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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 ..... able under the head "Profit and loss of the business" but as deemed income under section 69 r.w.s. 115BBE of the act. 3. That the Ld. PCIT has erred in law in invoking the provisions of section 263 without there being any specific charge of no enquiry having been made the AO. 4. The Ld. PCIT-Central Circle Ludhiana has erred both on fact and law in not properly considering the submission made before him and further erred in assuming the jurisdiction u/s 263 of the IT Act, 1961 despite the fact that the assessing officer has conducted detailed inquiry before passing the assessment order. That the PCIT has failed to appreciate that the excess stock calculated by the survey team was to be inventorized at cost instead or MRP. 5. That the Ld. PCIT has erred in facts and in law in assuming jurisdiction u/s 263 by alleging that AO did not make any enquiries to verify the source of funds used for surrender on account of excess stock of Rs 50,00,000/- during the year. The Learned Principal Commissioner of Income Tax (PCIT) has failed to appreciate the fact that during the survey, loose slips were impounded, providing clear evidence that the assessee earned income from sales made ou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rvey u/s 133A of the Act 61, conducted at the business premises of the assessee on 7th February, 2019, excess stock of cosmetics, valued at Rs. 49,98,000/- was found and inventorised by the survey team and as per observation in the survey report u/s 133A(1), dated 08/02/2019, some loose papers and diaries were impounded as evidence of purchase and sales, out of books of accounts, even though no cash book was found at the business premises. 4. In course of survey, the assessee voluntarily disclosed an amount of Rs. 50 lakhs, as business income, over and above her normal profits derived from the said business, to cover up and settle the alleged discrepancy of stock, and the same is also evidenced by her replies to the statements recorded by the survey team in course of survey. 5. Subsequently, the return of income filed by the assessee in due course disclosing a total income of Rs. 56,05,590/-, which included the normal business profits and the additional income disclosure of Rs. 50 lakhs, (after considering deductions under Chapter VIA) was accepted by the AO, in scrutiny u/s 143(3), as per normal procedure, after considering explanations and submissions filed by the assessee in c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e onset, submitted that the determination of excess stock at Rs. 50 Lakhs (Rs. 49,98,000/-), by the survey team itself is technically incorrect, because the same has been inventorised and valued at MRP instead of cost price. It was submitted that the inventory process conducted by the department consisted of about 60 pages, and the closing stock as on date of survey was calculated by drawing up a trading account by taking into consideration the gross profit rate for earlier years and the difference has been arrived at by taking into consideration the value of stock inventory noted by the department at MRP and closing stock calculated by applying GP rate as on date of survey. He further submitted that if the said stock is properly valued at cost price (instead of MRP) the calculation of excess stock value will be Rs. 17. 77 lakhs only (and not Rs. 50 lakhs) which is narrated as under, and the same has been duly brought to the notice of the AO vide letter dated 13/09/2021: Stock calculated by department at MRP Rs.98,02,484/- Less:-GST Elements Rs.(14,24,292 /-) Less:-Margin and Discount Rs.(16,75, 638/-) Less:-Stock as per books of A/c Rs.(49, 25,138/-) Excess stock Rs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s is much less around Rs. 17 lakhs (approx), which the Ld AR argued is directly co related to the unrecorded purchase and sales invoices found in course of survey, pertaining to cosmetics. 15. He further referred to the survey report u/s 133A(1) of the Act dated 08/02/2019, where there has been a clear finding of the survey team (in col- 15 of the report) "Assessee has been found in the practice of purchase/ sales out of books of accounts ", to put forth his argument that the assessee is not engaged in any other business, other than cosmetics and the excess stock so found is also of the same nature and type which is regularly traded by the assessee and no other business activity or income generating activity has been found by the survey team, other than trading of cosmetics, and the excess stock found, is the excess that is rolling in the same business and has been acquired out of unrecorded purchase and sales of the same goods, and as such the additional income disclosed is to be assessed under the head business income and the deeming provisions of section 69B (and provisions of section 115BBE), is not applicable to this case because the additional income so surrendered is genera ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) has exercised