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TMI Blog2025 (2) TMI 437X X X X Extracts X X X X X X X X Extracts X X X X ..... m, are the same nature and type of goods i.e. Cosmetics, which is regularly traded by the assessee in her usual course of business, and in course of survey the department has not been able to unearth any other documents or papers to arrive at any different conclusion that the assessee has any other source of income earning activity other than the business of cosmetics. Excess STOCK has not been separately identified and the loose papers and documents, diaries, impounded as per Annexure - 1 and 2 (of impounded documents) points to the fact that there has been unrecorded transactions of purchase and sales outside books of accounts pertaining to the same business of" cosmetics ", in which the assessee transacts, in usual course of her business, and as such the nexus or the link in between the excess stock found and the assessee business is established and whatever excess that has been found, is the excess stock, that is rolling in the same business and it has no independent identity of its own and is part and parcel of the normal business stock and what is not declared to the department is the receipt from business (and not any investment) because it cannot be co-related with any spe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the source of the income so surrendered before the survey team to have arisen out of business of cosmetics itself, and the said explanation has also been accepted by the AO after adequate enquiry and verification of documents produced before him, and he has arrived at a logical conclusion, which a prudent person, would have arrived under the circumstances. AO after careful examination of the submissions made by the assessee and after conducting detail enquiry, has taken a plausible view that the provisions of section 115BBE is not applicable in the instant case and the said assessment cannot be set aside merely on the ground of inadequacy of enquiry by the AO with respect to source of surrender of income. There is no perversity or lack of enquiry on the part of the assessing officer to render the decision erroneous under explanation 2 to section 263 of the Act 61, and the order passed by the AO, is neither erroneous nor prejudicial to the interest of revenue, and we hold that the assumption of jurisdiction u/s 263 by the Ld PCIT in the instant case is not legally justified and the consequential order passed u/s 263 of the Act 61, is hereby set aside. Appeal filed by assessee is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... planation and taxed additional income as "business income @ 30%" and based on which assessment order u/s 143(3) was passed by the learned Assessing Officer. 7. That the learned PCIT has erred in not appreciating the facts that the AO after examining the details, has adopted a possible opinion on the point raised in the show cause notice issued by him and, therefore, the CIT lacks jurisdiction to invoke s. 263 of the Act.". That the assessment u/s 143(3) was completed by the AO after conducting detailed inquiry enquiry and thereafter came to conclusion that provisions of section 115BBE are not applicable in the case of the assessee. 7.1 That the Ld. PCIT has erred invoking the provisions of section 263 without appreciating that the assessment u/s 143(3) cannot be set aside merely on the ground that inadequacy of enquiry by the AO with respect to source of surrender income would not in itself be a reason to invoke the powers enshrined in Section 263 of the Act. 8. That the Ld. PCIT has erred in passing order u/s 263 particularly in absence of any document found during the course of survey to prove that the assessee was in receipt of any income other than business income. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce dated 01/03/2023, on the ground that income surrendered during survey action should be treated as if the assessee is in possession of unexplained money and treatment of tax liability thereon should be under the provisions of section 69B of the Act 61, and tax needs to be calculated as per section 115BBE of the Act, on the surrendered income. 7. In course of revision proceedings, the Ld PCIT, vide notice dated 14/03/2023, asked for details of opening stock ( at the beginning of the year), details of month wise purchase and sales throughout the year, details of stock as per books on survey date, explanation regarding difference of valuation of stock as per books and as per department valuation, evidence regarding incorrect valuation and comparative figures for subsequent years, against which the assessee has filed her response to all the required particulars as asked for along with written submission explaining the case in details. 8. Subsequently, the Ld PCIT, has discussed the case in his order passed u/s 263 of the Act 61, and has referred to various decisions of various courts and tribunals, to arrive at the conclusion that in the instant case the AO has failed to examine th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ose paper), represents cash sale slips not recorded in the books of accounts [placed in page no 51 of PB], and in order to resolve and settle the matter, before the survey team, the appellant chose to offer the excess stock valued by the survey team at Rs. 49,98,000/- (r/o Rs. 50 lakhs) as business income, over and above the normal business profits arising from the same cosmetic business itself, because no stock has been separately identified and it is the same nature and type of stock rolling in the same trading business. 