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Income Tax Appellate Tribunal, “A” BENCH : BANGALORE
Before: SHRI GEORGE GEORGE K & SHRI LAXMI PRASAD SAHU
Per George George K, Vice President:
These appeals at the instance of the assessee are directed against two Orders of Principal Commissioner of Income Tax (PCIT) (orders dated 23.03.2022 and 01.02.2023 for Assessment Years 2017-18 and 2018-19 respectively), passed under section 263 of the Income Tax Act, 1961 (hereinafter called ‘the Act’). The relevant Assessment Years are 2017-18 and 2018-19.
There is a delay of 312 days in filing of the appeal for Assessment Year 2017-18. Assessee has filed a petition for condonation of delay and also an affidavit of the concerned Chartered Accountant stating therein the reasons for belated filing of the appeal for the Assessment Year 2017-18. In the affidavit of the Chartered Accountant, it is stated that he had wrongly advised the assessee not to file appeal as against the impugned order under section 263 of the Act for the Assessment Year 2017-18 since the AO for Assessment Year 2018-19 had accepted the contention of the assessee and taxed the additional income at normal rates instead of charging the additional income under section 115BBE of the Act. It was only after revision proceedings were initiated for Assessment Year 2018-19, the assessee consulted the present Counsel who had advised to file appeal as against the impugned order of PCIT under section 263 of the Act for Assessment Year 2017-18. It was submitted that immediately on receipt of the notice issued for Assessment Year 2018-19 under section 263 of the Act, the assessee after consulting his Counsel had immediately filed an appeal for Assessment Year 2017-18.
We have heard the rival submissions and perused the material on record. We are of the view that there is a reasonable cause for belatedly filing of this appeal and no latches can be attributed to the assessee. Hence, we condone the delay in filing of the appeal for Assessment Year 2017-18 and proceed to dispose off the matter on merits.
Common issues are raised in these appeals; hence, the appeals were heard together and are being disposed off by this consolidated order.
The solitary issue that is raised in these appeals is whether the PCIT is justified in setting aside the Assessment Order and directing the AO to examine the income disclosed during the course of survey, is to be assessed under section 69 r.w.s. 115BBE of the Act.
Brief facts of the case are as follows:
Assessee is a Civil Engineer by profession and also undertakes civil construction contracts with various government departments and individual clients. There was a survey conducted under section 133A of the Act in the premises of the assessee on 15.02.2018. During the course of survey, it was found that a residential house of 3262 sq.ft. was built by the assessee. The construction of the house was started in the Assessment Year 2015-16 and was completed during the Assessment Year 2017-18. Assessee had accounted cost of construction at Rs.65 lakhs as on 31.03.2016. The total construction cost of the house was estimated by the AO at Rs.1 Crore. During the course of survey proceedings, a statement was recorded from the assessee. In the said statement, assessee stated he had invested Rs.20 lakhs towards the construction during the Assessment Year 2017-18 and another Rs.15 lakhs during the Assessment Year 2018-19 for the interiors of the residential house and voluntarily declared the same as additional income for Assessment Years 2017-18 and 2018-19 respectively. Consequent to the declaration of the assessee in the statement, the assessments were completed for Assessment Years 2017-18 and 2018-19 by bringing to tax a sum of Rs.20 lakhs and Rs.15 lakhs for Assessment Years 2017-18 and 2018-19 respectively. The AO completed the assessment by adopting the normal tax and did not invoke the deeming provision under section 69 r.w.s. 115BBE of the Act.
Subsequently, for the relevant Assessment Years, the PCIT issued notice under section 263 of the Act calling for the assessee’s explanation as to why the amount offered as additional income for Assessment Years 2017-18 and 2018- 19 ought not to be taxed under section 69 r.w.s. 115BBE of the Act. Assessee submitted his explanation by stating that additional income which was disclosed was income from business and the AO having taken a conscious decision, the PCIT is not justified in invoking his revisionary powers passed under section 263 of the Act. The contentions raised by the assessee were rejected by the PCIT for Assessment Years 2017-18 and 2018-19. The PCIT passed the impugned orders for the relevant Assessment Years by setting aside the Assessment Orders and directing the AO to examine the applicability of deeming provisions under section 69 r.w.s. 115BBE of the Act. For Assessment Year 2018-19, the PCIT also noted in the impugned order that the return of income has been filed by the assessee disclosing additional income as ‘Income from Other Sources’ and not as ‘Income from Business’.
