MITHILESH KUMAR,PATNA vs. DCIT CENTRAL CIRCLE-2, PATNA

Per Rajpal Yadav, Vice-President (KZ):- The present appeal is directed at the instance of assessee against the order of ld. Principal Commissioner of Income Tax (Central), Patna dated 16th June, 2023

2. The assessee has raised eight grounds of appeal. However, his grievances revolve around a single issue, namely, whether ld. PCIT is justified in taking cognizance under section 263 of the Income Tax Act and setting aside the assessment order passed by the ld. Assessing Officer or not. It has been further pleaded that ld. PCIT has erred in directing the ld. Assessing Officer to frame a de novo assessment order.

Assessment Year: 2021-2022 Mithilesh Kumar weighing 5874.76 grams and the remaining gold ornaments weighing 12415.92 grams was found to be unexplained. A survey operation under section 133A of the Income Tax Act, 1961 was conducted on the business premises of the assessee on 10.10.2020. The gold jewellery intercepted by the SHO, Police Station GRP, Patna was requisitioned on 09..12.2020 under Warrant of Authorisation issued by Principal Director of Income Tax (Investigation) under section 132A of the Income Tax Act. The jurisdiction over the assessee has been transferred under section 127 by ld. PCIT-5, Kolkata. The assessee has filed the return. The ld. Assessing Officer has gone through the record and thereafter passed an assessment order under section 143(3) on 28.03.2022.

Assessment Year: 2021-2022 Mithilesh Kumar Assessment Year: 2021-2022 Mithilesh Kumar Assessment Year: 2021-2022 Mithilesh Kumar

Assessment Year: 2021-2022 Mithilesh Kumar in the statement u/s 131(1 A) dated 10.10.2020, that about 6 kg gold jewellery was taken to Kolkata for repolish on 8.10.2020 while remaining 12390.68 grams was brought from karigars (Reply to Q 6). In reply to Q.9 it was stated that the stock of gold jewellery at his shop on 10.10.2020 would be around 800-1000 grams, and that he carried out the business of wholesale, retail and supply. In reply to Q13, the assessee stated that gold jewellery weighing 12390.680 grams was being brought from Karigars of Kolkata but he had no documentary evidence in this regard. In reply to Q14 and 15, the assessee stated in respect of gold jewellery weighing 18390.680 gms that he did not carry any documents from Patna, as the transaction was ‘kachcha’ (unaccounted) and 40% payment was made already by cheque, cash and metal, and details of such payments will be submitted later. In the statement recorded u/s 131 (1 A) on 12.10.2020, the assessee claimed (reply to Q4) that he was engaged in retail and wholesale business of jewellery, and that he used to purchase readymade jewellery from Kolkata and sell in retail and wholesale at Patna (reply to Q6). Further, in reply to Q14, the assessee stated that he carried 12423.097 grams of gold jewellery about a month back to Kolkata for repolish and left it there, while 5967.683 gms of gold jewellery was taken to Kolkata on 8.10.2020. It was again admitted that there was no documents to support of 12423.097 grams of gold jewellery being taken to Kolkata for repolish.

3.1. During survey u/s 133A dated 10.10.2020 at the business premises, gold jewellery of only 424.870 gms were found (in a safe) and another 200.420 gms of gold bullion was found from the possession of Smt Priya Gupta, wife of assessee, stated to be part of the stock of the firm owned by assessee. As per the details submitted by the assessee on 15.10.2020, gold bar of only 17.200 gms valued at Rs. 65066/- were accounted though not found during survey. In the impounded loose papers (72 pages) identified as MKG-03 delivery challans at page 64 and 65 of Manas Shaw Kolkata dated 9.10.2020 were found showing the value of goods/services of Rs. 1715,489/- and 39480/- which was not examined by the AO and no enquiries were conducted. Further pages 66-69 contained two ledgers in tally of Gold ornaments (18 ct) from 1.4.2020 to 10.10.2020, which the Investigating Officer suggested the AO to verify, however no enquiry in this regard were made. The ledger shows that the entire purchases during the year has been made from M/s Radhika Jewellers, Patna by the assessee, and all the jewellery purchased were of 18 ct and finished with making charges included. The Challan No. 1 dated 8.10.2020 (at Page 63) for 5967.583 gms of gold ornaments (18 ct) (value Rs. 171,51,489/- @ Rs. 2874.11 per gms) is unsigned and not acknowledged by receiver. In view of the assessee’s statement dated

