DTE EXPORTS PRIVATE LIMITED,GUNTUR vs. THE PRINCIPAL COMMISSIONER OF INCOME TAX (CENTRAL), , VISAKHAPATNAM

(अपीलार्थी/ Appellant) (प्रत्यर्थी/ Respondent) अपीलधथी की ओर से/ Appellant by : Shri M.V.Prasad, AR प्रत्यधथी की ओर से / Respondent by : Shri D.K.Sonowal. CIT, DR सुनवधई की तधरीख / Date of Hearing : 22.09.2020 घोर्णध की तधरीख/Date of : 23.11.2020 Pronouncement आदेश /O R D E R

Per Shri D.S.Sunder Singh, Accountant Member :

M/s DTE Exports Private Ltd., Guntur

2. All the grounds of appeal are related to the order passed by the Pr.CIT u/s 263 of the Income Tax Act, 1961 (in short ‘Act’). In this case, the assessee filed the return of income declaring total income of Rs.7,88,88,920/-. The assessment was completed u/s 143(3) accepting the income returned by the assessee. Subsequently, the Ld.Pr.CIT has taken up the case for revision u/s 263 and found that the Assessing Officer(AO) completed the assessment determining the total income of Rs.7,88,88,920/- and applied Normal tax rates in respect of excess stock found during the course of search instead of applying section 115BBE of the Act. The Ld.Pr.CIT is of the view that taxing the income @30% on the additional income representing the unexplained investment in stock required to be brought to tax u/s 115BBE and to be levied @60% instead of 30%. Therefore, the Ld.Pr.CIT viewed that the assessment order passed by the AO, taxing the income @30% instead of 60% is erroneous and prejudicial to the interest of the revenue and issued show cause notice to the assessee calling for explanation.

2.1. The assessee filed explanation before the Ld.Pr.CIT stating that there was no difference in stock, hence, the disclosure made by the assessee was voluntary. The excess income admitted was only with an intention to end

M/s DTE Exports Private Ltd., Guntur the protracted litigation and prolonged arguments. The assessee did not protest during the course of assessment proceedings, because, there was no dispute with regard to admission of income under the business head. The assessee further submitted before the Ld.Pr.CIT that it was mixed stock consisting of different varieties and not identified separately variety-wise and also not reconciled with books of accounts at the time of search, hence, submitted that there was no unaccounted stock/unexplained investment, hence, no case to tax the same u/s 115BBE of the Act. The assessee also relied on various case laws before the Ld.Pr.CIT. The assessee further argued that the excess stock constitute the business income, hence, taxing the excess stock @30% was correctly made by the AO. The Ld.AR further submitted that taxing the business income as per section 115BBE is against the provisions of law. The Ld.Pr.CIT considered the argument of the assessee and rejected the explanation of the assessee. The Ld.Pr.CIT viewed that having admitted the income as other operating income for which there was no source or explanation, the assessee cannot come up with the plea that there was no excess stock. The assessee never objected the correctness of the valuation of stock either during the course of search or during the course of assessment proceedings and admitted the same as additional income. The Ld.Pr.CIT has further found that the AO taxed the M/s DTE Exports Private Ltd., Guntur income @30% without invoking the provisions of section 115BBE which is nothing but lack of enquiry. Hence, the Ld.Pr.CIT viewed that the excess stock found during the course of search required to be brought to tax u/s 69 applying the tax rate @60% as provided u/s 115BBE of the Act. Failure to invoke the provisions of section 115BBE of the Act without making enquiry is erroneous and prejudicial to the interest of the revenue, thus revised the assessment order and directed to AO to tax the income of Rs.4,41,45,430/- @60% in accordance with the provisions of section 115BBE of the Act.

M/s DTE Exports Private Ltd., Guntur given by the assessee during the course of search which is reproduced hereunder:

