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Income Tax Appellate Tribunal, VISAKHAPATNAM BENCH, VISAKHAPATNAM
Before: SHRI V. DURGA RAO& SHRI D.S. SUNDER SINGH
(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 :
This appeal is filed by the assessee against the order of the Principal Commissioner of Income Tax (Pr.CIT),(Central) (in short ‘Pr.CIT’) Visakhapatnam in F.No.Pr.CIT(C)/263/10/2019-20 dated 20.03.2020 for the Assessment Year (A.Y.) 2017-18.
M/s Khan Mohammad Diamonds & Jewellers Pvt. Ltd, Guntur
All the grounds of appeal are against to the order passed by the Pr.CIT, Visakhapatnam u/s 263 of the Income Tax Act, 1961 (in short ‘Act’). In this case, search u/s 132 was conducted in the group cases of M/s Khan Mohammed Diamonds & Jewellers Pvt. Ltd., Guntur on 20.09.2016. The assessee filed return of income, originally, declaring total loss of Rs.45,81,242/-. Subsequently, the Assessing Officer (AO) issued notice u/s 142(1) calling for return of income and the assessee filed the revised return of income on 06.11.2017 admitting the same loss of Rs.45,81,242/-. The case was taken up for scrutiny and the assessment was completed on total income of Rs.3,34,42,013/- and out of which the undisclosed income of Rs.20,32,581/- was separately brought to tax. Later, the Pr.CIT has taken up the case for revision u/s 263 and found that out of the undisclosed income of Rs. 20,32,581/-, the excess stock was of Rs.5,38,428/- and excess cash of Rs.7,07,700/- required to be brought to tax @60% as per section 69 r.w.s. 115BBE of the Act. However, found that the AO taxed the same at normal rates. Since the AO did not consider the above income of Rs.12,46,128/- to be taxed @60% u/s 11BBE, the Ld.Pr.CIT held that the assessment order passed by the AO is erroneous and prejudicial to the interest of the revenue. Therefore passed order u/s 263 directing the AO to M/s Khan Mohammad Diamonds & Jewellers Pvt. Ltd, Guntur tax the undisclosed income of Rs.12,46,128/- @60% in accordance with the provisions of section 115BBE of the Act.
3. Against the order of the Ld.Pr.CIT, the assessee is in appeal before us. During the appeal hearing, the Ld.AR submitted that the AO did not make addition u/s 69 of the Act. The excess stock and cash found during the course of search was part of the business income which was explained before the AO during the course of assessment proceedings, hence, argued that the AO has taken a conscious decision to assess the same as business income and not u/s 69 of the Act. Therefore, there is no case for revision u/s 263, hence requested to set aside the order of the Pr.CIT and allow the appeal of the assessee.
On the other hand, the Ld.DR supported the orders of the Ld.Pr.CIT.
We have heard both the parties and perused the material placed on record. On going through the assessment order, we find that though the AO made the addition of Rs.20,32,581/- as undisclosed income, no addition was made u/s 69 of the Act. The AO did not invoke section 68/69 separately in the assessment order. The income required to be taxed @60% in case the undisclosed income representing section 68 to section 69C of the Act. In this case, the AO has not invoked any such section.
M/s Khan Mohammad Diamonds & Jewellers Pvt. Ltd, Guntur The assessee placed paper book and as per paper book page No.58, it is seen that the AO called for the information regarding excess stock of Rs.7,74,270/- and excess cash of Rs.9,37,170/- and also called for explanation of the assessee as to why both the items should not be taxed u/s 69 applying the tax rate @60%. The assessee furnished explanation which is placed at page No.61 to 63 of the paper book and explained that both the items constitute business income but not unexplained income within the meaning of section 69 of the Act, hence submitted that the same to be taxed at normal rates. The assessee also relied on various case laws supporting it’s arguments. For the sake of clarity and convenience, we extract relevant part of the explanation of the assessee submitted before the AO in page No.61 to 63 which reads as under : “2. It is further stated that during the course of search operations on physical verification of stocks, excess stock of jewellery found Rs.7,74,270 found as compared stock as per stock book maintained by us. In the deposition given by one of our director Sri Fazalul Rahaman Khan has explained that the excess stock accumulated is due to excess claim of purification loss over years and unaccounted purchases over years. However, as he could not explain details for such variation in stocks accepted Rs.7,74,170 as undisclosed business income. However, it is stated in the notice under section 142(1) that such unaccounted income is assessable under 69 and liable for tax under section 115BBE and no set off of losses permitted and asked our objections if any in this regard. In this regard, we submit that the excess stock found during the search operation is not separately and clearly identifiable but is part of mixed lots of stock found at the premises which included declared stock as per books and also the excess stock as computed by the Authorised Officers during the search operation at the premise. Since excess stock is a result of suppression of profit from business over the years and has not been kept identifiable separately but is the part of overall M/s Khan Mohammad Diamonds & Jewellers Pvt. Ltd, Guntur physical stock found, the provisions of section 69 cannot be made applicable as primary condition for invoking the provisions of the section is that the asset should be separately identifiable and it should have independent physical existence of its own. Since excess stock is a result of suppression of profit from business other the years and has not been kept identifiable separately but i.e. the part of overall physical stock found and therefore, the investment in the excess tock has to be treated as business income. It is an undisputed fact from the record that at the time of survey excess tock was found. It is also not disputed that we are engaged in the business of jewellery. In view of our submissions acceptance of excess stocks as undeclared income is to be treated at only business income and provisions of section 69 and 115BBE are not applicable in our case.