Aggrieved by the orders of the PCIT, the assessee has filed the present appeals before the Tribunal. Assessee has filed a common Paper Book for Assessment Years 2017-18 and 2018-19 comprising of 23 pages enclosing therein the statement recorded during the course of survey, the ledger account of cost of construction of the house, the submissions made before the PCIT, show cause notices under section 263 of the Act and the replies of the assessee. The learned AR submitted by taking us through the statement recorded during the course of survey that the additional income disclosed was clearly under the head ‘Income from Business’ and AO having not doubted the statement of the assessee, had completed the assessment and taxed the additional income under the normal provisions of the Act. The learned AR submitted that the issue in question is squarely covered by the recent order of the Tribunal in the case of Gireeshshastri Shankarshastri Jeere Vs. PCIT in (order dated 16.06.2023).
9. The learned DR strongly relied on the orders of the PCIT passed under section 263 of the Act.
We have heard the rival submissions and perused the material on record. The assessee is a Civil Engineer by profession. He undertakes civil construction contract with various government departments and individual clients. Assessee had constructed a house of 3262/- sq.ft. which was completed during the Assessment Year 2017-18. Assessee had accounted the cost of construction at Rs.65 lakhs as on 31.03.2016. A survey was conducted under section 133A of the Act in the premises of the assessee on 15.02.2018. The AO did not find any incriminating evidences as to unaccounted money, valuables, unaccounted assets or any other undisclosed income at the time of survey. However, AO estimated the value of the residential house at Rs.1 Crore. The AO has not evaluated the cost of residential house from a Valuation Officer or Income Tax registered Valuers. During the course of survey, the assessee admitted an additional income of Rs.20 lakhs for Assessment Year 2017-18 and Rs.15 lakhs was declared for Assessment Year 2018-19. The relevant portion of the statement recorded during the course of survey admitting additional income of Rs.20 lakhs and Rs.15 lakhs for Assessment Years 2017-18 and 2018-19 respectively, reads as follows:
“Q.14 Please give details of investment in the house. Ans. The house has built up area of 3000 square feet and its construction was commenced in 2013 and completed with an cost of one crore rupees in 2016 and early 2017. I have obtained loan of Rs.39,00,000 from Syndicate Bank. I have also utilised OD facility of my business. Investment up to 65 Lakhs is accounted for during the construction period in the final accounts of year ending 31st March 2016. I have incurred another Rs.20,00,000 and Rs.15,00,000 during 2016-17 and 2017-18 respectively.”
11. Further, the assessee was also asked to state the source of investment in the new house for having incurred Rs.20 lakhs and Rs.15 lakhs for the Assessment Years 2017-18 and 2018-19. The relevant part of the question and answer to the same reads as follows:
“Q.16 Please state what is your source of investment in the new house incurred another Rs.20,00,000 and Rs.15,00,000 during 2016-17 and 2017-18 respectively.
Ans. The investment in our new, house is sourced from my business income. I am yet to file my return for assessment year 2017-18. I shall declare income of Rs.20,00,000 on account to investment in addition to my business and rental income Rs.3,76,530, Rs.1,50,000 respectively and Rs.3,50,000 from bank interest.” 12. The relevant provision viz., section 69 of the Act reads as follows:
“69. Unexplained investments Where in the financial year immediately preceding the assessment year the assessee has made investments which are not recorded in the books of account, if any, maintained by him for any source of income, and the assessee offers no explanation about the nature and source of the investments or the explanation offered by him is not, in the opinion of the [Assessing] Officer, satisfactory, the value of the investments may be deemed to be the income of the assessee of such financial year.”
From the above section, it is clear that two conditions have to be satisfied for invoking the provisions of section 69 of the Act. The first condition being the assessee ought to have made an investment which is not recorded in the books of accounts, if any, maintained for any source of income. The second condition is that assessee offers no explanation about the nature and source of the investment or the explanation offered by him is not satisfactory in the opinion of the AO. In such a situation, the value of the investment may be deemed to be income of the assessee of such Financial Year. In the instant case, the assessee has offered an explanation that the investment in the new house is sourced from the business income of the assessee. Therefore, the second condition that assessee has offered no explanation as regards the source of investment or the explanation offered by the assessee is not found to be true by the AO is not satisfied in this case. Apart from the statements recorded from the assessee during the course of survey, the Revenue has not unearthed any material to assess a sum of Rs.35 lakhs (Rs.20 lakhs for Assessment Year 2017-18 and Rs.15 lakhs for Assessment Year 2018-19). Further, the PCIT has not brought anything on record to state that the amounts declared as additional income is from a different source other than income from business. When an additional income is offered as business income of the assessee and accepted by the AO, the PCIT, on facts, is not justified in substituting his views with that of the AO.