“Q.52) Do you have anything to say? Ans: I am aware of the above deposition and also,-having regard to the mistakes, commissions and omissions I would like to come forward to declare an income of Rs.1500 lakhs (Fifteen hundred Iakhs) as undisclosed income for the last six years including up to the date of search and covering the issues that raised in the above deposition in the hands of our group individuals and business entities. The exact year wise breakup and the hands in which that is to be declared will be submitted before your good self before 10 days after going through the material seized at various premises belonging to our group. The above declaration of Rs.15 crore made by me is after consulting other directors/partners and family members. I volunteer to declare the said amount of Rs.15.00 crore is over and above my regular income. In the normal course of business and also the said income will not be set off against any losses of any of our business concerns. As I am voluntarily declaring the additional income of Rs15 crore I request you not to impose any penalties and not to initiate any prosecution proceedings against myself, our family members, our directors/partners and our business entities. I also request you to give the benefits of immunity under the provisions of Income Tax Act, 1961.” 3.1. The Ld.AR further stated that during the course of search, physical inventory was taken and compared with the books of accounts of the assessee firm and found 2,63,728 kgs. in the godowns of M/s D.T.E.Exports Private Limited which was valued at Rs.4,41,46,445/-. The said amount was voluntarily admitted by the assessee as additional income representing business income, but not as unexplained investment u/s 69 of the Act. The AO also completed the assessment accepting the income admitted by the assessee. Referring to page No.96 of the paper book, the M/s DTE Exports Private Ltd., Guntur Ld.AR argued that the sum of Rs.4,41,46,445/- was admitted as additional income under the head “Other Operating Income” which is nothing but business income. Referring to page No.13 of the paper book, the Ld.AR submitted that the AO had issued the detailed show cause notice calling for the explanation of the assessee as to why the sum of Rs.4,41,46,445/- should not be brought to tax as undisclosed income u/s 69 applying the provisions of section 115BBE of the Act and the assessee furnished the reply which is placed in page No.18 to 22 of the paper book. The assessee had explained that the additional income Rs.4,41,46,445/- was admitted in Schedule L under the head “other operating income” in the relevant columns of the “Profits and Gains of the Business” in Part A of the return filed for the impugned assessment year. He also explained that the excess stock found was business stock which was accumulated and brought forward for so many years is nothing but business stock, hence submitted before the AO that the same was business income which was rightly offered. The assessee relied on the decision of ITAT Jaipur Bench in the case of Bajargan Traders Vs. ACIT and various other case laws and submitted before the AO that the excess stock found during the course of survey should be treated as income from business and the provisions of section 115BBE are not applicable in the instant case. The assessee also M/s DTE Exports Private Ltd., Guntur stated that section 115BBE has come into Act in December, 2016 whereas the search was conducted in September 2016, in which excess stock was found. Therefore, argued that section 115BBE is not applicable in the assessee’s case. The Ld.AR further argued that as per the questionnaire issued by the AO and the reply submitted by the assessee to the AO, it is clear that the AO has verified the issue in detail and taken a conscious decision to tax the income as business income, but not the income u/s 69 of the Act. Referring to assessment order passed by the AO, the Ld.AR brought to our notice that the AO has not made any addition u/s 69 of the Act. Thus argued that once the AO is satisfied that the income representing excess stock required to be brought to tax as business income, the same cannot be reviewed by the Pr.CIT and tax the same as income u/s 69 and invoke the provisions of section 115BBE of the Act. Thus, argued that there is no case for revision u/s 263 on difference of opinion. The Ld.AR relied on the decision of Hon’ble Jurisdictional High Court in Spectra Shares and Scrips (P) Limited Vs. Commissioner of Income Tax – III, Hyderabad [2013] 36 Taxmann.com 348, wherein the Hon’ble High Court held that merely because the Pr.CIT has different opinion in the matter he cannot invoke his powers u/s 263 of the Act. The Ld.AR also relied on the decision of this Tribunal in the case of Vegesina Kamala Vs. Income Tax Officer, Palakol

M/s DTE Exports Private Ltd., Guntur [2016] 66 taxmann.com 280 (Visakhapatnam – Trib), G.V.R.Associates Vs.Income Tax Officer, Ward-1(3), Vijayawada in 88 taxmann.com 716 (Visakhapatnam-Trib), the decision in the case of Nu Tech Engineers Vs. CIT in and argued that in the instant case, the AO considered whether the excess stock is business income or not and whether the provisions of section 115BBE are applicable or not and taken a conscious decision that the income is business income, thus taxed the income @30%, treating the same as business income. After considering the case laws relied upon by the assessee and the facts submitted by the assessee, there is no case for revision u/s 263, hence requested to quash the order passed u/s 263 of the Act and allow the appeal of the assessee.

