SHRI NAVNITBHAI MULJIBHAI VARIA,JAM KHAMBHALIYA vs. THE PR. CIT-JAMNAGAR, JAMNAGAR

The grounds of appeal raised by the assessee are as under: “1. The Ld PCIT, Jamnagar erred in law in passing the impugned order in view of the fact that the case of the appellant was already centralized vide order u/s 127 dated 01/02/2021 and therefore, the PCIT (Central) Ahmedabad had the jurisdiction over the case of the appellant. 2. Without prejudice to the above, the Ld PCIT erred in law and on facts in passing the impugned order in the particular premise that the subject matter was specifically inquired at length by the AO and he took judicious decision that the amount representing excess stock found during the course of survey u/s 133A was rightly taxable as business income. 3. The Ld PCIT erred in law and on facts in recording his finding that the assessment order was passed without making any inquiry or verification and ignoring detailed submission of the Appellant showing that the AO indeed made all relevant inquiries in the matter and therefore, his decision could not be interfered while acting u/s 263 of the Act. 4. The twin conditions i.e. the assessment order being erroneous as well as prejudicial to the interest of revenue not being satisfied, the Ld PCIT erred in passing the impugned order and the same deserves to be set aside. 5. The Appellant craves leave to add, amend, alter, edit, delete, modify or change all or any of the grounds of appeal at the time of or before the hearing of the appeal.”

The brief facts of the case that the assessee was doing the business of jewellery and ornaments and silver items at Jam Khambhaliya since long. That for AY 2019-20, assessee filed return of income on 29.09.2019 declaring total income of Rs.1,51,40,880/-. That a survey u/s. 133A was carried out at the showroom on 1/ 2 March, 2019, during survey at businessmen premises it was noted that there was a difference in stock recorded in the books of account as physical stocks found. The assessee offered the difference in stock in amount for levying of income tax. That the assessee has disclosed the excess stock amount in the trading profit and loss account.

Since, there was a survey u/s 133A of the Act was carried out at the business of the assessee and accordingly the case was to be assessed through compulsory scrutiny. The due notice was served on the assessee, the assessee submitted the reply and the assessment was completed on 24.09.2021 on the returned income of Rs.1,51,40,880/-.

The Ld. PCIT perused the record of assessment and noted that an unaccounted excess stock worth Rs.1,13,26,724/- was found during the course of survey and the statement was recorded. The assessee offered that the amount would be disclosed as taxable income for AY 2019-20 and pay tax on the same. In this way that unaccounted income of Rs.1,13,26,724/- was required to be taxed as per the provision of section-69 r.w.s. 115BBE of the Act. As the manner of earning the excess stock was not admitted by the assessee. The PCIT has issued a notice dt. 05.02.2024 observing that AO by passing order u/s.143(3) of the Act without verifying the aspect of legal taxes on unaccounted stocks u/s.69 r.w.s. 115BBE of the Act. While the unaccounted excess stock was required to be taxed as per income tax provision that why the assessment order was erroneous in so far as it is prejudicial to the interest of revenue within the meaning of provision of section-263 of the Act. A notice was issued u/s 263 of the Act asking reply from the assesse.

The assessee submitted reply along with various supporting evidence. It was also explained to the AO that there was no separate weight of the respective allege excess found during survey but the same was within the total inventory found in the business premises. On detailed verification of various factual information and supporting evidences including statement recorded during the course of survey and in absence of any evidences available with the survey party as well as during verification of the scrutiny assessment. AO has accepted the same as income from business and liable at the rate of 30% and not liable to assess u/s.69 and has resolved that provision of section 115BBE was not applicable in my case.

