ the same has been shown by the assessse under the head Income from Other Sources in its ROI which required application of S. 115BBE of the Act. It is submitted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aiver of the right by the assessee. The Department cannot rely upon any such admission or misapprehension if it is not otherwise taxable. (Para 11) 9.2 The Ld CIT in para 5.2 of the order without properly appreciating the context behind using the word Black Money, has misinterpreted the same to suit his purpose. The relevant para 3 of WS is self-explanatory. .3 Surrendered income wrongly considered u/s 68 and/or 69A as income of other sources: If the totality of the facts and circumstances and the judicial guideline is considered, the additional income could not be considered of the nature described the above provisions. Otherwise also on merits once such additional income has already been accounted for before/ at the close of the year nothing remained undisclosed/ unexplained. 10. Contradictory approach of revenue: It is pertinent to note that the assessee lady had also declared Rs 1.71 Crore in A.Y. 16-17 on similar facts and circumstances The assessment was also framed for A.Y.16-17 vide order u/s 143/3) dated 31.10.2018. However, no revisionary action u/s 263 is reported of similar nature where the CIT alleged and attempted to apply S. 115BBE. Similar surrender was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /PN/2014 dated 17.08.2016 and in Easy Transcription Software (P) Ltd. vs. CIT (2017) 185 TTJ 504 (Ahd.) held as under: Revision Jurisdiction of CIT-Jurisdiction to direct AO to initiate penalty proceedings under s. 271(1c)-It is not open to CIT to exercise the provisional powers to create a non-existent proceeding under s. 263 by holding the assessment as erroneous in so far as prejudicial to the interest of Revenue-Sec. 263 is a substantive provision and howsoever clear the legislative intent may be, the requirements of a substantive provision cannot be bypassed as the legislative casus omissius cannot be supplied by interpretational fiat-Arriving at 'satisfaction' is thefoundation of initiation of proceedings under s. 271(1)(c) which was to be recorded by AO in the course of assessment proceedings-Consequently, once the assessment is concluded, the CIT becomes functus officio as regards initiation of penalty under s. 271(1)(c)-Non-initiation of penalty proceedings under s 271(1)(c) while framing assessment is not a good ground for invoking provisional powers under s. 263-Sec. 271(1)(c) read in conjunction with s. 263, gives an unmistakable impression that while i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e attracted. An incorrect assumption of the fact or an incorrect application of law will satisfy the requirement of the order being erroneous. The phrase 'prejudicial to the interest of the Revenue has to be read in conjunction with an erroneous order passed by the AO. Every loss of revenue as a consequence of the order of the AO cannot be treated as prejudicial to the interest of the Revenue. It is pertinent to mention that if the AO has adopted one of the two or more courses permissible in law and it has resulted in loss of revenue, or where two views are possible and AO has taken one view with which the CIT does not agree, it cannot be treated as an erroneous order and it is prejudicial to the interest of the Revenue, unless the view taken by the AO is totally unsustainable in law. In this regard, we draw strength from the decision of the Hon'ble Supreme Court in the case of Malabar Industrial Co. Ltd. vs. CIT (2000) 159 CTR (SC) 1: (2000) 243 ITR 83 (SC). We also draw strength from the decision of the Hon'ble Supreme Court in the case of CIT vs. Max India Ltd. (2007) 213 CTR (SC) 266: (2007) 295 ITR 282 (SC) wherein it was held that: The phrase 'prejudicial ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e incorporated in the regularly maintained books of accounts. Perusal of the cash book placed on record at Pg.- 17 of the paper book filled by the assessee it is noticed that the assesse has credited on dated 04.07.2016 the cash declared in survey of Rs 9,80,300/- and credited to her capital account and constituted a part of the closing balance of cash in hand on that day of which was there after carried forward to 05.07.2016 as opening balance. Similarly, property advance of RS 19,15,000/- was also credited to the capital account and debited to Advance for Property Declared (In 16-17) (PB 15). Later on cash recovery is made therefrom on 3.11.2016 which was debited in the cash book and credited to the said advance account. (PB 15-16). We also note that the available cash thereafter was used by the assessee in its day to day transactions related to real estate business including the bank deposits made from 09.11.2016 and onward. On the other hand, the capital account of assessee has been credited with the same amount of additional income of Rs. 28,95,300. Thus, the net effect of such accounting entries passed, the treatment is that the unrecorded trade advances and