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Income Tax Appellate Tribunal, DELHI ‘H’ BENCH,
Before: SHRI N.K. BILLAIYA, & SHRI ANUBHAV SHARMA
PER N.K. BILLAIYA, ACCOUNTANT MEMBER:-
This appeal by the assessee is preferred against the order dated 24.03.2022 framed u/s 263 of the Income-tax Act, 1961 [hereinafter referred to as 'The Act'] by the PCIT, Ghaziabad pertaining to Assessment Year 2017-18.
2. The grievances of the assessee read as under:
“1.That the Ld. Pr. CIT was not justified in exercising jurisdiction under section 263 of the Income Tax Act, 1961, when the assessment order passed by the Id.AO on 11.6.2019, was neither erroneous nor prejudicial to the interest of revenue.
2. That the Ld. PCIT having invoked jurisdiction u/s.263, merely based on an audit objection, without application of his own mind, the impugned order, passed in consequence thereof, is unsustainable in law per se.
3.That the surrender of Rs. 10 crores when made during survey, by relating it to impounded documents, to cover the discrepancies noticed by Ld. A.O. offered as business income in return, duly accepted by Ld. AO after detailed inquiry and verification of all relevant documents in assessment by further enhancing the same by Rs.5 lacs, the Ld. PCIT's allegation that no inquiry and verification was made by AO on this point, is wholly unfounded so as not to vest him with valid jurisdiction to invoke powers under section 263 of the Act ibid.
4. That a legally sustainable view taken by the Ld. AO, backed by documents found during survey, already accepted by survey team as discrepancies in business income taxable at normal rates, duly secured by collecting cheques for tax due thereon, the Id. PCIT grossly erred in arbitrarily imposing his view, de hors the facts and material on record, to direct its taxation u/s 115BBE, more so when on the date of survey, such higher tax rate was not on statute.
5. That by not disputing the nature of Rs.5 lacs, added by Ld. AO as discrepancies in order to cover other minor deviations business income by enhancing the surrendered income offered qua the same
set of impounded documents, the Ld. PCIT took a mutually contradictory view to hold the surrendered income as non business income.
6. That the impugned order of the ld. PCIT is liable to be set aside in as much as it is in total breach of trust and assurances given during survey while seeking heavy surrenders from the assessee to earn peace of mind.
7. That the order under appeal, being most arbitrary, irrational, against equity and natural justice and not meeting the mandate of section 263, deserves to be held as unsustainable in law and facts.”
3. The sum and substance of the aforestated grievances of the assessee is that the PCIT erred in law in assuming jurisdiction u/s 263 of the Act and further erred in holding that the assessment order dated 11.06.2019 is erroneous and prejudicial to the interest of the Revenue.
4. The representatives of both the sides were heard at length. The case records carefully perused and relevant documentary evidences brought on record duly considered in light of Rule 18(6) of ITAT Rules.
Briefly stated, the facts of the case are that the assessee filed its return of income electronically on 01.11.2017 declaring total income of Rs. 10.59 crores. Return was processed u/s 143(1) of the Act and was subsequently taken up for scrutiny assessment through CASS and, accordingly, statutory notices u/s 143(2) and 142(1) of the Act were duly served upon the assessee.
5. Notice u/s 142(1) dated 05.03.2019 reads as under:
Notice under Sub Section (1) of Section 142 of the Income Tax Act, 1961
“Sir Madam/M/s
In connection with the assessment for the assessment year 2017-18 you are required to a) Furnish or cause to be furnished on or before 12/03/2019 at 11:00 AM the accounts and documents specified overleaf. b) Furnish and verified in the prescribed manner under Rule 14 of LT Rules 1962 the information called for as per annexure and on the points or matters specified therein on or before 12/03/2019 at 11:00 AM. c) The above mentioned evidence/information is to be furnished online electronically in E-Proceeding facility through your account in e-filing website of Income Tax Department d) Para(s) (a) to (c) are applicable if you have an account in e-filing website of Income Tax Department. Till such an account is created by you, assessment proceedings shall be carried out either through your e-mail account or manually (if e-mail is not available) e) In cases where order has to be passed under Section 16315 153A/153C of the Income Tax Act, 1961 read with section 143(3), assessment proceedings would be conducted manually
