No AI summary yet for this case.
Before: Shri Laliet Kumar & Dr. Mitha Lal Meena
In the Income-Tax Appellate Tribunal, Amritsar Bench, Amritsar Before : Shri Laliet Kumar, Judicial Member And Dr. Mitha Lal Meena, Accountant Member ITA Nos.260/Amr/2019 Assessment Year2014-15 V.S. DCIT Circle – II M/s. Active Tools P. Ltd. 79, New Udyog Nagar Fazilpur Randhawa Masanda, Jhalandhar Jhalandhar (Punjab) PAN:AAECA6485E (Appellant) (Respondent)
Appellant by Sh. Surindra Mahajan, C.A. Respondent by Smt. Jatindra Kaur, D.R.
Date of Hearing 14.07.2021 16.08.2021 Date of Pronouncement
ORDER Per Laliet Kumar, J.M.
That the present appeal was filed by the Assessee,feeling aggrieved by the order passed by Principal CIT on 28.03.2019, for the assessment year 2014-15, on the ground mentioned in Form No.36. 2. That the brief facts of the case are as under: - Brief Facts: - 3. ThatAssessee is engaged in manufacturing and trading hand tools at 789, Fazilpur, New Udyog Nagar, Randhawa Masandan Road, Jalandhar City under the name
ITA 260/Amr/2019 2
&Style of M/s. Active Tools (P) Ltd. 4. That a survey was carried out on 19.02.2014 at business premises of the Assessee. During survey operations stock & cash were physically verified. Cash as per books amounted to Rs. 11, 28,541/- and on physical verification amounted to Rs. 21, 00,510/-. Cash was excess by Rs.9,71, 969/-.Stocks as per books amounted to Rs. 2,62,32,509/- and as per physical verification amounted to Rs. 3,12,00,410/-. Stocks were excess by Rs. 49,67,901/- 1. That there was the difference in valuation of the building also, building as per books amounted to Rs. 51,23,155/- whereas as per valuation report it amounted to Rs.1,40,00,000/- giving a difference of Rs. 88,76,845/-. 5. That the Assessee filed a letter dated 19.2.2014 and surrendered Rs.1,50,00,000/- for the assessment year 2014-15 for and above the normal business income with the following details:- a) Excess cash in hand : Rs.9,72,000/- b) Excess stock : Rs.50,28,000/- c) Building construction : Rs.90,00,000/- Total : Rs.1,50,00,000/-
The case of the Assessee was selected for scrutiny assessment and the Assessee Officer had issued the notice u/s 142(1) of the Income Tax Act. The Assessee Officer has enquired that there was decline in the profit of the Assessee.
That in response to query no. 37, the Assessee was to justify low income shown during the year under consideration. In response to that, the Assessee filed their reply and submitted that:-
"Reply to question no. 37 that as regards your query regarding justification of
ITA 260/Amr/2019 3
low income shown during the year under consideration, it is submitted that net profit has improved in comparison to last year as detailed below: Particular 2012-13 2013-14 Net Profit as per Profit & loss account 1551697 15722250 Add: Depreciation 2803212 3417550 Add: bank charges & interest & exchange difference 4152311 8373657 and interest to depositors N.P. before interest & depreciation 8507221 27513457
The assessing Officer after considering replies filed by the assesse from time to time and test checking of books of accounts produced before the Assessing Officer, an assessment was framed at an Income of Rs. 99,68,100/- by making an addition of Rs. 1,00,000/- out of expenses debited to Profit and loss account.
That it is the case of the Assessee that Assessee has credited the surrendered amount to the Profit & Loss A/c over and above the normal profits of the business, whereas excess stock has been debited to stock, excess cash debited to cash in hand and building under construction has been debited with Rs. 90,00,000/- and the corresponding amount has been credited to income surrendered with Rs. 1,50,00,000/-.
After completing the assessment, the assessing Officer vide letter dated 11.9.2017 sought to rectify Order passed by Assessing Officer on 24.11.2016. The notice of the assessing Officer issued under section 154 of the Act is at page 18 of the paper book alongwith annexure to the notice.
ITA 260/Amr/2019 4
That the annexure to notice u/s 154 of the Income Tax Act mentioned as under:-
“Section 11588E(1) of the 1.T. Act, 1961 provides that:- (a) Where the total income of an assessee includes any income referred to in section 68, section 69A, section69B, section69C or section 69D, the income tax payable shall be the aggregate.
(a) The amount of income tax calculated on income referred to in section 68, section69, section 69A, section69B, section69C or section 69D at the rate of thirty percent and (b) the amount of income-tax with which the Assessee would have been chargeable has his total income been reduced by the amount of income referred to clause (a) (2) Notwithstanding anything contained in this Act, no deduction in respect of any expenditure or allowance shall be allowed to the Assessee under any provision of this Act, in computing his income referred to in clause (a) of sub-section (1). The perusal of record of the above said case file however revealed that a survey u/s 133A was conducted and the Assessee offered additional income of Rs. 15000000/- at the time of survey u/s 133A. The perusal of record of the case further revealed that the Assessee has adjusted the additional income offered in the profit and loss account where as the additional income surrendered during survey was required to be assessed as per provisions of section 115BBE and no expenditure as well as other deductions were admissible to the Assessee. The Assessee was required to be declared minimum 15000000/- income out of which loss carried forward from previous year to the extent of Rs. 39,31,563/- required to be adjusted and balance Rs.
ITA 260/Amr/2019 5
1,10,68,437/- was required to be assessed instead of Rs. 9968100/-. The omission has resulted in under assessment of income of Rs. 11,00,337/-.”
That after receiving the notice u/s 154 from the assessing Officer, assessee gave the reply to the notice u/s 154, and it was submitted :-
1)That as per notice mistake proposed to be rectified is as under:-
Assessee had surrendered additional income of Rs. 15000000/- during the survey operations and as per the records Assessee has adjusted the additional income surrendered during the survey in the Profit & Loss Account whereas as per the provisions of section 115BBE, additional income surrendered during the survey was required to be assessed u/s 115BBE and no expenditure as well other deductions were admissible to the Assessee. The Assessee was required to declare minimum Rs. 15000000/- income out of which loss carried forward from previous year to the extent of Rs. 3931563/- required to be adjusted and balance of Rs. 11068437/- was required to be assessed instead of Rs. 9968100/- and that omission has resulted in under assessment of income of Rs. 1100337/-.
That it is submitted that provisions of section 154 of Act are attracted in cases of glaring mistake of fact or law apparent from the records and where question is not debatable and not in case where issue is debatable.Mistake to be rectified u/s 154 had to be apparent from the record. It had to be obvious mistake and not something on which there might conceivably be two points of view. Provisions of section 154 can be invoked when there is a glaring mistake of fact or law. Provision of section 154 cannot be invoked when issue is debatable or issue has not been examined on fact or in law.
Reliance is being placed on:- a) Honorable Supreme Court in the case of Commissioner of Income Tax vs. Keshri Metal Pvt. Ltd. 237 ITR 165(1999) has held:- -------------
b) Commissioner of Income Tax vs. Hero Cycles Pvt .ltd. ETC. ETC. Supreme Court of India 142 CTR (SC) 122 ……………………. c) COMMISSIONER OF INCOME TAX vs. BHIMA BROS. HIGH COURT OF KERALA (1995) 123 CTR (Ker) 253 : (1995) 214 ITR 302 (Ker) ……………….
That without prejudice to our submission that provisions of section 154/155 of the Act are not attracted in this case since there is no glaring mistake apparent from records, there is no obvious
ITA 260/Amr/2019 6
mistake of fact or law from the record and issue is not debatable. However reply to proposed rectification is being filed under protest.
Proposal for rectification of following mistake:-
Assessee was required to declare minimum Rs. 15000000/- income out of which loss carried forward from previous year to the extent of Rs. 3931563/- required to be adjusted and balance Rs. 11068437/- was required to be assessed instead of Rs. 9968100/-. The omission has resulted in under assessment of income of Rs. 1100337/-
Our Submissions 1) That from the perusal of the section 115BBE of the Act, your goodself will observe that section 115BBE is attracted if total income includes any income referred to in section 68, 69A, 69B, 69C or 69D which reads as under:- Tax on income referred to in section 68 or section 69 or section 69A or section 69B or section 69C or section 69D. 115BBE. (1) Where the total income of an assessee includes any income referred to in section 68, section 69, section 69A, section 69B, section 69C or section 69D, the income-tax payable shall be the aggregate of— (a) the amount of income-tax calculated on income referred to in section 68, section 69, section 69A, section 69B, section 69C or section 69D, at the rate of thirty per cent; and (b) the amount of income-tax with which the Assessee would have been chargeable had his total income been reduced by the amount of income referred to in clause (a). (2) Notwithstanding anything contained in this Act, no deduction in respect of any expenditure or allowance shall be allowed to the Assessee under any provision of this Act in computing his income referred to in clause (a) of sub-section (1).]
