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Income Tax Appellate Tribunal, DELHI ‘H’ BENCH,
Before: SHRI N.K. BILLAIYA, & SHRI KUL BHARAT
PER N.K. BILLAIYA, ACCOUNTANT MEMBER:-
This appeal by the assessee is preferred against the order dated 21.03.2022 framed u/s 263 of the Income-tax Act, 1961 [hereinafter referred to as 'The Act'] by the PCIT, Rohtak for A.Y. 2017-18.
2. The sum and substance of the grievance of the assessee is that the PCIT erred in law in assuming jurisdiction u/s 263 of the Act and further erred in holding that order passed by the Income tax Officer, Ward -1, Karnal u/s 143(3) dated 23.12.2019 is erroneous and prejudicial to the interest of the Revenue.
3. The representatives of both the sides were heard at length, the case records carefully perused. Relevant documentary evidences and judicial decisions brought on record duly considered in light of Rule 18(6) of ITAT Rules.
Briefly stated, the facts of the case are that a survey action u/s 133A of the Act was carried out at the premises of the assessee on 15.09.2016 wherein the assessee admitted additional income of Rs. 9.50 lakhs largely on account of unexplained cash.
Return for the year was e-filed on 17.10.2017 declaring an income of Rs. 13,52,590/-. Return was selected for scrutiny assessment. During the course of scrutiny assessment proceedings, vide notice dated 01.11.2019, the Assessing Officer raised the following queries:
“1. Necessary explanation w.r.t. fail in G.P. rate as compared to immediate preceding year from 21.01% to 16.09% in the year under consideration.
2. Comparative chart of expenses debited to P & L account as compared to immediate preceding year as the same has not been found enclosed with the reply.
3. Details of additions made in unsecured loan alongwith copy of bank statements”.
Relevant reply of the assessee reads as under:
“To
The Income tax Officer Ward-1, Karnal
Sub : Supply or information in connection with assessment proceedings for the assessment year 2017-18
Reg : Bharat Malhotru Prop M s Shri Nathji Jewels, Outside Karan Gate, Karnal PAN : AFFPM3182H Sir, That in connection with assessment proceedings for the assessment year 2017-18 and in response to query letter dated 01-11-2019 issued by your good self, the assessee hereby submits the following information:
FALL IN G.P. RATE
That the G.P.rate of the assesses have conic down to 16.19% during the year as compared to G.P. rate of 21.01% as compared to the immediately preceding year. That the reason for fail in G.P. rate is that the total sales of the assesses have gone up to Rs. 8426399/ as compared to total safes of Rs, 4938499/- in the preceding year due to which the profits of the assesses firm have come down. Another reason for fall in G.P. rate was the fluctuation in the gold prices. Moreover the question of G.P. rate is irrelevant in the present case since the assess** apart from the income of Rs. 429499/- declared other the heading of business income have also shown additional income of Rs 950000/- which was got surrendered from the assessee during the survey under section 133A This additional income of Rs. 950000/- was also earned by the assessee from jewelry business and also represent the gross profit from the business of jewelry. If this amount of Rs. 9,50,000/- is also added in the gross profit the actual G.P. would be Rs. 136395/- - plus Rs. 950900/- amounting to Rs. 2313959/- giving a G.P, rate of 27.46% which is more than the G.P. earned in earlier years.”
Further probing on the issue, vide notice dated 18.12.2019, the Assessing Officer raised the following queries:
“1. Details regarding renovation expenses incurred on shop.
2. Cash deposit of Rs.6,40,000/- in the account of your wife Smt. Sarika Malhotra on 13.11.2016 in SBOP, Karnal in account no. 55085170850. Please give your explanation in this regard.
Stock register & Purchase/sale vouchers for the period from 01.04.2016 to 31.03.2017.”
Relevant reply reads as under:
“ S T O C K R E G I S T E R A N D P U R C H A S E / S A L E S V O U C H E R S
That the assessee have already explained that the O P. rate had come down to 16.39% during the year under assessment as compared to 2..01% in die immediately preceding year. The reason foi fail in the O.P. rate have also been explained vide our early response filed on 07-11-2019 In fact if the surrendered income of Rs. 950000/- is also addec in the gross profit then the G P. rate comes to 27.46% which is even more then the G.P. rate of 2101% as declared in the earlier year.
That however, as for as the question of purchase and sales vouchers is concerned, a chart of purchase rate and sale rate on monthly basis reflecting the purchase rate of the purchases made by the assessee and sales made by the assessee is hereby submitted. As per this chart the maximum sale rate during the y ear is Rs. 30000 - per 10 gras and the minimum purchase rate of Rs. 25200/- per 1C gras. Even it die entire sale rale is taken at Rs. 30000/- and purchase rate at Rs. 25200/-, the G.P. rate comes to 16% and the assessee have already disclosed the G.P. rate as ! 6. 9%. Copies of purchase and sales vouchers mentioned in the chart are hereby submitted.”
