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TMI Blog2022 (9) TMI 1028X X X X Extracts X X X X X X X X Extracts X X X X ..... ing a fishing and roving enquiry. PCIT in the present case has wrongly invoked the jurisdiction under section 263 and the controversy in the present case is fully covered by the judgment of Gabriel India Ltd.[ 1993 (4) TMI 55 - BOMBAY HIGH COURT] - Accordingly the impugned order of the PCIT with regard to the issue of setting the order of AO u/s.143(3) with regard to this issue is quashed. Applicability of section 269ST to the investments made in cash - Mode of undertaking transactions - A.R. submitted that provisions of Section 269ST of the Act is applicable only to the receiver of the amount and not the payer - HELD THAT:- The facts of the case here as has been noted by the AO is that the assessee has made payments of Rs.4.50 crores to the shareholders of M/s.Lax Bio Feeds Pvt Ltd., apart from the agreed share price. As per the statement recorded u/s.132(4) from the partner of the assessee the source of the amount paid was the inflated purchases and payments made boat owners and that the said payments have not been recorded in the books of accounts. It is also noted by the AO that the amount invested has already been taxed as undisclosed income is already offered to tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T is ultra vires to the scope of Section 263 and requires to be cancelled on the facts and circumstances of the Appellant's case. The direction to make thorough and detailed enquiry amounts to ordering fishing and roving enquires without any material in support thereof and consequently the impugned order passed is bad in law and is liable to be cancelled. 5. The learned Principal Commissioner of Income tax failed to appreciate that the said alleged declaration made on account of alleged difference in stock was treated as business income of Rs. 1,82,70,000/- by the appellant as well as by the learned assessing officer in the original order of assessment, and further failed to appreciate that the business income cannot come under the purview of the provisions of section 69C of the Act and consequently the provisions of section 115BBE of the Act is not attracted, on the facts and circumstances of the case. 6. The learned Principal Commissioner of Income tax failed to appreciate that once an item is considered as business income the same cannot be taxed as per the special rates under section 115BBE of the Act, on the facts and circumstances of the case. 7. The learned Prin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f section 269ST is devoid of merits and consequently the said direction of the learned Principal Commissioner of Income tax requires to be cancelled, on the facts and circumstances of the case. 3. The assessee is a partnership firm and filed the return of income for assessment year under consideration on 29.11.2018 declaring an income of Rs.7,58,25,710/-. A search and seizure operation was conducted on 08.02.2018. The case was selected for scrutiny and notice under Section 143(2) of the Act dated 16.11.2019 was issued and served on the assessee. During the course of assessment the assessing officer (AO) called on the assessee to furnish details pertaining to incriminating materials found during the course of search and also the incomes offered to tax under the statement recorded u/s.132(4) during search. The assessee submitted the details called for by the AO and the AO concluded the assessment by accepted the return of income filed by the assessee. 4. The PCIT noticed that the following amounts which have been admitted by ShriAnand Kumar, one of the partners in the assessee firm in his statement under Section 132(4) of the Act are offered as additional income by the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xplained expenditure u/s.69C of the Act the learned A.R. made the following submissions: - i) That the additional amount declared on account of alleged difference in stock amounting to Rs. 1,82,70,000/- itself is not correct, for the reason that actually there was no difference of stock as alleged during the course of search conducted and the declaration was made by the assessee only to buy peace with the department. ii) That the assessee is in the business of manufacturing and sale of Fish Meal and also engaged in the business of trading in Soluble Paste and Powder which is procured by its sister concerns and is only doing the trading activity as regard to the two items are concerned. The said manufacturing of Soluble paste and Powder is manufactured by its sister concern i.e. Janatha Agro Products, which actually operates in the assessee premises. During the search the learned search officials on the day of search had in fact while verifying the stock of inventory had inadvertently considered the stock of Soluble Paste and Powder which is actually not manufactured by the assessee which is the reason for excess physical stock found by the Department. iii) That the search ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 980 1069 89 35 35,000 31,15,000 Powder 26 41 15 125 1,25,000 18,75,000 1,82,70,000 The AO has made a note on this difference in stock being offered as other addition to the income under the head profits and gains from business or profession as under: - 9.3 In the computation of income filed with the return of income filed on 9.11.2018 the assessee has added Rs.4,92,61,199/- as Other Additions to the income under the head Profits and gains of business or profession . As per Schedule-4 this amount of Rs.4,92,61,199/- includes Rs.1,82,70,000/- being the difference in stock valuation admitted u/s. 132(4). 10. The PCIT has stated the order of the AO to be erroneous to the extent that the AO has not verified the source of excess stock and that the AO accepted the submission of the assessee that the difference in stock is a business incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ordance with law. If an income tax officer acting in accordance with the law makes a certain assessment, the same cannot be branded as erroneous by the Commissioner simply because, according to him, the order should have been written more elaborately. This section does not visualise a case of substitution of the judgment of the Commissioner for that of the Income-tax Officer, who passed the order, unless the decision is held to be erroneous. Cases may be visualised where the Income tax officer while making an assessment examines the accounts, makes enquiries, applies his mind to the facts and circumstances of the case and determines the income either by accepting the accounts or by making some estimate himself. The Commissioner, on perusal of records, may be of the opinion that the estimate made by the officer concerned was on the lower side and left to the Commissioner he would have estimated the income at a figure higher than the one determined by the Income tax officer. That would not vest the Commissioner with power to examine the accounts and determine the income himself at a higher figure. It is because the Income tax officer has exercised the quasi judicial power vested in h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt in the case of Shreeji Prints (P) Ltd. (130 taxmann.com 293 Guj) while considering the explanation of Section 263 of the Act, has held that : - 4 Being aggrieved by the order passed by the PCIT under section 263 of the Act, 1961, the assessee went before the Tribunal. The Tribunal, after considering the submissions made by the assessee and after considering the scope of power to be exercised by the PCIT under section 263 of the Act, 1961 came to be conclusion that the Assessing Officer has made inquiries in detail about two unsecured loans taken by the respondent assessee and observed as under: 13 In the light of the aforesaid judicial precedents in the present case what has to be seen is whether the AO has made enquiries about two loans taken from GTPL and PAFPL. If the answer is affirmative, then second question arises whether the acceptance of the claim by the AO was a plausible view or on the facts of the finding on the facts that the said funding of the AO can be termed as sustainable in law. We find that vide notice issued u/s.142(1) dated 13-10-2015 placed at Page No. 1 of Paper Book shows the AO vide item no.