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Facts
During a survey, the assessee declared additional income of Rs. 75,25,200/- comprising excess cash and stock. The Assessing Officer accepted this as returned income. The PCIT initiated proceedings under Section 263, holding the AO's order erroneous for not taxing this income under Section 115BBE.
Held
The Tribunal held that the PCIT's invocation of Section 263 was unjustified. The Assessing Officer had conducted due inquiry and accepted the assessee's explanation that the excess cash and stock arose from business operations, taking a plausible view.
Key Issues
Whether the PCIT was justified in invoking revisionary powers under Section 263 when the AO had made due inquiries and accepted the assessee's explanation regarding the source of excess cash and stock as business income?
Sections Cited
263, 69B, 115BBE, 69, 143(3), 144B, 133A, 142(1)
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Income Tax Appellate Tribunal, PUNE BENCH “A”, PUNE
Before: SHRI R. K. PANDA & MS. ASTHA CHANDRA
respective assessees in these appeals, therefore, for the sake of convenience, these were heard together and are being disposed of by this common order.
Although a number of grounds have been raised by the assessee, however, these all relate to the order of the Ld. PCIT invoking the provisions of section 263 of the Act.
Facts of the case, in brief, are that the assesse is a partnership firm engaged in the business of trading in cloths. It filed its return of income on 09.10.2019 declaring total income of Rs.43,62,190/-. In this case a survey action 133A of the Act was conducted on 06.03.2019 during which the assessee had made total declaration of Rs.75,25,200/- as additional income out of which Rs.2,04,120/- was on account of excess cash found and Rs.73,21,080/- on account of excess stock. The assessee disclosed the above amount of Rs.75,25,200/- in ITR for assessment year 2019-20. The Assessing Officer completed the assessment u/s 143(3) r.w.s. 144B of the Act on 26.08.2021 accepting the returned income of Rs.43,62,190/-.
Subsequently the Ld. PCIT on examination of records observed that the Assessing Officer has completed the assessment without making due verification and enquiries which were warranted in the facts and circumstances of the case. He noticed that the assessee has declared total income of Rs.43,62,190/-. During the course of survey proceedings excess cash and excess stock of Rs.75,25,200/- was found unrecorded in the books of account of the firm and the source of the same was not explained and the assessee has not submitted any supporting documentary evidence with regard to such unaccounted excess cash and stock found. Accordingly the same was declared as additional income for assessment year 2019- 20 over and above his regular income. Therefore, the provisions of section 69B r.w.s. 115BBE of the Act are clearly attracted. However, the Assessing Officer has accepted the returned income filed by the assessee as per normal tax rates. Since the amount declared by the assessee of Rs.75,25,200/ in respect of excess cash and excess stock was over and above, the normal income which should have been taxed u/s 69 of the Act applying the provisions of section 115BBE of the Act and the Assessing Officer has failed to do so and has accepted the returned income filed by the assessee, therefore, the order has become erroneous in so far as it is prejudicial to the interest of Revenue. He, therefore, issued a show cause notice to the assessee asking to explain as to why the order passed by the Assessing Officer should not be set aside. Rejecting the various explanations given by the assessee and relying on various decisions, the Ld. PCIT held the order passed by the Assessing Officer as erroneous in so far as it is prejudicial to the interest of Revenue. He, therefore, set aside the order to the file of the Assessing Officer with a direction to re-do the same afresh after affording due opportunity of being heard to the assessee.
Aggrieved with such order of the Ld. PCIT, the assessee is in appeal before the Tribunal.
The Ld. Counsel for the assessee at the outset drew the attention of the Bench to the notice u/s 142(1) of the Act issued by the Assessing Officer on 05.08.2021 wherein at para 5 he has asked the assessee to substantiate the treatment of the additional income declared during the survey with complete documentary evidence. Referring to pages 28 to 30 of the paper book, the Ld. Counsel for the assessee drew the attention of the Bench to the reply dated 06.08.2021 given to the Assessing Officer wherein the assessee has explained the nature and source of excess cash and stock found, according to which the same were from business only. Referring to a number of decisions of the Coordinate Benches of the Tribunal, he submitted that under identical circumstances the Tribunal has held that the excess cash and excess stock found during the survey action to be business income and the provisions of section 115BBE of the Act are not attracted.