Assessment Year: 2021-2022 Mithilesh Kumar 10.10.2020, when no documents/challan were found at the time of interception, this document is self serving and self generated document. The Assessing Officer failed to make any enquiry with M/s Radhika Jewellers, Patna and Manas Shaw, Kolkata, with regard to payments made to them for the purchases/polishing charges. 3.1.2. The above facts clearly suggest that the assessee gave contradictory statements with regard to the jewellery being taken to Kolkata a month earlier, and with regard to his business which included supply of gold jewellery, after procuring the same from Kolkata, in addition to wholesale and retail business of Gold ornaments. The undisputed fact remains that gold jewellery weighing 12415.92 gms (valued at Rs.564,72,392/-), was requisitioned u/s 132A on 09.12.2020 having been intercepted on 10.10.2020 by the GRP at Patna Junction, for which no explanation or evidence/documents were given by the assessee during the interception or during assessment with regard to source of investment. During the survey u/s 133A conducted on 10.10.2020 also, no evidence whatsoever of any unaccounted purchase/sale of jewellery during the year or in earlier years, was found, which could corroborate the subsequent statement that it was assessee’s unaccounted business income of the year (hit by covid) or of earlier years. The undisputed and admitted (in statement dated 10.10.2020) fact remains that the requisitioned gold jewellery was procured from Kolkata for which 40% consideration was paid. The assessee did not furnish any details of such consideration being paid subsequent to the statement dated 10.10.2020 or during the assessment proceedings. The investment therefore remained entirely unexplained.

3.2. Coming to the applicable law as interpreted and expounded by the jurisdictional High Court and Hon'ble Supreme Court with reference to ‘deemed incomes’ u/s 68 to 69D of the LT. Act, it would be relevant to analyze the case laws and High Court/ITAT decisions relied upon by the assessee in support of his contentions. There is a catena of ITAT decisions in the last decade or so, both in favour and against, regarding the claim/view as to whether the unaccounted investment/expenditure in unaccounted purchase/stock be assessed as "business income" and not as ’deemed income1 u/s 69A/69B or Section 69C of the I.T. Act, 1961. The debate has heated up after the introduction of Section 115BBE by the Finance Act 2012, which separately provided for charging the ’deemed incomes' to tax at the flat rate of 30% prescribed therein without any deduction/allowance, and independent of other incomes being classified under any of the six heads of income as per Section 14 of the IT Act and taxed at applicable rate(s). Section 115BBE gives freedom to the Assessing Officer from holding or classifying such deemed incomes as "Income from other sources" or under any other head for assessment, and Assessment Year: 2021-2022 Mithilesh Kumar applying the rate of tax accordingly, once he . The noise in judicial forum has got shriller after the amendment to Section 115BBE by the Finance Act 2016, which raised the rate of tax under that section to 60% of the deemed incomes, whether shown in the return by the assessee or so determined by the AO in assessment. There appears to be a desperation on the part of taxpayers to wriggle out of rigours of Section 68 to 69D read with Section 115BBE, by colouring the "deemed incomes" as business income. More so, in cases of unaccounted cash and undisclosed investment/expenditure in purchases, and excess stock assessable under section 69A/69B/69C of the Act. 3.2.1. At the outset, all the decisions quoted and relied upon by the assessee, with regard to non-applicability of Section 115BBE, relate to unexplained investment/expenditure represented by excess stock found during the course of survey u/s 133A (and admitted during 133A proceedings as additional income) or u/s 132 which were disclosed as additional income in the return of income as business income or income from other sources, to be taxed at normal applicable rates. The assessee has not furnished any evidence to connect or relate the unexplained and intercepted gold jewellery brought from Kolkata to its business, other than the bland statement that it was earned from business over the years, and has been incorporated in the books of accounts (after interception by GRP and requisition u/s 132A).