cash in hand were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , undisputedly the assessee is engaged in the real estate business and there is no undisclosed or unknown course of income and the source of additional income so admitted is also clearly identifiable and related to the regular business of real estate. These facts are evidently clear to bring home the point that such additional income clearly falls under S. 14 r/w S. 28 of the Act. The residuary provision under S. 56 which is titled as income from other sources, comes into the picture only and only when any items of income doesn t clearly fall under any specific head of income as per item A to E of S. 14. But where such income find place under a particular head being business or profession, then there is no scope of invoking S. 56 in the context of S. 14. On the other hand, a clear reading of S. 115BBE provides that it is only such income which is of the nature of S. 68/69A and so on with reference to which only S. 115BBE could be invoked. When the additional income is clearly identifiable and related to the real estate business is certainly assessable as business income and cannot be considered as income falling under S. 68/69A of the Act as held by the Ld. CIT. The Ld. CIT also fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd now forms part of the recorded stock which can be subsequently sold out and the profit/loss therefrom would be subject to tax as any other normal business transaction. Secondly, the unrecorded investment which has gone in purchase of such unrecorded stock of rice has been recorded in the books of accounts and offered to tax by crediting the said amount in the profit and loss account. Had this investment been made out of known source, there was no necessity for assessee to credit the profit/loss account and offer the same to tax. Accordingly, we do not see any infirmity in assessee s bringing such transaction in its books of accounts and the accounting treatment thereof so as to regularize its books of accounts. In fact, the same provides a credible base for Revenue to bring to tax subsequent profit/loss on sale of such stock of rice in future. Having said that, the next issue that arises for consideration is whether the amount surrendered by way of investment in the unrecorded stock of rice has to be brought to tax under the head business income or income from other sources . In the present case, the assessee is dealing in sale of foodgrains, rice and oil seeds, and the exces ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r taxing such income u/s 115BBE of the Act. Although there are several decisions but we do not wish to multiply the same. It is further noted that the decision of the Hon ble jurisdictional HC in the Bajargan Traders (supra) was rendered on dated 12.09.2017. Similarly the decision of the honorable ITAT Jaipur in Shri Ramnarayan Birla (supra) was rendered on 30.09.2016 (and there may be some more decisions which were passed) and were available much earlier to 04.07.2016, when the assessment order was passed. Since the AO acted in accordance with the law prevailed on the date of the passing assessment order hence, no fault can be found in his action and in particular, proceeding u/s 263 cannot be invoked in such a case as was held in CIT vs. G.M. Mittal Stainless Steel (P.) Ltd. [2003] 130 Taxman 67/263 ITR 255 (SC) (copy placed at DPB 33-35). Also refer CIT,Bangalore vs. Canara Bank[2021] 123 taxmann.com 207 (Karnataka). Further we find that in the case of Narayan TatuRane Vs. ITO, ITAT Bench [2013) 7 NYPTTJ 1493 (Mum] held that newly inserted Explanation 2(a) to S. 263 does not authorize or give unfettered powers to Commissioner to revise each and every order, if in his (subjective ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t: Appeal (AAC)-Maintainability of appeal-Scope-Denial of liability by assessee within the meaning of S.246(1)(c)-Has wide import and such denial may be by way of appeal-It is not necessary that assessee should have denied liability in return itself. CIT vs. Apar Limited (2002) 175 CTR 312 (Bombay), wherein it was held that: Appeal [CWT(A)]-Maintainability of appeal-Intimation under s. 16(1)(a)(i)- Return filed under protest-Thereby assessee disputed his very liability to wealth-tax-AO could not have foreclosed assessee s right to appeal by issue of intimation under s. 16(1)(a)(i)-Appeal maintainable under s. 23(1A) (a) Mayank Poddar (HUF) vs. WTO (2003) 181 CTR 362 (Calcutta)(DPB 36-39 ),wherein it was held that: Estoppel-Applicability of principle- Interpretation of statutes-Scope-There is no estoppels against statute- Property, though not taxable under the WT Act, included by assessee in taxable net wealth by misconception of law-Property does not become taxable. x x x x A property, which is not otherwise taxable, cannot become taxable because of misunderstanding or wrong understanding of law by the assessee or because of his admission or on his misap ..... X X X X Extracts X X X X X X X X Extracts X X X X
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