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Facts
The assessee, a real estate developer, admitted an undisclosed income of Rs. 1,01,00,000 during a survey under Section 133A. This income was declared as 'Other Income' in the return and accepted by the Assessing Officer (AO) under Section 143(3) without further inquiry. The Principal Commissioner of Income-Tax (PCIT) subsequently invoked Section 263, holding the AO's order erroneous and prejudicial to the revenue for not examining the nature and source of the income and the applicability of Sections 69A, 115BBE, 269ST, and 271DA.
Held
The Tribunal upheld the PCIT's order, concluding that the Assessing Officer failed to conduct an independent inquiry into the nature and source of the undisclosed income. It ruled that Explanation 2(a) to Section 263 was applicable, as the AO's order was passed without necessary inquiries or verification, thereby rendering it erroneous and prejudicial to the interests of the revenue.
Key Issues
Whether the Assessing Officer erred by not properly examining the nature and source of undisclosed income declared during a survey and not applying relevant sections of the Income Tax Act, and if this failure justified the PCIT's invocation of Section 263.
Sections Cited
263, 143(3), 133A, 69A, 115BBE, 269ST, 271DA, 131, 142(1), 119
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Income Tax Appellate Tribunal, “B” BENCH, AHMEDABAD
(Assessment Year: 2017-18) M/s. Shreeji Infratech, Vs. PCIT, 110, Near Silver Wood Society, Vadodara-1, Opp. Billabong School, Vadodara Nr. Vadsar Bridge, Vadsar, Vadodara-390010 [PAN : ACWFS 1409 F] (Assessment Year: 2017-18) M/s. Shreeji Infra, Vs. PCIT, 344, 375, Opp. CM Patel Farm Vadodara-1, House, Nr. Sidheswar Complex, Vadodara Kalali, Vadodara-390012 [PAN : ACRFS 5269 C] (Appellant) .. (Respondent) Appellant by : Shri S.N. Soparkar, Sr. Advocate & Shri Parin Shah, AR Respondent by: Shri V. Nandakumar, CIT-DR Date of Hearing 16.04.2025 Date of Pronouncement 02.06.2025 O R D E R PER DR. B.R.R. KUMAR, VICE-PRESIDENT:-
These two appeals have been filed by different assessee against the separate order passed by the learned Principal Commissioner of Income-Tax, Vadodara-1[hereinafter referred to as “PCIT”], both dated 26.03.2024, in exercise of his revisionary powers under Section 263 of the Income-tax Act, 1961 [hereinafter referred to as “the Act”], for the Assessment Year (AY) 2017-18.
Both the appeals are having same nature of facts and a common issue; therefore, both the appeals are taken together, heard together and disposed of by this common order.
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The assessee has raised following grounds of appeal:-
“1. The Ld. CIT erred in law and on facts in invoking provisions of Section 263 of the Act seeking to revise scrutiny assessment U/s 143(3) of the Act holding it as erroneous and prejudicial to interest of revenue. The order of A.O. is neither erroneous nor prejudicial to the interest of revenue and as such order of Ld. CIT is unjust, untenable and against principles of Natural Justice that deserve to be quashed.
2. The Ld. CIT erred in law and on facts in holding that appellant has not furnished any details of nature and sources of undisclosed income of Rs.1,01,00,000/- admitted during the survey and is required to be taxed U/s 69A r.w.s 115BBE of the Act.
The Ld. CIT has failed to appreciate that A.O has passed the order after proper verification of documents submitted in response to notice U/s 142(1) of the Act. The erroneous order of Ld. CIT deserves to be quashed.
3. Ld. CIT ought to have appreciated that non discussion of issues, verified and accepted by A.O after proper scrutiny need not mean order as erroneous or prejudicial to the interest of revenue.
4. The Ld. CIT has erred in law and on facts for not providing opportunity being heard in person in spite of being specifically requested. The denial of personal hearing is against principle of Natural Justice and such order of Ld. CIT deserve to be quashed.
5. The Ld. CIT erred in law and on facts in holding that the provisions of Section 269ST applies to the undisclosed income declared during the survey. The Ld. CIT has failed to appreciate that A.O passed the order after proper verification of documents submitted in response to notice U/s 142(1) of the Act. The erroneous order of Ld. CIT deserves to be quashed.
