M/S. MUKKA PROTENIS LIMITED,MANGALURU vs. PRINCIPAL COMMISSIONER OF INCOME TAX, CENTRAL, BANGALORE

IN THE INCOME TAX APPELLATE TRIBUNAL ‘A’ BENCH : BANGALORE BEFORE SMT. BEENA PILLAI, JUDICIAL MEMBER AND SHRI LAXMI PRASAD SAHU, ACCOUNTANT MEMBER ITA No. 433/Bang/2022 Assessment Year : 2018-19 M/s. Mukka Proteins Ltd., The Principal Mukka Corporate House, Commissioner of No. 18-2-16/4, 1st Cross, Income-tax N.G. Road, Attavar, [Central], Mangaluru – 575 001. Bangalore. Vs. PAN: AAGCM8310E APPELLANT RESPONDENT Assessee by : Shri V. Srinivasan, Advocate : Shri Binod Kumar Singh, CIT Revenue by DR Date of Hearing : 23-08-2022 Date of Pronouncement : 17-11-2022 ORDER PER BEENA PILLAI, JUDICIAL MEMBER Present appeal is filed by assessee against order dated 22/03/2022 passed by Ld.PCIT (Central), Bangalore for A.Y. 2018-19 on following grounds of appeal: “1. The order of revision passed by the learned Principal Commissioner of Income tax [Central], Bengaluru, under Section 263 of the Act dated 22/03/2022, in so far as it is against the Appellant is opposed to law, weight of evidence, probabilities, facts and circumstances of the Appellant's case. 2. The learned Principal Commissioner of Income tax is not justified in law and on facts to set aside the assessment order passed under section 143[3] r.w.s. 153D of the Act dated 20/12/2019 and direct the assessing officer to

Page 2 ITA No. 433/Bang/2022 modify the original assessment passed by the learned assessing officer, on the facts and circumstance of the case 3. The learned Principal Commissioner of Income tax is not justified in passing an order under section 263 of the Act, as the order passed under section 143[3] r.w.s. 153D of the Act, was pursuant to proper enquiry by the learned assessing officer on the facts and circumstances of the case. 4. The learned Principal Commissioner of Income tax has passed an unsustainable order which is based purely on assumptions and presumptions. The order is arbitrary and full of surmises, without considering the relevant material and considering irrelevant materials. Consequently, the order passed is a perverse order on the facts and circumstances of the case. 5. The learned Principal Commissioner of Income tax has grossly erred in revising the order passed by the learned Assessing officer without appreciating that there is no error, much less prejudicial to the interests of the Revenue to warrant a revision and therefore the order passed by the learned PCIT is ultra vires to the scope of Section 263 and requires to be cancelled on the facts and circumstances of the Appellant's case. The direction to make thorough and detailed enquiry amounts to ordering fishing and roving enquires without any material in support thereof and consequently the impugned order passed is bad in law and is liable to be cancelled. 6. The learned Pr.CIT failed to appreciate that the said alleged addition on account of unaccounted stock treated as business income, cannot come under the purview of the provisions of section 69C of the Act and consequently the provisions of section 115BBE of the Act is not attracted on the facts and circumstances of the case. 7. The learned Pr.CIT failed to appreciate that the extraordinary items of income Rs. 4,48,21,141/- relating to earlier years not considered in the books of the appellant cannot be considered as income for the computation of total income and the learned assessing officer had rightly considered a sum of Rs. 17,97,70,830/- for the purposes of computation of income on the facts and circumstances of the case. 8. The learned Principal Commissioner of Income tax failed to appreciate that the Assessing Officer before completing the assessment order under section 143[3] r.w.s 153D of the Act on 20/12/2019 had made detailed enquiries calling for relevant records and documents and explanation pertaining to the matter at hand, the same