M/s DTE Exports Private Ltd., Guntur

Accordingly, company has brought excess stock value to the books of account by passing the necessary entries in the P&L Account as well. An amount of Rs.4,41,46,445/- was accordingly admitted as 'other income' in Schedule L - 'other operating income' and the same was also shown in the return filed in the relevant columns under the head "Profits and Gains of the Business" in Part A of the Return filed for the impugned year. The same can also be verified from the P & L Account as well as from the Return filed. Copies, of the above were already filed with your goodself on 17/12/2018. Thus, it is submitted that there is no need to bring the excess stock once again to tax as that would result in double addition. It is further submitted that the our company is involved in the export of unmanufactured tobacco and has no other income generating activity, The excess stock found is nothing but our business stock, and accordingly, the same was offered as income from business only. The Hon’ble ITAT, Jaipur Bench in the case of Bajargan Traders, Jaipur vs ACIT Alwar in dated 17032017 has held that "unrecorded investment which has gone in purchase of such unrecorded stock of rice has been recorded in the books of accounts and offered to tax by crediting the said amount in the profit and loss account Had this investment been mode out of known sources, there was no necessity for assessee to credit the profit and loss account and offer the same to tax. Accordingly, we do not see any infirmity in Assessee’s bringing such transaction in its books of accounts. Having said that, the next issue that arises for consideration is whether the amount surrendered by way of investment in the unrecorded stock of rice has to be brought to tax under the head business income or "income from other sources In the present case, the assessee is dealing in sale of food grains, rice and oil seeds, and the excess stock which has been found during, the course of survey is stock of rice. Therefore the investment in procurement of such stock of rice is clearly identifiable and related to the regular business stock of the assessee" The Hon'ble ITAT' Bench has relied on the decision in the case of Shri Ram Narayan Bir-la dated 30.092016. In that case, the question before the coordinate bench was whether the CIT(A)-2, Udaipur has erred in directing to assess the unexplained income surrendered by the assessee under the head " Income from Business". The Bench has held that the excess stock was part of the stock, and therefore, the same was correctly held by the CIT (A) as income from business. Similar view is also held in the following cases: 1. CIT vs S K Srigiri and Brothers (298 ITR 13), Kar.

M/s DTE Exports Private Ltd., Guntur

In the case of ITO vs Micro Marbles Private Limited (66 SOT 76), it was held that the incomes surrendered by the Assessee at the time of survey accounts to excess stock would definitely be related to business of Assessee. In that case, the Assessing Officer has assessed GP which was upheld by the ITAT. This indicates the excess stock to be considered as business income only. There are other decisions also in which deduction under 80HHC was also allowed. CIT vs Haswani Arts 352 ITR 574 (Rajasthan), CIT vs Margaret's Hope Tea Co Ltd- 01 ITR 747 Kolkata) wherein excess stock was treated as 'profit from the business', so as to allow the deduction. In the case of Daulatram Rawatmull vs CIT (64 ITR 593), Kolkata, It was held that where a credit entry is found in the business accounts of an assessee and the explanation as to how the amount came to be received is rejected by the income-tax authorities and the amount is taken to be income from an undisclosed source, such income can be treated as business income, if the assessee has no other source of income. Relying on the facts of this case and the principles as laid down in the above cases which equally apply to the facts, Assessee has correctly treated the above income as 'income from business' and accordingly provisions of Section 115BBE are not applicable, as proposed by the Assessing Officer. Without prejudice to the above, it is submitted that provisions of Section 115BBE are not applicable as the rate of 60 per cent was brought on statue by the Taxation Laws(-Second Amendment) Act 2016 (by way of ordinance in December, 2016), whereas the search has occurred in September, 2016 in winch

M/s DTE Exports Private Ltd., Guntur excess stock was found It is a settled proposition of law that any amendment which increases the tax burden of the assessee, has to be considered prospective and not retrospective The cause of action arose in September, 2016 and the law at the point of time was to tax such incomes only at 30 per cent tax rate under Section 1 153BE In the case of CIT vs Vatika Township Private Limited (367 FIR 466), the Hon’ble Supreme Court at para No.32 & 33 held that legislation which modify accrued rights or which impose obligations or impose new duties or attach a new disability has to be treated as prospective, unless the legislative intent is clearly to give the enactment a retrospective effect. It is further held in pan 39(c) that "if the concerned provision of the taxing statue is ambiguous and vague and is susceptible to two interpretations, the interpretation which favours the subjects, as against the Revenue, has to be preferred". Therefore, the amendment brought in December, 2016 is not applicable to the facts of the case, as the excess stock was found in the course of search which was correctly offered under, the head Income from Business" Having regard to the above, we request you not to treat the Additional Income offered of Rs 4,41,46,445/- under Profits and Gains from Business or Profession once again as Investment u/s 69 B of the Income Tax Act, 1961 and not to tax as per the provisions of section 115 BBE.”