Section 68, 69A, 69B, 69C, 69D refers to deemed income which reads as under:- 68. …………….
69A. …………… 69B. ………… 69C. …………….. 69D. ……………
2) That briefly facts of the case are as under:-
ITA 260/Amr/2019 7
Assessee is engaged in the business of manufacturing, and trading of hand tools at 789, Fazilpur, New Udyog Nagar, Randhawa Masandan Road, Jalandhar City under the name & Style of M/s. Active Tools (P) Ltd. Survey operations were carried out on 19.02.2014 at business premises of the Assessee. During survey operations stock & cash were physically verified. Cash as per books amounted to Rs. 11,28,541/- and on physical verification amounted to Rs. 21,00,510/-. Cash was excess by Rs. 9,71,969/-. Stocks as per books amounted to Rs. 2,62,32,509/- and as per physical verification amounted to Rs. 3,12,00,410/-. Stocks were excess by Rs. 49,67,901/-. There was difference in valuation of building also, building as per books amounted to Rs. 51,23,155/- whereas as per valuation report it amounted to Rs.1,40,00,000/- giving difference of Rs. 88,76,845/-. To buy peace of mind & to avoid litigation with the department, Assessee made surrender of Rs. 1,50,00,000/- (One Crore Fifty Thousand only) over and above normal profit as detailed below:-
a) Excess Cash in hand 9,72,000/- b) Excess Stocks 50,28,000/- c) Building Construction 90,00,000/- 1,50,00,000/-
Copy of surrender letter is enclosed herewith at page no.___9____.
3) That from the surrender letter, it is apparent that the Assessee had made a surrender as additional income over and above the normal profits of the business and since the income has been declared as business income, the same cannot be assessed as deemed income under the provisions of section 68, 69A, 69B, 69C or 69D. 4) That from the Profit & Loss A/c filed during the assessment proceedings, it will be observed that the Assessee has clearly credited the same to the Profit & Loss A/c over and above the normal profits of the business wherein excess stock have been debited to stock, excess cash debited to cash in hand and Building under construction has been debited with Rs. 90,00,000/- and corresponding amount has been credited to income surrendered with Rs. 1,50,00,000/-. From the perusal of surrender letter and Profit & Loss A/c, it will be observed that Assessee has rightly credited the amount to Profit & Loss A/c being business income since income surrendered was due to cash in hand, stocks and building under construction which clearly related to the business of the Assessee. 5) That it is an established law that that if the surrendered additional income is related to the business carried on by the Assessee, then same is to be assessed as business income and cannot be considered as deemed income mentioned in section 68, 69A, 69B, 69C or 69D. Reliance is being placed on following case laws:-
ITA 260/Amr/2019 8
a) DEV RAJ HI-TECH MECHINES LTD. vs.DEPUTY COMMISSIONER OF INCOME TAX (2015) 174 TTJ 0009 (Asr) ((UO))
Unexplained Income—Income from undisclosed sources—Assessee was a Manufacturer of Rice Sheller Machineries and its parts—A survey was carried out on the premises of the Assessee u/s 133A—During the course of survey, the Assessee surrendered an additional income of Rs.1,25,00,700/- over and above the normal income for the year under consideration—Assessee had filed its return of income and declared income—Assesses case was selected for scrutiny—During the survey, the Assessee had surrendered an income of Rs.1,25,00,700/- and such surrendered income was to be taxed under the provisions of Section 69A and whereas, the Assessee had credited the surrendered income to the Profit and Loss account and had debited various expenses against the surrendered income—whether the surrender made by Assessee can be considered as business income or can be taxed as deemed income under section 69A—Held, from the above surrender letter it is apparent that Assessee had made a surrender as additional income over and above the normal profits of the concern and since the income has been declared as business income, the same has to be assessed under the head business income and not as deemed income under the provisions of section 69A— In the present case also, the income surrendered was due to renovation of building, stock and advance and imprest account with Directors and due to cash in hand which clearly related to the business of Assessee and moreover, the Assessee had declared such surrender over and above, the normal profits of the concern—Since the surrendered additional income related to sundry creditors, repairs to building and advances and stock which related to business carried on by Assessee and therefore, was included in income from business—Assesees appeal allowed. Copy of order is enclosed herewith at page no.__10-19______. b) GAURISH STEELS P. LTD. vs.ASSISTANT COMMISSIONER OF INCOME TAX(2015) 173 TTJ 0764 (Chd) Surrendered income—Treatment of surrendered income as deemed income—Assessee engaged in business of manufacturing of steel round, flat, scrap and trading of iron and steel—Assessee filed return declaring income of Rs.23,04,500/- on 23.9.2011—AO noted that as per Profit & Loss Account, income of Rs.70 lacs surrendered by Assessee during course of survey conducted at its premises on 6.10.2010 was shown by Assessee as its business income—AO observed that additional income surrendered was on account of investments, cash, expenses, which could not be explained or which were not reflected in books of account—Assessee submitted that surrendered income should be treated as business income— AO rejected submission of Assessee and treated surrendered income as deemed income and not as business income— CIT(A) held that AO was fully justified in treating income surrendered during course of survey amounting to Rs.70 lacs as deemed income and was right in not giving benefit of set off of business losses from this income—Held, as Assessee had also surrendered income of Rs.10 lacs in assessment year 2005-06 on account of sundry credits, repairs to building and advances to staff, which being relatable to business carried on by Assessee was already included as income from business—AO
ITA 260/Amr/2019 9
nowhere disputed business losses incurred by Assessee and books had not been rejected— It was stated at Bar that even at time of survey, in the trading account prepared by survey team, there were losses incurred by Assessee— All these facts had not been disputed by AO—. Further, surrender made by Assessee was on account of cash found during course of survey, discrepancy in cost of construction of building, discrepancy in stock and discrepancy in advances and receivables—By no stretch of imagination, any of these incomes apart from cash could be considered as income under any head other that ‘business income’— Nowhere in his order AO had been able to bring on record fact that income surrendered during course of survey was not out of business of Assessee--Also nowhere AO objected to heads under which Assessee had surrendered these amounts, i.e. cash, construction of building, discrepancy in stock and discrepancy in advances and receivable-- Further, even survey team had not found any source of income except business income—It inferred that apart from cash all other income surrendered may be brought to tax under head ‘business income’ while cash had to be taxed under head deemed income u/s 69A—As regards business losses incurred by Assessee during year, these could be set off against income surrendered during course of survey except for amount of cash surrendered, as per mandate of section 71 –No loss could be set off against cash surrendered as same had already been held to be taxed under different head—AO was hereby directed to set off business losses suffered by Assessee out of surrendered income except element of cash surrendered.
After receipt of the Assessee's reply, the proceedings u/s 154 were dropped by the assessing officer. In other words, no addition were made by the assessing Officer relying upon section 115BBE of the Income Tax Act. The Principal CIT vide show cause notice dated 18.03.2019 issued the notice u/s 263 for the assessment year 2014-15 as under:-
“On perusal of the order u/s 143(3) of the Income-tax Act, 1961 dated 24.11,2016, in your case and on examination of record for the assessment year 2014-15, the following discrepancies have been noticed : It has been noticed that survey operation u/s 133A of the Income Tax Act, 1961 was carried out at your business premises on 19.02.2014 where certain discrepancies in respect of cash in hand, stock and building construction were found as a result of which an additional income of Rs.1,50,00,000/-
ITA 260/Amr/2019 10
was declared by you over and above your normal business income for the A.Y. 201445. However, while filing return of income for the A.Y. 2014-15, additional income declared was reflected in the Profit & Loss account but various expenses were also claimed from it. The Assessing Officer framed the assessment vide order dated 24.11.2016 making disallowance of some expenses amounting to Rs.1,00,000/- only.
As the additional income of Rs.1,50,00,000/- declared by the Assessee was unexplained income as admitted by the assessee company itself, the same was to be assessed as per provisions of section 115BBE of the Income Tax Act, 1961 and no expenditure as well other deductions were admissible on this declared income. However, the Assessing Officer, while framing assessment failed to disallow the expenses claimed and to make any enquiries/verifications in the matter.”
That the Assessee after receipt of the show cause notice, had given various replies including the reply on 15.3.2019, 19.03.2019 and 25.03.2019. However, the Principal CIT was not convinced with the replies given by the Assessee and therefore, the impugned order was passed by the Principal CIT. The relevant finding of PCIT are as under :- “ 4 The Assessee vide this office noting sheet entry dated 18.03.2019 was required to file Balance Sheet and Profit and Loss Account and computation of income and last year's computation of income and the case was adjourned to 19.03.2019. The Assessee's counsel Shri Surinder Mahajan, CA attendedgiven to-the Assessing Officer and the same was accepted by him. The Assessee has also referred the decision of Hon’ble ITAT, Amritsar in the case of Dev Raj Hi Tech Machines Ltd wherein' 263 has been set aside on the similar issue of treating surrendered income as unexplained 69/69A.