After considering the reply of the assessee, the Assessing Officer framed assessment order u/s 143(3) of the Act at the returned income of the assessee.
Assuming jurisdiction conferred on him by provisions of section 263 of the Act, the PCIT issued the following show cause notice:
“M/s/Mr/Ms
Subject: Notice for Hearing in respect of Revision proceedings u/s 263 of THE INCOME TAX ACT, 1961 - Assessment Year 2017-18.
In this regard, a hearing in the matter is fixed on 14/03/2022 at 11:00 AM. You are requested to attend in person or through an authorized representative to submit your representation, if any alongwith supporting documents/information in support of the issues involved (as mentioned below). If you wish that the Revision proceeding be concluded on the basis of your written submissions/representations filed in this office, on or before the said due date, then your personal attendance is not required. You also have the option to file your submission from the e-filing portal using the link: incometaxindiaefiling.gov.in
Subject:- Show Cause Notice U/s 263(1) of the Income Tax Act, 1961 for the A.Y. 2017-18-reg.
Return declaring income of Rs. 13,52,590/- for the A.Y. 2017-18 was filed by you on 17.10.2017. Subsequently, your case was taken into scrutiny as the survey u/s 133A(1) was carried out on 15.09.2016. Accordingly, the assessment for the year under consideration was completed u/s 143(3) of the Income Tax Act, 1961 at returned income of Rs. 13,52,590/- by the Income Tax Officer, Ward-1, Karnal vide order dated 23.12.2019.
The assessment record for the period under consideration was called upon and examined. On such examination, it has been noticed that survey action u/s 133A was carried out at your business premises on 15.09.2016 in which you have offered an additional income of Rs. 9,50,000/- apart from normal business income which is largely in the nature of unexplained which is liable to be added u/s 68/69/69A/69B/69C of the Act. As per your ITR, you have shown the surrender income under the head of “Income from Other Sources" and have paid taxes as per normal slab rates instead of tax payable at the rate of 60% u/s 115BBE of the Income Tax Act, 1961. However, neither you have furnished any proper explanation for paying tax at low rates, nor the AO has called for any documentary evidences/proper explanation for the same. In absence of any supporting documentary evidence and proper explanations, re-computation of tax is required to be made on surrendered income at the rate of 60% u/s 115BBE of the Act without allowing any deductions.
Failure on the part of the AO to do so renders the assessment order erroneous in so far as it is prejudicial to the interest of revenue.
In view of the above, the assessment completed by the AO is, prima facie erroneous in so far as it is prejudicial to the interest of revenue. The same is, therefore, required to be suitably amended/modified u/s 263 of the Income Tax Act, 1961. You are, therefore, required to show cause as to why an appropriate order u/s 263(1) of the Act setting aside the assessment order passed as on 23.12.2019 should not be passed. In this connection, you may send your written reply along-with supporting documentary evidences on the email-id( rohtak.pcit@incometax.gov.in) or through e-proceedings by 14.03.2022. In case of no reply is received, it shall be assumed that you do not wish to say anything in the matter and the matter would be decided as per material on record without any further notice/intimation to you.
PRATAP SINGH PCIT, Rohtak”
The assessee filed detailed reply strongly contending as to why provisions of section 263 of the Act are not applicable on the facts of the case. Detailed reply of the assessee is exhibited at pages 101 to 107 of the Paper Book.
12. The reply of the assessee did not find any favour with the PCIT who was of the strong belief that the surrendered income was in the nature of unexplained cash and the same was liable to be added u/s 68 of the Act and tax was liable to be paid at the rate of 60% u/s 115BBE of the Act and in support of his findings, strong reliance was placed on the decision of the Hon'ble Punjab and Haryana High Court in the case of Kim Pharma [P] Ltd 258 CTR 454.
We have given thoughtful consideration to the orders of the authorities below. The bone of contention is whether the amount surrendered during the survey operation, which has been shown in the return of income as ‘income’ from other sources’ be taxed as per provisions of section 115BBE of the Act and having not done so, whether the order of the Assessing Officer is erroneous and prejudicial to the interest of the Revenue.
At the very outset, we would like to state that an amendment has been brought in section 115BBE w.e.f. 2017-18, but the same was not there in the statute on the date of survey, which is 15.09.2016.
Taking a leaf out of the amended provisions, the PCIT was of the opinion that the tax rate should have been 60% instead of 30%, because of which the assessment order has become prejudicial to the interest of the Revenue.
The moot point is as to whether the amendment is prospective or retrospective as on the date of survey he amended provisions were not there in the statute.
