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TMI Blog2025 (2) TMI 764X X X X Extracts X X X X X X X X Extracts X X X X ..... iating that the assessment order passed under section 143(3) of the Act is neither erroneous nor prejudicial to the interest of the revenue and therefore, the provisions of section 263 of the Act are not attracted in the present case. Hence, the revision order passed under section 263 of the Act is without jurisdiction and the same may be quashed and set aside. 3. The Ld. PCIT failed to appreciate that the Assessee has duly considered the stock of rough diamond and its valuation admitted during the course of survey proceedings while computing the closing stock for the year under consideration. The details of diamond sold and the stock in accordance with the survey finding were duly submitted before the Ld.A.O. in the course of assessment. Thus, the PCIT is not justified to infer that the stock shown by the Assessee is not in the line with the survey findings. Therefore, the order dated 154 r.w.s 263 of the Act is not at all justified and the same may be quashed and set aside. 4. The PCIT failed to appreciate that the Ld.A.O. has duly verified and examined the claim of a closing stock and the stock admitted in the course of survey while passing the assessment order. Thus, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessment order with a direction to complete the assessment order de novo afresh after considering the abovementioned points discussed in para 2 after affording proper opportunity to the assessee. However, it was later found that the assessee had made a written submission which were not taken into consideration as due to some technical glitch the submissions by the assessee was not visible in the system. Accordingly, he invoked provisions of section 154 of the Act r.w. section 263 of the Act and set aside the assessment order for framing it de novo. 3. Before us, the ld. DR for the Revenue relied on the revision order, the ld. Authorised Representative of the assessee per contra made a detailed submission in support of the grounds of appeal reproduced in foregoing paras above. He drew attention to the reply submitted by it before the ld. PCIT in response to the show cause notice issued by him. Factual aspects of the case and the arguments made before him are extracted below for the sake of clarity: "1. The Assessee is engaged in the business of Import and Export of rough and polished Diamonds. On 16.02.2018, a survey action was conducted ACIT Circle 32(1), Mumbai at the off ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r section 143(3) of the Act, added the sum of Rs. 4,02,01,020/- under section 69C of the Act and thereby imposed the taxes in accordance with the provisions of section 115BBE of the Act. 4. On appeal, the Ld.CIT(A) dismissed the appeal of the Assessee without appreciating the submissions of the Assessee. 5. The Assessee therefore, filed an appeal before the Hon'ble ITAT challenging the disallowance of Rs. 4,02,01,020/- made by the Ld.A.O. and confirmed by the CIT(A) under section 69C of the Act. The ITAT, after considering the submissions of the Assessee, allowed the appeal [ITA 1618/Mum/2023] for the A.Y. 2018-19 vide an order dated 28.08.2023 The relevant observations of the ITAT as reproduced as under: "6.4 We have heard rival submission and perused the relevant material on record. It is undisputed that no difference in quantity of the stock was found during the course of the survey. The Assessing Officer has referred only difference in valuation of stock. It is not the case of the Assessing Officer that any of the purchases were not found to be recorded in the books of accounts. The difference in valuation as on the date of the survey as compared to the valuation at t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has voluntarily offered a sum of Rs. 4,02,01,020/- (i.e. 7277.5 cts x Rs. 5,524), being the difference of the valuations (i.e. Rs. 35,395 and Rs. 40,919) pertaining to the closing stock, mentioned in the impugned Fortune Note Book for tax as increased valuation of closing stock, thereby resulting in increased gross profit during the year. The Assessee has furnished all the relevant details and documents including the submissions made before the Ld.A.O., Balance Sheet and Profit and Loss accounts along with Annexures, Details of Average Stock Valuation and the impounded note book before your honours along with the present submission. Your honours would appreciate that the Average stock valuation made by the Assessee clearly shows that the closing stock at Rs. 42,01,93,733/- computed by the Assessee comprises of the closing stock of rough diamond valued at Rs. 7,43,06,079/- and closing stock of polished diamond valued at Rs. 34,58,87,654/-. Further, the said closing stock of Rs. 42,01,93,733/- is reflected in the books of accounts of the Assessee which were duly submitted in the course if assessment proceedings and considered by the Ld.A.O. while passing the assessment order. Thus, i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... period upto 31.3.2018.Specific query appears on Excess stock on point no.15 pertaining to the additional income offered of Rs 4.02 cr. Vide another letter dated 23.4.2021, he also issued a show cause notice specifically w.r.t. the survey pertaining to the valuation rates as per paras 3 to 5.Another show cause notice dated 1.6.2021 specifically related to the excess stock as found during survey. It is found from the page-95 to 104 of the detailed reply submitted by the AR of the assessee that various explanations were furnished by the assessee vide reply dated 4.5.2021. Reconciliation of the stock as on the date of survey and the stock position of Rough diamonds submitted before him are also part of the reply. The assessee has also furnished all the relevant details and documents including the submissions made before the AO, Balance Sheet and Profit and Loss accounts along with Annexures, Details of Average Stock Valuation and the impounded note book etc. It was further explained to us that the average stock valuation made by the assessee clearly shows that the closing stock at Rs. 42,01,93,733/- computed by it comprised of the closing stock of rough diamond valued at Rs. 7,43,06,0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t made by the Assessing Officer or cancelling the assessment and directing fresh assessment. 53.2 The interpretation of expression "erroneous in so far as it prejudicial to the interests of the revenue" has been a contentious one. In order to provide clarity on the issue, section 263 of the Income-tax Act has been amended to provide that an order passed by the Assessing Officer shall be deemed to be erroneous in so far as it is prejudicial to the interests of the revenue, if, in the opinion of the Principal Commissioner or Commissioner. (a) the order is passed without making inquiries or verification which, should have been made; (b) the order is passed allowing any relief without inquiring into the claim; (c) the order has not been made in accordance with any order, direction or instruction issued by the Board under section 119; or (d) the order has not been passed in accordance with any decision, prejudicial to the assessee, rendered by the jurisdictional High Court or Supreme Court in the case of the assessee or any other person. 53.3 Applicability: This amendment has taken effect from 1st day of June, 2015." 4.4 We find merit in the plea of the assessee that the ld. PCIT i ..... 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