Yours faithfully AMIT SHUKLA CIR-2(1)(1) GHAZIABAD ANNEXURE
1. A brief note on the nature of business activity carried out during the FY2016-17.
1. Furnish computation of income for FY2016-17
1 Furnish copy of Balance sheet and P/L account, with all annexures, for the period FY2016-17
1 Furnish comparative figures of turnover and profits (GP as well as NP) for three previous years. Explain the sudden jump in NP rate from 3.98% in FY2015-16 to 28.68% in FY2016-17 even when the turnover has declined from Rs 616 cr to 36.85cr
1. You have reported sundry creditors of Rs 12,38,56,4271-as on 31.03.2017. Furnish the complete details of sundry creditors with outstanding above Rs 10,00,000/- as on 31.03.2017 in the following format:
Name and Opening balance Total Purchases Total Closing complete as 01.04.2016 during FY2016- payments balance as address of the (Rs.) 17 (Rs) during on creditor FY2016- 31.03.2017 17 (Rs) (Rs
1. Furnish evidence of additions made in the fixed assets during the FY2016-17 in order. to justify your claim of depreciation.
1. You have raised unsecured loans during the year as per point no- 31(a) of your Tax Audit report. In respect of each unsecured loan raised furnish the following
1. 1. Confirmation as well as ITR and bank statement (for FY 2016-17) of the loan providers.
2. Copy of account of these loan providers in your books.
3. Any other evidence/detail to discharge the onus cast on you u/s 68 of IT Act, 1961 in respect of these unsecured loans
1. Furnish quantitative details of closing stock/inventory reported to be Rs 1,95,97,880/- in your P/L account along with working ( basis of valuation) of the same.
1. Explain the nature of other income of Rs 50,04,124/-credited in your P/L account
1. Justify the allowability of statutory dues remaining unpaid as on 31.03.2017 as per section 438 of IT Act, 1961. Also furnish evidence of actual payment of bonus of Rs 55,11,194/- to decide on its allowability.
1. Justify the reasonableness of payments made to related persons as per u/s 40A(2)(b).
1. Furnish copy of account of each partner in your books for FY2016-17. Explain the source of addition to capital/capital introduced by them, with supporting evidence.
1. Furnish details of loans and advances ( of Rs 6,72,50.164/-) as appearing in your balance sheet as on 31.03.2017 with their copy of account for FY2016-17 Also justify the business purpose of such advances.
1. You have reported dividend income of Rs 18,26,738/- under the head other income. Whether any disallowance u/s 14A rw Rule 8D has been made in this regard. Explain.
1 Justify expenses claimed under following heads:
1. 1. Consumable stores Rs 3.15 cr
2. Job Work-Rs 1.04 cr
3. Wages - Rs 2.98 cr
4. Packing Material- Rs 70.56 lakhs
5. Commission - Rs.40.03 lakhs
1. Produce books of account with supporting bills/vouchers for examination.”
6. Replies of the assessee reads a under:
“Sir,
This has reference to your office letter as desired by your honour the assessee is furnishing following statements relating to A.Y. 2017-18:-
The copy of return (ITR-V) alongwith computation of income for the relevant A.Y. 2017-18 is enclosed.
2. That the Assessee is also enclosing Copy of Audit Report, Balance sheet/Trading and P&L a/c along with all schedules and annexure for the A.Y. 2017-18.
The assessee has submitted all of the information with regard to queries as raised by your honour. Should, however, any further clarification required the assessee would be obliged to furnish the same.
Yours faithfully
[Samit Bajaj] Counsel for assessee”
Sir, This has reference with the ongoing assessment proceedings in which the assessee is furnishing following statements relating to A.Y. 2017-18 as required by your honour.- 1. That the assessee is enclosing confirmation of S. Creditors account of the following assessees:
Mis. Spencer Trading Corporation
Mis. Chintamani Sharma & Sons Mis. J itendra Strips & Tubes Pvt. Ltd Mis. Ankur Enterprises Mis. Maa Jagdambe Engineering Works
2. The assessee is enclosing the party wise details with PAN & TDS for commission paid during this assessment year.
3. The assessee is also submitting the details of Sundry Creditors in the format given by your honour for the outstanding amount above Rs. 10,00,000.00
4. That the assessee had surrendered Rs.IO crs during the survey proceedings held on 09/08/2016 to cover up the deficiencies as noted at the time of Survey. This surrender was made voluntarily to buy peace of mind and also after being assured that no adverse inference would be taken if the tax amount is deposited within the stipulated time.