Page 3 ITA No. 433/Bang/2022 being produced by the appellant during various instances during the assessment proceedings and further as per the provisions of section 153D of the Act an approval has been sought for passing the order of assessment and having applied their mind and considering the facts the order of assessment has been passed. Hence on the very same issue no action can be taken under Section 263 of the Act as the actions of the Assessing Officer is pursuant to applying his mind to the matter and in accordance with law. 9. Without further Prejudice the learned Principal Commissioner of Income-tax, failed to appreciate the fact that the impugned order of assessment passed by the learned assessing officer under section 143 [3] r.w.s 153D of the Act dated 20/12/2019 is subject matter of appeal before the learned Commissioner of Income-tax [Appeals], thus as per the Explanation [c] to sub-section [1] of section 263 of the Act the powers are restricted to exercise the jurisdiction to the matter which was a subject matter of appeal, on the facts and circumstances of the case. 10. The Appellant craves leave to add, alter, substitute and delete any or all the grounds of appeal urged above. 11. For the above and other grounds to be urged during the hearing of the appeal, the Appellant prays that the appeal be allowed in the interest of equity and justice.” 2. Brief facts of the case are as under: 2.1 The Ld.PCIT observed that assessee is a company by the name Mukka Proteins Ltd. and is in the business of production of fish meal and extraction of fish oil. 2.2 A search and seizure action u/s. 132 of the Act was conducted in the case of the assessee that followed a survey u/s. 133A of the Act was conducted at the Factory premises at Sasihitlu and Godown at Baikampady on 08/02/2018. 2.3 During the course of search, statement was recorded u/s. 132[4] of the Act of the Managing Director of the assessee, wherein the Managing Director admitted certain additional income on account of alleged bogus purchases and additional income on account of alleged difference in Stock.

Page 4 ITA No. 433/Bang/2022 2.4 For the year under consideration, assessee filed its return of income on 23/11/2018 declaring total income of Rs.17,78,99,390/-, wherein the assessee declared income on account of inflated purchases and also on account of alleged difference in stock amounting to only Rs.5,89,59,400/-. 2.5 The Ld.AO during the assessment proceedings called for various explanations regarding the difference in additional income offered by the Managing Director in the statement recorded u/s. 132(4) of the Act on account of stock differences, as against additional income offered by the assessee in the return of income filed by it. The Ld.AO observed that assessee did not offer the additional income declared by the Managing Director in the statement recorded, the balance amount being Rs.5,27,72,541/- [i.e. Rs. 11,14,72,010/- (-) Rs. 5,89,59,400/-] was added under the head income from business. The Ld.AO thus passed the assessment order on account of excess stock found. 2.6 Subsequently, 263 proceedings were initiated by the Ld.PCIT by issuing notice dated 05/01/2022 which is scanned and reproduced as under:

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2.7 The Ld.PCIT was of the opinion that, the addition on account of excess stock should have been considered as unexplained expenditure u/s. 69C of the Act and the Ld.AO should have levied the taxes as per the rates prescribed u/s. 115BBE of the Act. Another issue that was considered by the Ld.PCIT was that the net profit as per P&L account was Rs.22,45,91,971/-, whereas in the computation sheet, the same was taken to be at Rs.70,97,70,830/-.

Page 7 ITA No. 433/Bang/2022 2.8 The assessee during the course of revisionary proceedings submitted its contention vide letter dated 10/02/2022. The Ld.PCIT after going through the submissions of the assessee relating to excess stock to be added u/s. 69C, observed and held as under: “10. The assessee in third para of letter stated that the addition on account of difference in stock is disputed before the CIT(Appeals), Panaji. The assessee's submission has been perused and it is found that the contention does not have any merit, the appeal before CIT(A) pertain to addition of excess stock of Rs.5,25,11,601/-. The issue of taxation of excess stock of Rs.11,14,72,010/- under section 69C read with section 115BBE is left unexamined/undecided by the AO, the same is not a subject matter of appeal before CIT(A). Similarly the issue of difference in total income as per P 86 L account and computation sheet is not verified by the AO. In view of the above discussion, the contention of the assessee that the proceedings under section 263 are overlapping with the appellate proceedings is without any basis and is not sustainable.” 2.9 In respect of the second issue, the Ld.PCIT was of the view that the Ld.AO did not verify the difference between the total income as per P&L account and the computation sheet and hence on both the above issues, the assessment order passed was erroneous in sofar as prejudicial to the interest of revenue as per clause (a) of explanation 2 to section 263 of the Act. Aggrieved by the order of Ld.PCIT, assessee is in appeal before this Tribunal. 3. At the outset, the Ld.AR in Ground nos. 2,3 and 8 raised a legal issue, wherein, the review proceedings is challenged, based on the submission that, the assessment order passed u/s. 143(3) was after taking necessary permissions as per section 153D of the Act. It is the submissions of the Ld.AR that under such circumstances, the review proceedings is bad in law.