Referring to the decision of Hon’ble Supreme Court in the case of Malabar Industrial Co. Ltd. vs. CIT reported in (2000) 243 ITR 83 (SC), he submitted that the Hon’ble Supreme Court in the said decision has held that where two views are possible and the Assessing Officer has taken one of the possible views which is legally acceptable, then such order cannot be subjected to revision u/s 263 of the Act.
Referring to the decision of Hon’ble Bombay High Court in the case of CIT vs. Gabriel India Ltd. reported in (1993) 203 ITR 108 (Bom), he submitted that the Commissioner cannot initiate proceedings with a view to starting fishing and roving enquiries in matters or orders which are already concluded. Such action will be against the well accepted policy of law that there must be a point of finality in all legal proceedings that stale issues should not be re-activated beyond a particular stage and that lapse of time must induce repose in and set at rest judicial and quasi-judicial controversies as it must in other spheres of human activity.
He submitted that since the source of excess stock / cash found was explained by the partner of the assessee firm as sourced from business income while recording the statement as well as at the time of assessment proceedings which has duly been accounted for in the audited books and included in the computation of income under the head ‘ Profits and gains of business or profession’ and the Assessing Officer has taken a plausible view, therefore, the order cannot be held to be erroneous and prejudicial to the interest of Revenue. Therefore, the Ld. PCIT is not justified in invoking jurisdiction u/s 263 of the Act.
Referring to the decision of the Hon’ble Andhra Pradesh High Court in the case of PCIT vs. Deccan Jewellers (P.) Ltd. reported in (2021) 438 ITR 131 (AP), he submitted that the Hon’ble High Court in the said decision has held that where nature and source of excess stock found during search was not specifically identifiable from profits which had accumulated from earlier years, the Assessing Officer was justified in holding that said excess stock was not undisclosed investment of assessee and no case of perversity or lack of enquiry on part of Assessing Officer was made out so as to render his decision erroneous under Explanation 2 to section 263 of the Act.
Referring to the decision of the Hon’ble Chhattisgarh High Court in the case of PCIT vs. Mahavir Ashok Enterprises (P.) Ltd. reported in (2024) 167 taxmann.com 396 (Chhattisgarh), he submitted that the Hon’ble High Court in the said decision has held that where Assessing Officer accepted claim of assessee that excess stock found during survey proceedings and duly recorded in books of account of concerned year should be taxed as business income of assessee, Principal Commissioner was not justified in invoking jurisdiction under section 263 on ground that excess stock found during survey proceedings should have been declared as unexplained investment by assessee under section 69 particularly when Assessing Officer had passed order of assessment after conducting inquiry. He accordingly submitted that the Ld. PCIT was not justified in invoking jurisdiction u/s 263 of the Act.
He also relied on the following decisions: i) Mohammad Osman Mohammed Haroon Motiwala vs. PCIT vide order dated 05.02.2025 ii) Gandhi Ram vs. PCIT (2022) 145 taxmann.com 109 (Chandigarh – Trib.) iii) Hema Raman vs. PCIT vide order dated 12.05.2023 iv) DCIT vs. Vaishali Agro Soya Products vide ITA No.634/PUN/2024, order dated 11.09.2024 v) DCIT vs. Tulshiram Vithalrao Koyale vide ITA No.624/PUN/2024, order dated 31.07.2024 vi) Late Harilal Mavjibhai Patel vs. ACIT vide ITA No.2698/PUN/2024, order dated 25.04.2025
The Ld. DR on the other hand while relying on the order of the Ld. PCIT invoking the jurisdiction u/s 263 of the Act referred to the decision of the Hon’ble Punjab & Haryana High Court in the case of PCIT vs. M/s. Khushi Ram & Sons Foods (P.) Ltd. vide of 2015, order dated 21.07.2016 and drew the attention of the Bench to para 13 of the order which reads as under: “13. It is not necessary that the surrendered amount is from business income. It could be on account of any other transaction legal or otherwise. Merely because an assessee carries on certain business, it does not necessarily follow that the amounts surrendered by him are on account of its business transactions. There is no presumption that absent anything else an amount surrendered by an assessee is his business income. It is for the assessee to establish the source of such surrendered amount.”
