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Facts
A survey u/s. 133A revealed excess stock, which the assessee offered as additional income. The AO assessed income treating excess stock as unexplained investment. The PCIT invoked revision u/s. 263, holding the AO's order erroneous for reducing returned income without proper inquiry.
Held
The Tribunal held that the PCIT had jurisdiction to revise the assessment order regarding income from house property and other sources, as these were not part of the assessee's appeal before the CIT(A). The AO's order was found erroneous for not properly considering these income heads.
Key Issues
Whether the PCIT had jurisdiction u/s. 263 to revise the assessment order when part of the issues were pending before the CIT(A), and whether the AO's assessment order was erroneous and prejudicial to the revenue.
Sections Cited
263, 143(3), 133A, 69B, 142(1)
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Income Tax Appellate Tribunal, ‘C’ BENCH: CHENNAI
Before: SHRI ABY T. VARKEY & SHRI JAGADISH
आदेश / O R D E R
PER JAGADISH, A.M : This appeal filed by the assessee is directed against the order of the Principal Commissioner of Income Tax (Central)-1, Chennai dated 24.03.2024 relevant to the assessment year 2020-21 passed u/s. 263 of the Income-tax Act, 1961 (hereinafter “the Act”).
There is a delay of 39 days in filing the appeal by the assessee. The assessee has filed condonation petition/affidavit stating the reasons for delay in filing the appeal. We have considered the petition/affidavit of delay in filing the appeal and satisfied that there was sufficient cause for not filing the appeal within the prescribed time limit. Hence, the delay is hereby condoned.
The effective ground of appeal in this appeal of assessee is against order passed by Ld. PCIT holding the order passed by the A.O u/s. 143(3) of the Act erroneous and prejudicial to the interests of revenue and directing the A.O to add back the amount of Rs. 57,40,430/-.
4. The assessee is an individual and engaged in the business of trading in silk sarees in the name and style of M/s. TCR Silks. A survey u/s. 133A of the Act was conducted on 25.02.2020 at the business premises of the assessee. During the survey, excess stock of Rs. 92,38,918/- were found and assessee had offered the same as additional income. The assessee filed return of income on 03.12.2020 declaring total income of Rs. 57,40,430/-. The A.O in the assessment order has noted that the assessee has offered the excess stock partly as business income , therefore treated the excess stock amounting to Rs. 92,38,918/- as unexplained investment u/s. 69B of the Act and assessed total income of as under:
Particulars Amount in (Rs.) Total returned income 57,40,430/- Less: Excess stock partly offered as business 27,40,430/- income Add: Excess stock as unexplained investment 92,38,918/- u/s. 69B Total assessed income 92,38,918/-
The Ld. PCIT called for assessment record and found that the total income of Rs. 59,25,432/- in the return of income comprises of income from house property of Rs. 12,68,680/-, income from business of Rs. 40,55,711/- and interest income of Rs. 6,01,041/-. The Ld. PCIT has noted that none of the income under the three heads returned is relatable to excess stock admitted during the survey.
Therefore, the A.O has erroneously reduced the returned total income while bringing to tax the excess stock of Rs. 92,38,918/-. The Ld. PCIT has held that the A.O has not made any inquiry or verification as to the claim that the assessee has offered part of excess stock as business income and therefore, the order passed by the A.O is erroneous in so far as prejudicial to the interest of revenue and directed the A.O to add back the amount of Rs.57,40,430/-. Now, the assessee is in appeal before us against the order of Ld. PCIT.
The Ld. Authorized Representative (AR) of the assessee has submitted that a survey was conducted on 25.02.2020, and the assessee has filed return of income on 31.12.2022 within the prescribed due date including the excess stock admitted during the survey. The Ld. AR has submitted that the assessee has filed return of income declaring total income of Rs. 57,40,430/- including the business income of Rs. 40,55,711/- from M/s. TSR Silks. However, the A.O has assessed income at Rs. 92,38,918/- treating the excess stock as unexplained investment u/s. 69B of the Act. The Ld AR submitted that the assessee has filed an appeal before the Ld. CIT(A) against the addition and the matter is pending before the Ld. CIT(A), therefore the Ld. PCIT does not have jurisdiction u/s. 263 of the Act.
The Ld. AR has further submitted that the A.O during assessment proceedings in the notice u/s. 142(1) of the Act, specifically called for the necessary financial statements concerning the excess stock in Question No.10 of notice u/s. 142(1) of the Act dated 12.12.2021.
Therefore, this is not a case of lack of inquiry, and the order passed is neither erroneous nor prejudicial to the interest of the revenue.
The Ld. Departmental Representative (DR), on the other hand, has relied on the orders of lower authorities.
We have heard the rival submissions, and perused the materials available on record. The assessee has filled return of income of Rs.57,40,432/-, which included income from House property of Rs.12,68,680/-, income from other sources of Rs ,6,01,041/- and income from business (TCR Silks) of Rs.40,55,711/-. The assessee has admitted excess stock at Rs.92,38,918/- during survey conducted on 25.02.2020. The A.O in the assessment order passed has reduced the total income returned of Rs. 57,40,430/- and assessed the income disclosed of Rs.92,38,916/- as total income. The assessee is in appeal before Ld CIT(A) against the addition of Rs.92,38,916/- made by the A.O . The Ld PCIT held the assessment order is erroneous and prejudicial to the interest of revenue as the A.O without application of mind has reduced the income retuned by assessee even though they don’t relate to excess stock assessed in the assessment order. The Ld. AR has argued that issue of excess stock is subject matter of appeal before Ld CIT(A), therefore PCIT does not have jurisdiction as
per explanation 1(c) of section 263 of the Act. We do not find merit in the Ld AR’s argument as the AO has reduced income from house property and income from other sources from the computation of total income and these two issues are not in appeal before Ld CIT(A). The explanation 1(c) of section 263 of the Act clearly states that where any order passed by the A.O had been subject matter of appeal, the power of PCIT shall extend to such matter as had not been considered and decided in such appeal. Therefore, the Ld. PCIT has jurisdiction to revise the assessment order in respect of these heads of income. As regards to Ld. PCIT observation that A.O has not made inquiry whether excess stock disclosed is included in the business income of Rs 40,55,711/- shown in the return of income, we do not agree with Ld. PCIT observation as the A.O has made the inquiry by issue of notice u/s 142(1) of the Act and assessee has shown business income on the basis of books of account, including the stock found during survey. We, therefore uphold the order of Ld. PCIT to the extent that the order passed by A.O is erroneous so far as prejudicial to the interest of revenue as the assessment order has been passed without application of mind by not including the house property income and income from other sources returned by assessee. However, the Ld. PCIT while holding the order as erroneous and prejudicial to the interest of revenue, has directed A.O to make addition of Rs.57,47,430/- to the total income. We find that only income from house property of Rs. 12,68,680/- and income from other sources of Rs. 6,01,041/- need to be added to the total income, therefore the direction of the Ld. PCIT to A.O is modified to add only income from house property of Rs. 12,68,680/- and income from other sources of Rs. 6,01,041/ in the total income.
In the result, the appeal filed by the assessee is partly allowed.
Order pronounced on 04th April, 2025.