6. 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 are that the assessee is engaged in the business of Real Estate Development and filed return of income on 31.08.2017, declaring Rs.1,27,30,360/-. The case was selected for scrutiny under CASS, and the & 118 /Ahd/2022 Shreeji Infratech/Shreeji Infra Vs. PCIT Asst. Year : 2017-18 - 3– assessment was completed under Section 143(3) on 11.12.2019, accepting the returned income.
The Ld. PCIT, on perusal of the Profit & Loss Account for the year under consideration, noticed that the assessee has shown the undisclosed income of Rs.1,01,00,000/-, admitted during the course of survey u/s 133A of the Act, under the head "Other Income" in the Profit & Loss Account for the year under consideration and the Net Profit was arrived at Rs.1,27,25,179/-. Further, it was noticed by the Ld. PCIT that in the return of income filed by the assessee, the assessee has shown the above undisclosed income of Rs.1,01,00,000/- admitted during the course of survey u/s 133A of the Act, under the head "Any other income". Ld. PCIT noticed that the assessee has calculated the tax on the above undisclosed income of Rs.1,01,00,000/- admitted during the course of survey and shown in the return of income, at the normal rate of 30%, which has been accepted by the AO assessing the returned income at Rs.1,27,30,360/- which includes the undisclosed income of Rs.1,01,00,000/- admitted during the course of survey without making any inquiry regarding the nature and source of such undisclosed income and whether it was falling within the ambit of the provisions of Section 69A of the Act. The Ld. PCIT held that the order passed by the Assessing Officer u/s 143(3) of the Act was erroneous and prejudicial to the interest of Revenue and directed the Assessing Officer to pass fresh assessment order after taking into consideration the issues as discussed by him in the order u/s 263 of the Act.
Aggrieved by the order of the Ld. PCIT, the assessee is now in appeal before the Tribunal.
Before us, the Ld. AR supported the order of the Assessing Officer and the Ld. DR supported the order of the Ld. PCIT. The Ld. AR relied on the statement recorded u/s 131 of the Act. Question No.10 reads as under (Shreeji Infra):-
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Q.10 In diary (Legendary Architect) A-1 in which total written pages are 18. On page number 3, 4 and 5 of different days in April, May, June, July and August some amount are mentioned, which appears to be your undisclosed income, please throw light on these numbers. Ans. The amount mentioned on these three pages are shown in different months, this is the cash income received from the booked houses of Auroville in the current financial year, out of which the total cash income is also shown, which has not been shown in the previous year but received in this financial year. This cash income for the month April is 23 lakhs, for the month of May is 22.25 lakhs, for the month of June is 21.75 lakhs, for the month of July is 21.75 lakhs and for the month of August 33.25 lakhs, totalling the cash inflow one crore twenty two lakh in the financial year 2016-17, which is undisclosed income received by Shreeji Infra for the construction of the buildings of Auroville, which I consider as undisclosed income in addition to my total regular income and agree to deposit advance tax related to the same. This undisclosed income is different from my regular income and also in this financial year our gross profit will remain the same as in previous years.
The Ld. AR further relied on the statement recorded u/s 131 of the Act. Question No.17 to 22 reads as under (Shreeji Infratech):-
Q.17) During the survey, we have found a pocket diary (Ultratech company) in which some figures are mentioned on date and time, please explain it. Ans. The pocket diary found during the survey has details of amount received from member. Q.18) Whether this money credited to members account? Ans. No, this amount is not credited to the members account but details of profits after deducting all expenses and it is aggregate amount. Q.19) I am again showing you the pocket diary (A-1) in which some figure is mentioned as 3.5, 4.5, 3.25, 3.75 etc. are written on page number 1 to 5 on various dates which makes total of Rs. 99.75 lakhs, please explain about it. Ans. The figure written in the pocket diary which you are showing me is Rs 99.75 lakh and it is the list of net profit during the year 2016-17 which is not recorded in the book. Q.20) You have stated the amount of Rs. 99.75 is not recorded in books of accounts and which is the net profit received during the year 2016-17, then why this income should not be considered as undisclosed income of your firm.
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Ans. As you stated 99.75 lakh rupees is remain to be record in the books and it is the undisclosed income of our firm and the partners of our firm agree to pay the tax. And all partners are agree to pay tax. Q.21) Please state how will you pay the amount of tax payable? Ans. The tax payable on undeclared income and advance tax payable during the year will pay before September 2016, December 2016 and March 2017. Q.22) Apart from the answers to the above questions, do you have anything to say? Ans. The sum of the above undeclared income which you have shown as 99.75 lakhs has been round off to one crore, I am paying you 3 checks of 11 lakhs for the tax payable on the same amounting to approximately 33 lakhs. I have given the answers to the above questions in good faith and without any threat or pressure which is acceptable to us. I know it is a crime to lie under oath.