14. Referring to the decision of the Hon’ble Punjab & Haryana High Court in the case of Kim Pharma (P.) Ltd. vs. CIT reported (2013) 258 CTR 454 (P&H), he submitted that the Hon’ble High Court in the said decision has held that where amount surrendered during survey was not reflected in books of account and no source from where it was derived was declared by the assessee, it was assessable as deemed income of the assessee u/s 69A and not business income.
15. Referring to the decision of the Hon’ble Chhattisgarh High Court in the case of Dhanush General Stores vs. CIT reported (2012) 248 CTR 166 (Chhattisgarh), he submitted that the Hon’ble High Court in the said decision has held that the value of excess stock ought to be treated as deemed income u/s 69 of the Act.
16. Referring to the decision of the Chandigarh Bench of the Tribunal in the case of Svetlana Gorodinskaia vs. ACIT vide order dated 24.05.2024, he submitted that the Tribunal, following the decision of the Hon’ble jurisdictional High Court in the case of PCIT vs. M/s. Khushi Ram & Sons Foods (P.) Ltd. (supra), has upheld the order of the CIT(A) upholding the invocation of section 69A r.w.s. 115BBE of the Act in respect of cash surrendered during the survey. He accordingly submitted that the order of the Ld. PCIT being in accordance with law should be upheld and the grounds raised by the assessee be dismissed.
17. The Ld. Counsel for the assessee in his rejoinder submitted that the decision of the Hon’ble Punjab & Haryana High Court in the case of PCIT vs. M/s. Khushi Ram & Sons Foods (P.) Ltd. (supra) is distinguishable and not applicable to the facts of the present case. He submitted that in that case the assessee surrendered Rs.80 lakhs on account of building renovation, office equipment and sundry receivables. The assessee failed to furnish any evidence to establish that the surrendered amount was derived from business activity. Under these circumstances, the Hon’ble High Court held that there is no presumption that the surrendered income automatically represents business income and the assessee must establish the source and nexus. However, in the instant case the surrendered sum represents excess cash and excess stock arising from regular trading operations duly reflected in books and computation of income. The assessee has established the business nexus and therefore, the surrendered income rightly constitutes the business income assessable under the head ‘Profits and gains of business or profession”.
18. So far as the decision in the case of Dhanush General Stores vs. CIT (supra) is concerned, he submitted that in that case the assessee had shown excess stock in the trading account / Profit & Loss Account of the firm. However, it was not reflected in the computation of income and the Assessing Officer treated it as income u/s 69 of the Act. The Tribunal treated it as deemed income u/s 69B of the Act on the ground that such surrendered income was not a business income as it was not taken directly to the computation of income but in the trading account or the profit and loss account only. Under these circumstances, the Hon’ble High Court has upheld the view of the Tribunal.
19. So far as the decision in the case of Kim Pharma (P.) Ltd. vs. CIT (supra) is concerned, he submitted that in that case the assessee has surrendered cash found during survey which was not recorded in the books of account and failed to explain its source. The General Manager at the time of recording of statement had stated that the said cash has been generated out of income from other sources. In these facts, the Hon’ble High Court held that such unexplained cash was assessable as deemed income u/s 69A of the Act and not as business income. However, in the instant case the surrendered amount arises from normal business operations, is accounted for in the books and its source is explained. Therefore, the said decision is distinguishable and not applicable to the facts of the present case.
20. So far as the decision in the case of Svetlana Gorodinskaia vs. ACIT (supra) is concerned, he submitted that in that case the assessee, a medical practitioner, was found with excess cash of Rs.4,07,000/- during a survey. The assessee failed to explain the source of excess cash found during the survey. Further, the additional income surrendered during the survey was offered in the return of income under the head ‘Income from other sources’. Under these circumstances, the Tribunal held that the excess cash found is to be taxed u/s 115BBE of the Act.
He accordingly submitted that all the decisions relied on by Ld. DR are distinguishable and not applicable to the facts of the present case.