5. That the assessee has already enclosed copy of capital account of the partner's along with copy of Bank statement. With regard to add ition made during the year in the partners capital account, the assessee is enclosing bank statement with narrations in which it
would be noted that there has been withdrawals from the capital account and mostly those withdrawals have been deposited back. Other than this the assessee has taken loans from other assessee's for which confirmation of account with ITR and bank statement is being enclosed. The assessee is also enclosing copies 0 f ITR for all the partners.
The assessee is enclosing copies of challan in support of statutory liabilities u/s 43B paid before due date of filing of return as reported in column No-26(i)(B)(a) of Form No-3CO.
The assessee has already submitted confirmation copies of Unsecured Loans and further it is stated that no Fresh loan or amount has been added in this year. Infact the amount pertaining to interest paid has been credited and TOS amount has been debited and in some parties amount has been returned back. This can be verified from the statement of account submitted.
8. The assessee has earned Dividend Income received from Shares and Mutual Funds for Rs. I 8,26,738/-, and this Income has been added in the total profit shown by the assessee. The assessee has not claimed any Exempt Income during this year thus the disallowance u/sl4 rw Rule 80 is not applicable on the assessee.
9. That the assessee is producing books of account with supporting BillslVouchers for 1 verification
The assessee has submitted all of the information with regard to queries as raised by your honour. Should, however, any further clarification required the assessee would be obliged to furnish the same. The assessee trusts this shall satisfy your honour in completing the assessment.
Thanking You. Yours faithfully, (SAMIT BAJAJ) Counsel for the assessee
7. After considering the detailed reply of the assessee and after examining the books of account, bills and vouchers produced by the assessee, the Assessing Officer completed assessment vide order dated 11.06.2019 at the assessed total income of Rs. 10.64 crores.
Assuming jurisdiction u/s 263 of the Assessing Officer, the ld PCIT issued the following show cause notice:
“M/s/Mr/Ms
Subject Notice for Hearing in respect of Revision proceedings us 263 of the THE INCOME TAX ACT, 1961-Assessment Year 2017-18
In this regard, a hearing in the matter is fixed on 17/03/2022 at 03:00 PM You are requested to attend in person or through an authorised representative to submit your representation if any alongwith supporting documents/information in support of the issues involved (as mentioned below) if you wen that the Revision proceeding be concluded on the basis of your written submissions/representations filed in this office, on or before the said due date, then your personal attendance is not required. You also have the option to file your submission from the e-fling portal using the link: incometaxindiaefiling.gov.in
ITR for AY 2017-18 was e-filed on 1.11.2017 declaring total income of Rs. 10,59,75,100/-. Later on, the case was selected for scrutiny under CASS. The AQ. Circle-2(1)(1), Ghaziabad completed assessment order u/s 143(3) of the IT. Act 1961, dated 11.06.2019 on total income of Rs.10,64,75,100/-
From perusal of assessment record, for the year under consideration, following discrepancies/ errors have been noticed-
2.1 In this case, a survey u/s 133A was conducted on 09.08.2016 and the assessee surrendered a sum of Rs. 10,00,00,000/- included this amount in P & L A/C for the year & paid taxes on above sum at normal rate of tax & the same was accepted in assessment also. As this credit recorded in the books remained unexplained. For the year the source of the above sum was not explained, therefore the source of Rs. 10,00,00,000/- remained unexplained and thus the amount of Rs. 10,00,00,000/- needs should be added u/s 68 read with 1158BE of the IT. Act 1961.
In view of the above, the assessment order passed by the AO, Circle- 2(1)(1).Ghaziabad, is erroneous and prejudicial to the interest of revenue and may be cancelled or modified by invoking the provisions of section 263 of the Income Tax Act, 1961.”