From the explanation offered by the assessee, it is observed that excess stock found during the search/survey is permitted to be assessed under the business income as well as unexplained investment under section 69 of the Act. The AO considered the explanation of the assessee and assessed the income as business income, but not made the addition u/s 69 of the Act. Thus, it is established that the AO caused necessary enquiries after satisfying himself that the income representing the excess stock required to be brought to tax as business income, but not u/s 69 of the Act, completed the assessment proceedings. The Ld.Pr.CIT taken a different view and held that the excess stock required to be brought to tax u/s 69 of M/s DTE Exports Private Ltd., Guntur the Act, thus, on the same issue, on which the AO located the excess stock represents business income, the Ld.Pr.CIT has taken a different view and made revision u/s 263 of the Act. It is settled issue that on difference of opinion, the CIT is not permitted to make revision u/s 263 of the Act. This view is supported by the decision of Hon’ble jurisdictional High Court in the case of Spectra Shares and Scrips (P) Limited Vs. Commissioner of Income Tax – III, Hyderabad (supra), the Hon’ble jurisdictional High Curt in the case laws cited supra held that merely because of difference of opinion, Pr.CIT cannot invoke his powers u/s 263 of the Act. For the sake of clarity and convenience, we extract relevant part of the order of the Hon’ble Andhra Pradesh High Court in para No.59 which reads as under : “59………. The contention of the Revenue that the Assessing Officer had not applied his mind to the material on record cannot be accepted because the respondent in his order dated 31.03.2011 specifically records a finding at Para 5.1 that there is application of mind by the Assessing Officer. The Revenue cannot raise a plea which is not contained in the order of the respondent and is contrary to it and to the record. The contention of the Revenue that there are no reasons given by the Assessing Officer about the nature of activity of the assessee cannot be accepted because a query was raised by him in the course of the assessment proceedings and was replied by the assessee. Obviously, he was satisfied with the explanation of the assessee and therefore did not think that the issue needs to be specifically mentioned. It is settled law that the Assessing Officer in the assessment order is not required to give detailed reasons and once it is clear that there was application of mind by an enquiry, the respondent, merely because he entertains a different opinion in the matter, cannot invoke his powers u/s. 263 of the Act. It is therefore not correct to say that there was no proper enquiry by the Assessing Officer.”

M/s DTE Exports Private Ltd., Guntur

Similarly, this Tribunal in in G.V.R. Associates. v.Income-tax Officer, Ward-1(3), Vijayawada, [2017] 88 taxmann.com 716 (Visakhapatnam - Trib.) held that the estimation of the net profit is one of the permissible methods of assessment of income from business. The Assessing Officer had taken a conscious decision of estimating the net profit from business after considering the nature and complexity of the books of account maintained by the assessee. Once the Assessing Officer had taken a conscious decision and acted in accordance with law and made the assessment, the same could not be branded as erroneous by the Commissioner, simply because according to him, the Assessing Officer should have made further enquiries. The Ld.DR did not bring any other decision to controvert the decisions relied upon by the assessee. Therefore, respectfully following the view taken by the Hon’ble High Court of Andhra Pradesh and the coordinate bench of this tribunal in the case law cited supra, we hold that there is no case for revision u/s 263, hence, we set aside the order of the Pr.CIT passed u/s 263 and allow the appeal of the assessee.

M/s DTE Exports Private Ltd., Guntur

Order pronounced in the open court on 23rd November 2020.

Sd/- Sd/- (िी.दुगाा राि) (धड.एस. सुन्दर धसंह) (V. DURGA RAO) (D.S. SUNDER SINGH) न्याधयक सदस्य/JUDICIAL MEMBER लेखा सदस्य/ACCOUNTANT MEMBER नदनधंक /Dated : 23.11.2020 L.Rama, SPS आदेश की प्रतितिति अग्रेतषि/Copy of the order forwarded to:- 1. तिर्धाररिी/ The Assessee– M/s DTE Exports Private Limited, D.No.5-7-6, 1/5, Brodipet, Guntur 2. रधजस्व/The Revenue – Pr.Commissioner of Income Tax (Central), Visakhapatnam 3. तवभधगीय प्रतितितर्, आयकर अिीिीय अतर्करण, तवशधखधिटणम/DR, ITAT, Visakhapatnam 4.गधर्ाफ़धईि / Guard file आदेशधिुसधर / BY ORDER // True Copy //

Sr. Private Secretary ITAT, Visakhapatnam