In our considered opinion, this is clearly a debatable issue which cannot be subject matter of assumption of jurisdiction u/s 263 of the Act.
A perusal of section 115BBE of the Act shows that where the total income of the assessee includes any income referred to in sections 68, 69, 69A, 69B, 69C or 69D, the income tax payable shall be @ 30% on income so referred to in the said sections. Further, in terms of amended provisions of section 115BBE of the Act by Taxation Laws, Second Amendment Act 2016, it provides that where the total income of the assessee includes any income referred to in sections 68, 69, 69A, 69B, 69C, and 69D and reflected in the return of income furnished under section 139 or total income of the assessee determined by the assessing officer, any income referred to in sections 68, 69, 69A, 69B, 69C, or 69D if such income is not reflected in the return of income furnished under section 139 of the Act, income tax payable shall be @ 60% on income so referred in the said section.
Change which has been brought about in the provisions relates to income so referred to in the afore-stated sections so defined which is either not reflected in the return of income or determined by the assessing officer and in both the cases it will be covered by the provisions of section 115BBE of the Act and the rate of taxation has been increased from 30% to 60% on such specified income.
There is, therefore nothing stated in the pre-amended or post amended provisions of section 115BBE of the Act that where the assessee surrenders undisclosed income during search action for the relevant year, the tax rate has to be charged as per provisions of section 115BBE of the Act. Therefore, the applicability of the amended provisions which prompted the PCIT to assume jurisdiction under section 263 of the Act is highly debatable issue, and therefore, in our understanding of the law, the PCIT has wrongly assumed jurisdiction.
In light of the above, reliance placed by the ld. DR/PCIT on the decision of the Hon'ble Punjab & Haryana High Court [supra] is misplaced, in as much as in that case, the Hon'ble High Court has considered the following facts:
“5. The point for determination in this appeal is, whether Rs. 5,00,000 which was surrendered by the assessee during the course of survey under s. 133A of the Act would form part of business income or was assessable under s. 69A of the Act. The AO, the CIT(A) and the Tribunal after considering the factual aspect noticed that the amount surrendered during the survey was not reflected in the books of account and no source from where it was derived was declared by the assessee and, therefore, it was, deemed income of the assessee under s. 69A of the Act. The findings recorded by the Tribunal in this regard are 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 the stand of the assessee has been brought on record. The assessee had also surrendered additional income of Rs. 10 lakhs in asst. yr. 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 under 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 arc dismissed."
Facts of the present case are totally distinguishable from the facts considered by the Hon'ble Punjab and Haryana High Court because in the case in hand, the declaration made by the assessee before the JCIT, Karnal Range, Karnal, vide letter dated 16.11.2016 clearly and categorically states:
“During the course of this operation, cash has been found in excess at the business premises when compared to cash available in our books of account. The assessee hereby offers to surrender an additional income of Rs. 9,50,000/- on account of above discrepancy in addition to any regular income for the year ending 31.03.2017.”
The above offer was clear that the assessee is surrendering the income in addition to his regular income, which is business income and, therefore, the income surrendered by the assessee is also part of business income.
Merely because in the return of income inadvertently an amount has been shown under the head “Income from other sources”, would not change the colour of income surrendered.
The Hon'ble Supreme Court in Malabar Industrial Co. Ltd., 243 ITR 83, has laid down the following ratio:
"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 of the order being erroneous ".
The Hon'ble Bombay High Court in the case of Gabriel India Ltd 203 ITR 108 has held as under:
“The power of suo motu revision under subsection (1) is in the nature of supervisory jurisdiction and the same can be exercised only if the circumstances specified therein exist. Two circumstances must exist to enable the Commissioner to exercise power of revision under this sub-section, viz., (i) the order is erroneous; (ii) by virtue of the order being erroneous prejudice has been caused to the interests of the Revenue. It has, therefore, to be considered firstly as to when an order can be said to be erroneous. We find that the expressions "erroneous", "erroneous assessment" and "erroneous judgment" have been defined in Black's Law Dictionary. According to the definition, "erroneous" means "involving error; deviating from the law". "Erroneous assessment" refers to an assessment that deviates from the law and is, therefore, invalid, and is a defect that is jurisdictional in its nature, and does not refer to the judgment of the Assessing
Officer in fixing the amount of valuation of the property. Similarly, "erroneous judgment" means "one rendered according to course and practice of court, but contrary to law, upon mistaken view of law; or upon erroneous application of legal principles".