ITA 260/Amr/2019 11
On perusal of the records it is found that; in the course of survey u/s 133A of the Act conducted at business premises of the Assessee and some discrepancies were found which the Assessee was unableto explain. Therefore, an additional income of Rs.1,50,00,000/- was surrendered as under;
Excess cash in hand : Rs. 9,72,000/- Excess Stock : Rs. 50,28,000/- Investment in factory building : Rs. 90,00,000/-
In the return of income, the Assessee declared the additional income of Rs.1,50,00,000/-in theProfit &Loss Account but claimed expenses against the same. The Assessing Officer while framing assessment accepted the declared income in spite the fact that the Assessee has given no explanation/evidence regarding the source of excess cash, investment in factory building and stock which were not recorded in the books of accounts maintained by the Assessee neither during the survey operation nor during the assessment proceedings. No evidence to prove the stand of the Assessee treating it as "income from business and profession" has thus been brought on record. The perusal of the facts of the Assessee show that Assessee has not specified the source from which the income has earned, nor produced any documentary evidence in support of its claim that it is income from business. Even in case of income surrendered as excess stock the Assessee has not brought on record any evidence to show that the stock has been generated as a part of normal business cycle. The claim of excess GP in just one year compared to the preceding and succeeding years has not been justified. The onus is on the Assessee to show that the disclosed assets whether cash or stock have been generated as part of business, however, the Assessee fail to discharge its onus. In the absence of any evidence on record the investment in stock, cash or property cannot be presumed to be out of income from business. Further, even the declaration of additional income in the return was not voluntary by the Assessee but as a result of survey u/s 133 conducted by the Department where the said excess cash, stock and investment was noticed and confronted to which the Assessee could give no explanation and the Assessee had no option other than to surrender the same as additional income. In the absence of any explanation regarding the nature and source of the cash and investment, the same cannot be assessed as normal business income eligible for debit of business expenses,
ITA 260/Amr/2019 12
rather it is squarely covered under the provisions of section 69/69A as unexplained income/investment to be charged to tax as per section 1158BE of the Act. Reliance is placed on the decision of Hon'ble Punjab & Haryana High Court decision in the case of M/s Kim Pharma (P) Ltd. which is squarely applicable in the present case. In the said decision the honorable court has referred to the decision of the Gujarat High Court in Fakir Mohmed _Hajj_Hasan_y._Commissioner_of_Income-Tax [2001] 247 1TR 290. In that case, interpreting the scope and describing the scheme of Sections 69, 69A, 69B and 69C of the Act, it was observed:
"The scheme of sections 69, 69A, 69 and 69C of the Income-tax Act, 1961, would show that in cases where the nature and source of investments made by the Assessee or the nature and source of acquisition of money, bullion etc., owned by the Assessee or the source of expenditure incurred by the Assessee are not explained at all, or not satisfactorily explained, then, the value of such investments and money or the value of articles not recorded in the books of account or the unexplained expenditure may be deemed to be the income of such Assessee. It follows that the moment a satisfactory explanation is given about such nature and source by the Assessee, then the source would stand disclosed and will, therefore, be known and the income would be treated under the appropriate head of income for assessment as per the provisions of the Act. However,when these provisions apply because no sources is disclosed at all on the basis of which the income can be classified under one of the heads of income under section14 of the Act, it would not be possible to classify such deemed income under any of these heads including income from "other sources" which have to be sources known or explained. When the income cannot be so classified under any one of the heads of income under section 14, it follows that the question of giving any deductions under the provisions which correspond to such heads of income will not arise. If it is possible to peg the income under any one of those heads by virtue of a satisfactory explanation being given, then these provisions of sections 69,69A, 69B and 69C will not apply, in which event, the provisions regarding deductions etc. applicable to the relevant head of income under which such income falls will automatically be attracted. The opening words of section 14 "save as otherwise provided by this Act" clearly leave scope for"deemed income" of the nature covered under the scheme of sections 69, 69A, 69 and 69C being treated separately, because such deemed income is not income from salary, house property, profits and gains of business or profession, or capital gains, nor as it income from "other sources" because the provisions of sections 69,69A, 69B and 69 treat unexplained investments, unexplained money, bullion etc. and unexplained expenditure as deemed income where the nature and sources of investment, acquisition or expenditure, as the case may be, have not been explained or satisfactorily explained. Therefore, in these cases, the source not being known, such deemed income will not fall even under the head “income from other sources”. Therefore, the corresponding deductions which are applicable to the incomes under any of these various heads, will not be attracted in the case of deemed incomes which are covered under the provisions of section 69, 69A and 69C of the Act in view of the scheme of those provisions.”
Thus, in the absence of any explation regarding the nature and source of the excess cash, investment in building and excess stock found, the same cannot be assessed as business income, rather it is squarely
ITA 260/Amr/2019 13
covered under the provisions of section 69/69A as unexplained income/investment not eligible for any deduction and to be charged to tax as per section 115BBE of the Act.
In view of the foregoing reasons, it is apparent that while framing assessment, the Assessing Officer failed to hold the surrendered income as unexplained investment/unexplained money u/s 69/69A of the Act and charge income tax as per provisions of section 115BBE of the Act. Therefore, the order passed by the Assessing Officer is held to be erroneous and prejudicial to the interest of the revenue. The case is, therefore, set aside to the file of the A.O. for fresh assessment on the above mentioned issue. ( emphasis supplied by us )
In view above facts and discussions, I am satisfied that the assessment order passed by the assessing Officer on 24.11.2016 is erroneous in so far as it is prejudicial to the revenue,. Therefore, the said order passed on 24.11.2016 is set aside to this extent the file assessing Officer to pass fresh order after making necessary. Enquires /investigations in the light discussions made above and after giving due opportunity to the Assessee of being heard.
Now the Assessee in appeal before us for the grounds mentioned in form of appeal.
That Ld. A.R. had submitted that Principal Commissioner of Income Tax-1, Jalandhar initiated proceedings u/s 263 of the Act on the same issue of treating the surrendered amount of income as deemed income u/s 69/69A of the Act, which already stood verified during:
a) Assessment proceedings b) Initiation of proceedings u/s 154 of the Act c) Filing of proceedings u/s 154 of the Act
That Ld. AR had submitted that Principal CIT while issue the show cause notice had failed to take the cognizance of the proceedings initiated u/s 154 of the Income Tax Act whereby specific query was raised in respect to Sec.115BBE of the Income Tax Act. It was submitted that the present case is neither a case of no enquiry, nor it is a case of insufficient enquiry by the assessing Officer. Further the Ld. AR had drawn our attention to paragraph 5 and 6 of the order passed by the PCIT wherein the Ld. AR had drawn our attention to the following paragraphs:-
ITA 260/Amr/2019 14
“Para 5 In view of the forgoing reasons, it is apparent that while framing assessment, the Assessing Officer failed to hold the surrendered income as ‘unexplained investment/unexplained money’ u/s 69/69A of the Act and charge income tax as per provisions of section 115BBE of the Act. Therefore, the order passed by the Assessing Officer is held to be erroneous and prejudicial to the interest of revenue. The case is therefore, set aside to the file of the Assessing Officer for fresh assessment on the above mentioned issue.” “Para 6 In view of the above facts and discussions, I am satisfied that the assessment order passed by the Assessing Officer on 24.11.2016 is erroneous in so far as it is prejudicial to the interest of the revenue. Therefore, the said order passed on 24.11.2016 is set aside to this extent to the file of the Assessing Officer to pass fresh order after making necessary enquiries/investigations in the light of the discussions made above and after giving due opportunity to the Assessee of being heard.”