[Explanation.- For the removal of doubts, it is hereby declared that, for the purposes of this sub-section,-

(a) an order passed on or before or after the 1st day of June, 1988 by the Assessing Officer shall include-

(i) an order of assessment made by the Assistant Commissioner or Deputy Commissioner or the Income Tax Officer on the basis of the directions issued by the Joint Commissioner under section 144A;

(ii) an order made by the Joint Commissioner in exercise of the powers or in the performance of the functions of an Assessing Officer conferred on, or assigned to, him under the orders or directions issued by the Board or by the Chief Commissioner or Director General or Commissioner authorized by the Board in this behalf under section 120;

(b) “record shall include and shall be deemed always to have included all records relating to any proceeding under this Act available at the time of examination by the Commissioner;

(c) where any order referred to in this sub-section and passed by the Assessing Officer had been the subject matter of any appeal filed on or before or after the 1st day of June, 1988, the powers of the Commissioner under this Assessment Year: 2021-2022 Mithilesh Kumar sub-section shall extend and shall be deemed always to have extended to such matters as had not been considered and decided in such appeal.

(2) No order shall be made under sub-section (1) after the expiry of two years from the end of the financial year in which the order sought to be revised was passed.

(3) Notwithstanding anything contained in sub-section (2), an order in revision under this section may be passed at any time in the case of an order which has been passed in consequence of, or to give effect to, any finding or direction contained in an order of the Appellate Tribunal, National Tax Tribunal, the High Court or the Supreme Court. Explanation.- In computing the period of limitation for the purposes of sub-section (2), the time taken in giving an opportunity to the assessee to be reheard under the proviso to section 129 and any period during which any proceeding under this section is stayed by an order or injunction of any court shall be excluded.”

Assessment Year: 2021-2022 Mithilesh Kumar them. The second feature would come when he will judge an order passed by an Assessing Officer on culmination of any proceedings or during the pendency of those proceedings. On an analysis of the record and of the order passed by the Assessing Officer, he formed an opinion that such an order is erroneous in so far as it is prejudicial to the interests of the Revenue. By this stage the learned Commissioner was not required the assistance of the assessee. Thereafter the third stage would come. The learned Commissioner would issue a show-cause notice pointing out the reasons for the formation of his belief that action u/s 263 is required on a particular order of the Assessing Officer. At this stage the opportunity to the assessee would be given. The learned Commissioner has to conduct an inquiry as he may deem fit. After hearing the assessee, he will pass the order. This is the 4th compartment of this section. The learned Commissioner may annul the order of the Assessing Officer. He may enhance the assessed income by modifying the order. He may set aside the order and direct the Assessing Officer to pass a fresh order. At this stage, before considering the multi-fold contentions of the ld. Representatives, we deem it pertinent to take note of the fundamental tests propounded in various judgments relevant for judging the action of the CIT taken u/s 263. The ITAT in the case of Mrs. Khatiza S. Oomerbhoy Vs. ITO, Mumbai, 101 TTJ 1095, analyzed in detail various authoritative

Assessment Year: 2021-2022 Mithilesh Kumar pronouncements including the decision of Hon’ble Supreme Court in the case of Malabar Industries 243 ITR 83 and has propounded the following broader principle to judge the action of CIT taken under section 263.

(i) The CIT must record satisfaction that the order of the AO is erroneous and prejudicial to the interest of the Revenue. Both the conditions must be fulfilled.

(ii) Sec. 263 cannot be invoked to correct each and every type of mistake or error committed by the AO and it was only when an order is erroneous that the section will be attracted.

(iii) An incorrect assumption of facts or an incorrect application of law will suffice the requirement of order being erroneous.

(iv) If the order is passed without application of mind, such order will fall under the category of erroneous order.

(v) Every loss of revenue cannot be treated as prejudicial to the interests of the Revenue and if the AO has adopted one of the courses permissible under law or where two views are possible and the Assessment Year: 2021-2022 Mithilesh Kumar AO has taken one view with which the CIT does not agree. If cannot be treated as an erroneous order, unless the view taken by the AO is unsustainable under law.

(vi) If while making the assessment, the AO examines the accounts, makes enquiries, applies his mind to the facts and circumstances of the case and determine the income, the CIT, while exercising his power under s 263 is not permitted to substitute his estimate of income in place of the income estimated by the AO.

(vii) The AO exercises quasi-judicial power vested in him and if he exercises such power in accordance with law and arrive at a conclusion, such conclusion cannot be termed to be erroneous simply because the CIT does not fee stratified with the conclusion.

(viii) The CIT, before exercising his jurisdiction under s. 263 must have material on record to arrive at a satisfaction.