As regards the assessee disclosing the income of Rs.15 lakhs in the return of income as income from other sources for Assessment Year 2018-19, it would be of no consequences, since in answer to question No.16 recorded during the course of survey, it has been clearly stated by the assessee that investment in the new house is sourced from the business income. As mentioned earlier, apart from the above statement, the Revenue having not unearthed any material to assess the additional income offered during the course of survey under any other head of income. Hence, no useful purpose would be served in restoring the issue to AO for examining the source of investment in construction of the house. Therefore, we are of the view that the PCIT is not justified in invoking his revisionary jurisdiction under section 263 of the Act and directing the AO to examine the issue afresh. On identical facts, the Bangalore Bench of the Tribunal in the case of Gireeshshastri Shankarshastri Vs. PCIT (supra), had decided the matter in favour of the assessee. The relevant finding of the Bangalore Bench of the Tribunal in the case of Gireeshshastri Shankarshastri (supra) reads as follows:
“7. We have heard the rival submissions and perused the material on record. The assessee is a homeopathic doctor. He is also a proprietor of petrol bunk. Assessee is also dealing in real estate business like converting land and selling them into plots. Assessee also undertakes construction of houses and sells them. During the relevant Assessment Year, assessee derived income under the heads ‘Income from House Property’, ‘Income from Business and Profession’ and ‘Income from Other Sources’. There was a survey conducted in the clinic of the assessee under section 133A of the Act on 16.11.2017. During the course of survey, certain books of accounts and documents were impounded. Statement of the assessee was also recorded. Thereafter, statement under section 131 of the Act was recorded on 23.11.2017 wherein assessee voluntarily offered expenditure of Rs.20 Lakhs incurred on construction of three residential houses as additional income over and above the regular income for the relevant Assessment Year viz., Assessment Year 2018-19. The assessment was concluded by assessing Rs.20 lakhs as part of the income of the assessee from business of construction of residential houses. On identical facts, the Bangalore Bench of the Tribunal in the case of Kusuma Cashes Vs. PCIT in order dated 21.10.2022, had held that income has been disclosed as Income from Business and offered to tax as such. The PCIT is not empowered to invoke his revisionary powers under section 263 of the Act since AO had taken a conscious decision to assess the same as business income and taxed it under the normal provision. The relevant finding of the Bangalore Bench of the Tribunal in the case of Kusuma Cashes Vs. PCIT (supra) reads as follows: “9. We have heard the rival submissions and perused the material on record. Before proceeding further, it is apposite to take note of the relevant extract of section 263 and the Explanation (2) to section 263 of the Act, which read as under :- “Revision of orders prejudicial to revenue. 263. (1) The [Principal Chief Commissioner or Chief Commissioner or Principal Commissioner] or Commissioner may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by the Assessing Officer 89[or the Transfer Pricing Officer, as the case may be,] is erroneous in so far as it is prejudicial to the interests of the revenue, he may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, 90[including,— **** Explanation 2.—For the purposes of this section, it is hereby declared that an order passed by the Assessing Officer 94[or the Transfer Pricing Officer, as the case may be,] shall be deemed to be erroneous in so far as it is prejudicial to the interests of the revenue, if, in the opinion of the Principal 95[Chief Commissioner or Chief Commissioner or Principal] Commissioner or Commissioner,— (a) the order is passed without making inquiries or verification which should have been made; (b) the order is passed allowing any relief without inquiring into the claim; (c) the order has not been made in accordance with any order, direction or instruction issued by the Board under section 119; or (d) the order has not been passed in accordance with any decision which is prejudicial to the assessee, rendered by the jurisdictional High Court or Supreme Court in the case of the assessee or any other person.”
10. Thus, from close scrutiny of the provisions of section 263, it is evident that twin conditions are required to be satisfied for exercise of revisional jurisdiction under section 263 of the Act i.e., firstly, the order of the Assessing Officer is erroneous; and secondly, it is prejudicial to the interests of the revenue on account of error in the order of assessment. The Bombay High Court in the case of Gabriel India Ltd. (1993) 203 ITR 108 has explained as to when an order can be termed as erroneous as follows:- “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 the 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 either by accepting the accounts or by making some estimate himself. The Commissioner, on perusal of 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 with power to 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 a 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 the 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.”