That the Ld. AR contended that no specific direction was given by the Ld. PCIT to the assessing Officer and further, PCIT had to fail to point out how the Order passed by the Ld. Assessing Officer was erroneous in nature. It was the contention of the Ld. AR that the issue of applicability of section 115BBE was duly considered by the Ld. Assessing Officer during the original assessment order as well as whileconsidering the rectification u/s 154. It was submitted that once the assessing Officer made the sufficient enquiry, the PCIT does not have any jurisdiction to initiate the proceeding u/s 263 of the Act based on audit objection. He relied upon the following decisions to buttress are given: -
a) COMMISSIONER OF INCOME TAX vs. KANDA RICE MILLS HIGH COURT OF PUNJAB AND HARYANA (1989) 178 ITR 0446 b) COMMISSIONER OF INCOME TAX vs. UNIQUE AUTOFELTS (P) LTD. HIGH COURT OF PUNJAB AND HARYANA (2009) 30 DTR 0231 c) SATISH KUMAR VS PR CIT ITA NO. 258/ASR/2019 d) VARDHMAN INDUSTRIES LTD. vs. DEPUTY COMMISSIONER OF INCOME TAX IN THE ITAT CHANDIGARH (2016) 181 TTJ 0017 (Chd) ((UO))
ITA 260/Amr/2019 15
e) LAJ EXPORTS vs. DEPUTY COMMISSIONER OF INCOME TAX IN THE ITAT CHANDIGARH (2012) 20 ITR 0111 f) SHRI SARTAJ SINGH VS. PR. CIT I.T.A NO.154(ASR)/2015 g) COMMISSIONER OF INCOME TAX vs. SOHANA WOOLLEN MILLS HIGH COURT OF PUNJAB AND HARYANA (2008) 296 ITR 0238 h) B & A PLANTATION & INDUSTRIES LTD. & ANR. vs. COMMISSIONER OF INCOME TAX & ORS. HIGH COURT OF GAUHATI (2007) 290 ITR 0395
That the Ld. AR had submitted that words erroneous and prejudicial to the interest of revenue have not been defined in the law. An order cannot be termed as erroneous unless it is not in accordance with law. If an Income-tax Officer acting in accordance with law make certain assessment, the same cannot be branded as erroneous simply because, the order should have been written more elaborately. Case may be visualized 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 estimates himself. On perusal of the records, one 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 high figurer than the one determined by the income himself at the higher figures. This is because the Income-tax Officer has exercised the quasi- judicial power vested in him in accordance with law and arrived at a conclusion and such a conclusion cannot be termed to be erroneous. In such a case, it may be said that the order in question is prejudicial to the interest of the revenue. The Ld. AR relied upon the following judgments: -
a) COMMISSIONER OF INCOME-TAX VS. GHABRIAL INDIA LTD. 203 ITR 108 (BOM.) b) MALABAR INDUSTRIAL CO. LTD, VS. COMMISSIONER OF INCOME-TAX 243 ITR 83 (SUPREME COURT)
That the Ld. AR had further submitted that in paras 5 and 6 of the impugned Order, Ld. Principal Commissioner of Income Tax-1, Jalandhar has observed “that position of law stands substantially altered with the inception of explanation 2 in section 263 by Finance Act 2015. As the provision in that section has been specifically invoked the decision relied upon by the Assessee pertaining to the pre amended section 263 would no way hold good.”
ITA 260/Amr/2019 16
He argued that explanation 2 in section 263 is not applicable retrospectively. He relied upon the decisions in SATISH KUMAR VS PR CIT ITA NO. 258/ASR/2019, A.V. Industries vs. ACIT ITA No.3469/M/2010 and Metacaps Engineering &Mahendra Construction Co. vs. CIT I.T.A. No. 2895/Mum/2014.
That the Ld. AR had further submitted that amendment to section 115BBE of the Act towards no deduction in respect of any expenditure or allowance is applicable w.e.f. A.Y. 2017- 18 and not for the A.Y. 2014-15 and therefore, finding of the PCIT in paragraph 5 to the following effect was incorrect: -
“Thus, in the absence of any explanation regarding the nature and source of the excess cash, investment in building and excess stock found, the same cannot be assessed as business income, rather it is squarely covered under the provisions of section 69/69A as unexplained income/investment not eligible for any deduction and to be charged to tax as per section 115BBE of the Act.” 23. He relied upon the following decisions for those purposes: - a) FAMINA KNIT FABS AND ANR. vs. ASSISTANT COMMISSIONER OF INCOME TAX AND ANR IN THE ITAT CHANDIGARH BENCH ‘A’ (2019) 198 TTJ 0258 (Chd) b) M/S. GODWIN RESORT & HOTEL PVT. LTD. vs. ASSISTANT COMMISSIONER OF INCOME TAX IN THE ITAT DELHI BENCH ‘G’ (2019) 57 CCH 0138 DelTrib c) Circular No. 11/2019 dated 19.06.2019
Lastly, the Ld. AR had submitted that in the identical facts, the Hon’ble Amritsar 24. Tribunal in the case of DEV RAJ HI-TECH MECHINES LTD. VS. DEPUTY COMMISSIONER OF INCOME TAX (2015) 174 TTJ 0009 (ASR) ((UO) and Hon’ble Chandigrah Tribunal in the case of GAURISH STEELS P. LTD. VS. ASSISTANT COMMISSIONER OF INCOME TAX(2015) 173 TTJ 0764, had held that the business income surrendered during the survey operation cannot be charge to tax u/s 115BBE of the Act on the pretext that the same is taxable as deemed income u/s 68 and 69 of the Income Tax Act.
ITA 260/Amr/2019 17
Per contra Ld. D.R. for the revenue relied upon the order passed by the PCIT and it was contended that the order passed by the PCIT was in accordance with law. Further it was submitted that the Assessing Officer has wrongly not applied the provision of 115BBE even in rectification application. Further it was submitted that the explanation 2 to section 263 is applicable and more enquiry was required to be made by the assessing Officer.
That we have heard the rival contentions of the parties and perused the record available. In the present case as stated herein above, the survey operation was done in the premises of Assessee, during the survey operation, the Assessee had voluntarily surrendered the amount of Rs.1.5 Crores on account of the difference in availability cash, difference in stock, and valuation of the building as an additional business over and above the normal business income. During the assessment and rectification proceedings, the Assessee has explained to the assessing Officer the treatment given by him in the profit and loss account with respect to the additional business income surrendered by the Assessee during the survey operation. The Assessee in the pointed reply to the assessing Officer in the rectification proceedings, had submitted that “from the Profit & Loss A/c filed during the assessment proceedings, it will be observed that the Assessee has clearly credited the same to the Profit & Loss A/c over and above the normal profits of the business wherein excess stock have been debited to stock, excess cash debited to cash in hand and Building under construction has been debited with Rs. 90,00,000/- and corresponding amount has been credited to income surrendered with Rs. 1,50,00,000/. From the perusal of surrender letter and Profit & Loss A/c, it will be observed that Assessee has rightly credited the amount to Profit & Loss A/c being business income since income surrendered was due to cash in hand, stocks and building under construction which clearly related to the business of the Assessee.”
ITA 260/Amr/2019 18
That from the reading of the reply and the notice issued u/s 154, it is abundantly clear that the assessing Officer had made enquiry about the applicability of section 115BBE and the treatment given by the Assessee of the surrendered income during the survey, however, the assessing Officer, was satisfied on account of the reply given by the Assessee as well as after consideration the decision of the jurisdiction Tribunal in the matter of DEV RAJ HI-TECH MECHINES LTD. vs.DEPUTY COMMISSIONER OF INCOME TAX (2015) 174 TTJ 0009 (Asr) ((UO)), have dropped the proceedings under Section 154. Thus, the proceedings before the Assessing Officer cannot be said to be inadequate. The observation of the PCIT that no enquiry was made, in our view was incorrect, as the sufficient enquiry were made in the assessment proceedings as well as under the proceeding’s u/s 154 by the Assessing Officer, as well as in the rectification application.
The PCIT at page 11 of her order had duly noticed the reliance of Assessee onthe decision of Dev Raj Hi Tech Machines Ltd and in paragraph 4 of the impugned order it was mentioned as under :-
“The Assessee vide this office noting sheet entry dated 18.03.2019 was required to file Balance Sheet and Profit and Loss Account and computation of income and last year's computation of income and the case was adjourned to 19.03.2019. The Assessee's counsel Shri Surinder Mahajan, CA attendedgiven to-the Assessing Officer and the same was accepted by him. The Assessee has also referred the decision of Hon’ble ITAT, Amritsar in the case of Dev Raj Hi Tech Machines Ltd wherein' 263 has been set aside on the similar issue of treating surrendered income as unexplained 69/69A.”