(ix) If the AO has made enquiries during the course of assessment proceedings on the relevant issues and the assessee has given detailed explanation

Assessment Year: 2021-2022 Mithilesh Kumar by a letter in writing and the AO allows the claim on being satisfied with the explanation of the assessee, the decision of the AO cannot be held to be erroneous simply because in his order he does not make an elaborate discussion in that regard.

(a) Undisclosed income declared by the assessee on account of unexplained investment in the jewellery ought to have been taxed under Special Provision of Section 19 read with section 115BBE;

(b) The gold jewellery was recovered by SHO, GRP, Patna and such jewellery was requisitioned under Warrant of Authorization issued by Pr. Director General (Investigation) under section 132A of the Income Tax Act. Therefore, assessment proceeding would have Assessment Year: 2021-2022 Mithilesh Kumar been initiated under section 153A of the Income Tax Act.

(c) The assessment order ought to have been passed under section 153A read with section 143(3)/144 and, thereafter penalty under section 271AAB(1a) ought to have been imposed upon the assessee because it is a case covered under section 132 of the Income Tax Act.

Assessment Year: 2021-2022 Mithilesh Kumar

Assessment Year: 2021-2022 Mithilesh Kumar 13. The assessee has filed his return of income on 12.01.2022 declaring total income of Rs.4,86,33,550/-. According to the assessee, it has accounted for the alleged excess gold ornaments found and seized by the Police as well as requisitioned by the Department weighing 12,415.92 grams. The rest of the jewellery was released after taking explanation from the assessee. The assessee has accounted for jewellery and the details have been noticed by the ld. Pr. CIT in the impugned order, which reads as under:- “2.4. Ld. AR has drawn my attention to the assessment order and to the fact that the audited trading account of the assessee shows closing stock as on 31.03.2021 of Rs.666,78,186.74/- which includes the excess stock of Rs.44758072/-. It is further submitted by the assessee that the AO has raised specific query and explanation regarding 12415.92 grams of jewellery in the notice u/s 142(1) and that in written submission dated 09.02.2022 explanation with respect to 12415.92 grams of jewellery was given. Assessee has submitted that the AO made specific query with regard to total value of jewellery quantity 18390.68 grams having monetary value of Rs.81095871/- in the notice u/s 142(1) dated 17.02.2022 and the assessee filed written submission both online and offline explaining the basis of disclosure Rs.44758072/- on account of unaccounted stock of gold jewellery 12415.92 grams valued at Rs.56472392/-, summarized as under: Particulars Amount in Rs.

Total value of unaccounted stock 56472392.00

Less: error in the valuation report for 14CT 4305875.00 8065912.00 Less: decrease on value on the basis of lower of cost or net realizable value

Balance for 12415.92 gm 44100605.00 The petitioner has also disclosed Rs.657467/- for balance of stock 200.810 gm. 19

Assessment Year: 2021-2022 Mithilesh Kumar 14. The ld. Assessing Officer has issued notice under section 142(1) on 20.01.2022, 27.01.2022, 17.02.2022 and 18.02.2022. Copies of all these notices along with questionaries issued to the assessee are available on pages no. 24 to 34 of the paper book. The assessee has duly replied all these questionaries and the submissions are placed on pages no. 35 to 63 of the paper book. The ld. Assessing Officer thereafter passed the assessment order and accepted the income declared by the assessee.