A perusal of the aforesaid notice clearly shows that the ld. PCIT has assumed jurisdiction on the assumption of the fact that the surrendered amount of Rs. 10 crores by the assessee during the survey proceedings is credited and the source of such credit is not explained.
Therefore, the assessee is liable for tax rate as per the provisions of section 68 r.w.s 115BE of the Act.
The basis of the assumption of jurisdiction and issue of aforementioned notice is not only against the facts of the case, but also fallacious, in as much as, the entire surrender by the assessee was based upon the discrepancies found in the books of account as is evident from a reading of the statement recorded at the time of survey proceedings which is exhibited at pages t to 15 of the paper book wherein, in reply to a specific Question No. 18, the assessee stated that he has no documented evidence and explanation on the issues and in order to buy peace of mind for discrepancies surrendered an amount of Rs. 10 crores as additional evidence for F.Y. 2015-16. This was in response to a specific query relating to bogus expenses, cash payment for purchase of property and further cash book revealed cash payment made in violation of provisions of section 40A(3) of the Act.
A perusal of the record and assessment order shows that there is neither unexplained credit in the books of account nor there is any unexplained investment/unexplained money/unexplained expenditure.
Therefore, the provisions of section 68, 69, 69A, 69B, 69C and 69D of the Act are not attracted on the surrendered amount of Rs. 10 crores.
We are of the considered view that the evidence on record shows that the said amount of Rs. 10 crores was offered in case any discrepancy is found in the books of account but the fact of the matter is that neither the Assessing Officer nor the PCIT has brought anything on record to show that there is unexplained investment or unexplained expenditure was found during the course of survey proceedings. With these facts, it can be safely concluded that the surrender of Rs. 10 crores can be said to have been offered to cover up the discrepancies in respect of likely disallowances of claims /bogus expenses/cash payments/bogus purchases relating to business income.
Provisions of section 115BE of the Act are not at all attracts on the facts. It is pertinent to note that he Assessing Officer himself made a proposal to the PCIT, Ghaziabad for revision u/s 263 of tht Act which reads as under:
“Madam,
Sub: Proposal for revision u/s 263 of the IT Act in the case of M/S Arun Enterprises (PAN: AADFA9183D), AY: 2017-18-Reg.
In connection with the subject mentioned above it is submitted that in the captioned case assessment u/s 143(3) was made on 11/06/2019 after making addition of Rs. 5,00,000/- to the returned Income of Rs. 10,59,75,100/-. During the survey assessee had surrendered additional income of Rs. 10 Crore to cover the discrepancies.
Subsequently, in the course of audit, the Revenue Audit Party (RAP) observed that, A survey u/s. 133A was conducted in this case on 20- 09-2016 and the assessee surrendered a sum of Rs. 10,00,00,000/- included this amount in P & L A/c and the same was accepted in assessment also. As this credit recorded in the books remained unexplained. For the year the source of the above sum was not explained, therefore the source of Rs. 10,00,00,000/- remained unexplained and thus the amount of Rs. 10,00,00,000/- was required to be added u/s. 68 read with 115BBE of the 1.T. Act 1961, but the same was not done. The RAP worked out revenue loss of Rs. 5,29,78,050/- on this account.
The audit observations as mentioned above have not been found /prima facie acceptable for the reason that the stand of the audit to take surrender of Rs. 10,00,00,000/- during survey u/s. 133A as unexplained credit, therefore liable for tax under section 115BBE, appear to be based on presumption that the said amount pertains to nature of unexplained credit as contemplated in section 68 of the 1.T. Act 1961. However, keeping in view the fact that the surrender of Rs. 10,00,00,000/- was made during survey u/s. 133A due to discrepancies in the books of account and source of the same pertained to business/profession carried out by the assessee.
However, keeping in view of the fact that the abovementioned audit observation are at initial stage of half margin note' and no LAR has been received till date. Therefore, no explanation could be submitted to the audit for its settlement. Further, little time is left for taking remedial action 263 of the I.T. Act 1961 if the aforesaid explanation to the audit objection is not accepted by the RAP as the same is expiring on 31-03-2022.
In view of above facts of the case and for the sake of abundant precaution on the matter, proposal is submitted hereby for kind consideration for action u/s 263 of the IT Act to revise the order u/s 143(3) dated 21/03/2016. Assessment record in one volume is also being submitted herewith for further necessary action.