Page 8 ITA No. 433/Bang/2022 4. He placed reliance on the following decisions in support.  Decision of Hon’ble Delhi Tribunal in case of Smt. Abha Bansal & Others vs. Pr.CIT in ITA Nos. 383 to 386/Del/2021 by order dated 31/05/2021  Decision of Hon’ble Pune Tribunal in case of M/s. B.U. Bhandari Schemes vs. Pr.CIT in ITA Nos. 637 to 643/PUN/2018  Decision of Hon’ble Lucknow Tribunal in case of Mehtab Alam vs. ACIT in ITA Nos. 288 to 294/LKW/2014 by order dated 18/11/2014 5. On the contrary, the Ld.DR submitted that there is no embargo on the Ld.PCIT to initiate the revisionary proceedings under this statute. He submitted that 263 can be initiated in respect of any order passed by an assessing officer which is found to be erroneous in so far as prejudicial to the interest of the revenue if the Ld.PCIT is satisfied after having verified the records merely because the assessment order is passed after taking necessary approval u/s. 153D will not estop the Ld.PCIT from initiating proceedings u/s. 263 of the Act. The entire reliance of the Ld.DR was on the relevant provision as enacted in the statute for the relevant period. We have perused the submissions advanced by both sides in the light of records placed before us. 5.1 We have carefully considered the decisions relied by the Ld.AR. The decision of the Hon’ble Delhi Tribunal in the case of Abha Bansal(supra) dealt with identical issue relying on the decision of the Hon'ble Allahabad High Court in the case of CIT Vs. Dr. Ashok Kumar in ITA No. 192 of 2000, dated 06.08.2012. Hon’ble Delhi Tribunal has reproduced therein, list of decisions of the Co-ordinate Bench of the Tribunal, which has followed the decision of the Hon'ble Allahabad High Court in the case of CIT Vs. Dr. Ashok Kumar (supra) and held that an assessment order,

Page 9 ITA No. 433/Bang/2022 which has been approved by the Joint Commissioner of Income Tax under Section 153D of the Act cannot be revised by the ld. Pr. CIT under Section 263 of the Act. 5.2 We have carefully considered the above decision. Hon'ble Allahabad High Court in the case of CIT Vs. Dr. Ashok Kumar(supra). In that decision, Hon'ble Allahabad High Court upheld the order of the Co-ordinate Bench, quashing the 263 order, wherein the Tribunal found that the assessee therein had sufficiently explained the retraction of his statement given on 12.12.1994 and that, the Ld.CIT could not point out as to whether, the Assessing Officer failed to work out the amount of concealed income correctly. Hon'ble High Court further held that, the Assessing Officer made the addition on estimate basis for all the assessment years, and there was no material indicating suppression of receipts. Therefore, the Hon'ble High Court on these facts considered by the Tribunal upheld the order of the Tribunal quashing the order of the Ld.CIT passed under Section 263 of the Act. For sake of convenience, the observation of Hon'ble High Court are reproduced as under:- "1. We have heard Sri R.K. Upadhyay, learned counsel for the appellants and Sri R.R. Agrawal, learned counsel appears for the respondent- assessee. 2. The revenue is aggrieved by the order of the Income Tax Appellate Tribunal dated 12.1.2000, which was set-aside the order of Commissioner Income Tax (A), remanding the matter to the Assessing Officer under Section 263 of Income Tax Act, 1961 after setting aside the assessment order dated 27.12.1995 for assessment year 1991-92 to 1994-95 and the order dated 31.7.1996 for the assessment year 1995-96. 3. These appeals were admitted on the question of law, which we have corrected as follows:- "Whether on the facts and in the circumstances of the case, the Tribunal was justified in interfering with the order of the Commissioner of Income