Assessment Year: 2021-2022 Mithilesh Kumar Circle-3, Chennai in order dated 05.04.2023. The brief controversy carved out in the written submissions by the ld. Counsel for the assessee in these judgments deserves to be noticed by us, which read as under:- “Submission before the Hon’ble Tribunal 1. The contention of the appellant that the A.O. has adopted one of the plausible views is supported by the following decisions of the Hon’ble Tribunal wherein it has categorically been held that stock found during the course of survey / search, if offered / disclosed to be out of business income, are not ‘deemed income’ and accordingly, provisions of section 115BBE has no application. The gist of the decisions of the Hon’ble Tribunal are quoted below: 1TA No.378/CHD/2022 (“A” Bench, Chandigarh) AY 2017-18 - Shri Jasjot Singh Garcha (Garcha Orthopaedic & Dental Care) Vs The Pr. CIT, Patiala dated 17/08/2023. Facts noticed: A survey operation under section 133A was carried out at the business premises of the assessee on 30/08/2016. During the course of survey operation, certain discrepancies were noticed and as a result, the assessee offered a sum of Rs. 70,00,000/- apart from his normal business income. Subsequently, the assessee filed his return of income on 30/10/2017 showing total income of Rs. 81,22,830/- including the surrendered income of Rs. 70,00.000/- represented by Rs.45,50,000/- on account of certain loans and advances and person- wise detail of the same were also filed before the AO, Rs. 15,00,000/- on account of Furniture, Fixture and equipment and Rs.9,50,000/- on account ofcash and in support cash book, ledger and receipts books of the assessee were produced before the AO. The case of the assessee was taken up under compulsory scrutiny and notice under section 143(2) and 142(1) were issued along with detailed questionnaire. After taking into consideration, the submissions of the assessee, the returned income was accepted by the AO and assessment order dt. 28/06/2019 was passed by the AO under section 143(3) of the Act. Subsequently, the assessment records were called for and examined by the Ld. Pr. CIT and a show cause under section 263 dated 22/02/2022 was issued on the ground of applicability of tax under section 115BBE of the Act on the income surrendered by the assessee and after considering the reply, the Ld. CIT passed order u/s 263 and the matter was set aside to the file of the AO on the issue of Assessment Year: 2021-2022 Mithilesh Kumar applicability of tax under section 115BBE of the Act on the income surrendered by the assessee. Verdict of the Hon’ble Tribunal On further, appeal the Tribunal held: “15. We therefore find that the assessee has been asked specific questions not just regarding the discrepancy found during the course of survey but the nature and source thereof during the course of survey and it is clearly emerging that the source of such income so surrendered is from the assessee s business of running Orthopaedics and Dental Clinic operation which he is running since 2014. No doubt, these transactions were not recorded at the time of survey thus qualify as unrecorded transactions satisfying one of the essential conditions, at the same time, the assessee has provided the necessary explanation about the nature and source of such unrecorded transactions and the necessary nexus with assessee's business has been established, thus, it cannot be said that these are unexplained transactions thus, doesn ’t satisfy the second condition for invoking the deeming provisions of section 69-69D of the Act. The AO has duly taken cognizance of the findings of the survey team, the documents found during the course of survey, the statement of the assessee, the surrender letter and the return of income and after examination thereof and due application of mind, the income has been rightly assessed under the head business income. 31 16. In light of the above, we are of the considered view that the order so passed by the AO cannot be held as erroneous due to lack of inquiry or for that matter requisite inquiry on the part of the AO. As we have held above, there is no findings recorded by the Ld. Pr. CIT as to how the deeming provisions are applicable in the instant case and the order so passed by the AO is erroneous. We therefore find that merely stating that there was survey operation at the business premises of the assessee and provisions of Section 1151313E of the Act are attracted, the same can be a basis for exercise of jurisdiction under section 263 of the Act. In view of the same, order so passed by the Ld. Pr. CIT under section 263 is set aside and that of the AO is restored. ” (Amritsar Bench) AY 2017-18 - M/s Sharp Chucks & Mechanics Pvt. Ltd. Vs DCIT, Central Circle-1, Jalandhar dated 13/03/2023. Facts noticed: A survey was conducted at the business premises of the assessee on 15/07/2016 and the assessee in order to settle the case based on discrepancy noticed by the survey team made a surrendered of sum of Rs. 1.61 crores as additional business income for financial year 2016- 17 relevant to the Assessment Year under consideration. During scrutiny proceedings, the AO accepted the fact that the assessee 23