ITA 260/Amr/2019 19
From the reading of Dev Raj Hi Tech Machines Ltd (supra) ,income surrendered by the assessee on account of the excess cash found, stock difference etc were treated by the Tribunal as a business income against which the assessee was allowed to set off various losses and proceedings under section 263 were quashed .The Tribunal in the said case had held as under
“7. We have heard the rival parties and have gone through the material placed on record. The only question to be answered by us in the present appeal is as to whether the surrender made by assessee can be considered as business income or can be taxed as deemed income under section 69A of the Act. In this respect, let us examine the surrender letter which is placed at paper book page 46. From the above surrender letter it is apparent that assessee had made a surrender as additional income over and above the normal profits of the concern and since the income has been declared as business income, the same has to be assessed under the head business income and not as deemed income under the provisions of section 69A. The Assessing Officer had taken a plausible view while accepting the contention of the assessee. As regards the enquiries during the assessment proceedings, we find that Assessing Officer vide letter dated 15.07.2011 placed at paper book page 35 raised this issue vide para-11. The assessee filed a detailed reply under the heading justification of taxable income wherein it explained as to why the taxable income had decreased as compared to surrendered income. As per paper book page-39, the main reason for decrease in taxable profits was due to increase in depreciation and increase in bank interest. The Assessing Officerafter considering this explanation had passed the assessment order, however, he did not mention the fact of considering this explanation in the assessment order. The only none mentioning of certain enquiries and explanations thereof. in the assessment order in itself does not give a right to Commissioner to pass order under section 263. The Hon'ble Bombay High Court in the case of CIT vs. Gabriel India Ltd.(supra) has held that where the Assessing Officer had made enquiries in regard to nature of expenditure incurred by assessee and assessee had given detailed explanation in that regard and Assessing Officer had accepted the explanation of the assessee, the decision of Assessing Officer could not be held to be erroneous simply because in his order he did not make an elaborate discussion in this regard. In the present case, the Assessing Officer raised an enquiry and assessee filed detailed reply and thereafter, Assessing Officer accepted the explanation and did not make any addition on that account. The order of Assessing Officer cannot be said to be erroneous as he has taken a plausible view, keeping in view the facts and circumstances of the case. The Hon'ble Delhi High Court in the case of CIT vs. Anil Kumar Sharma 335 ITR 83 has held as under:
ITA 260/Amr/2019 20
"There is a distinction between "lack of inquiry" and 'inadequate inquiry" If there was any inquiry, even inadequate that would not by itself give occasion to the Commissioner to pass orders under section 263 of the Income-tax Act,1961, merely because he has a different opinion in the matter: “Held, dismissing the appeal, that the present case would not be one of "lack of inquiry" even if the inquiry was termed inadequate. The Tribunal found that complete details were filed before the Assessing Officer and that he applied hismind to the relevant material and facts, although such application of mind was not discernible from the assessment order. The Tribunal held that the Commissioner in proceedings under section 263 also had all these details and material available before him, but had not been able to point out defects conclusively in the material, for arriving at a conclusion that particular income had escaped assessment on account of non-application of mind by the Assessing Officer. The Tribunal was right and the order of revision was not valid."
Similarly, the Hon'ble Punjab & Haryana High Court in the case of CIT vs. Deepak Mittal 324 ITR 411, has held that change of opinion by reappraising the evidence is not within the parameters of revisional jurisdiction of the Commissioner under section 263 of the Income tax Act, 1961. The relevant findings of Hon'ble Punjab & Haryana High Court are reproduced as under:
"Held, dismissing the appeal, that the Tribunal had found that the Assessing Officer had given a categorical finding that the assessee was engaged in the process of manufacturing of products and accordingly he had granted concession under section 80- IB. The claim of the assessee had been found to be genuine. The Assessing Officer had also examined the various workers of the assessee and then recorded the finding. The Assessing Officer, was justified in granting the special deduction under section 80-IB. The order of revision disallowing the special deduction was not valid."
The Hon,ble Chandigarh Tribunal in the case of Khushi Ram & Sons Pvt. Ltd. (supra) has decided similar issue wherein the assessee had surrendered an amount of Rs. 80 lacs during the course of survey on account of building renovation, office equipment and sundry receivables and claimed set off of unabsorbed losses for the assessment years 2007-08 and 2006-07 and Assessing Officer allowed the same. The learned Commissioner invoked jurisdiction under section 263 of the Act, on the ground that the AssessingOfficer had failed to make enquiries in respect of claim of set off on
ITA 260/Amr/2019 21
unabsorbed losses, fall in gross profit rate and depreciation and wrongly allowed the claim against the surrendered income which was erroneous and prejudicial to the interest of the Revenue. The Hon'ble Tribunal has held as under:
"Held, allowing the appeal, that the Assessing Officer had made detailed enquiry at the assessment stage with regard to the fall in gross profit rate, set off the brought forward losses and depreciation. The Assessing Officer called for complete details with regard to manufacturing process, month-wise production, consumption, quantitative sales and justification of major expenses. The assessee furnished complete details and replies before the Assessing Officer and there was no infirmity in the replies of the assessee. The nature of business of the assessee revealed that it might not be possible to give the exact details of manufacturing large number of sweets of different quantities or of the closing stock. Hence, the assessee submitted complete details before the Assessing Officer at the assessment stage regarding all the issues which had been raised by the Commissioner in the order under section 263 of the Act. The Assessing Officer was satisfied with all the items and allowed the claim of the assessee after conducting proper enquiry into the matter. The Commissioner had not given any elaborate reasons as to how the assessment order was erroneous and prejudicial to the interests of the Revenue. Hence, the opinion of the Assessing Officer could not be substituted by the Commissioner and as such the assessment order could not be treated as erroneous and prejudicial to the interest of the Revenue and could not be set aside in the proceedings under section 263 of the Act." In the present case the Assessing Officer had made enquiries and assessee had explained the taxable income viz-a-viz surrendered income and Assessing Officer found the explanation as satisfactory. We find that assessee vide letter dated 18.01.2013 placed at paper book 37 to 40 vide Para "Justification of Taxable Income" has demonstrated the reasons for lowerreturned income as compared to surrendered income which was primarily for excess claim of depreciation to the extent of Rs.50.44 lacs as compared to earlier year. The increase in depreciation has occurred because the assessee had installed and put to use new machinery worth Rs.143.29 lacs and this machinery was imported from Germany and was installed in the month of July, 2009, much before the date of survey which was on 14.09.2009. This fact of purchase of additional machinery was conveyed to Assessing Officer vide letter dated 01.03.2013, which is placed at Paper Book page-44. In the same letter the assessee had conveyed that for purchase of machinery the assessee had increased its bank borrowings and therefore there was an increase in interest costs and further the reasons for increase in the electricity charges was also explained in the same letter. Therefore, the assessee had submitted all details and the Assessing Officer had examined all factors leading to decrease in normal profits as compared to earlier year. As regards surrendered income, the assessee has clearly credited the same to the Profit & Loss account over and above the normal profits of the concern. Therefore, in our opinion the Assessing Officer has taken a plausible view as
ITA 260/Amr/2019 22
the assessee had surrendered the income as business income which was separately credited to Profit and Loss account. 10. The case law of Kim Pharma Ltd. vs. CIT (supra) as relied upon by the learned DR is not applicable to the facts and circumstances of the present case as in that case the Hon'ble Court had reproduced the findings of Tribunal that assessee during the course of survey had surrendered the income as incomefrom other sources. Whereas in the present case the assessee had surrendered income over and above the normal profits of the concern and not as income from other sources. The findings of Tribunal as recorded by Hon'ble Punjab & Haryana High Court are reproduced as under: " In the facts of the present case, we find that assessee during the course of survey had surrendered the income as income from other sources though a plea has been raised by the assessee that the income was surrendered as income from job work but no evidence to prove that stand of the assessee has been brought on record. The assessee had also surrendered additional income of Rs.10 lacs in assessment year 2005-06 on account of sundry credits, repairs to building and advances to staff, which being relatable to business carried on by assessee was included as income from business. However, in respect of cash found during survey, which was not reflected in the books of account, no source was declared by the assessee and in the absence of nature of source of cash being proved; the same is not assessable as income from business. In the circumstances, we uphold the order of the CIT(A) in including the additional income as deemed income u/s 69A of the Act and not allowing the benefit of the business losses determined against the said deemed income. The grounds of appeal raised by the assessee are dismissed."
From the above findings of Ho'ble Punjab & Haryana High Court, we find that surrender in this case was made in two years i.e., 2005-06 and 2006-07. The Hon'ble Tribunal had recorded that in Asst. Year 2005-06, the income surrendered related to business carried on by the assessee and therefore, was included as income from business whereas in Asst. Year 2006-07, the assessee could not prove that income was related to business and assessee himself had surrendered the income as income from the other sources and therefore, for Asst. Year 2006-07 the Hon'ble Court had held that additional income wasrightly treated as deemed income under section 69A of the Act. In the same case laws for Asst. Year 2005-06, the Hon'ble Tribunal had noted that since the surrendered additional income related to sundry creditors, repairs to building and advances and stock which related to business carried on by assessee and therefore, was included in income from business. In the present case also, the income surrendered was
ITA 260/Amr/2019 23
due to renovation of building, stock and advance and imprest account with Directors and due to cash in hand which clearly related to the business of assessee and moreover, the assessee had declared such surrender over and above, the normal profits of the concern, therefore, the case laws relied upon by the learned DR is also in favour of the assessee.
In view of the above facts and circumstances, and in view of judicial pronouncements as noted above, we are of the considered opinion that Assessing Officer had taken a plausible view and the power exercised by learned Commissioner of Income Tax is not as per settled law. In view of the above, we allow the appeal of the assessee and set aside the order of Commissioner of Income Tax and upheld the order of Assessing Officer.”