jurisdiction under Section 263 without satisfying the twin conditions prescribed by the section and as interpreted by various courts. Specifically, the condition of an order being "erroneous" can only be established if the Assessing Officer (AO) fails to conduct any enquiry, which is not applicable in the present case. It is pertinent to note that the appellant has provided detailed replies to the questionnaire, specifically addressing the issue of the source of the excess stock surrendered. That summary of the replies submitted on these specific points as contained in replies filed are as follows:- Particulars Comments Page No Statement dated 08.02.2019 admitting the fact that the appellant was making sale outside books of accounts Question No 4 of statement dated 08.02.2019 51 Survey report dated 08.02.2019 stating the fact that the appellant was in practice of making sales outside books of accounts Annexure A-1 Statement dated 08.02.2019 51 Question 6 of notice dated 18.01.2021 (Please refer page no 2 of paper book) '6 It is observed that during the course of survey proceedings excess stock of Rs. 49,98,000/- was found. Please explain source of purcha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g price. The correct value of excess stock as per cost as submitted before the AO is worked out and the assessee has put an alternate argument to demonstrate that the revenue is not prejudiced: "Additional argument on the aspect of prejudicial to the interest of revenue: That the appellant vide reply dated 17.03.2021 specifically requested the AO to consider the correct stock. (copy at page no 8-9 of the PB). In order to substantiate the same, the AO specifically asked the appellant to provide purchase bills and the same were also submitted vide reply dated 14.09.2021 (page 14 of PB). The AO framed the assessment u/s 143(3) without making any addition by stating that the appellant had duly considered the amount surrendered in the return of income filed. That the same facts were presented before the PCIT and it was submitted that even if the correct excess stock amounting to Rs. 1777416/- is considered and tax is calculated as per the provisions of section 115BBE, the tax liability works out to Rs. 1386384/- [tax @78% including surcharge 25% and cess 4%]. In this regard your Honor's kind attention is drawn towards the fact that the appellant has already offered a sum of Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g the course of assessment proceedings. In arriving at this decision, the Delhi High Court drew strength from the principles laid down by the Supreme Court in Rampyari Devi Saraogi v. CIT [1968] 67 ITR 84 and Smt. Tara Devi Aggarwal v. CIT [1973] 88 ITR 323 (SC). The underlying principle which emerges from these judgments is that if an assessment order is passed without making any enquiring, then such an order would be erroneous. 26. This provision cannot be invoked to correct each and every type of mistake or error committed by the Assessing Officer; it is only when an order is erroneous as also prejudicial to revenue's interest, that the provision will be 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' must be read in conjunction with an erroneous order passed by the AO. Every loss of Revenue because of the order of the AO cannot be treated as prejudicial to the interest of the Revenue. For example, 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 vi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 22] 141 taxmann.com 512 (Gujarat) HIGH COURT OF GUJARATPrincipal Commissioner of Income-tax v. Shukla Dairy (P.) Ltd.* II. Section 40A(3), read with section 263, of the Income-tax Act, 1961 and rule 6DD of Income-tax Rules, 1962 - Business disallowance - Cash payment exceeding prescribed limit (Rule 6DD) - Assessment year 2013-14 - Assessee-company was engaged in business of manufacturing of dairy products - Assessee filed return and Assessing Officer passed assessment order after making certain additions - Principal Commissioner observed that assessee made cash payment in excess of Rs. 20,000 to milk sellers who were traders and said sellers would not be eligible for rule 6DD - Principal Commissioner invoked section 263 and remanded matter on ground that Assessing Officer failed to make any disallowances and cash payment in excess of Rs. 20,000 in a single day required detailed verification - Tribunal observed that during assessment proceedings, assessee submitted cash payment register and explained each item of proposed addition as per show cause notice of Assessing Officer and Assessing Officer, after going through cash payment register and explanation of each item, did not m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r undisclosed income under garb of long term capital gain (LTCG) to claim exemption under section 10 (38) was based on a proposal given by Assessing Officer, exercise of jurisdiction under section 263 was not justified - Held, yes [Paras 8 and 9] [In favour of assessee] 27. The Ld AR further argued on applicability of clause(a) of explanation 2 to section 263 and relied