Assessment Year: 2021-2022 Mithilesh Kumar surrendered a total sum of Rs.1.61 crores which was utilized in the excess stock of Rs.69,25,000/-, excess cash at Rs.9,80.0000/- and in expenditure of building at Rs.81,95,0000/-. The Assessing Officer has accepted the fact that the additional income derived by the assessee was out of the business carried out, however, while passing the order u/s 153(3) dated 20/09/2021, he has disputed the surrendered income amounting to Rs.81,95,000/- as being utilized for construction of building and so taxed u/s 69 r.w.s 115BBE of the Income Tax Act, 1961. On appeal the Ld. C1T(A) confirmed the action of the A.O. Verdict of the Hon’ble Tribunal: On further, appeal the Tribunal held: "6............................... In our view, once a specific surrender made by the assessee explaining the source as business income and investment transaction in excess stock, cash and building construction as above, before the Income Tax department and due Tax has been realized, the department would not have case to take a U turn while framing the assessment of the assessee by taxing the same under the head Income from other sources under Section 69 of Income Tax Act, 1961. It is noted that the Ld. CIT(A) has failed to appreciate that the expenditure incurred for creating a business asset ought to have been generated through the business carried out by the assessee was accounted for in the books of accounts in the absence of anything proved contrary to the same. The CIT(A) has failed to consider the statement recorded during survey wherein it has been clearly slated by the assessee before the authorized officer that the expenditure incurred on factory was horn out of undisclosed business income. Even the survey team has not found any other source of income except the business income. Thus, it can be safely inferred that apart from cash all other income surrendered may be brought to tax under the head "business income" while the cash may be taxed under the head deemed income under section 69A of the Act. " (“C” Bench, Chennai Bench) AY 2018-19 - M/s Overseas Leathers Vs DCIT, Central Circle-3, Chennai dated 05/04/2023. Facts noticed: The assessee is engaged in the business of manufacturing and sale of finished leather and allied products. The assessee has filed its return of income for the assessment year 2018- 19 on 14/02/2019, admitting total income of Rs.6,39.80,090/-.A survey operation u/s. 133A of the Income-tax Act, 1961 (hereinafter referred to as “the Act'’) was conducted at the business premises of the assessee firm on 14/03/2018. During the course of survey proceedings, inventory of 24

Assessment Year: 2021-2022 Mithilesh Kumar physical stock was taken which resulted in excess physical stock of Rs.5.08 crores. The statement u/s. 131 of the Act was recorded form Shri. M.Srinivasa Reddy, managing partner of the firm on 14/03/2018, where he had admitted the excess stock found in the business premises and also offered an additional income of Rs.5.08 crores for the financial year relevant to assessment year 2018-19. The A.O. added the entire sum of Rs.5.08 crores u/s 69B and taxed the same @ 60% u/s 115BBE by following the decision of Hon Mile High Court of Madras in the case of M/s. SVS Oils Mills vs AC1T [2019] 418 ITR 0442. The CIT(A) upheld the action of the A.O. by relying on the decision of Hon'ble Madras High Court in the case of M/s. SVS Oils Mills vs AC1T [2019] 418 ITR 0442. Verdict of the Hon’ble Tribunal: On further, appeal the Tribunal held: “12. ............................. Moreover, the assesses derives only one source of income from manufacturing and trading in leather and allied products. which is evident from income declared for the impugned assessment year and earlier assessment years. Further, when the assessee has explained source for excess stock found during the course of survey, is out of income earned from current year business, the AO did not go further to disprove the claim of the assessee that said source is not from income from business. Moreover, it is a general practice in trade that income generated is either ploughed back into the business in the form of stock in trade or receivables or spent for other purpose like acquisition of asset outside the business. In this case, during the course of survey except stock difference, no other investment with any other asset was found. Therefore, from the above it is very clear that explanation offered by the assessee that source for excess stock is out of income generated from business activity of the current year appears to be plausible explanation. Therefore, we are of the considered view that when the assessee has explained the source for acquisition of stock out of business income, the AO ought to have accepted the :-20-: ITA. No:962/Chny/2022 explanation of the assessee and assessed the income under the head profits and gains of business or profession, but not under the head unexplained investment u/s. 69B of the Act. This is because, excess stock found during the course of survey does not have any independent identity as the asset is a mixed part of overall stock found in the business premises of the assesses, which in our considered view represents business income. ” [Copies of orders attached in the paper book at page 85 to 155]