There is no dispute that u/s. 263 of the Act, the PCIT does have the power to set aside the assessment order and send the matter for a fresh assessment if he is satisfied that further enquiry is necessary and the assessment order is prejudicial to the interests of the Revenue. However, in doing so, the PCIT must have some material which would enable to form a prima facie opinion that the order passed by the AO is erroneous, insofar as it is prejudicial to the interests of the Revenue. In the present case, the PCIT has not brought out any material on record to substantiate that the source for the excess stock declared as additional income during the search proceedings is anything other than the income from business of the assessee. The AO has given a clear finding with respect to additional income offered by the assessee as business income since the same is arising out of the difference in stock between the books of accounts and the physical stock. The AO has also taken cognizance of the submissions of the assessee with regard to the reconciliation of book stock and physical stock by stating that the authorities have not considered the element of wastage. Considering these facts the AO made the addition under the head business income arising out of the declaration by the assessee towards excess stock. The PCIT in his order has stated that further enquiry should have been done to verify the source of excess stock and that the assessee has not offered any explanation and therefore the additional income is from an undisclosed source to be taxed u/s.115BBE of the Act. This view of the ld. PCIT, in our opinion, is not the right reason for exercising revisionary powers u/s. 263 of Act, since the AO has brought out the facts clearly that the additional income is offered towards excess stock found during the course of survey. In our view the error envisaged by Section 263 of the Act is not one that depends on possibility as a guess work, but it should be actually an error either of fact or of law which is not clearly brought out by the PCIT in the given case.
With regard to the argument that the assessee’s case requires to be considered in the light of the explanation (2) to Section 263 of the Act, we notice that the Hon’ble Gujarat High Court in the case of Shreeji Prints (P) Ltd. (130 taxmann.com 293 – Guj) while considering the explanation of Section 263 of the Act, has held that : - “4 Being aggrieved by the order passed by the PCIT under section 263 of the Act, 1961, the assessee went before the Tribunal. The Tribunal, after considering the submissions made by the assessee and after considering the scope of power to be exercised by the PCIT under section 263 of the Act, 1961 came to be conclusion that the Assessing Officer has made inquiries in detail about two
unsecured loans taken by the respondent assessee and observed as under: "13 In the light of the aforesaid judicial precedents in the present case what has to be seen is whether the AO has made enquiries about two loans taken from GTPL and PAFPL. If the answer is affirmative, then second question arises whether the acceptance of the claim by the AO was a plausible view or on the facts of the finding on the facts that the said funding of the AO can be termed as sustainable in law. We find that vide notice issued u/s.142(1) dated 13-10-2015 placed at Page No. 1 of Paper Book shows the AO vide item no.(iii) has asked the information regarding details of unsecured loan outstanding as on 31- 3-2013 and the loans were squared up amounts in the format prescribed therein. In compliance to thereof, the assessee has furnished complete details of the unsecured loans outstanding/ squared up vide para 3 of his letter dated 2-11- 2015 placed as Annexure-2 at page 4 of paper book. The assessee has also furnished details consisting of copy of ledger account, copy of acknowledgment of income filed for A.Y. 2012-13 and 2013-14 and copy of bank statement reflecting the payment received was paid during the financial year 2012-13 relevant to assessment year 2013-14 which are placed at paper book, page 9 to 49 in respect of GTPL as well as PAFPL. This indicate that the assessee has furnished account confirmation of the depositor, acknowledgment of income of the parties, audited balanced sheet and profit and loss account of the parties and bank pass book and bank statement of the parties. During the course of assessee proceedings, form these facts it is clear that the assessee has not only proved the from these facts it is clear that the assessee has not only proved the identity of the lenders but also the genuineness of the transactions and credit worthiness of the lenders. Accordingly, the Ld. AO after verifying the details of unsecured loans being satisfied, accepted the submissions of the assessee which leads to infer that the Assessing Officer had made full enquiries of unsecured loans by raising the queries and calling for the all information in respect of the loan taken along with details evidences in support thereof and the same were also duly replied by the assessee and on receipt of