Page 10 ITA No. 433/Bang/2022 Tax, Under Section 263 of the Act, for the assessment years 1991-92 to assessment years 1995-96?" 4. We have gone through the order of Assessing Officer, Commissioner Income Tax (A) and Income Tax Appellate Tribunal and find that the ITAT has considered the reasons given by the CIT(A), and has found that the assessee had sufficiently explained the surrender of the income which he has subsequently retracted. 5. After assessments were completed, a raid was carried out, at the Nursing Home of the respondent- assessee on 7.12.2004. Some incriminating documents of concealment of income, were discovered. The assessee was not present at the time of inspection. He appeared before the AO on 12.12.1994 and surrendered the proposed additions in the income for the relevant years. The respondent- assessee thereafter retracted his statement, by giving an explanation that he did not have access to his accounts books, when he had appeared on his own before the AO on 12.12.1994. On checking up the account books, he had found that the returns were accepted, on the accounts books prepared by him. 6. The Tribunal thereafter has observed as under:- "5.1 The other relevant point to be noted is that CIT set aside the assessment order on the basis of incorrect reasons. As pointed out by the learned counsel, there was no material found during search about suppression of receipts for a.y. 1991-92 to 1994-95 nor the learned D.R. Was able to point out any such material which might have been ignored by the AO while framing the assessment and thus the vary basis for passing the impugned order goes away. The CIT also failed to point out as to why the AO failed to work out the amount of concealed income correctly, rather the AO had made the additions on estimate basis for all the assessment years though there was no seized material indicating suppression of receipts for these assessment years and for a.y. 1995-96 the material found at the time of search had been analysed after necessary enquiries and assessment had been framed accordingly. 5.2 In the last it is also relevant fact that the AO was fully alive about the facts of the case and that is why he got necessary approval of Addl. Commissioner before completing the assessment orders for all the assessment years and once that is not disputed by the Revenue than the CIT would not be justified in interfering in the approval accorded by the Addl. CIT for framing the assessment order and thus there was no case for setting aside the assessment orders for the assessment years in question. On the basis of facts and circumstances of the case I am of the opinion that the impugned order is liable to be quashed accordingly. 6. In the result, appeals are allowed." 7. Sri R.K. Upadhyay had relied upon Malabar Industrial Co. Ltd. Vs. Commissioner of Income Tax, (2000) 243 ITR 83 and Commissioner of

Page 11 ITA No. 433/Bang/2022 Income Tax Vs. Kwality Twxtile Associate Pvt. Ltd., (2005) 272 ITR 371. In these cases the Supreme Court and the Madras High Court have discussed the powers of CIT under Section 263 of the Act, to remand the matter. If the twin conditions namely that the order of AO sought to be revised is erroneous, and it also prejudicial to the interest of the revenue are satisfied the CIT can remand the matter to the file of A.O. 8. We find that the Tribunal has considered the relevant principles of law in interfering with the order of CIT. The Tribunal found that the assessee-respondent had sufficiently explained the retraction of his statement given on 12.12.1994. It also found that the CIT could not point out as to whether the AO had failed to work out the amount of concealed income correctly. The AO had made additions on estimate basis for all the assessment years. There was no material indicating suppression of receipts. 9. We find that the Tribunal has not committed any error of law in setting aside the order of CIT passed under Section 263 of Income Tax Act for the assessment year 1991-92 to 1995-96. 10. The question of law is decided against the revenue and in favour of assessee. The Income Tax Appeals are accordingly dismissed." 5.3 Therefore, in our view, the basis on which the decision in case of Abha Bansal(supra) has been rendered stands factually distinguishable. Section 263 of the Act reads as under: 263. (1) The Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by the Assessing Officer or the Transfer Pricing Officer, as the case may be, is erroneous in so far as it is prejudicial to the interests of the revenue , he may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including,— (i) an order enhancing or modifying the assessment or cancelling the assessment and directing a fresh assessment; or (ii) an order modifying the order under section 92CA; or (iii) an order cancelling the order under section 92CA and directing a fresh order under the said section . Explanation 1.—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 or the Transfer Pricing Officer, as the case may be, shall include— (i) an order of assessment made by the Assistant Commissioner or Deputy Commissioner or the Income-tax