(iii) has asked the information regarding details o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate and there is no capital creation by the assessee on this count. In view of these facts and circumstances, we are of the considered opinion that the order of the Assessing Officer is not erroneous nor it is prejudicial to the interest of revenue. It was also brought to the notice of the PCIT that entire share capital of GTPL being already tax, all the investment made by the said company recorded in its balance sheet stands explained tax in its hands itself and hence, there is no question of adding the same amount in the hands of the assessee. As regards loans from PAFPL, it was submitted that assessee company has made voluntary disclosure of income of Rs. 1.5 crore under IDS 2016 in September 2016 and the said loan was repaid before making declaration. In view of these facts and circumstances, we find that the AO has made due enquiries. Since we find that the AO had made enquiries regarding unsecured loans and accepted the claim of the assessee after detailed enquiries. 15 The Pr.CIT had observed that Explanation 2 of section 263 of the Act is clearly applicable and it is clear that the Assessing Officer has passed the assessment order after making enquiries for verificatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... We observe the Pr.CIT has drawn support from newly inserted Explanation 2 below section 263(1) of the Act introduced by Finance Act, 2015 w.e.f. 1-6-2015 for his action. The Explanation 2 inter alia provides that the order passed without making inquiries or verification 'which should have been made' will be deemed to be erroneous insofar as it is prejudicial to the interest of the Revenue. It is on this basis, the assessment order passed by the AO under section 143(3) of the Act has been set aside with a direction to the AO to pass a fresh assessment order. It will be therefore imperative to dwell upon the impact of Explanation 2 for the purposes of section 263 of the Act. The aim and object of introduction of aforesaid Explanation by Finance Act, 2015 was explained in CBDT Circular No. 19/2015 [F.NO.142I14/2015T PL], Dated 27-11-2015 which is reproduced hereunder: 53. Revision of order that is erroneous in so far as it is prejudicial to the interests of revenue. 53.1 The provisions contained in sub-section (1) of section 263 of the Income-tax Act, before amendment by the Act, provided that if the Principal Commissioner or Commissioner considers that any order passe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r wide the scope of Explanation 2(a) may be, its limits are implicit in it. It is only in a very gross case of inadequacy in inquiry or where inquiry is per se mandated on the basis of record available before the AO and such inquiry was not conducted, the revisional power so conferred can be exercised to invalidate the action of AO. The AO in the present case has not accepted the submissions of the assessee on various issues summarily but has shown appetite for inquiry and verifications. The AO has passed after making due enquiries issues involved impliedly after due application of mind. Therefore, the Explanation 2 to section 263 of the Act do not, in our view, thwart the assessment process in the facts and the context of the case. Consequently, we find that the foundation for exercise of revisional jurisdiction is sorely missing in the present case. 18 In the light of above facts and legal position, we are of the considered view that the AO had made detailed enquiries and after applying his mind and accepted the genuineness of loans received from GTPL and PAFPL, which is also plausible view. Therefore, we find that twin conditions were not satisfied for invoking the jurisdicti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the AO should have done further enquiry when PCIT himself admits that the additional income is from the excess stock. We are of the considered opinion that the revisionary jurisdiction could not be allowed to be exercised by the PCIT either for substituting his own opinion for that of the AO or for making a fishing and roving enquiry. 16. In view of the above discussion, we are of the opinion that the PCIT in the present case has wrongly invoked the jurisdiction under section 263 and the controversy in the present case is fully covered by the judgment of the Hon'ble Bombay High Court in the case of Gabriel India Ltd. (supra). Accordingly the impugned order of the PCIT with regard to the issue of setting the order of AO u/s.143(3) with regard to this issue is quashed Applicability of section 269ST to the investments made in cash 17. With regard to whether the provisions of Section 269ST of the Act is applicable in the payments made to the extent of Rs. 4.5 crores in cash, learned A.R. submitted that provisions of Section 269ST of the Act is applicable only to the receiver of the amount and not the payer. In the given case it is submitted that the assessee has paid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 19. The facts of the case here as has been noted by the AO is that the assessee has made payments of Rs.4.50 crores to the shareholders of M/s.Lax Bio Feeds Pvt Ltd., apart from the agreed share price. As per the statement recorded u/s.132(4) from the partner of the assessee the source of the amount paid was the inflated purchases and payments made boat owners and that the said payments have not been recorded in the books of accounts. It is also noted by the AO that the amount invested has already been taxed as undisclosed income is already offered to tax in AY 2017-18. Further from the combined reading of the above provisions it is clear that section 269ST and the penalty provisions for not complying with the said section as contained in section 271DA are applicable to the receiver of the sum. Considering the facts of the case and the relevant provisions of the Act, we are of the view the action of PCIT invoking section 263 stating that the AO s order is erroneous to the extent of AO not verifying whether investments are in violation of section 269ST is not tenable. We therefore quash the order of PCIT with regard to this issue. 20. In the result, the appeal filed by the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X
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