all the details of evidences, the unsecured loans received by the assessee were accepted by the Assessing Officer and the assessment was finalised u/s.143(3) of the Act on 15-3-2016. We also note that there was audit objection in the case of the assessee. The language of audit objection and show-cause notice under section 263 is same meaning thereby that the show cause notice u/s.263 has been issued by the PCIT Without going through assessment records and without exercising his own application of his mind. The assessee has not only filed complete details of Income-tax Return, audited balance sheet, profit and loss account and bank statement. The assessee further explained that both the these unsecured loans stands fully repaid as on the date and there is no capital creation by the assessee on this count. In view of these facts and circumstances, we are of the considered opinion that the order of the Assessing Officer is not erroneous nor it is prejudicial to the interest of revenue. It was also brought to the notice of the PCIT that entire share capital of GTPL being already tax, all the investment made by the said company recorded in its balance sheet stands explained tax in its hands itself and hence, "there is no question of adding the same amount in the hands of the assessee. As regards loans from PAFPL, it was submitted that assessee company has made voluntary disclosure of income of Rs. 1.5 crore under IDS 2016 in September 2016 and the said loan was repaid before making declaration. In view of these facts and circumstances, we find that the AO has made due enquiries. Since we find that the AO had made enquiries regarding unsecured loans and accepted the claim of the assessee after detailed enquiries." 15 The Pr.CIT had observed that Explanation 2 of section 263 of the Act is clearly applicable and it is clear that the Assessing Officer has passed the assessment order after making enquiries for verification which ought to have been made in this case. However, we find that the Pr. CIT has not mentioned in the show-cause notice issued under section 263 that he is going to invoke the Explanation 2 to 263 hence, invocation of Explanation in the order without confronting the assessee is not appropriate and sustainable in law in support of this contention, the ld. Counsel has placed reliance on the following decision: CIT v. Amir Corporation 81 CCH 0069 (Guj.), CIT Mehrotra Brothem -270 ITR 0157 (MP,CIT v. Ganpet Ram Bishnoi - 296 ITR 0292 (Raj.), Cadila healthcare Ltd. v. Cl 7, Ahmedabadh-1 [ITA no. 1096/Ahd/2013 & 910/Ahd/2014], Sri Saí Contractors v. ITO [ITO no. 109Nizag/2002] and Pyare lal Jaiswal v. CIT, Vamnesi
[(2014) 41 taxmann.com 27 & (AII Trib.)]. It was contended by the Learned Counsel that clause -(a) & (b) of Explanation 2 of Section 263 are not applicable as the Assessing Officer has made enquiry and verification which should have been made. Further, in the show cause notice, the Explanation-2 of section 263 was not invoked by the PCIT and it was referred in the order u/s.263 of the Act. Therefore, in the light of decision of the Co-ordinate Bench of Mumbai ga in the case of Narayan Tatu Rane - 70 taxmann.com 227 (Mum. Trt.) [PB 153-1561 wherein held that explanation cannot laid to have over ridden the law as interpreted/the various High Courts where the High Courts have held that before reaching the conclusion that the order of the Assessing Officer is erroneous prejudicial to the interest of Revenue. The CIT himself has to undertake some enquiry to establish that the assessment order is erroneous and prejudicial to the interest of Revenue. The ld. Counsel relied on the decision of M/s. Amira Pure Foods Pvt. Ltd., v. PCIT in and Ahmedabad Tribunal in the case of Torrent Pharmaceuticals Ltd. v. DCIT [2018] 97 taxmann.com 671 (Ahd. - Trib.). it is clear from the enquiries made by the Assessing Officer and submissions made by the assessee that the Assessing Officer has taken the plausible view which is valid in the eyes of law. The Assessing Officer was satisfied consequent to making enquiry and after examining the evidences produced by the assessee, he accepted the assessee's claim of loan similar view were also expressed by the Hon'ble Delhi High Court in the case of CIT v. Vodafone Essar South Ltd. [2013] 212 taxman 0184. We observe the Pr.CIT has drawn support from newly inserted Explanation 2 below section 263(1) of the Act introduced by Finance Act, 2015 w.e.f. 1-6- 2015 for his action. The Explanation 2 inter alia provides that the order passed without making inquiries or verification 'which should have been made' will be deemed to be erroneous insofar as it is prejudicial to the interest of the Revenue. It is on this basis, the assessment order passed by the AO under section 143(3) of the Act has been set aside with a direction to the AO to pass a fresh assessment order. It will be therefore imperative to dwell upon the impact of Explanation 2 for the purposes of section 263 of the Act. The aim and object of introduction of aforesaid Explanation by Finance Act, 2015 was explained in CBDT Circular No.