The written submissions of the assessee was considered but the same was not found to be tenable. In his submission, the assessee has relied upon various judicial decisions but on the perusal of the same it was seen that the facts of the case of the assessee are different from those of the judicial decisions relied upon by the assessee. It was seen that during the course of survey proceedings u/s 133A of the Act conducted at the business premises on 01/03/2019, the assessee, in the statement recorded, has admitted unaccounted excess stock amounting to Rs.1,13,26,724/- being difference in the valuation of physical stock found and as recorded in the books of account of the assessee and agreed to offer this income as current year's income over and above his regular business income of the current year. Accordingly, the assessee has declared the stock difference of an amount of Rs.1,13,26,724/- in the return of income filed for the AY under consideration. However, the manner of earning of the same has not been admitted / explained at the time of survey proceedings u/s 133A of the Act and as also during the course of assessment proceedings. As such unaccounted stock of Rs.1,13,26,724/- was required to be taxed as per the provisions of section 69 rws 115BBE of the Act. However, the AO has failed to do so and has taxed such additional income as regular income of the assessee. The AO failed to examine these aspects of the assessee's case while finalising the assessment order. Such failure on the part of AO rendered the assessment order passed u/s 143(3) of the Act on 24/09/2021 for the AY 2019-20 erroneous in so far as it is prejudicial to the interest of the revenue within the meaning of the provisions of section 263 of the Act. And during the assessment proceedings, neither the assessee has submitted any details nor the AO has verified the source of acquisition of the excess stock found during the course of survey proceedings, as the same was not recorded in the books of account of the assessee as on date of survey. the AO has not taken any cognizance of these facts during the course of assessment proceedings and has passed the assessment order u/s 143(3) of the Act on 24/09/2021 without verifying the same. Moreover, the AO has also not ascertained the veracity of the claims by making independent inquiries. This has rendered the assessment order passed u/s 143(3) of the Act dated 24/09/2021 erroneous which resulted in the loss of revenue, hence prejudicial to the interest of revenue. It is also to be mentioned that Assessing Officer is duty bound to assess the correct income of the assessee and properly taxed the same. The Ld. PCIT observed that the assessment for AY 2019-20 was erroneous in so far as it is prejudicial to the interest of revenue of the Act and set aside the order of assessment and the Assessing Officer was directed to revise the assessment order after giving proper opportunity to be heard.

The assessee has filed an appeal against the impugned order dt. 22.02.2024 before us. (a) During the course of argument, Ld. AR of the assessee submitted that the assessment was completed after the assessee has submitted various supporting evidence and the same were verified from various factual information in supporting of evidence including the statement recorded during the course of survey. The AO has accepted the income from business and liable to be tax @30% and not reply under section 269 r.w.s. 115BBE of the Act. (b) Ld. DR has submitted that during survey of proceedings the assessee has offered excess stock for levying of tax and the excess stock need to be taxed u/s.69 r.w.s. 115BBE of the Act. The DR has relied on the order of the Ld. PCIT.

We have heard, rival contention of the parties and perused the material available on record. During the course of argument assessee submitted the paper book. We note that the assessee at the time of filing of income tax return has disclosed the amount in the trading and profit and loss account as direct income (page 20 of the paper book). That that assessee has inserted the disclosure of stocks books of accounts in Schedule P4, Schedule P10, Schedule P11, Schedule P12. We note that during the course of assessment proceeding the AO has asked about the excess stock of Rs.1,13,26,724/- which was found during the course of survey action so please explain as to why the discrepancies found in stock should not be added back to your total income u/s 69 of the Act and the tax thereon should not be calculated u/s 115BBE. In reply, the assesse has shown the same amount in the profit and loss account of the assesse, the books of account of the assesse were audited by chartered account and in the Schedule P2 the amount of Rs.1,13,26,724/- was shown as business income and again the same was shown in schedule P7, P8 and P9 where the detailed break up of income eared was given. In Form-3CD clause 14A it was shown. By this way, the assesse has offered entire amount of Rs.1,13,26,724/-, which was surrendered during the survey proceedings as undisclosed stock of goods. The assesse has submitted the soft copy of return of income, relevant documents such as audit report, ledger account were submitted to the Assessing Officer and also produced books of accounts for verification. After detailed verification, the AO has accepted the disclosed amount as business income. We further note that the assesse has also relied on the judgments: (a) Chokshi Hiralal Moganlal v. DCIT (2011) 141 TTJ (AHD.) 1 : 2011 TaxPub(DT) 1410 (Ahd-Trib); (b) ACIT v. Sanjay Bairathi Gems Ltd. (2017) 189 TTJ (JP)487 : 2017 TaxPub(DT) 3858 (Jp-Trib); (c) DCIT v. Ram Narayan Birla 2017 Tax Pub(DT) 4439 (Jp-Trib); (d) Kim Pharma (P) Ltd. v. CIT (2013) 258 CTR (P & H) 454 : 2013 TaxPub(DT) 1591 (P & H-HC),; (e) CIT another v. S. K. Srigiri and Bros. (2008) 298 ITR 13 (karn) : 2008 TaxPub(DT) 1263 (karn-HC);

Considering the facts and circumstances of the above case and judicial pronouncement relied on by the assesse it is established that impugned order passed u/s 143(3) of the Act dt. 22.02.2024 was passed by the AO after calling for relevant information and after detailed examination of the case. The AO has passed an assessment order after considering the documents submitted and the reply submitted by the assesse and after due application of mind. It cannot be termed as erroneous and prejudicial to the interest of the revenue. To the finding of PCIT was not correct, the order of AO was not erroneous so as to prejudicial to the interest of the revenue. Considering the above facts and circumstances of the case, to quash the order of CIT dt. 22.02.2024

In the result, the appeal of the assessee is allowed.