We have heard the rival arguments made by both the sides, perused the orders of the Assessing Officer and Ld. PCIT and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find in the instant case a survey action u/s 133A of the Act was conducted in the case of the assessee on 06.03.2019 during which the assessee has declared additional income of Rs.75,25,200/- which comprises of excess cash of Rs.2,04,120/- and excess stock of Rs.73,21,080/-. The assessee in the return filed on 09.10.2019 had disclosed the same and the Assessing Officer in the order passed u/s 143(3) r.w.s. 144B of the Act on 26.08.2021 accepted such returned income. We find subsequently the Ld. PCIT examined the record and held the order to be erroneous in so far as it is prejudicial to the interest of Revenue on the ground that the Assessing Officer failed to tax the same u/s 69 of the Act read with the provisions of section 115BBE of the Act.
It is the submission of the Ld. Counsel for the assessee that during the course of assessment proceedings the Assessing Officer had specifically asked the explanation from the side of the assessee regarding the treatment of excess cash and excess stock so found during the course of survey. It is his submission that the assessee vide letter dated 06.08.2021 has explained the nature and source of such excess cash and excess stock found during the course of survey and based on the explanation given by the assessee, the Assessing Officer has accepted the returned income. It is also his submission that since in view of various decisions of the Coordinate Benches of the Tribunal, such excess cash and excess stock found during the survey has to be treated as business income and the provisions of section 115BBE of the Act are not attracted and since the Assessing Officer in the instant case, after due enquiry, has accepted the contention of the assessee, therefore, such order cannot be held to be erroneous and therefore, the Ld. PCIT cannot invoke jurisdiction u/s 263 of the Act on account of non-fulfilment of the twin conditions.
We find some force in the above arguments of the Ld. Counsel for the assessee. A perusal of notice issued u/s 142(1) of the Act dated 05.08.2021, copy of which is placed at pages 25 & 26 of the paper book, shows that the Assessing Officer vide question No.5 to Annexure to the notice u/s 142(1) of the Act has asked the assessee the following queries: “5. During the course of survey proceedings on 06.03.2019 following discrepancies have been noticed:- (a) Excess cash found at Rs.2,04,120/-. (b) Excess stock of Rs.73,21,080/- Please substantiate the treatment of the same by you with complete documentary evidences.”
We find the assessee vide letter dated 06.08.2021, copy of which is placed at pages 28 to 30 of the paper book, has offered the following explanation: “05) During the course of survey proceedings on 06.03.19 following discrepancies has been noticed:- With reference to cash excess found of Rs.2,04,120/- we would like to inform you that due to rush in the festival season at the shop there was remote possibility of non-recorded miscellaneous sales receipts, and the said cash belongs to sales which was not recorded in the books of accounts. Regarding excess stock found of Rs.73,21,080/- we would like to inform you that we deal in cloth and fabrics goods where number of items of stock and dress materials are usually purchased and sold so the exact quantity wise detailed stock cannot be maintained and over the number of years this may have happened. We have accepted the excess stock during survey proceedings also.”
We find based on the submissions of the assessee the Assessing Officer accepted the returned income. Under these circumstances, we have to see as to whether the Ld. PCIT is justified in invoking jurisdiction u/s 263 of the Act on account of non-taxing of such additional income by invoking the provisions of section 115BBE of the Act.
We find the Hon’ble Andhra Pradesh High Court in the case of PCIT vs. Deccan Jewellers (P.) Ltd. (supra) while upholding the order of the Tribunal has held that where nature and source of excess stock found during search was not specifically identifiable from profits which had accumulated from earlier years, the Assessing Officer was justified in holding that said excess stock was not undisclosed investment of assessee and no case of perversity or lack of enquiry on part of Assessing Officer was made out so as to render his decision erroneous under Explanation 2 to section 263 of the Act. The relevant observations of the Hon’ble High Court read as under: “13. When there are two possible views on the matter and one view has been accepted by the Assessing Officer after inviting explanation from the assessee and upon being satisfied on such explanation such view cannot be said to be erroneous.