19/2015 [F.NO.142I14/2015T PL], Dated 27-11-2015 which is reproduced hereunder: "53. Revision of order that is erroneous in so far as it is prejudicial to the interests of revenue. 53.1 The provisions contained in sub-section (1) of section 263 of the Income-tax Act, before amendment by the Act, provided that if the Principal Commissioner or Commissioner considers that any order passed by the Assessing Officer is erroneous in so far as it/s prejudicial to the interests of the Revenue, he may, after giving the assessee an opportunity of being heard and after making an enquiry pass an order modifying the assessment made by the Assessing Officer or cancelling the assessment and directing fresh assessment. 53.2 The interpretation of expression "erroneous in so far as it/3 prejudicial to the interests of the revenue" has been a contentious one. In order to provide clarity on the issue, section 263 of the Income-tax Act has been amended to provide that an order passed by the Assessing Officer shall be deemed to be erroneous in so far as it is prejudicial to the interests of the revenue, if, in the opinion of the Principal Commissioner or Commissioner. (a) the order is passed without making inquiries or verification which, should have been made; (b) the order is passed allowing any relief without inquiring into the claim; (c) the order has not been made in accordance with any order, direction or instruction issued by the Board under section 119; or (d) the order has not been passed in accordance with any decision, prejudicial to the assessee, rendered by the jurisdictional High Court or Supreme Court in the case of the assessee or any other person. 53.3 Applicability: This amendment has taken effect from 1st day of June, 2015." "17 We thus find merit in the plea of the assessee that the Revisional Commissioner is expected show that the view taken by the AO is wholly unsustainable in law before embarking upon exercise of revisionary powers. The revisional powers cannot be exercised for directing a fuller inquiry to merely find out if the earlier view taken is erroneous particularly when a view was already taken after inquiry. If such course of action as interpreted by the Revisional Commissioner in the light of the Explanation 2 is permitted, Revisional Commissioner can possibly find fault with each and every assessment order without himself making any inquiry or verification and without establishing that assessment order is not sustainable in law. This would inevitably mean that every order of the lower authority would thus become susceptible to section 263 of the Act and, in turn, will cause serious unintended hardship to the tax payer concerned for no fault on his part. Apparently, this is not intended by the Explanation. Howsoever wide the scope of Explanation 2(a) may be, its limits are implicit in it. It is only in a very gross case of inadequacy in inquiry or where inquiry is per se mandated on the basis of record available before the AO and such inquiry was not conducted, the revisional power so conferred can be exercised to invalidate the action of AO. The AO in the present case has not accepted the submissions of the assessee on various issues summarily but has shown appetite for inquiry and verifications. The AO has passed after making due enquiries issues involved impliedly after due application of mind. Therefore, the Explanation 2 to section 263 of the Act do not, in our view, thwart the assessment process in the facts and the context of the case. Consequently, we find that the foundation for exercise of revisional jurisdiction is sorely missing in the present case.
18. In the light of above facts and legal position, we are of the considered view that the AO had made detailed enquiries and after applying his mind and accepted the genuineness of loans received from GTPL and PAFPL, which is also plausible view. Therefore, we find that twin conditions were not satisfied for invoking the jurisdiction under section 263 of the Act. The case laws relied by the ld. CIT(D.R.) are distinguishable on facts and in law hence, by the ld. Counsel as well and we concur the same hence not applicable to present facts of the case. Therefore, in absence of the same, the ld. CIT ought to have not exercised his jurisdiction under section 263 of the Act. Therefore, we cancel the impugned
order under section 263 of the Act, allowing all grounds of appeal of the Assessee."
5. The Tribunal has found that in the order passed by the PCIT, Explanation 2 of section 263 of the Act, 1961 is made applicable. The Tribunal observed that the PCIT has not mentioned in the show cause notice to invoke the Explanation 2 of section 263 of the Act 1961. Therefore, by invocation of Explanation in the order without confronting the assessee and giving an opportunity of being heard to the assessee is not appropriate and sustainable in law.
6. Thus, the Tribunal has considered in detail the aspect of revisional power to be exercised by the PCIT in the facts of the case and has given a finding of facts that the Assessing Officer has made inquiries in detail and after applying mind, accepted the genuineness of loans received by the respondent assessee from the aforesaid two companies and such view of the Assessing Officer is a plausible view, and therefore, the same cannot be said to be erroneous or prejudicial to the interest of the Revenue.”
13. The SLP against the above order of the Hon’ble High Court was dismissed by the Hon’ble Supreme Court, thereby the issue, that the explanation (2) to Section 263 of the Act could be invoked only in a very gross case of inadequacy in enquiring or where the mandatory enquiries are not conducted, has reached finality.