It is further stated that during the course of search operations on physical verification of cash of Rs.9,37,170 was found as compared book balance maintained by us. In the deposition given by one of our director Sri Fazalul Rahaman Khan has explained that the excess cash accumulated is due to unaccounted sales over a period. However, as he could not explain details for such variation in cash, accepted Rs.9,37,170 as undisclosed business income. However, it is stated in the notice under section 142(1) that such unaccounted income is assessable under section 69 and liable for tax under section 115BBE and no set off of losses permitted and asked our objections if any. In this regard, we submit that the excess cash found during the search operation is not separately and clearly identifiable but is part of unaccounted sales fund on the date of search as per books. Since excess cash is a result of suppression of sales from business over the years and has not been kept identifiable separately, but is the part of overall physical cash found, the provisions of section 69 cannot be made applicable as primary condition for invoking the provisions of the section is that the asset should be separately identifiable and it should have independent physical existence of its own. Since excess cash is a result of suppression of profit / sales from business over a period and has not been kept identifiable but i.e. the part of over all cash found and therefore the excess cash has to be treated as business income. It is an undisputed fact from the record that at the time of search excess cash was found. It is also not disputed that we are engaged in the business of jewellery. In view of our admissions, acceptance of excess cash as undeclared income is to be treated as only business income and provisions of section 69 and 115BBE are not applicable in our case. In this regard, we bring the following judicial pronouncements supporting our above claim a) Chokshi Hirala Maganlal Vs. Dy.CIT, b) CIT Vs. M/s Sanjay Bairathi Gems ltd. ITA No.157/JP/17 C) Dy.CIT Vs. Ram Narayan Birla 2017 TaxPub (DT) 4439 (Jp-Trib) d) M/s Kim Pharma (P) Ltd. Vs. CIT, ITA No.106 of 2011 (P&H); CIT another v.S.K.Srigiri and Bros [2008] 298 ITR 13 [Karn]”
M/s Khan Mohammad Diamonds & Jewellers Pvt. Ltd, Guntur 5.1. The AO completed the assessment after considering the explanation offered by the assessee. In the explanation, the assessee has explained as to why the same should be treated as business income and the provisions of section 69 and section 115BBE are not applicable. The assessee also relied on various case laws supporting his argument as to why the excess stock/cash should be treated as business income. Therefore, it is apparently clear from the records that though the AO did not mention specifically with regard to verification of the issues, the AO examined the issues in detail, considering the facts and the case laws relied upon by the assessee, taken a conscious decision to assess the excess stock/cash as business income instead of unexplained investment u/s 69 of the Act. Therefore revisiting the same issue which was already considered by the AO constitutes difference of opinion and on difference of opinion revision u/s 263 is not permissible. 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 A.P. High Court in the case of Spectra Shares and Scrips (P) Limited Vs. Commissioner of Income Tax – III, Hyderabad reported in (2013) 36 taxmann.com 348 (Andhra Pradesh). 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 M/s Khan Mohammad Diamonds & Jewellers Pvt. Ltd, Guntur 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.”
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 M/s Khan Mohammad Diamonds & Jewellers Pvt. Ltd, Guntur 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 Ld.Pr.CIT passed u/s 263 and allow the appeal of the assessee.
In the result, appeal of the assessee is allowed.
Order pronounced in the open court on 23rd November, 2020.