upon the Judgment of Sh. Narayan TatuRane Vs. ITO, I.T.A. No. 2690/2691/Mum/2016, 70 taxmann.com 227 dt. 06.05.2016 in which ITAT has held that what is relevant for clause (a) of Explanation 2 to sec. 263 is whether the AO has passed the order after carrying our inquiries or verification, which a reasonable and prudent officer would have carried out or not. It does not authorize or give unfettered powers to the ld. PCIT to revise each and every order, if in his opinion, the same has been passed without making inquiries or verification which should have been made. In our view, it is the responsibility of the Ld Pr. CIT to show that the inquiries or verification conducted by the AO was not in accordance with the inquiries or verification that would have been carried out by a prudent officer. Hence, in our view, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts in new companies at much higher price than their real worth - Upon reassessment, Assessing Officer did not invoke section 68, hence, Commissioner exercising his revisionary power under section 263 set aside assessment orders directing Assessing Officer to make fresh assessment after conducting detailed enquiry and upon satisfying on genuineness of transaction - Whether order of Commissioner was not based on irrelevant considerations and further in present circumstances, he was not obliged to positively indicate deficiencies in assessment order on merits on question of issue of share capital at a huge premium - Held, yes - Whether since inadequate enquiry conducted by Assessing Officer was as good as no enquiry making order erroneous and prejudicial to interests of revenue, Commissioner was empowered to revise assessment order - Held, yes [Paras 17.i. & 20.g.] [In favour of revenue] The cited case law pertains to share capital and is not relevant to the issue of excess stock. The case law in question involves an assessee who filed a return with minimal income while issuing share capital at a substantial premium and making significant investments in new companies at prices consid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ficer (AO) conducted a thorough enquiry and considered the correct figures, and thus the case law cited does not parallel the current facts. The proper application of Section 145, read with Sections 133A and 263, requires that the conditions of the case law be met, which is not the situation here. 4 [2013] 29 taxmann.com 70 (Hyderabad - Trib.) IN THE ITAT HYDERABAD BENCH 'B' Mahalakshmi Liquor Promoters (P.) Ltd v. Commissioner of Income-tax-IV, Hyderabad Section 263, read with sections 2(47) and 14A, of the Income-tax Act, 1961 - Revision - Of order prejudicial to interest of revenue - Scope of jurisdiction - Assessment year 2007- 08 - Commissioner in exercise of power under section 263, set aside assessment order taking a view that Assessing Officer had not examined issues relating to investment of loan for non-business purposes and transfer of land within meaning of section 2(47) - Whether, since, at time of making assessment, there was no enquiry by Assessing Officer on issues raised by Commissioner, impugned revisional order was to be upheld - Held, yes [Para 24] [In favour of revenue] In the case relied upon by the PCIT, the AO had not made any enquiry. However, i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nquiry. 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. 6 [2011] 11 Taxmann.com 183(Ranchi) IN THE ITAT CIRCUIT BENCH, RANCHI Dr. Rabindra Kumar Singh v. Commissioner of Income-tax (Central), Patna Section 263 of the Income-tax Act, 1961 - Revision - Of orders prejudicial to interest of revenue - Assessment years 1991-92 to 1993-94 - Whether Commissioner may consider an order of Assessing Officer to be erroneous not only when it contains some apparent error of reasoning or of law or of fact on face of it but also when it is a stereo-typed order which simply accepts what assessee has stated in his return and fails to make enquiries or examine genuineness of claim which are called for in circumstances of case - Held, yes - Assessee was employed in Department of Animal Husbandry of State Government - Search and se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he appellant and only after careful examination of documents brought on record, completed the assessment for the AY 2019-20 vide order passed u/s 143(3) on 17.09.2021 whereby the returned income of Rs. 5605590/- was duly accepted. 