14. In assessee’s case, while filing the return of income, the assessee did not offer the additional income offered during the course of survey. The AO raised this issue during the course of assessment and called on the assessee as to why the additional income offered during the course of survey was not admitted as income at the time of filing the return of income. The assessee had submitted before the AO that the partner had retracted the statement vide letter dated 28.7.2018 and the stock taking was not done properly. The assessee also submitted that the production wastage was not taken into account and furnished the stock workings as on the date of survey as per books and as per physical stock to substantiate that the difference was minimal if wastage was considered. The AO in his order has made a detailed finding with regard to the retraction of the statement and has relied on several judicial pronouncements before concluding the assessment by stating as under:-
“9.7 in the instant case, it can be seen that the Managing Partner of the assessee company admitted additional income voluntarily on being specifically asked about the stock discrepancy. It is not the case of the assessee that the Managing partner was coerced or forced to admit the income. It can be seen from the reply to Q.No. 14 of statement dated 03.02.2017 and in Q.No. 5 of 16.02.2021, it was his admission that there was stock discrepancy and on this issue he was admitting Rs. 50,00,000 as additional income. 9.8 As a Managing partner of the company, he was in the know of the stock position as per books and physically available and he admitted the additional income which was true according to his knowledge and belief being at the helm of affairs. 9.9 Hence the contention of Rajendra Kumar made after one and half years that the statement was given under stress, pressure and humiliation and the statement was signed only to end the search proceedings is without any merit 9.10 When there is a clear and categoric admission of the undisclosed income by the assesses himself different statements and the undisclosed income being voluntarily declared in a statement dated 16.02.2017 there is no way the assessee can retract the same after 18 months contending that the under stress, pressure and humiliation. 9.11 The fact is when there is a clear admission, voluntarily made by the assessee, that would constitute a good piece of evidence for the purpose of assessing the income. 9.12 There is no evidence on record that statement was obtained under coercion or threat of any kind. The assessee was completely aware of the statement he was giving and at no point of time filed any letter immediately after the search/survey stating that the statement was given under threat or coercion. 9.13 Hence once it is shown that the statement was voluntary then, me assessee cannot to retract as held by the judgment of the Hon’ble Supreme Court in We case of Surjeet Singh Chhabra v. Union of India AIR 1997 SC 2560. Further there is no materiel on record to suggest the statement was given under a mistaken belief either of fads or law, The statement under section 132(4) has greater evidentiary value than statement given under other provisions of the statute. 9.14 It has been held by the Hon’ble Supreme Court in the case Awadh Kishore Dass vs. Ram Gape) AIR 1979 SC 861 that evidentiary admission are not conclusive proof but shift the burden of the proof to the person making them. Further unless proved to be wrong, they are efficacious proof of facts admitted. 9.15 The submissions of the assessee as well as material available on record have been considered carefully. The crucial question is whether the addition can be made on the basis of statement recorded under section 131 and 132(4) which is now retracted by the assessee in as much as the income declared by the assessee during the course of search/survey as additional income has not been declared in the return of income. 9.16 It is settled law that admission by a person is good piece of evidence and the same can be used against a person who makes it. The reason behind this is, a person making a statement stops the opposite party from making further investigation. 9.17 This principal is also embedded in the provisions of the Evidence Act. The statement recorded under section 132(4) is on a different footing. The Legislature in its wisdom has provided that such a statement may be used in evidence in any proceedings under the Income-Tax Act, 1961. Therefore great evidentiary value has been attached to such statement by the legislature for the purpose of determining the income of the assessee post search. 9,18 in view of this the admission made in statement under section 132(4) has great evidentiary value and is binding on a person who makes it. Therefore, the assessment can be made on the basis of such admission by using the same in evidence. If in the course of such search, the assessee makes some admission, he debars the authorised officer from making further investigation. The sanctity of such provision would be lost if the assessee is allowed to contend that no addition can be made on the basis of such admission. ………..
9.26 It has been further observed that the declaration clearly fell under section 115 of the Evidence Act and hence it was not open to the assessee to retract from the same and after the departmental authorities had accepted the same and altered their position by closing the search. It further observed that declarations falling under section 115 of the Evidence Act do not require any corroboration and upheld the order of the Assessing Officer in rejecting the retraction and treating the impugned sum as undisclosed income. 9.27 From the principles of law laid down in the aforesaid judgments, it may be deduced that, admission is one important piece of evidence and is rebuttable. It is open to the assessee who made admission to establish that confession was involuntary and the same was extracted under duress and coercion. However the burden of proving that the statement was obtained by coercion or intimidation lies upon the assessee. Where the assessee claims that he made the statement under the mistaken belief of fact or law, he should prove the same with evidence. 9.28 The retraction should be made at the earliest opportunity and the same should be established by producing any contemporaneous record or evidence, oral or documentary, to substantiate the allegation that he was forced to make the statement in question involuntarily. 9.29 There are no mitigating circumstances to show the admission/surrender made by the assessee was retracted at the earliest part of time with corroborative evidence has substance. The fact is that the assessee surrendered undisclosed income only when he was not able to explain the unaccounted cash, gold jewellery, other documents and loose papers found during search and by volunteering surrender of undisclosed income, he induced the search party not to proceed with collection of other evidence and to accept the surrendered amount. 9.30 The assessee has totally failed to discharge the burden of proving that the statement was obtained under coercion or intimidation. He did not make any complaint to the Higher Authorities alleging intimidation or coercion for retracting the statement under section 132(4), 9.31 Hence there are ample cogent reasons for not accepting the retraction of the statement under section 132(4) by the assessee. 9.32 The assessee had failed to discharge the onus of proving that confession made by him under section 132(4) was as a result of intimidation, duress and coercion or that the same was made as a result of mistaken belief of law or facts.”