We may rely upon the decision of Shri Abdul Hamid & Shri Abdul Hannan ITA Nos.46 & 47/Gau/2019 decided on 17.7.2020 wherein it was held as under :-
“ 14. Next ground on which ld PCIT has exercised jurisdiction under section 263 of the Act was that the Assessing officer had failed to tax the undisclosed income of Rs. 3,65,933/- as per provisions of section 115BBE of the Income-tax Act, 1961. In order to understand whether the provisions of section 115BBE are applicable to the assessee or not, let us first go through the provisions of section 115BBE of the Act, which reads as follows: “15BBE. Tax on income referred to in section 68 or section 69 or section 69A or section 69B or section 69C or section 69D. 1. Where the total income of an assessee includes any income, referred to in section 68, section 69, section 69A, section 69B, section 69C or section 69D, the income-tax payable shall be the aggregate of— a) the amount of income-tax calculated on income referred to in section 68, section 69, section 69A, section 69B, section 69C or section 69D, at the rate of thirty per cent; and b) the amount of income-tax with which the assessee would have been chargeable had his total income been reduced by the amount of income referred to in clause (a).
ITA 260/Amr/2019 24
Notwithstanding anything contained in this Act, no deduction in respect of any expenditure or allowance shall be allowed to the assessee under any provision of this Act in computing his income referred to in clause (a) of sub-section (1).”
Before us,the limited question is that whether business receipts/business turnover is taxable under section 115BBE of the Act?As per the intention of legislature, the burden to apply section 115BBE and section 68 to section 69D of the Act rest on revenue shoulder. That burden cannot be discharged on the basis of assumption and presumption made by the assessing officer. Having gone through the section 115BBE, as noted above, we are of the view that business activity related income may not ordinarily get placed u/s 68 to section 69D of the Act. In the assessee`s case under consideration, the assessee submitted before the assessing officer that deposits of Rs.91,48,326/- in bank account No10 21956697434, were business receipts. The relevant para of the assessment order is reproduced below: “On being confronted the assessee made submission on 27/12/2016 stating that out of aggregate deposits of Rs. 95,33,717/- made in the said bank account A/c No. 2195697434 Rs.91,48,326/- was his business receipt, Rs.3,73,870/- are maturity proceeds of daily deposit accounts and Rs 11,521/- was interest Income on savings account. After his father’s death, the assessee was started doing business using the above bank account in question, which was not reflected in his Return of income.” 15. We note that assessing officer in his assessment order has also treated the undisclosed amount in bank account as undisclosed business receipts/turnover. We reproduce the relevant para of assessment order where assessing officer treated the undisclosed amount as undisclosed business receipts/turnover: “Accordingly, the amount of Rs.91,48,326/-, which was not accounted for gross turnover in the profit & loss account in the Return of Income of the assessee, has been considered as undisclosed business receipt or turnover of the assessee for the financial year 2013-14 relevant to the assessment year 2014-15 o v e r & above the gross turnover declared by him. The margin of net profit has been taken @ 4% on audited gross turnover in the Return of Income filed by the assessee. Accordingly, margin of profit has been taken @ 4% on undisclosed turnover of Rs.91,48,326/- which comes to Rs.3,65,933/- and added back as undisclosed business income to the returned income.” Since, the assessing officer has applied his mind and treated the undisclosed amount in bank account as undisclosed business
ITA 260/Amr/2019 25
receipt or turnover of the assessee, therefore provisions of section 115BBE does not apply to the assessee. 16. Even, ld PCIT while exercising his jurisdiction under section 263 of the Act treated the undisclosed amount in bank account as undisclosed business receipts/turnover, vide para No. 2 of the order of ld PCIT, which is reproduced below for ready reference: “2.Proposal for revision u/s 263 of the Income Tax Act, 1961 was received on the issue (a) low rate of net profit was considered on undisclosed business turnover and……..” Shri Abdul Hamid & Shri Abdul Hannan ITA Nos.46 & 47/Gau/2019 Assessment Year:2014-15 11 Since, ld PCIT has himself treated the amount of undisclosed bank account as undisclosed business receipts/turnover, therefore the question of application of the provisions of section 115BBE does not apply to the assessee under consideration. 17. Furthermore, the assessing officer while giving appeal effect to the order of ld PCIT under section 263 of the Act, had shown the undisclosed amount of bank account under the head business income, vide order of assessing officer under section 143(3)/263 of the Act dated 28.11.2019.
Our view is further fortified by the Judgment of the Coordinate Bench of Mumbai in the case of ACT Central Circle -13 Mumbai Vs. Rahil Agencies, order dated 23 November, 2016 wherein it was held that section 115BBE does not apply to business receipts/business turnover. The findings of the Coordinate Bench are given below: “19. We have considered rival contentions and found that by applying provisions of Section 115BBE the AO has declined set off of business loss against income declared during the course of survey/search. The provisions of Section 115BE are applicable on the income taxable under section 68, 69, 69A, 69B, 69C or 69D of the Act. The income declared by the assessee is unrecorded stock of diamond found during the course of search. The assessee is in the business of diamond trade and such stock was part of the business affair of the company. Therefore, since income declared is in the nature of business income, the same is not taxable under any of the section referred above and accordingly section 115BBE has no application in case.”
ITA 260/Amr/2019 26
At the cost of repetition, we state that while making the original assessment under section 143(3) dated 30.12.2016, the assessing officer has treated undisclosed amount in bank account as undisclosed business receipts/turnover. The ld PCIT while exercising jurisdiction under section 263, vide his order 11.12.2018, treated undisclosed amount in bank account as undisclosed business receipts / turnover. The assessing officer while giving appeal effect of the order of ld PCIT under section 263 of the Act, vide order under section 143(3)/263 of the Act dated 28.11.2019, treated undisclosed amount as undisclosed business receipts/turnover. Since the Department itself accepting the undisclosed amount of assessee in his bank account as undisclosed business receipts/turnover, therefore, section 115BBE does not attract here and hence order passed by the assessing officer, after application of mind, under section 143(3) dated 30.12.2016 is neither erroneous or prejudicial to the interest of revenue.”
In our considered opinion the revenue has failed to demonstrate that the order passed by the assessing officer was erroneous and prejudicial to the interests of the revenue.Under the provisions of the Act, the CIT may call for and examine the record of any proceeding this Act and pass an order only if the twin conditions are satisfied, namely, the order passed by the Assessing Officer is erroneous; and also prejudicial to the interest of the revenue. The Hon’ble Supreme Court in the case of Malabar Industrial Co. Ltd. Vs CIT (2000) 243 ITR 83 (supra) has held that both of the above conditions have to be satisfied. It has been held that, !“A bare reading of section 263 of the Income-tax Act, 1961, makes it clear that the prerequisite for the exercise of jurisdiction by the Commissioner suo motu under it, is that the order of the Income-tax Officer is erroneous in so far as it is prejudicial to the interests of the Revenue. The Commissioner has to be satisfied of twin conditions, namely, (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 one of them is absent-if the order of the Income-tax Officer is erroneous but is not prejudicial to the Revenue or if it is not erroneous but is prejudicial to the Revenue-recourse cannot be had to section 263(1) of the Act. The 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 that the section will be attracted. An incorrect assumption of facts or an incorrect application of law will satisfy the requirement
ITA 260/Amr/2019 27
of the order being erroneous. In the same category fall orders passed without applying the principles of natural justice or without application of mind. The phrase “prejudicial to the interests of the Revenue" is not an expression of art and is not defined in the Act. Understood in its ordinary meaning it is of wide import and is not confined to loss of tax. The scheme of the Act is to levy and collect tax in accordance with the provisions of the Act and this task is entrusted to the Revenue. If due to erroneous order of the Income-tax Officer, the Revenue is losing tax lawfully payable by a person, it will certainly be prejudicial to the interests of the Revenue. The phrase "prejudicial to the interest of the Revenue" has to be read in conjunction with an erroneous order passed by the Assessing Officer. Every loss of revenue as a consequence of an order of the Assessing Officer, cannot be treated as prejudicial to the interests of the Revenue, for example, when an Income-tax Officer adopted one of the courses permissible in law and it has resulted in loss of revenue, or where two views are possible and the Income-tax Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the Revenue unless the view taken by the Income-tax Officer is unsustainable in law.”
A similar view has also been taken by the Hon’ble Apex Court in the case of CIT 32. Vs Max India Ltd. (2007) 295 ITR 282 (supra), wherein it has been held as under:
“The phrase "prejudicial to the interests of the Revenue" in section 263 of the Income-tax Act, 1962, has to be read in conjunction with the expression "erroneous" order passed by the Assessing Officer, Every loss of revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interests of the Revenue. For example, when the Assessing Officer adopts one of two courses permissible in law and it has resulted in loss of revenue, or where two views are possible and the Assessing Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the Revenue, unless the view taken by the Assessing Officer is unsustainable in law.”