Assessment Year: 2021-2022 Mithilesh Kumar (“B” Bench, Chennai) AY 2019-20 - Ethiraj Hotel Mart Vs DCIT, Circle-3(4), Chennai dated 29/12/2023. Facts noticed: The assessee is engaged in the business of wholesale trading of stainless steel items, crockery, aluminium and electric items. A survey u/s. 133 A of the Act was carried out on the business premises of the assessee on 06/02/2019. The AO completed assessment u/s. 143(3) of the Act, vide order dated 30/09/2021 by noting that physical stock available at the business premises of the assessee was inventoried during the course of survey and when it was compared with the stock with the books of accounts, the survey party found excess stock valued at Rs.1,04,00,600/-. When this was pointed out to assessee. a sum of Rs.1,04,00,600/- was offered for taxation. The AO relying on the decision of Hon’ble High Court of Madras in the case of M/s. SVS Oils Mills vs. ACIT in 1TA No.765 of 2018, simpliciter without discussing any of the facts held that excess stock amounting to Rs. 1,04,00,600/- is to be treated as unexplained investment u/s.69B of the Act and subjected to tax as per the provisions of section 115BBE of the Act. Accordingly, he charged the income offered during survey as unexplained investment u/s.69B of the Act and assessed to tax u/s.115BBE of the Act. The CIT(A) has upheld the action of AO by relying on Judgment of Hon’ble Madras High Court in the case of M/s. SVS Oils Mills vs. ACIT in ITA No.765 of 2018. Verdict of the Hon’ble Tribunal On further, appeal the Tribunal held: “7. In the given facts and circumstances of the case, we noted that the assessee has declared additional income towards excess stock found during the course of survey and assessee has explained the source for excess stock found during the course of survey i.e., that it was out of income earned from current year business or earlier years business and surrendered the amount, the AO has not done anything to dispute the claim of assessee that the source was not from the business income. Hence, the AO cannot apply the provisions of section 115BBE of the Act. The assessee also admitted the difference of Rs. 1,04,00,600/- as income, which is not disputed but has to be taxed as ‘normal business income' and not as ‘unexplained investment' u/s.69B of the Act. Accordingly, we allow the grounds of appeal of assessee and reverse the orders of C1T(A) and that of the AO on this. The appeal of the assessee is allowed. ” ITA No.2285/Mum/2022 (“G” Bench, Mumbai) AY 2019-2022 - Govind Gidomal Lulla Vs CIT-51, Mumbai dated 11/04/2023. 26

Assessment Year: 2021-2022 Mithilesh Kumar Facts noticed: A survey action 133A of the Act was carried out on the business premises of the Assessee, M/s. Jhama Sweets on 15/01/2019. AO noted that, during the course of survey proceedings, inventory of stock was prepared and as on the date of survey, in books of account the stock was shown at Rs.2,82,400/-. However, the stock as per the physical inventory was arrived at Rs.25,21,196/-. Thus, there was stock discrepancy of Rs.22,38,769/-, which assessee accepted and offered for taxation as business income. The AO held that excess stock found was undisclosed investment within the meaning of section 69, and therefore taxes have to be levied at higher rate under the provision of section 115BBE. The CIT(A) has upheld the action of AO. Verdict of the Hon’ble Tribunal On further, appeal the Tribunal held: "6. After hearing both the parties, and on perusal of the relevant finding during the impugned order as well as the material placed before us, it is noticed that there was difference of stock in books and the physical stock found during the survey and such difference was worked out at Rs. 22,38.769/-. Assessee is in the business of manufacturing of sweets (Mithai) and the stock which was found was the raw material/ ingredients used for preparation of the sweets. In the course of survey, the assessee in his statement on this issue merely stated that he will provide the reconciliation in some time about the discrepancy. However, later on assessee offered the difference for taxation as business income, because the excess stock was said to he purely purchase of material for making sweets during the course of the business. If assessee is carrying on business and has some undisclosed stock then same is taxable as an undisclosed business income. It is cannot be held it is a case of undisclosed investment, albeit it is a case of undeclared business income. Neither during the course of survey nor in the statement it was found nor has assessee ever stated that there is some undisclosed investment representing in the form of undisclosed assets. It is a case of excess stock found during the carrying of the business and stock is generated out of business income and therefore, the provision of section 69 on the facts of the case has no applicability.

7. Accordingly, Assessee has rightly offered it has business income and consequently, the provision of section 115BBE is not applicable. Thus, the ground raised by the assessee is allowed. ”