Page 12 ITA No. 433/Bang/2022 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 or the Transfer Pricing Officer, as the case may be, conferred on, or assigned to, him under the orders or directions issued by the Board or by the Principal Chief Commissioner or Chief Commissioner or Principal Director General or Director General or Principal Commissioner or Commissioner authorised by the Board in this behalf under section 120; (iii) an order under section 92CA by the Transfer Pricing Officer; (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 Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner; (c) where any order referred to in this sub-section and passed by the Assessing Officer or the Transfer Pricing Officer, as the case may be, had been the subject matter of any appeal filed on or before or after the 1st day of June, 1988, the powers of the Principal Commissioner or Commissioner under this 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. Explanation 2.—For the purposes of this section, it is hereby declared that an order passed by the Assessing Officer or the Transfer Pricing Officer, as the case may be, shall be deemed to be erroneous in so far as it is prejudicial to the interests of the revenue, if, in the opinion of the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner,— (a) the order is passed without making inquiries or verification which should have been made; (b) the order is passed allowing any relief without inquiring into the claim; (c) the order has not been made in accordance with any order, direction or instruction issued by the Board under section 119; or (d) the order has not been passed in accordance with any decision which is prejudicial to the assessee, rendered by the jurisdictional High Court or Supreme Court in the case of the assessee or any other person. Explanation 3.—For the purposes of this section, "Transfer Pricing Officer" shall have the same meaning as assigned to it in the Explanation to section 92CA.

Page 13 ITA No. 433/Bang/2022 (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. 5.4 On a plain reading of the section, we do not find any fetters on the powers of Ld.PCIT/CIT for revising any order passed by the Ld.AO, except as provided in Explanation 1(c) of the section. However, the argument of the assessee is that, powers granted to the PCIT and CIT u/s 263 becomes otiose if the authority below the rank of PCIT/ CIT i.e Joint Commissioner of Income tax, has approved the order u/s 153D of the Act. The Ld.Ar is making out an argument that, if the lower authority, u/s 153D, has approved the order, the Higher Authority i.e., PCIT and CIT lose their power to revise such orders. We do not find force in this argument of the assessee as Pr.CIT is way high above the Jt.CIT. We refer to section 116 of the Act, where the Income Tax authorities in their hierarchical order are listed, clears the doubt about it. 5.5 The assessment order in the present facts are not passed under the instructions of the superior authority or under the direction of the superior authority, but merely an approval was granted by the Joint Commissioner of Income Tax under Section 153D of the Act to pass the orders. Provisions of Section 153D speak about "prior approval for assessment in the case of search". The section also provide for obtaining the prior approval

Page 14 ITA No. 433/Bang/2022 of the Joint Commissioner for merely passing an order. Therefore, the decision of the (supra) clearly lays down that 'any order passed by the Assessing Officer' can be revised under Section 263 of the Act irrespective of the fact that any authority has granted any direction to the Assessing Officer. Therefore, if the argument of the Ld. AR is to be accepted then in such cases where the assessment has been framed under Section 153A or Section 153C, the same will go out of the ambit of the provisions of Section 263 of the Act and such a view cannot be even considered to be a plausible view in the eye of law. Provisions of Section 263 of the Act give un-fettered right to the Commissioner of Income Tax to revise any order passed by the Assessing Officer. Whatever was to be excluded by the law has already been provided under that Section and the only exception are the issues 'decided and considered' in the appellate orders. Therefore, the reasoning of the arguments advanced by the Ld. AR in respect of Ground no.3 falls without any legs to stand. 5.6 Hon'ble Delhi High Court in NIIT Ltd. Vs. Union of India in WPC No. 172-179/2009 dated 11th December, 2009 held that:- "20. The legal position which cannot be disputed is that when a particular authority is vested with the power to discharge statutory function, like the Commissioner who is empowered to pass orders under Section 263 of the Act, it is that authority which is to apply its independent mind and arrive at its own conclusion without being influenced by any other authority, much less the higher authority. Unfettered discretion lies in the Commissioner of Income Tax to pass orders under Section 263 of the Act. He is supposed to examine the records produced before him to arrive at a conclusion whether the assessment order passed by the AO suffers from infirmities and needs to be revised under Section 263 of the Act. The parameters which are laid down in Section 263 of the Act need to be fulfilled in exercising such a discretion. It is the Commissioner who has to satisfy himself, on the basis of