The ld. AR further argued that the assessee has given entire details of the undisclosed income and submitted that the income declared during the survey is to be taxed as income from business only unless any contrary evidences are found in the survey. It was argued that in the instant cases no contrary evidences were found or were brought on record by the AO during the assessment proceedings. Hence, it is not an erroneous order. Ld. AR relied upon the judgements in the case of … • D.N. Singh Vs. CIT, 45 ITR 595 • CIT Vs. Kamal Galani, 95 taxmann.com 261 • CIT Vs. Kamal Galani, 110 Taxmann.com 213 • Chokshi Hiralal Maganlal Vs. DCIT, 46 SOT 349 • M/s. Bajaj Sons Ltd Vs. DCIT, 128 Taxmann.com 406 • Gaurish Steels Pvt Ltd. Vs. ACIT, 82 taxmann.com 337 • CIT Vs. Shilpa Dying & Printing Mills Ltd, 39 Taxmann.com 3
The Ld. AR argued that since detailed examination of books of accounts and other supporting evidences were examined by the AO, nothing adverse can & 118 /Ahd/2022 Shreeji Infratech/Shreeji Infra Vs. PCIT Asst. Year : 2017-18 - 6– be inferred. On the other hand, the Ld. DR relied upon the order of the Ld. PCIT passed u/s 263 of the Act. The Ld. DR relied on the following case laws:_
i) Shiv Shakti Enterprise Vs. PCIT, 157 taxmann.com 492, which the Ld.AR submitted that the order has been since recalled. ii) CIT Vs. Nagesh Knitwears Pvt. Ltd., 345 ITR 135 iii) ITO Vs. DG Housing Projects Ltd in iv) Rampyari Devi Sarogi Vs. CIT, 67 ITR 84 v) Tara Devi Aggarwal Vs. CIT, 88 ITR 323 vi) GeeVee Enterprises Vs. ACIT, 99 ITR 375
With this background, the issue to be decided is that “whether the Assessing Officer erred in not treating the amount of undisclosed income disclosed during the survey and offered to tax as business income can be considered as per the provisions of Section 69A r.w. 115BBE or not and whether not treating the same u/s 69A gives rise to invocation of Section 263 or not”.
We have heard the rival contentions and perused the material available on record. We find that a survey action u/s 133A of the Act was carried out at assessee’s business premises on 30.08.2016. During course of survey, some documents with regard to unaccounted business receipts amounting to Rs.1,01,00,000/- were found and were impounded. From the facts on record, it is revealed that the undisclosed income of Rs.1,01,00,000/- admitted during the course of survey proceedings, which was shown by the assessee in its return of income under the head “other income”, has been accepted by the Assessing Officer.
It is not disputed that the assessee declared Rs.1,01,00,000 in its return of income and the same was taxed as “Other Income.” It is also pertinent to note that the Assessing Officer accepted the return after scrutiny proceedings.
& 118 /Ahd/2022 Shreeji Infratech/Shreeji Infra Vs. PCIT Asst. Year : 2017-18 - 7– The provision of Section 69A reads as under:- “69A. Where in any financial year the assessee is found to be the owner of any money, bullion, jewellery or other valuable article and such money, bullion, jewellery or valuable article is 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 acquisition of the money, bullion, jewellery or other valuable article, or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the money and the value of the bullion, jewellery or other valuable article may be deemed to be the income of the assessee for such financial year.”
We have examined as to how the provisions of the Act are applicable to the facts of the case. Where in any financial year the assessee is found to be the owner of any money, bullion, jewellery or other valuable article and such money, bullion, jewellery or valuable article is not recorded in the books of account, if any, maintained by him for any source of income, The fact of receipt of monies have not been recorded in the books of accounts maintained by the assessee. and the assessee offers no explanation about the nature and source of acquisition of the money, bullion, jewellery or other valuable article, The assessee explained about the nature and source in question Nos. 10 and 17 to 22. That the cash amounts have been received by the members and if proved so, rightly the amount has to be added in the hands of the payers. The assessee has not furnished any confirmations from the persons from whom the amounts have been purportedly received. or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, The explanation offered by the assessee was duly accepted by the Assessing Officer without making any minimal enquiries. the money and the value of the bullion, jewellery or other valuable article may be deemed to be the income of the assessee for such financial year.” Since the explanation offered by the assessee is accepted summarily without any enquiries by the AO during the assessment proceedings, the monies can be deemed to be the unexplained income of the assessee u/s 69A of the Act.