From the above, it is clear that the AO has conducted a detailed enquiry with regard to the deviations in stock and has made the addition under the head business income. Further, in the statement recorded during the course of search the Shri Anand Kumar, one of the partners in the assessee firm, he has admitted that there is difference in the stock recorded in the books and the physical stock and agreed to offer the same as additional income. The relevant extract of which is given below Q5. During the course of Survey proceedings u/s.133A of the Income Tax Act 1961 on 01.02.2017 the physical stock of Cashews were taken at the premises of M/s.Kusuma Cashews. It was found that the stock found in the premises of M/s.Kusuma Cashews does not tally with the stock register. Please explain this discrepancy. Ans: I understand that there was a difference of stock as per the physical stocks taken at the time of survey and the value mentioned in the registers maintained. The value of stock difference is approximately around Rs.43,00,000. Further some sundry stocks would have been there. In view of this excess stock, I voluntarily offer Rs.50,00,000 as additional income over and above the regular income as my undisclosed stock in the current year.
16. From the above, it is clear that the additional income is offered towards the difference in stock by the assessee. The PCIT has not brought anything contrary to record to state that the amount admitted towards excess stock is from a difference source. When the additional income is offered towards excess stock, the stock being part of the business of the assessee is offered to tax as business income. The PCIT has merely substituted his views to the extent that the AO should have done further enquiry when PCIT himself admits that the additional income is from the excess stock. We are of the considered opinion that the revisionary jurisdiction could not be allowed to be exercised by the PCIT either for substituting his own opinion for that of the AO or for making a fishing and roving enquiry.
In view of the above discussion, we are of the opinion that the PCIT in the present case has wrongly invoked the jurisdiction under section 263 and the controversy in the present case is fully covered by the judgment of the Hon'ble Bombay High Court in the case of Gabriel India Ltd. (supra). Accordingly the impugned order of the PCIT is quashed.
In the result, the appeal is allowed in favour of the assessee.” 8. In the instant case, as mentioned earlier, during the course of survey, assessee had offered expenditure of Rs.20 lakhs incurred on construction of three residential houses as additional income over and above the regular income for the relevant Assessment Year thereby declaring the same as income from business. The relevant question and answer recorded under section 131 of the Act, reads as follows: “Q.No.8 ; As stated by you vide question No. 6 you have stated that work is in progress in respect of construction of five residential houses at Kustagi Road, Gajendragad. Please state what is the expenditure incurred in respect of these three houses Ans. 70% of the work is complete in respect of these five residential houses. The expenditure incurred is around Rs. 20 lakhs in the FY 2017- 18. This expenditure is yet to be reflected in the books of accounts, which will be considered before filing of the return of income for AY 2018-19. To avoid any litigation and buy peace with the department I am voluntarily offering this amount as additional expenditure towards the construction of these three residential houses for the AY 2018-19. I shall pay advance tax and file the return of income within the prescribed due date.”
From the statement it is clear that the additional income is offered as expenditure incurred for construction of the three residential houses. Apart from the above statement, the Revenue has not unearthed any material to assess the sum of Rs.20 lakhs. The PCIT has not brought anything on record to state that the amounts declared as additional income is from a difference source other than income from business. When the additional income is offered as part of the business income of the assessee and accepted by the AO, the PCIT, on facts of this case, is not justified in substituting his views with that of the AO. Therefore, we are of the view that order passed under section 263 of the Act is not justified and we quash the same. It is ordered accordingly.
10. In the result, appeal filed by the assessee is allowed.”
15. In the light of the aforesaid order of the Bangalore Bench of the Tribunal which is identical to the facts of the instant case, we quash the revisionary order passed under section 263 of the Act for the Assessment Years 2017-18 and 2018-19. It is ordered accordingly.
In the result, the appeals filed by the assessee are allowed.
Pronounced in the open court on the date mentioned on the caption page.