The co-ordinate bench in in the case of Alfa Laval Lund AB order dated 02.22.2021 has taken an adverse view in such a case where the Assessing Officer himself has proposed for revision u/s 263 of the Act. The relevant findings of the co-ordinate bench read as under:
It is trite that a power which vests exclusively in one authority, can’t be invoked or cause to be invoked by another, either directly or indirectly. Section 263 of the Act confers power on the CIT to revise an assessment order, subject to certain conditions. Instantly, we are confronted with a situation in which the revision was initiated on the basis of the AO sending a proposal to the CIT and not on the CIT suo motu calling for and examining the record of the assessment proceedings and thereafter considering the assessment order erroneous and prejudicial to the interests of the revenue. The AO recommending a revision to the CIT has no statutory sanction and is a course of action unknown to the law. If AO, after passing an assessment order, finds something amiss in it to the detriment of the Revenue, he has ample power to either reassess the earlier assessment in terms of section 147 or carry out rectification u/s 154 of the Act. He can’t usurp the power of the CIT and recommend a revision No overlapping of powers of the authorities under the Act can be permitted. As the revision proceedings in this case have triggered with the AO sending a proposal to the ld. CIT and then the latter passing the order u/s 263 of the Act on the basis of such a proposal, we hold that it became a case of jurisdiction deficit resulting into vitiating the impugned order. Without going into the merits of the case, we quash the impugned order on this legal issue itself.”
On this count also, the order of the ld. PCIT is liable to be quashed.
The bone of contention is whether the amount surrendered during survey operation which has been shown in the return of income as business income be taxed as per the provisions of section 115BE of the Act and having not done so, whether the order of the Assessing Officer is erroneous and prejudicial to the interest of the Revenue.
At the very outset, we would like to state that the amendment has been brought in section 115BE w.e.f. A.Y 2017-18, but the same was not there in the statute on the date of survey. Taking a leaf out of the amended provisions, the PCIT was of the opinion that the tax rate should have been 60% instead of 30% because of which the assessment order has become prejudicial to the interest of the Revenue. The moot point is whether the amendment is prospective or retrospective as, on the date of survey, the amended provisions were not there in the statute. In our considered opinion, this is clearly a debatable issue which cannot be subject matter of assumption of jurisdiction u/s 263 of the Act.
A perusal of section 115BBE of the Act shows that where the total income of the assessee includes any income referred to in sections 68, 69, 69A, 69B, 69C or 69D, the income tax payable shall be @ 30% on income so referred to in the said sections. Further, in terms of amended provisions of section 115BBE of the Act by Taxation Laws, Second Amendment Act 2016, it provides that where the total income of the assessee includes any income referred to in sections 68, 69, 69A, 69B, 69C, and 69D and reflected in the return of income furnished under section 139 or total income of the assessee determined by the assessing officer, any income referred to in sections 68, 69, 69A, 69B, 69C, or 69D if such income is not reflected in the return of income furnished under section 139 of the Act, income tax payable shall be @ 60% on income so referred in the said section.
Change which has been brought about in the provisions relates to income so referred to in the afore-stated sections so defined which is either not reflected in the return of income or determined by the assessing officer and in both the cases it will be covered by the provisions of section 115BBE of the Act and the rate of taxation has been increased from 30% to 60% on such specified income.
There is, therefore nothing stated in the pre-amended or post amended provisions of section 115BBE of the Act that where the assessee surrenders undisclosed income during search action for the relevant year, the tax rate has to be charged as per provisions of section 115BBE of the Act. Therefore, the applicability of the amended provisions which prompted the PCIT to assume jurisdiction under section 263 of the Act is highly debatable issue, and therefore, in our understanding of the law, the PCIT has wrongly assumed jurisdiction.
Considering the facts of the case in hand, in totality, in light of judicial decisions and relevant provisions of the Act discussed hereinabove, we set aside the order of the PCIT and restore that of the Assessing Officer dated 11.06.2019 framed under section 143(3) of the Act.
In the result, the appeal of the assessee in is allowed. The order is pronounced in the open court on 17.03.2023.