Page 15 ITA No. 433/Bang/2022 available records, that in a given case the conditions stipulated under Section 263 of the Act are satisfied. In arriving at this conclusion, he is not to be controlled even by a higher authority. Likewise, the higher authority is not to interfere with the independence of his unfettered discretion which is statutorily conferred upon the Commissioner." 5.7 Thus, even the authority above PCIT and CIT cannot deprive the powers of the revision and thus there is no reason that lower authority exercising powers granted to it can prevent the PCIT or the CIT to exercise revisionary powers. Therefore, it is apparent that none of the lower authorities or even a superior authority cannot put spokes in exercising the power of the Pr.CIT. 5.8 Hon'ble Supreme Court in T.N. Civil Supplies Corpn. Ltd Vs Commissioner of Income-tax reported in (2003) 260 ITR 82 was seized with the issue wherein, the Assessing Officer passed order on the direction of the Inspecting Assistant Commissioner under Section 144B of the Act, which was subject to revision under Section 263 of the Act. The Hon'ble Supreme Court categorically held that, the orders are to be revised are orders passed by the Income Tax Officer. Hon'ble Supreme Court further held that, provisions of Section 263 did not exclude 'orders passed by the Assessing Officer on the direction of a superior authority either under Section 144A or Section 144B of the Act. 5.9 The Hon'ble Supreme Court thus held as under :- "2. The power to revise orders of the Income-tax Officer under section 263 of the Income-tax Act, 1961 was sought to be limited by the appellant-assessee by contending that the phrase "order passed by the Income-tax Officer" in section 263 excluded those orders passed by the Income-tax Officer pursuant to the directions of the Inspecting Assistant Commissioner under section 144B which was then included in the Act. 3. The High Court in its decision has followed its earlier decision in which it had referred to and relied upon the reasoning of several other High Courts on the same issue to negative the contentions of the assessee. Given the uniformity of interpretation by the several High

Page 16 ITA No. 433/Bang/2022 Courts, it would not be appropriate to interfere with the decision of the High Court. 4. In any event we are of the view that having regard to the subsequent amendments to the Act issued from time to time there was no scope for limiting the phrase 'order passed by the Income-tax Officer' in section 263 to exclude orders passed by the Income-tax Officer on the directions of a superior authority either under section 144A or 144B." 5.10 The power of the Commissioner under Section 263 of the Act is in the nature of supervisory jurisdiction. This power is granted to correct an error, which is prejudicial to the interest of the Revenue in the order of the Assessing Officer, even if it is approved by the Joint Commissioner, who is also falling below the rank of the Pr. Commissioner. If the argument of the ld. AR is accepted then the supervisory authority of the Pr. Commissioner granted under the Act is hampered. Provisions of Section 263 of the Act give unfettered right to the Commissioner of Income Tax to revise any order passed by the Assessing Officer. Whatever was to be excluded by the law has already been provided under that Section and the only exception are the issues 'decided and considered' in the appellate orders. Therefore, the reasoning of the arguments advanced by the Ld. AR on this line also fails and we dismiss the same. Accordingly this ground raised by the assessee stands dismissed. 6. Coming to the issue on merits raised by assessee in Ground nos. 4-7, we note that Ld.AO added the excess stock under the normal rates towards the investment in stock. Undoubtedly the excess stock represented unaccounted stock of the assessee. Therefore Ld.PCIT was correct in invoking the section 69, which was not done by Ld.AO.