In the matter ITO v. D.G. Housing Projects Ltd. 2012 (343) ITR 329 (Delhi), wherein it has been observed as under:- 16. Thus, in cases of wrong opinion or finding on merits, the CIT has to come to the conclusion and himself decide that
ITA 260/Amr/2019 28
the order is erroneous, by conducting necessary enquiry, if required and necessary, before the order under Section 263 is passed. In such cases, the order of the Assessing Officer will be erroneous because the order passed is not sustainable in law and the said finding must be recorded. CIT cannot remand the matter to the Assessing Officer to decide whether the findings recorded are erroneous. In cases where there is inadequate enquiry but not lack of enquiry, again the CIT must give and record a finding that the order/inquiry made is erroneous. This can happen if an enquiry and verification is conducted by the CIT and he is able to establish and show the error or mistake made by the Assessing Officer, making the order unsustainable in Law. In some cases possibly though rarely, the CIT can also show and establish that the facts on record or inferences drawn from facts on record per se justified and mandated further enquiry or investigation but the Assessing Officer had erroneously not undertaken the same. However, the said finding must be clear, unambiguous and not debatable. The matter cannot be remitted for a fresh decision to the Assessing Officer to conduct further enquiries without a finding that the order is erroneous. Finding that the order is erroneous is a condition or requirement which must be satisfied for exercise of jurisdiction under Section 263 of the Act. In such matters, to remand the matter/issue to the Assessing Officer would imply and mean the CIT has not examined and decided whether or not the order is erroneous but has directed the Assessing Officer to decide the aspect/question.
The observation of the Hon'ble Bombay High Court in case of CIT v. Nirav Modi, 390 ITR 292 on this issue is as under :
4a) The powers u/s. 263 of the Act can be exercised by the Commissioner on satisfaction of twin conditions viz. the assessment order should be erroneous and prejudicial to the revenue. This power cannot be exercised unless the
ITA 260/Amr/2019 29
Commissioner is able to establish that the order of the Assessing Officer is erroneous and prejudicial to the revenue. Thus, where there are two possible views and the Assessing Officer has taken one of the possible views, no occasion to exercise powers of revision can arise. It was also held that revisional powers also cannot be exercised for directing a fuller inquiry to find out if the view taken is erroneous, when a view has already been taken after inquiry. This power of revision can be exercised only where no inquiry as required under the law is done. It is not open to enquire in cases of inadequate inquiry
The principles that emerge out of the above cited decisions are that the twin requirement of the order being erroneous and prejudicial to the interests of revenue should be satisfied and that the CIT should invoke the powers u/s 263 only after an enquiry by him to establish the twin conditions.
Further we are also the opinion that merely the assessing officer has formed an opinion which is not in line of thinking of the revisional Commissioner and there are two possible views, then also the revisional Commissioner cannot exercise the power for provision under section 263. For the above said purposes we rely upon the decision of the Bombay High Court in the matter of C.I.T. Vs. Gabriel India Ltd. 203 ITR 108 (Bom) has held that: “The Income Tax Officer in this case had made enquiries in regard to the nature of the expenditure incurred by the assessee. The assessee had given a detailed explanation in that regard by a letter in writing. All these were part of the record of the case. Evidently, claim was allowed by the Income tax Officer on being satisfied with the explanation of the assessee. This decision of the Income tax officer could not be held to be “erroneous”
ITA 260/Amr/2019 30
simply because in his order he did not make an elaborate discussion in that regard.” “When exercise of statutory power is dependent upon the existence of certain objective facts, the authority before exercising such power must have material on record to satisfy it in this regard.” “if then an order is erroneous but not prejudicial to the interest of the revenue ,then the power of suo moto revision cannot be exercised. Any and every erroneous order cannot be subject matter of revision because the second requirement must be fulfilled.”
In the present case, additional incomewas surrendered at the time of the survey as business income, which is clear from the surrendered letter dated 19.2.2014, , further in reply to query No. 37 raised by the assessing officer, the assessee had explained that the net profit had improved in comparison to last years, it was submitted as under “Reply to question no. 37 that as regards your query regarding the justification of low income shown during the year under consideration, it is submitted that net profit has improved in comparison to last year as detailed below: Particulars 2012-13 2013-14 Net profit as per profit & 1551697 15722250 loss account Add: Depreciation 2803213 3417550 Add: bank charges & 4152311 8373657 interest & exchange difference and interest to depositors N.P before interest & 8507221 27513457 depreciation
ITA 260/Amr/2019 31
During the assessment proceedings, assessee explained that the income of the assessee had substantially increased viz a viz earlier years, and it was submitted as under 1. “ That as regards your query to justify income declared with reference to amount surrendered during the survey at Rs. 1,50,00,000/- it is submitted : a) That during the assessment year 2013-14, taxable income of the company amounted to Rs. 259263/- which was set off with brought forward losses of Rs 4191526/- and losses were carried forward at Rs. 3931563/-. Statement of assessable income for A.Y. 2013-14 is enclosed herewith at page no.______. b) That during the year under consideration taxable income of the company came to Rs. 1,37,99,660/- which was set off with brought forward losses amounting to Rs. 39,31,563/- and taxable income came to Rs. 98,68,097/-.
c) That now coming to comparison of income with reference to amount surrendered at Rs. 1,50,00,000/- please note : Particulars 2012-13 2013-14 Net profit as per profit & loss account 15,51,697 1,57,22,250 Add: Depreciation 2803213 3417550 Add: bank charges & interest & 4152311 8373657 exchange difference and interest to depositors N.P before bank charges & interest & 8507221 27513457 exchange difference & interest to depositors & depreciation
ITA 260/Amr/2019 32
From the above chart, your goodself will observe that income declared by the assessee is much more as compared to previous year, keeping in view amount surrendered at Rs. 1,50,00,000/- during the year under consideration.”
Further, the assessee in rectification proceeding under section 154 had submitted the manner in which the amount of ₹ 1.5 crore was treated in the accounts of the assessee. After considering all the aspect and considering the decision of the Tribunal, the assessing officer has not proceeded against the assessee.
In our view the decision of the Tribunal in the matter of Dev Raj Hi Tech Machines Ltd ( supra) was clearly applicable to the facts of the present case. In fact the said case was referred by thePrinciple CIT , however she had neither distinguished nor discussed while passing the impugned order. The Ld. PCI had simply relied upon the explanation 2 to section 263 of Act and wrongly held that the assessing officer did not make sufficient inquiries.
As mentioned hereinabove, the order passed by the PCIT cannot be upheld because the assessing officer had made sufficient enquiries and had correctly taken income surrendered by the assessee as business income and after due considerations of reply. Secondly the view taken by the assessing officer was supported by the view of the Tribunal in the case of Dev Raj Hi Tech Machines Ltd (supra), thus it cannot be said that the view taken by the assessing officer was not a plausible view ,hence it was erroneous. Admittedly when 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 PCIT, for the above-said purposes, we may rely upon Max India. ( supra) . Lastly the finding recorded by the DCIT relying upon explanation
ITA 260/Amr/2019 33
2 to section 263 cannot be sustained, as explanation 2 to section 263, which was inserted w.e.f 1.6.2015 and was held to be prospective. 42. We are supported by the decision rendered by Delhi Tribunal in the case of Brahma Centre Development Private Limited, ITA nos. 4341 & 4342/Delhi/2019 dated 18.12.2019 wherein the Tribunal in paragraphs 12, 13 & 14 has held as under:-
“12. In view of the above, we find it difficult to agree with the ld. DR that there was no enquiry conducted by the Ld. Assessing Officer by putting any specific question to the assessee as to the treatment given to the interest. As a matter of fact, the reason for the difference in the amount as per Form 26AS and ITR was due to the interest received from the banks that was duly accounted and considered in the financial statements of the company and was adjusted against the project expenditure. The very fact that pursuant to the scrutiny when the Ld. Assessing Officer proposed charging the interest amount received to tax, the very same explanation was offered by the assessee and was accepted by the Assessing Officer. We are, therefore, of the considered opinion that it is not a case of no enquiry and as a matter of fact, it was specifically brought to the notice of the Ld. Assessing Officer that the interest earned was adjusted against the project expenditure.
Further, it is an admitted fact that in this case, the business of the assessee was commenced in this case, unlike the facts in the case of M/s. Tuticorin Alkali Chemicals and Fertilizers Ltd.(supra). The Mumbai Bench of Tribunal while noticing the decision of jurisdictional High Court in the case of CIT vs. Sunbeam Auto Ltd, 332 ITR 167 and the case of Nagesh knitwear Pvt. Ltd., 355 ITR 135 observed that the Explanation- 2 to section 263 inserted by Finance Act, 2015 w.e.f. 01.04.2015 would not impact the assessment earlier to 2014-15 and such a decision was followed by the Delhi Bench of Tribunal in the case of Arun Kumar Garg (HUF) vs. PCIT in ITA No. 3391/Del/2018 for the assessment year 2014-15 and by
ITA 260/Amr/2019 34
order dated 08.01.2019 held that Explanation 2 to section 263 of the Act is only prospective in nature.