12. He further submitted that regular return has been submitted disclosing a total income of Rs. 56,05,590/-, (which included the normal business profits and the additional income disclosure of Rs. 50 lakhs), and tax has been paid at normal rates. He further stated that even though the actual valuation of excess stock is only Rs. 17.77 lakhs (as demonstrated in his calculation in above paragraph), the assessee on good faith, as a gesture of cooperation, on the basis of surrender disclosure and verbal commitment, before the survey team, has offered the entire amount of Rs. 50 lakhs, as additional income, from cosmetics business to be taxed at normal rates, and pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly dated 29/01/2024 in support of all the grounds raised in his arguments: Sr. No Arguments Page of PB 1. The A.O. had made Proper Enquiry while framing assessment u/s 143(3) 30 2. That the assessee was making purchase and sales outside the regular books of accounts. Therefore, the additional income earned was invested in stock 31 3. That the Assessing Officer had taken one of the plausible views and where there are two plausible views, no action to exercise powers of revision can arise, nor can revision power be exercised for directing a fuller enquiry to find out if the view taken is erroneous. 31 4. The twin conditions that order passed by A.O. is erroneous and prejudicial to interest of revenue must be satisfied which is not satisfied in the instant case 32 5. That the Excess stock was arising out of business dealings and as such the provisions of Section 69B, read with Section 115BBE, are not applicable in the instant case 32 17. Per Contra the Ld DR relied on the order of the Ld PCIT, and argued that he was justified in setting aside the order due to the fact that the order passed u/s 143(3) was erroneous and prejudicial to the interests of the Revenue, in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y dated 08.02.2021 That a separate trading account was prepared and was also filed at the time of filing of Tax audit report and is on record. However copy is again enclosed at page no 92. The same figure was separately shown in computation of total income at page 4. Hence section 115BBE is not attracted. No stock register is maintained and this fact has also been given in the tax audit report by auditor in the form 3CB. 4-6 That the Ld. AO had issued various questionnaires along with statutory notice(s). The Ld. AO called for books of account vide notice dated 09.09.2021 page 10-11. Reply No. 3 dated 17-03-2021 The assessee has explained that the survey team has wrongly calculated excess stock. The excess stock works at Rs. 17,77,416/- against Rs. 49,98,000/- calculated by the A.O. 8-9 Reply no 4 dated 13.09.2021 12 The appellant submitted that the inventory was prepared on MRP basis and not on cost basis. It was also submitted that the relevant bills and vouchers for verification will be furnished. Reply No 6 dated 14-09-2021 Purchase bills as called for by the A.O. were submitted to verify the veracity of claim made by the assessee 14 Reply No 6 dated 14-09-2021 Sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 115BBE [1777416*60%*1.25*1.04] 13,86,384/- Tax paid by the appellant on income of Rs. 50L surrendered in return of income [50L*30%*1.04] 15,60,000/- Tax Payable NIL 22. That before invoking the provisions of section 263, it is very much necessary to adhere to the twin conditions as embedded in section 263. In the circumstances where only one of the conditions is satisfied and the condition is not dealt with, in such circumstances the proceedings initiated vide section 263 are without jurisdiction. That the said twin conditions are being produced hereunder: - "(i) The order of the Assessing Officer sought to be revised is erroneous; and (ii) 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." 23. The Ld. AR argued that from the above facts and circumstances it is evident that no prejudice is caused to the revenue even if the correct excess stock is treated as income and tax is calculated as per the provisions of section 115BBE. It is a settled law that what is required to be taxed is the correct income and not the hypothetical in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s regard reliance is being placed upon the following case laws:- "A) Malabar Industrial Co. Ltd. v/s CIT (2000) 243 ITR 83 (SC) in which it has been stated as under: - Section 263 of the Income-tax Act, 1961 - Revision - Of orders prejudicial to interests of revenue - Assessment year 1983-84 - Whether in order to invoke section 263 Assessing Officer's order must be erroneous and also prejudicial to revenue and if one of them is absent, i.e., if order of Income-tax Officer is erroneous but is not prejudicial to revenue or if it is not erroneous but is prejudicial to revenue, recourse cannot be had to section 263(1) - Held, yes - B) [2023] 152 taxmann.com 565 (Delhi) HIGH COURT OF DELHI Principal Commissioner of Income-tax v. H.T.L Ltd.* Section 50C, read with section 263, of the Income-tax Act, 1961 - Capital gains - Special provision for computation of full value consideration (Revision) - Assessee had filed its return and same was processed under section 143(1) - Subsequently, Principal Commissioner invoked revision under section 263 on ground that a land was sold by assessee to an entity below value adopted by concerned authority for levy of stamp duty, and therefo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 263 - Held, yes [Para 12] [In favour of assessee] D) [2021] 130 taxmann.com 496 (Gauhati) HIGH COURT OF GAUHATI CMJ Breweries (P.) Ltd. v. Union of India Section 263 of the Income-tax Act, 1961 - Revision - Of orders prejudicial to interest of revenue (General Principles) - An order under section 263 was assailed on ground that condition precedent of initiating a proceeding under section 263 was absent and, therefore, impugned order was an order without jurisdiction - Whether two conditions of order being