6. In the case law replied upon the A.O. has not made proper enquiry from the relatives on the contrary in extant case proper enquiry was made. 7 [2005] 95 ITD 326 (PUNE) IN THE ITAT PUNE BENCH Ambika Agro Suppliers v. Income- tax Officer, Wd. 2(6), Jalgaon Section 263 of the Income-tax Act, 1961 - Revision - Of orders prejudicial to interest of revenue - Assessment year 1995-96 - Commissioner set aside assessment order on grounds that Assessing Officer had not made proper enquiries in regard to (a) considerable increase in salary and account writing fees; (b) genuineness of debts; (c) genuineness of transactions on cash payment exceeding Rs. 10,000, identity of payee and circumstances compelling assessee to make cash payments; and (d) genuineness of unsecured loans taken from certain persons - Whether acceptance of assessee's explanation without any enquiry rendered assessment order erroneous as well as prejudicial to interests of revenue - Held ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The assessment was carried out with due diligence and care, ensuring that all relevant facts and figures were appropriately considered. Therefore, unlike the AO in the cited case, the AO in this case did not exhibit any failure to investigate or verify, making the cited case law inapplicable to the current situation. 31. Therefore, the Ld AR rested his arguments by submitting that based on judicial pronouncements, the order passed u/s 263 be annulled, considering the facts and circumstances of the case and in the interest of natural justice. 32. We have heard the rival submissions and considered the materials on record and the paper book submitted by the assessee. We observe that the Ld PCIT, has basically raised two issues, firstly, it has been alleged that the AO has failed to examine the source of funds for making purchase of Rs. 50 lakhs during the year and surrendered by the assessee (in respect of the excess stock found during survey) and secondly, even if the queries has been raised in scrutiny proceedings, through notice u/s 142(1), by the AO, it was not examined whether the surrendered income was generated in regular course of business or it has been generated from und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... "8.12. In the instant case as well, there is no physicaldistinction between the accounted stock and unaccounted stock. No such physical distinction was found by the Revenue either. We therefore find that the difference in stock so found out by the authorities has no independent identity and is in terms of value terms only and thus part and parcel of entire stock therefore, it cannot be said that there is an undisclosed asset which existed independently and thus, what is not declared tothe department is receipt from business and not any investment as it cannot be co-related with any specific asset and the difference should thus be treated as business income. 8.13. In light of aforesaid discussion and in the entirety of facts and circumstances of the case, the income so surrendered on account of investment in excess stock during the course of survey cannot be brought to tax under the deeming provisions of section 69B of the Act and the same has to be assessed to tax under the head "business income". In absence of deeming provisions, the question of application of section 115BBEdoesn't arise and normal tax rate shall apply. The AO is thus directed to assess the income under the h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n two views are possible, then the view taken by the assessing officer cannot be said to be wrong as the same was not to the liking of the opinion of the Ld PCIT, for which the Hon'ble bench relied on Supreme court in the case of Max India [2007]11 TMI 12- Supreme Court. 36. Now, coming further to the issue of valuation of the stock as done by the survey team, it is seen that the assessee in course of assessment proceedings has specifically demonstrated with supporting sales invoices and calculation of the entire inventory of stock, that if the said excess stock is valued at COSTS, the difference will only be of an amount of Rs. 17 lakhs (approx), and not Rs. 50 lakhs, as it is has been made out to be . Neither the AO nor the Ld PCIT, in course of proceedings, before them, has been able to counter the said argument of the assessee, nor could they find any fault in the computation and calculation put forth by the assessee as regards the stock value, at cost, as claimed by the assessee. 37. In course of hearing before us the Ld DR, also did not raise any counter arguments regarding the process of valuation of the stock at cost and did not find any fault in respect of such valuation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d collected relevant materials and discussed facets of case with assessee, order of Commissioner to direct fresh assessment by going deeper into matter would not form a valid or legal basis to exercise jurisdiction under section 263 - Held YES. (2) CIT vs Jain Uday fabrics pvt ltd [2024] 165 taxmann.com 833 Punjab and Haryana High Court, (3) PCIT vs Anindita Steels Ltd [2022] 137 taxmann.com 203 (Calcutta High Court) (4) CIT vs Goyal Private family Specific Trust [1987] 35 taxmann.522 (Allahabad) 42. Lastly, it is also observed by us that neither the survey team in course of survey, nor the AO in course of assessment proceedings, has brought any adverse material on record, to prove the fact that the assessee had any income other than the business of cosmetics and the assessee has also explained 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. 43. Under the circumsta ..... X X X X Extracts X X X X X X X X Extracts X X X X
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