In the case on hand, the ld. PCIT while reading the provisions of section 263 of the Act and the decision of Hon'ble Apex Court in the case of M/s. Tuticorin Alkali Chemicals and Fertilizers Ltd.(supra) reached a conclusion that inasmuch as there was no specific inquiry by the Assessing Officer, the assessment order was erroneous in so far as it is prejudicial to the interest of Revenue. He does not conduct any independent enquiry to reach the conclusion that the assessment order was erroneous in so far as it is prejudicial to the interest of Revenue. If we accept the submission of the ld. DR that since all the material was available on record, there was no need for the PCIT to conduct any further inquiry, it also inures to the benefit of the assessee because all these things are available on record and the assessee specifically submitted that the difference in the ITR and 26AS occurred because of the adjustment of the interest received against the project expenditure. Admittedly, this is the only project conducted by the assessee and there is no other project. In such an event, it is not the passive submission to be recorded to the AO, but also actively pleading before him that the interest received was adjusted against the project expenditure.”
From the perusal of paragraph 13 supra it is clear that the Tribunal has held that the explanation 2 section 263 is only prospective in nature.
The said decision of the Tribunal was assailed by the Revenue in ITA No.116 of 2021 and ITA No.118 of 2021 before Delhi High Court and the Hon'ble Delhi High Court had confirmed the order passed by the Tribunal. We are reproducing hereinbelow of the findings of the Delhi High Court in paragraphs 10 & 11 which are to be following effect.
Issue no. (ii):
ITA 260/Amr/2019 35
The standard to be adopted while dealing with the issue as to whether or not an AO has carried out an enquiry or verification, all that the Court is required to ascertain is as to whether the AO applied his mind.
10.1. The fact that the AO has not given reasons in the assessment order is not indicative, always, of whether or not he has applied his mind. Therefore, scrutiny of the record, is necessary and while scrutinising the record the Court has to keep in mind the difference between lack of enquiry and perceived inadequacy in enquiry. Inadequacy in conduct of enquiry cannot be the reason based on which powers under Section 263 of the Act can be invoked to interdict an assessment order. The observations made in this behalf, by the Division Bench of this Court, in Commissioner of Income-tax vs. Sunbeam Auto Ltd., [2010] 189 Taxman 436 (Delhi)/[2011] 332 ITR 167 (Delhi) being apposite, are extracted hereafter.
"12. We have considered the rival submissions of the counsel on the other side and have gone through the records. The first issue that arises for our consideration is about the exercise of power by the Commissioner of Income-tax under section 263 of the Signature Not Verified Digitally Signed By:VIPIN KUMAR RAI Signing Date:06.07.2021 10:30:10 Income-tax Act. As noted above, the submission of learned counsel for the revenue was that while passing the assessment order, the Assessing Officer did not consider this aspect specifically whether the expenditure in question was revenue or capital expenditure. This argument predicates on the assessment order which apparently does not give any reasons while allowing the entire expenditure as revenue expenditure. However, that by itself would not be indicative of the fact that the Assessing Officer had not applied his mind on the issue. There are
ITA 260/Amr/2019 36
judgments galore laying down the principle that the Assessing Officer in the assessment order is not required to give detailed reason in respect of each and every item of deduction, etc. Therefore, one has to see from the record as to whether there was application of mind before allowing the expenditure in question as revenue expenditure. Learned counsel for the assessee is right in his submission that one has to keep in mind the distinction between "lack of inquiry" and "inadequate inquiry". If there was any inquiry, even inadequate, that would not by itself, give occasion to the Commissioner to pass orders under section 263 of the Act, merely because he has different opinion in the matter. It is only in cases of "lack of inquiry", that such a course of action would be open. In Gabriel India Ltd.'s case (supra), law on this aspect was discussed in the following manner :
". . . From a reading of sub-section (1) of section, it is clear that the power of suo motu revision can be exercised by the Commissioner only if, on examina- tion of the records of any proceedings under this Act, he considers that any order passed therein by the Income-tax Officer is 'erroneous insofar as it is prejudicial to the interests of the revenue'. It is not an arbitrary or unchartered power. It can be exercised only on fulfilment of the requirements laid down in sub-section (1). The consideration of the Commissioner as to whether an order is erroneous insofar as it is prejudicial to the interests of the revenue must be based on materials on the record of the proceedings called for by him. If there are no materials on record on the basis of which it can be said that the Commissioner acting in a reasonable manner could have come to such a conclusion, the very initiation of proceedings by him will be illegal and
ITA 260/Amr/2019 37
without jurisdiction. The Commissioner cannot initiate proceedings with a view to starting fishing and roving enquiries in matters or orders which are already concluded. Such action will be against the well-accepted policy of law that there must be a point of finality in all legal proceedings, that stale issues should not be reactivated beyond a particular stage and that lapse of time must induce repose in and set at rest judicial and quasi-judicial controversies as it must in other spheres of human activity. [See : Parashuram Pottery Works Co. Ltd. v. ITO[1977] 106 ITR 1 (SC) at page 10].
****** From the aforesaid definitions it is clear that an order cannot be termed as erroneous unless it is not in accordance with law. If an Income-tax Officer acting in accordance with 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 Signature Not Verified Digitally Signed By:VIPIN KUMAR RAI Signing Date:06.07.2021 10:30:10 either by accepting the accounts or by making some estimate himself. The Commissioner, on perusal of the 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
ITA 260/Amr/2019 38
with power to re-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 him in accordance with law and arrived at conclusion and such a conclusion cannot be termed to be erroneous simply because the Commissioner does not feel satisfied with the conclusion. . . . There must be some prima facie material on record to show that tax which was lawfully exigible has not been imposed or that by the application of the relevant statute on an incorrect or incomplete interpretation a lesser tax than what was just has been imposed.
****** We may now examine the facts of the present case in the light of the powers of the Commissioner set out above. The Income-tax Officer in this case had made enquiries in regard to the nature of the expenditure incurred by the assessee. The assessee had given detailed explanation on that regard by a letter in writing. All these are part of the record of the case. Evidently, the claim was allowed by the Income- tax Officer on being satisfied with the explanation of the assessee. Such decision of the Income-tax Officer cannot be held to be "erroneous" simply because in his order he did not make an elaborate discussion in that regard . . ." (pp. 113-117) xxx xxxxxx
Thus, even the Commissioner conceded the position that the Assessing Officer made the inquiries, elicited replies and thereafter passed the assessment order. The grievance of the Commissioner was that the Assessing Officer should have made further inquires rather than accepting the explanation. Therefore, it cannot be said that it is a case of 'lack of inquiry'."
ITA 260/Amr/2019 39
10.2. This view was followed by another Division Bench of this Court in Commissioner of Income-tax vs. Anil Kumar Sharma, (2010) 194 taxman 504 (Delhi). Issue no. (iii):
The assessment order can be interdicted under Section 263 of the Act, if two conditions are met, i.e., that the order is erroneous and is prejudicial to the interests of the revenue. [See Malabar Industrial Co. Ltd. vs. Commissioner of Income-tax, [2000] 109 Taxman 66 (SC)/[2000] 243 ITR 83 (SC) and CIT vs. Max India Ltd., (2007) 295 ITR 282 (SC)] Signature Not Verified Digitally Signed By:VIPIN KUMAR RAI Signing Date:06.07.2021 10:30:10 11.1. Therefore, the error should be one that is not debatable or a plausible view. Section 263 of the Act invests a power of revision in a superior officer and therefore, by the very nature of the power, does not allow for supplanting or substituting the view of the AO. The appreciation of material placed before the AO is, exclusively within his domain which cannot be interdicted by a superior officer while exercising powers under Section 263 of the Act only on the ground that if he had appraised the said material, he would have come to a different conclusion. [See Parashuram Pottery Works Co. Ltd. v. ITO, [1977] 106 ITR 1 (SC)]”
Respectfully following the decision of Delhi High Court in the matter of Brahma Centre Development Private Limited, ITA No.116 of 2021 be quash order passed under Section 263 in the case of the Assesse. 46. Thus examining the issue from any angle, we are of the view that the order passed by the assessing officer was not erroneous and was a plausible view, as it was in tune with the decision ofthe tribunal in the matter of Dev Raj Hi Tech Machines Ltd ( supra). Therefore we do not find any reason for invoking jurisdiction under section 263 of the Act .
ITA 260/Amr/2019 40
Respectfully following the decision of Supreme Court and High courts ,we found that the order passed by PCIT was not in accordance with law and therefore, we quash the same.
Sd/- Sd/- (Dr. Mitha Lal Meena) (Laliet Kumar) Accountant Member Judicial member Copy of order forwarded to: (1) The appellant (2) The respondent (3) Commissioner (4) CIT(A) (5) Departmental Representative (6) Guard File By order Sr. Private Secretary Income Tax Appellate Tribunal Agra Bench, Agra