erroneous and prejudicial to interest of revenue have to be present at stage when Principal Commissioner or Commissioner initiates exercise of jurisdiction under section 263 - Held, yes - Whether where there was no prima facie satisfaction recorded by Principal Commissioner on basis of materials available on record that order of Assessing Officer which was sought to be reviewed under section 263 was an erroneous order as Principal Commissioner was yet to arrive at his prima facie conclusion and wanted matter to be examined further in-depth, no action could have been taken against assessee pursuant to proceeding initiated under section 263 - Held, yes [Paras 6 to 9] E ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the conclusion would be that PCIT, in his revisionary jurisdiction, cannot say that the order with some enquiry done by the A.O. to be erroneous, he can hold the non inquiry cases to be erroneous. However, in such cases he himself has to bring on record the error and prejudice through independent verification and enquiry. 29. That the revisionary powers under section 263 allow the Principal Commissioner of Income Tax (PCIT) to revise an order if it is deemed erroneous and prejudicial to the interests of revenue. However, in this instance, the PCIT's revision order contradicts the facts and circumstances of the case duly supported by documentary evidence. 30. Further before concluding his arguments he also attempted to distinguish the case laws cited by the ld. PCIT in his order: Sr. No Citation Brief Rebuttal 1. [2018] 95 taxmann.com 366 (SC) SUPREME COURT OF INDIA Deniel Merchants (P.) Ltd. v. Income-tax Officer Section 68, read with section 263, of the Income-tax Act, 1961 - Cash credits (Revision) - Commissioner had passed an order under section 263 with observations that Assessing Officer did not make any proper inquiry while making assessment and accepting expl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3 [2019] 105 taxmann.com 287 (Punjab & Haryana) HIGH COURT OF PUNJAB AND HARYANA Principal Commissioner of Income-tax, Ludhiana v. Venus Woollen Mills, Ludhiana Section 145, read with sections 133A and 263, of the Income-tax Act, 1961 - Method of accounting (Additions to income) - Assessment year 2008-09 - Assessee was engaged in business of manufacturing/trading of yarn and fiber waste etc. - A survey under section 133A was conducted at business premises of assessee and during said survey, a sum of Rs. 2.15 crores was surrendered as an additional income - Subsequently, assessee filed return declaring taxable income of Rs. 1.35 crores - Assessing Officer completed assessment under section 143(3) by making a small addition of Rs. 15,000 only - Commissioner opined that Assessing Officer was required to have carefully dealt with case especially where assessee had surrendered Rs. 2.15 crores during survey but in return filed subsequently, taxable income of only Rs. 1.35 crores was declared - He thus passed a revisional order setting aside assessment - Whether in view of fact that Assessing Officer did not apply mind to correctness of books of account produced before her except to no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ls Ltd. v. Income-tax Officer, Company Circle III, Coimbatore Applicability of section 263 It is not necessary for the Commissioner to make further enquiries before cancelling the assessment order of the Assessing Officer. The Commissioner can regard the order as erroneous on the ground that in the circumstances of the case the Assessing Officer should have made further inquiries before accepting the statements made by the assessee in his return. The reason is obvious. Unlike the civil court which is neutral to give a decision on the basis of evidence produced before it, an Assessing Officer is not only an adjudicator but is also an investigator. He cannot remain passive in the face of a return which is apparently in order but calls for further enquiry. It is his duty to ascertain the truth of the facts stated in the return when the circumstances of the case are such as to provoke an inquiry. The meaning to be given to the word 'erroneous' in section 263 emerges out of this context. The word 'erroneous' in that section includes cases where there has been failure to make the necessary inquiries. It is incumbent on the Assessing Officer to investigate the facts stat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of income - In compliance, assessee filed his return which was accepted under section 143(3) - Commissioner in exercise of power under section 263, set aside assessment order holding that while completing assessment, Assessing Officer failed to make necessary enquiries from assessee and his relatives - Whether since, in instant case, search and seizure operations were carried out by Department leading to recovery of incriminating materials, it was incumbent upon Assessing Officer to collect relevant information not only from assessee but also from all concerned agencies - Held, yes - Whether, therefore, inaction and failure on part of Assessing Officer in making requisite inquiries and verifications rendered assessment order passed by him erroneous and prejudicial to interest of revenue - Held, yes - Whether in view of above, impugned revisional order passed by Commissioner was to be upheld - Held, yes 1. That the appellant vide reply dated 17.03.2021 specifically pointed out to the AO that the excess stock works out to Rs. 1777416/- and not Rs. 50L as offered by the appellant. It was also requested to provide the benefit of excess income offered against the actual excess stock of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mmissioner of Income Tax (PCIT), the Assessing Officer (AO) failed to make any enquiry, which was a key factor leading to the revisional order. However, in the present case, the AO conducted a thorough and proper enquiry. The AO duly verified all the documents furnished by the appellant and considered the explanations provided during the assessment proceedings. Therefore, the circumstances of the current case are materially different, as the AO actively engaged in the scrutiny of the appellant's records, unlike in the cited case. This distinction renders the case law relied upon by the PCIT inapplicable to the present situation. 