Assessment Year: 2021-2022 Mithilesh Kumar (Delhi Bench) AY 2017-18 - DCIT Vs Tapesh Tyagi, dated 27/10/2023. Facts noticed: During the course of search, a slip was found from the wallet of the assessee wherein a sum of Rs.30.20 crores was mentioned against the word “Com Trade". The assessee has offered the same in course of search u/s 132(4). In the statement recorded under Section 132(4) of the Act in course of search and seizure operation, when the assessee was confronted with the said loose paper/document. the assessee submitted that it indicates profit earned by him from “Commodity Trade”. It is a fact that in the statement recorded under Section 132(4), assessee surrendered the amount as income. The AO has treated the same as unexplained money and assessed u/s 69A and levied tax @ 60%. The CIT(A) has treated the same as income from business and accordingly directed taxation at normal rate. Verdict of the Hon’ble Tribunal On appeal, the Hon’ble Tribunal held: “7. Thus, the aforesaid facts clearly establish that at the time of search and seizure operation itself assessee has explained the source of the amount offered as income to be the profit derived from "commodity trade ", which is in the nature of business income. It also appears that the departmental authorities have no dispute with regard to the explanation of the assessee regarding the source of the surrendered income. ” ……………. ……………. "9. Having held so. we may further add that a reading of section 115BBE of the Act makes it clear that the special rate of tax provided under the said provisions shall be applicable under two conditions. Firstly, where the total income includes any income referred to in sections 68, 69A, 69B, 69C or 69D and reflected in the return of income under Section 139 of the Act. Secondly, if the income determined by the Assessing Officer includes any income referred to, in sections 68, 69, 69A, 69B, 69C or 69D, if such income is not covered under the first condition. In the facts of the present appeal, admittedly, assessee has not offered the income under Section 69A of the Act. Even, the Assessing Officer has not made any separate addition under Section 69A of the Act. He has merely re- characterized the nature of income offered by the assessee. Thus, in our considered opinion, the provisions of sections 115BBE would not be applicable to the facts of the present appeal”. It is well settled by the judgments of the Hon’ble Supreme Court and Hon'ble Kolkata High Court (gist of judgments quoted below) that if the 28

Assessment Year: 2021-2022 Mithilesh Kumar A.O. adopts one of the plausible views which has resulted in loss to revenue or where two views are possible and A.O. adopts one view with which the Commissioner does not agree, revision is not permissible: Commissioner of Income-Tax v. Kwality Steel Suppliers Complex - (2017) 395 1TR USC}

"The phrase 'prejudicial to the interests of the Revenue' has to be read in conjunction with an erroneous order passed by the Assessing Officer. Every lose 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." PCIT v. Britannia Industries Ltd. - (2023) 453 ITR 576 (Cal) "The Commissioner can set aside an order of assessment under section 263 of the Income-tax Act, 1961, only if it is erroneous and prejudicial to the Revenue. Every loss of revenue cannot be treated as prejudicial to the interests of the Revenue and if the Assessing Officer has adopted one of the courses permissible under law or where two views are possible and the Assessing Officer has taken one view with which the Commissioner does not agree, it cannot he treated as an erroneous order, unless the view taken by the Assessing Officer is unsustainable under law. Unless and until the order passed by the Tribunal suffers from any perversity or ignores any vital fact in an appeal under section 260A of the Act, the High Court cannot interfere with such an order. Held, dismissing the appeal, that both the issues on which the show- cause notice under section 263 of the Act was issued were fully factual. The Tribunal which was the last fact-finding authority had elaborately considered the factual position and granted relief to the assessee. The Assessing Officer had issued notices to the assessee on the very same issue and considered its reply and after a detailed enquiry the assessment had been completed. The Tribunal was justified in setting aside the order of assessment”. In the present case, the view of the A.O. for taxing the business income under the same head and not under deeming provision is supported by unanimous view of the Hon'ble Tribunal throughout the country and thus, with all humility, it is submitted that it is a case where only one view is possible which has been adopted by the A.O. and thus, the very Assessment Year: 2021-2022 Mithilesh Kumar initiation of proceeding u/s 263 is vitiated in law for want of condition precedent.

Assessment Year: 2021-2022 Mithilesh Kumar Tax Act. The ld. Pr. CIT in the order under section 263 has observed that ld. Assessing Officer has not made third parties enquiries with regard to purchase/sales of closing stock as on 10.10.2020 and as on 31.03.2020. It is pertinent to note that assessee himself has disclosed the alleged excess stock accounted on 10.10.2020 while finalising the accounts on 31.03.2021. He has paid the taxes on that excess stock. The ld. Pr. CIT had made reference a large number of orders, where on the strength of facts available in those cases, it was held that unaccounted stock if found, then that could be added under section 69A/69B that was the situation in those cases, it was not as a thumb rule.