As discussed above, explanations had been given by the assessees with regard to the additional income, which were considered and duly accepted by the Assessing Officer. Assessees relied upon various authorities in support of their explanations which had been duly accepted by the Assessing Officer. Views of the Assessing Officer appear to have been approved by the Joint Commissioner, Income Tax, Central Range, under section 153D of the Act. In this factual matrix, it cannot but be accepted that a possible view on the matter had been followed by the Assessing Officer. In doing so, the Assessing Officer, in fact, followed the consistent view of various judicial authorities binding on him, namely, where excess stock found in the course of search is neither separately identifiable nor had independent physical existence, it cannot be treated as undisclosed investment under section 69 of the Act.
15. In the present cases, explanations have been offered by the assessees that excess stock was a result of suppression of profits from business over the years and is a part of the overall stock found. In ITTA Nos.9 & 14 of 2021, the assessees concerned gave further clarification that the excess stock had been admitted in Schedule ‘L’ under the heading, ‘other operating income’ under the head "Profits and Gains of the Business" in Part A of the Return filed for the relevant Assessment Year. Hence, the excess stock could not have been treated as 'undisclosed investment’ under section 69 of the Act.
16. Section 69 of the Act reads as follows: “69. Unexplained investments.- Where in the financial year immediately preceding the assessment year the assessee has made investments which are not recorded in the books of account, if any, maintained by him for any source of income, and the assessee offers no explanation about the nature and source of the investments or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the value of the investments may be deemed to be the income of the assessee of such financial year.”
17. The above section provides investments would fall within the definition of undisclosed investment in the event the following conditions are satisfied:
(a) Such investment is made in the course of the financial your and not reflected in the books of account, if any, maintained by the assessee for any source of income, (b) No explanation is offered by the assessee about the nature and source of investments, and (c) Such explanation is not found to be satisfactory in the option of the Assessing Officer 18. As explanations pursuant to the Show-cause notices issued by the Assessing Officer had been submitted claiming that the nature and source of the excess stock fell under the heading “Profits and Gains of the Business” and such stock was not specifically identifiable from the profits which had accumulated from earlier years and such explanations being considered and accepted by the Assessing Officer, which came to be approved by the Joint Commissioner, Income Tax, it cannot be said that the condition precedents for holding that the excess stock as 'undisclosed investment’ under section 69 of the Act are satisfied.
Relying on the decision of this Court in Spectra Shares and Spectra Shares & Scrips (P) Ltd. v. CIT (2013) 36 taxmann.com 348/219 Taxman 61 (Mag.)/ 354 ITR 35 the Tribunal held non-recording of reasons cannot be a ground to come to a conclusion that the opinion of the Assessing Officer was erroneous for the purposes of section 263 of the Act. Explanation (2) of section 263 of the Act elucidates cases where the opinion of the Assessing Officer can be treated to be erroneous and prejudicial to the interest of the revenue Explanation (2) reads as follows: "Explanation 2.- For the purposes of this section, it is hereby declared that an order passed by the Assessing Officer 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 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."
In the present cases, the Assessing Officer had issued show-cause notices calling for explanations from the assessees whether excess stock he not treated as 'undisclosed investment’ under section 69 of the Act. In response to the notices, elaborate explanations were offered by the assessees, which were fortifiable by consistent views by various Benches of the Tribunal as well as the High Courts. The Assessing Officer, upon consideration, accepted the explanation and taxed the additional income as business income 30% instead of 60% as per section 115BBE of the Act.
21. No contrary view either of any High Court or the Apex Court has been placed before us to demonstrate that the explanations offered by the assessees in the course of assessment were either perverse or contrary to law. In view of such matter, we are constrained to hold no case of perversity or lack of enquiry on the part of the Assessing Officer is made out so as to render his decision erroneous under Explanation 2 of section 263 of the Act. Thus, the revisional powers under the said provision were illegally invoked by the Principal Commissioner and his order was rightly set aside by the Tribunal.”