Page 17 ITA No. 433/Bang/2022 6.1. Hon’ble Gujarat High Court in the case of Fakir Mohmed Haji Hasan vs. CIT reported in (2002)120 Taxman 11 on similar issue observed and held as under: "6.1. The scheme of sections 69, 69A, 69B and 69C would show that in cases where the nature and source of investments made by the assessee or the nature and source of acquisition of money, bullion, etc., owned by the assessee or the source of expenditure incurred by the assessee are not explained at all, or not satisfactorily explained, then, the value of such investments and money, or value of articles not recorded in the books of accounts or the unexplained expenditure may be deemed to be the income of such assessee. It follows that the moment a satisfactory explanation is given about such nature and source by the assessee, then the source would stand disclosed and will, therefore, be known and the income would be treated under the appropriate head of income for assessment as per the provisions of the Act. However, when these provisions apply because no source is disclosed at all on the basis of which the income can be classified under one of the heads of income under section 14 of the Act, it would not be possible to classify such deemed income under any of these heads including income from "other sources" which have to be sources known or explained. When the income cannot be so classified under any one of the heads of income under section 14, it follows that the question of giving any deductions under the provisions which correspond to such heads of income will not arise. If it is possible to peg the income under any one of those heads by virtue of a satisfactory explanation being given, then these provisions of sections 69, 69A, 69B and 69C will not apply, in which event, the provisions regarding deductions, etc., applicable to the relevant head of income under which such income falls will automatically be attracted. 6.2. The opening words of section 14 "Save as otherwise provided by this Act" clearly leave scope for "deemed income" of the nature covered under the scheme of sections 69, 69A, 69B and 69C being treated separately, because such deemed income is not income from salary, house property, profits and gains of business or profession, or capital gains, nor is it income from "other sources" because the provisions of sections 69, 69A, 69B and 69C treat unexplained investments, unexplained money, bullion, etc., and unexplained expenditure as deemed income where the nature and source of investment, acquisition or expenditure, as the case may be, have not been explained or satisfactorily explained, Therefore,

Page 18 ITA No. 433/Bang/2022 in these cases, the source not being known, such deemed income will not fall even under the head "income from other sources". Therefore, the corresponding deductions, which are applicable to the incomes under any of these various heads, will not be attracted in case of deemed incomes which are covered under the provisions of sections 69, 69A, 69B and 69C of the Act in view of the scheme of those provisions. The Ld. AO should have made addition u/s. 69B as against section 69C proposed by the Ld.PCIT. As a consequence, Ld.AO did not invoke 115BBE which is applicable to any addition that is made u/s. 69A, B or C as the case may be. We therefore do not find any reason to interfere with the view adopted by the Ld.PCIT. However we are only modifying the directions to consider the addition of excess stock u/s. 69B. 6.2 It was informed by the Ld.AR that against the addition made by the Ld.AO on excess stock, assessee has preferred appeal before the Ld.CIT(A). At this juncture, we also note that the principle of merger will not apply in the present facts of the case as assessee challenged the addition made by the Ld.AO in respect of the excess stock before the Ld.CIT(A). In our view, the issue considered by the Ld.PCIT is an issue that was not considered by the Ld.AO during the assessment proceedings. 7. The next issue considered by the Ld.PCIT wherein there is an observation that verification in respect of the net profit as per the P&L account and computation of income has not been carried out is also accepted as the assessment order is only based on addition made on the difference in the excess stock. On both these counts with the modification mentioned hereinabove, we uphold the order of Ld.PCIT. We direct the

Page 19 ITA No. 433/Bang/2022 Ld.AO to carry out necessary verification in accordance with law by granting proper opportunity of being heard to assessee. Accordingly, the above grounds raised by the assessee stands dismissed. In the result, the appeal filed by the assessee stands dismissed. Order pronounced in the open court on 17th November, 2022.

Sd/- Sd/- (LAXMI PRASAD SAHU) (BEENA PILLAI) Accountant Member Judicial Member Bangalore, Dated, the 17th November, 2022. /MS / Copy to: 1. Appellant 4. CIT(A) 2. Respondent 5. DR, ITAT, Bangalore 3. CIT 6. Guard file By order

Assistant Registrar, ITAT, Bangalore