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During the survey, the Revenue Authorities often find cash, stock or other assets that are not recorded in the books. The same in this case too. The assessee may voluntarily disclose during the survey, file return and pay taxes, but the Assessing Officer must question the source. Even after paying the tax, if the Assessing Officer believes that the income is unexplained and the source is not proved, nature is not clarified, then the Assessing Officer can treat it as income under Section 69A of the Act. If the assessee cannot explain the genuine source or if the explanation is not acceptable, then the provisions of Section 69A are attracted. In the instant case, the Ld. PCIT held that since the undisclosed income admitted during the course of survey was found to have been received by the assessee in cash, the Assessing Officer failed to examine the applicability of provision of Section 69A r.w.s. 115BBE and of Section 269ST and of Section 271DA of the Act, hence to that extent the order is erroneous and prejudicial to the interest of Revenue. Just disclosing and paying tax does not protect the assessee from the clutches of Section 69A of the Act unless the source is satisfactorily explained and backed by evidence.
In the case of ITO Vs. DG Housing Projects Ltd. (supra), the Hon’ble High Court of Delhi held as under:- “10. Revenue does not have any right to appeal to the first appellate authority against an order passed by the Assessing Officer. Section 263 has been enacted to empower the CIT to exercise power of revision and revise any order passed by the Assessing Officer, if two cumulative conditions are satisfied. Firstly, the order sought to be revised should be erroneous and secondly, it should be prejudicial to the interest of the Revenue. The expression ‘prejudicial to the interest of the Revenue’ is of wide import and is not confined to merely loss of tax. The term ‘erroneous’ means a wrong/incorrect decision deviating from law. This expression postulates an error which makes an order unsustainable in law. 11. The Assessing Officer is both an investigator and an adjudicator. If the Assessing Officer as an adjudicator decides a question or aspect and makes a wrong assessment which is unsustainable in law, it can be corrected by the Commissioner in exercise of revisionary power. As an investigator, it is incumbent upon the Assessing Officer to investigate the facts required to be & 118 /Ahd/2022 Shreeji Infratech/Shreeji Infra Vs. PCIT Asst. Year : 2017-18 - 9–
examined and verified to compute the taxable income. If the Assessing Officer fails to conduct the said investigation, he commits an error and the word erroneous includes failure to make the enquiry. In such cases, the order becomes erroneous because enquiry or verification has not been made and not because a wrong order has been passed on merits.” In the case of Gee Vee Enterprises Vs. ACIT (supra), the Hon’ble Delhi High Court held as under:- “(14) The reason is obvious. The position and function of the Income Tax Officer is very different from that of a civil court. The statements A made in a pleading proved by the mininum amount of evidence may he accepted by a civil court in the absence of any rebuttal. The civil court is nuctral. It simply gives decision on the basis of the pleading and evidence which comes before it. The Income Tax Officer is not only an adjudicator but also an investigator. He cannot remain passive in the face of a return which is apparently in order but calis for further inquiry. It is his duty to assertain the truth of the faets stated in the return when the circumstances of the case are such as to provoke an inquiry. The meaning to be given to the word "erroneous" in section 263 emerges out of this contract. It is because it is incumbent on the Income Tax Officer to further investigate the facts stated in the return when circumstances would make such an inquiry prudent that the word "erroneous" in section 263 includes the failure to make such an inquiry. The order becomes erroneous because such an inquiry has not been made and not because there is anything wrong with the order if all the facts stated therein are assumed to be correct.” The provisions of Section 263 are as under:- 263. (1) The 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 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 an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment. Explanation 2 to Section 263 of the I.T. Act has been inserted by the Finance Act, 2015 w.e.f. 01/06/2015. The relevant portion of the same is reproduced as under: 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 & 118 /Ahd/2022 Shreeji Infratech/Shreeji Infra Vs. PCIT Asst. Year : 2017-18 - 10– 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.
Since in the instant case, the specific facts prove that the Assessing Officer has not conducted any independent inquiry about the nature and source, the Explanation 2 (a) to Section 263 is squarely applicable to the facts of this case. Hence, the PCIT is well within his jurisdiction in invoking the provisions of Section 263 of the Act. We therefore uphold the order of the Ld. PCIT and dismiss both the appeals of the assessee.