We find the Hon’ble Chhattisgarh High Court in the case of PCIT vs. Mahavir Ashok Enterprises (P.) Ltd. (supra) has held that where Assessing Officer accepted claim of assessee that excess stock found during survey proceedings and duly recorded in books of account of concerned year should be taxed as business income of assessee, Principal Commissioner was not justified in invoking jurisdiction under section 263 on ground that excess stock found during survey proceedings should have been declared as unexplained investment by assessee under section 69 particularly when Assessing Officer had passed order of assessment after conducting inquiry. The relevant observations of the Hon’ble High Court read as under: “14. Reverting to the facts of the present case in light of the decisions of the Supreme Court in Malabar Industrial Co. Ltd (supra) and Paville Projects Pvt. Ltd's case (supra), it has to be seen whether the order of the assessing authority sought to be revised was erroneous and whether it was prejudicial to the interests of the Revenue. In the present case, the Principal Commissioner of Income Tax i.e. the revisional authority though recorded a finding that the order is erroneous and prejudicial to the interests of the Revenue, but only on the basis that no inquiry has been conducted on the issue and it smacks non-application of mind by the Assessing Officer, reached to the conclusion that the order sought to be revised is erroneous and prejudicial to the interests of the Revenue and proceeded to invoke jurisdiction under Section 263(1) of the IT Act and proceeded to quash the order of the assessing authority. However, in appeal preferred by the assessee before the ITAT, the ITAT in paragraph 7 of the order impugned, has proposed two issues which state as under:- “17. In exercise of powers conferred under section 263 of the Act, the PCIT has proposed revision of the assessment order on two counts: (i) The excess stock surrendered by the assessee during the survey, returned as business income, is liable to be considered as unexplained investment under section 69 of the Act and consequently tax was required to be enforced in terms of section 115BBE of the Act. (ii) The figures of purchase in the in the audited accounts drawn as on 31.03.2017 were not reconciled with the figures in the Trial Balance as on the date of survey i.e. 06.03.2017.
The above stated two issues have been considered by the ITAT against the Revenue. With regard to the first issue, the learned ITAT relying upon the decisions of two High Courts namely, the Rajasthan High Court in the matter of Pr CIT v. Aacharan Enterprises (P) Ltd. (2020) 117 taxmann.com 745/273 Taxman 85 (Rajasthan) and the Calcutta High Court in the matter of Pr. CIT v. Subarna Rice Mill (2018) 96 taxmann.com 286/257 Taxman 509 (Calcutta) has reached to the conclusion that surrender of undisclosed business income would not attract the penal provisions contained in Section 115BBE of the IT Act, and proceeded to hold that such an undisclosed business income has been considered as business income of the assessee. Similarly, with regard to the second issue, the ITAT in its order has held in favour of the assessee and against the Revenue. However, in this regard, it would be appropriate to notice that the Assessing Officer has issued specific show cause notice dated 18-12-2019 wherein identical question was raised and the assessee was required by the AO to show cause as to why the amount of Rs.2,25,75,951 be not treated as unexplained investment under Section 69 of the IT Act and the tax rate prescribed under Section 115BBE of the IT Act be not imposed against which the assessee on 19-12-2019 filed reply stating that excess business stock of Rs.2,25,75,951 found during the course of survey proceedings in the business premises of the assessee Company in the your under consideration is duly entered and disclosed in the books of accounts as business income which is included in the net profits. The assessee has further stated in the reply that the assessee Company is engaged in retail trading of Gold and Silver Ornaments since so many years and the object for which the Company incorporated is also trading of Gold and Silver Ornaments. It has also been stated in the reply that the business activity of the assessee company is also accepted and assessed as such in earlier year assets and as the excess business stock found during survey proceedings under the IT Act during the year under consideration in the business premises of the assesses Company and duly recorded in the books of accounts of the concerned year, Section 69 of the IT Act would not he attracted to the assessee Company. The assessee has also stated in the reply that as far as nature and source of investments is concerned, the investments are in the form business stock of Gold and Silver Ornaments found in the business premises and explanation of the business source of investments given on the basis of documents available in the business premises during the course of survey proceedings by the Director of the assessee Company was very well verified by the survey team and accepted, and hence, the excess stock of Rs.2,25,75,951 declared during the course of survey proceedings in the business premises cannot be treated as unexplained investment under Section 69 of the IT Act and as Section 69 does not attract in this situation, question of applicability of tax rate of 60% under Section 115BBE of the IT Act does not arise. The AO considered the reply and found substance in the submission raised on behalf of the assessee and only added Rs.1,42,715/- to the business income of the assessee for the year under consideration.