8 [2002] 121 TAXMAN 29 (AHD.) (MAG.) IN THE ITAT AHMEDABAD BENCH 'A' RAMESHCHANDRA MALERAM VARMA V. DEPUTY COMMISSIONER OF INCOME-TAX Section 263, read with section 145, of the Income-tax Act, 1961 - Revision - Of orders prejudicial to interests of revenue - Assessment year 1998-99 - Assessment order determining assessee-contractor's contract receipts was set aside by Commissioner (Appeals) with directions to Assessing Officer to reduce/delete addition after getting copies of accounts from payers - Assessing Officer passed order giving appeal effect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that it is not necessary that the surrendered amount is from business income. It could be on account of any other transaction legal or otherwise. Merely because an assessee carries on certain business, it does not necessarily follow that the amounts surrendered by him are on account of its business transactions. There is no presumption that absent anything else an amount surrendered by an assessee is his business income. It is for the assessee to establish the source of such surrendered amount." 33. On the facts we find that the stock of goods that has been found in excess by the survey team, are the same nature and type of goods i.e. Cosmetics, which is regularly traded by the assessee in her usual course of business, and in course of survey the department has not been able to unearth any other documents or papers to arrive at any different conclusion that the assessee has any other source of income earning activity other than the business of cosmetics. In other words the excess STOCK has not been separately identified and the loose papers and documents, diaries, impounded as per Annexure - 1 and 2 (of impounded documents) points to the fact that there has been unrecorded transac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9.2017.(Only relevant portion reproduced) "2.11. 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 excess stock which has been found during the course of survey is stock of rice. Therefore, the investment in procurement of such stock of rice is clearly identifiable and related to the regular business stock of the assessee. The decision of the Co-ordinate Bench in case of Shri Ramnarayan Birla (supra) supports the case of the assessee in this regard. Therefore, the investment in the excess stock has to be brought to tax under the head "business income" and not under the head income from other sources". (1) Hon'ble Andhra Pradesh High Court in the case of Deccan Jewellery Pvt Ltd (2021) 132 taxmann.com73(Andhra Pradesh) dated 02/08/2021, where on an almost identical facts, it was held by the court, that where nature and source of excess stock found during search was not specifically identifiable fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovisions of section 115BBE, even then also the tax so arrived at will be covered by the tax actually paid by the assessee and as such there is no prejudice to Government revenue. 38. Now coming to the issue as to whether proper enquiry was made by the AO, it is seen from records that specific queries were raised during assessment, and the assessee has furnished detail replies to all the queries in respect of purchase of stock, along with documentary evidences of purchase and sale bills and invoices, where it has been explained by way of written submissions, to have come out of receipts from unrecorded sales proceeds and the excess income earned, is naturally ploughed back into the same business, which is reflected as excess stock in trade, and it is the same income which is being surrendered to be taxed under the head " business income" . As such the source of the amount required for purchase of excess stock is well explained to the satisfaction of the AO to have come out of sale proceeds of cosmetics, and he has accepted the same after examination of the purchase and sales invoice vis a vis impounded documents and stock inventory of identical goods. 39. As such under the circums ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the instant case and the said assessment cannot be set aside merely on the ground of inadequacy of enquiry by the AO with respect to source of surrender of income . 44. On this issue various High courts has laid down the law, that where the AO after applying his mind has made enquiries and has taken a plausible view and passed an assessment order same cannot be disturbed by invoking the explanation 2 of section 263 merely because the view taken was not acceptable by the Ld. PCIT. (1) Gujrat High Court in the case of PCIT vs National Diary Development Board [2024] 158 taxmann.com 514, (2) Calcutta High Court in the case of Britannia Industries Ltd [2023] 146 taxmann.com 246, (3) Bombay High Court in the case of PCIT vs Shivshahi Punarvasan Prakalp Ltd [2023] 155 taxmann.com 408 (4) Calcutta High Court in the case of CIT vs M K Foundation [2023] 148 taxmann.com 314 (5) Karnataka High Court in the case of CIT vs Chemsworth Pvt Ltd [2020] 119 taxmann.com 358 (6) Gujrat High Court in case of PCIT vs S.N. Trade Link Pvt Ltd [2022] 145 taxmann.com 73 45. As such, after taking into consideration the entire factual aspect of the matter, and being enlightened by the judi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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