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 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 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. It may be said in such a case that in the opinion of the Commissioner the order in question is prejudicial to the interests of the Revenue. But that by itself will not be enough to vest the Commissioner with the power of suo motu revision because the first requirement, viz., that the order is erroneous, is absent. Similarly, if an order is erroneous but not prejudicial to the interests of the Revenue, then also the power of suo motu revision cannot be exercised. Any and every erroneous order cannot be the subject-matter of revision because the second requirement also must be fulfilled. 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, therefore, hold that in order to exercise power under sub-section (1) of section 263 of the Act there must be material before the Commissioner to consider that the order passed by the Income-tax Officer was erroneous in so far as it is prejudicial to the interests of the Revenue. We have already held what is erroneous. It must be an order which is not in accordance with the law or which has been passed by the Income- tax Officer without making any enquiry in undue haste. We have also held as to what is prejudicial to the interests of the Revenue. An order can be said to be prejudicial to the interests of the Revenue if it is not in accordance with the law in consequence whereof the lawful revenue due to the State has not been realised or cannot be realised. There must be material available on the record called for by the Commissioner to satisfy him prima facie that the aforesaid two requisites are present. If not, he has no authority to initiate proceedings for revision. Exercise of power of suo motu revision under such circumstances will amount to arbitrary exercise of power.
It is well-settled that when exercise of statutory power is dependent upon the existence of certain objective facts, the authority before exercising such power must have materials on record to satisfy it in that regard. If the action of the authority is challenged before the court it would be open to the courts to examine whether the relevant objective factors were available from the records called for and examined by such authority.
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 in 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. Moreover, in the instant case, the Commissioner himself, even after initiating proceedings for revision and hearing the assessee, could not say that the allowance of the claim of the assessee was erroneous and that the expenditure was not revenue expenditure but an expenditure of capital nature. He simply asked the Income- tax Officer to re-examine the matter. That, in our opinion, is not permissible. Hence the provisions of section 263 of the Act were not applicable to the instant case and, therefore, the commissioner was not justified in setting aside the assessment order.”
It is a settled position of law that powers u/s 263 of the Act can be exercised by the Commissioner on satisfaction of twin conditions, i.e., the assessment order should be erroneous and prejudicial to the interest of the Revenue. By 'erroneous' is meant contrary to law. Thus, this power cannot be exercised unless the Commissioner is able to establish that the order of the Assessing Officer is erroneous and prejudicial to the interest of the Revenue. Thus, where there are two possible views and the Assessing Officer has taken one of the possible views, no action to exercise powers of revision can arise, nor can revisional power be exercised for directing a fuller enquiry to find out if the view taken is erroneous. This power of revision can be exercised only where no enquiry, as required under the law, is done. It is not open to enquire in case of inadequate inquiry. Our view is fortified by the decision of Hon'ble High Court of Bombay in the case of CIT vs. Nirav Modi, [2016] 71 Taxmann.com 272 (Bombay).
The Hon'ble High Court of Gujarat in the case of CIT vs. Nirma Chemical Works Ltd. 309 ITR 67 has observed as under:
“if assessment order were to incorporate the reasons for upholding the claim made by an assessee, the result would be an epitome and not an assessment order. In this case, during the assessment proceedings for both the Assessment Years, the Assessing . A.Y. 2009-10 Officer issued a query memo to the assessee, calling upon him to justify the genuineness of the gifts. The Respondent- Assessee responded to the same by giving evidence of the communications received from his father and his sister i.e. the donors of the gifts along with the statement of their Bank accounts. On perusal, the Assessing Officer was satisfied about the creditworthiness/capacity of the donors, the source from where these funds have come and also the creditworthiness/ capacity of the donor. Once the Assessing Officer was satisfied with regard to the same, there was no further requirement on the part of the Assessing Officer to disclose his satisfaction in the Assessment Order passed thereon. Thus, this objection on the part of the Revenue cannot be accepted.”
29. We find that the Hon'ble Delhi High Court in the case of CIT Vs Sunbeam Auto reported in 332 ITR 167 has held as held as under:
“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 CIT under s. 263 of the IT Act. As noted above, the submission of learned counsel for the Revenue was that while passing the assessment order, the AO 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 AO had not applied his mind on the issue. There are judgments galore laying down the principle that the AO in the assessing 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 CIT to pass orders under s. 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”.
Considering the facts of the case in totality from all possible angles, we failed to persuade ourselves to accept the contention of the ld. DR who had strongly supported the findings of the PCIT. We are of the considered view that the order framed u/s 263 of the Act deserves to be set aside and that of the Assessing Officer deserves to be restored. We order accordingly.”
Considering the facts of the case in hand, in totality, in light of judicial decisions discussed here in above, we set aside the order of the PCIT and restore that of the Assessing Officer dated 23.12.2019 framed under section 143(3) of the Act.
30. In the result, the appeal of the assessee in is allowed.
The order is pronounced in the open court on 30.11.2022.