In this regard, decision of the Supreme Court in the matter of Commissioner of Income Tax, (Central) Ludhiana v. Max India Limited (2007) 15 SCC 401/[2008] 166 Tax 188/295 ITR 282 (SC) may be noticed herein profitably in which their Lordships have held that every loss of revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interest of the Revenue. When the Income Tax Officer adopted one of the courses permissible in law and it has resulted in loss of revenue or where two views are possible and the Income Tax Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interest of the Revenue, unless the view taken by the Income Tax Officer is unsustainable in law.
In this case also, the Assessing Officer has issued specific show cause notice to the assessee as to why the excess stock of Ra 2,25,75,951 be treated as unexplained investment under Section 69 of the IT Act which the assessee replied stating that the said excess business stock was found during survey proceedings under the IT Act during the year under consideration in the business premises of the assessee Company and duly recorded in the books of accounts of the concerned year and thus, Section 69 of the IT Act would not be attracted to the assessee Company, as excess stock would not be treated as undisclosed income within the meaning of Section 69, which the AO has accepted and taken it as one of the possible views and which the ITAT has accepted holding to be the correct view.
In that view of the matter, we are of the considered opinion that both the twin conditions, namely, the order of the Assessing Officer sought to be revised is erroneous and it is prejudicial to the interests of the Revenue, are not satisfied at all to invoke the jurisdiction under Section 263 of the IT Act, as the Assessing Officer has passed the order of assessment after conducting inquiry. As such, the learned PCIT is absolutely unjustified in invoking the jurisdiction under Section 263 of the IT Act which has rightly been set-aside by the ITAT.
19. In that view of the matter, we answer the substantial question of law in favour of the assessee and against the Revenue.
20. Consequently, the tax appeal deserves to be and is accordingly dismissed leaving the parties to bear the own cost(s).”
Since the Assessing Officer in the instant case during the course of assessment proceedings has raised specific queries to which the assessee has duly replied and it has been explained that the only source of income of the assessee is from business, therefore, such excess cash and excess stock found during the course of survey has to be treated as business income in the light of the decisions cited (supra). Therefore, the order passed by the Assessing Officer cannot be held to be erroneous although it may be prejudicial to the interest of Revenue in the opinion of the Ld. PCIT on account of not invoking the provisions of section 115BBE of the Act. It has been held in various decisions that for invocation of jurisdiction u/s 263 of the Act, the twin conditions viz. (a) the order is erroneous and (b) order is prejudicial to the interest of Revenue must be fulfilled. However, as stated earlier, the order passed by the Assessing Officer cannot be held to be erroneous since the Assessing Officer has taken a plausible view although the order may be prejudicial to the interest of Revenue. Therefore, the twin conditions are not satisfied. Therefore, the Ld. PCIT in our opinion is not justified in invoking the provisions of section 263 of the Act.
So far as the various decisions relied on by the Ld. DR are concerned, they are distinguishable and are not applicable to the facts of the present case. In any case, these decisions are of Hon’ble non-jurisdictional High Courts. In the preceding paragraphs, we have already reproduced the decisions of other Hon’ble High Courts on this issue which are in favour of the assessee. Thus, there are conflicting decisions i.e. decisions both in favour of the assessee as well as against the assessee.
We find the Hon’ble Supreme Court in the case of CIT vs. Vegetable Products Ltd. reported in (1973) 88 ITR 192 (SC) has held that when two views are possible, the view which is in favour of the assessee has to be adopted. In this view of the matter, we are of the considered opinion that the Ld. PCIT was not justified in invoking his revisionary powers u/s 263 of the Act for not invoking the provisions of section 115BBE of the Act on the additional income declared during the course of survey on account of excess cash and excess stock found. We, therefore, set aside the order of the Ld. PCIT and the grounds raised by the assessee are accordingly allowed.
After hearing both sides, we find identical grounds have been raised by the assessee. We have already decided the issue in and allowed the grounds raised by the assessee. Following similar reasonings, we allow the grounds raised by the assessee.
In the result, both the appeals filed by the respective assessees are allowed.
Order pronounced in the open Court on 4th November, 2025.