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Facts
The assessee filed its return for AY 2017-18, and a survey was conducted where undisclosed income of Rs.50,10,000/- was admitted. The AO completed the assessment. Subsequently, the PCIT invoked Section 263, stating the AO's order was erroneous and prejudicial to revenue due to a lack of proper inquiry regarding the admitted income and discrepancies in gross receipts.
Held
The Tribunal held that the PCIT was justified in invoking Section 263 as the AO failed to conduct a proper inquiry into the undisclosed income. The assessment order was set aside to the extent of the undisclosed income, with a direction for a fresh inquiry.
Key Issues
Whether the AO conducted adequate inquiry regarding undisclosed income and discrepancies in receipts to justify the PCIT's revision under Section 263.
Sections Cited
263, 143(3), 133A, 142(1), 37(1), 69A, 115BBE, 269ST, 271DA, 131(1A)
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Income Tax Appellate Tribunal, “ D ” BENCH, AHMEDABAD
Before: SHRI T.R. SENTHIL KUMAR & SHRI MAKARAND V. MAHADEOKAR
"ी टी.आर. से""ल कुमार, "ाियक सद" एवं "ी मकरंद वसंत महादेवकर, लेखा सद" के सम#। ] ] BEFORE SHRI T.R. SENTHIL KUMAR, JUDICIAL MEMBER AND SHRI MAKARAND V. MAHADEOKAR, ACCOUNTANT MEMBER आयकर अपील सं / Year : 2017-18 Tulsi Reality The Pr.CIT-1 बनाम/ G5 Anand Deep Complex Vadodara – 390 007 v/s. Gotri Road (Gujarat) Gotri, Vadodara – 390 021 (Gujarat) "थायी लेखा सं./PAN: AAFFT 8908 B (अपीलाथ&/ Appellant) ('( यथ&/ Respondent) Assessee by : Ms. Urvashi Shodhan, AR Revenue by : Shri Prathvi Raj Meena, CIT-DR सुनवाई की तारीख/Date of Hearing : 27/01/2025 घोषणा की तारीख /Date of Pronouncement: 30/01/2025 आदेश/O R D E R
PER MAKARAND V. MAHADEOKAR, AM:
This appeal is filed by the assessee against the order dated 29.03.2022 passed by the Ld. Principal Commissioner of Income Tax, Vadodara-1 (hereinafter referred to as "PCIT") under Section 263 of the Income Tax Act, 1961 (hereinafter referred to as "the Act") for the Assessment Year (AY) 2017- 18, setting aside the assessment order passed by the Assessing Officer (hereinafter referred to as “AO”) under Section 143(3) of the Act dated 12.12.2019. Tulsi Reality vs. The Pr.CIT-1 Asst. Year : 2017-18 Facts of the Case:
The assessee, Tulsi Reality, filed its return of income for the Assessment Year 2017-18 on 02.10.2017, declaring a total income of Rs.61,29,690/-. The case was selected as a compulsory scrutiny and a notice under Section 143(2) of the Act was issued on 20.09.2018, followed by a notice under Section 142(1) of the Act. A survey under Section 133A of the Act was conducted at the premises of the assessee on 30.08.2016. During the survey, the assessee admitted an undisclosed income of Rs.50,10,000/- and stated that this amount represented receipts related to business activities. The admitted income was subsequently included in the return of income and reflected in the financial statements of the assessee. The AO completed the assessment by passing the order u/s 143(3) of the Act by adding Rs.8,661/- being interest and penalty on TDS and not admissible expenditure u/s 37(1) of the Act.
2.1. Subsequently, the PCIT invoked the powers under Section 263 of the Act, alleging that the AO's order was erroneous and prejudicial to the interest of revenue. The PCIT observed that the gross value of services provided as per the 360-degree module (CBEC Service Tax Data) was Rs.6,88,63,109, while the revenue from operations declared in the return was Rs.2,98,48,372, leading to a discrepancy of Rs.3,90,14,737/-. The audit report in Form 3CD showed Gross Receipts/Turnover at Rs.5,07,69,796, further creating a mismatch with the income reported in the return. The PCIT further observed that the AO neither the assessee furnished any reconciliation relating to discrepancy nor the AO made any verification on the same during the course of assessment. Tulsi Reality vs. The Pr.CIT-1 Asst. Year : 2017-18
The PCIT also observed that a survey under Section 133A of the Act was conducted at the business premises of the assessee on 30/08/2016, during which the assessee admitted undisclosed income of Rs.50,10,000/-. The partner of the assessee-firm, Shri Chandrakantbhai Vadilal Patel, in his statement recorded under Section 131(1A) of the Act, confirmed that this amount was over and above the regular business income. The assessee subsequently disclosed this income in its return for A.Y. 2017-18 under the head "Any Other Income." The PCIT noted that the AO accepted the taxability of Rs.50,10,000/- at the normal rate of 30% without examining whether the amount fell within the scope of Section 69A read with Section 115BBE, which mandates taxation at a higher rate. The AO also did not conduct any inquiry into the source and nature of the cash receipts, nor did he verify the identity and confirmation of the persons from whom such receipts were received. Furthermore, the AO did not examine the applicability of Section 269ST of the Act, which prohibits cash transactions exceeding Rs.2,00,000/-, and Section 271DA of the Act, which prescribes penalties for violations thereof.
3.1. The PCIT was of the view that the failure of the AO to conduct proper inquiries and verifications rendered the assessment order erroneous and prejudicial to the interest of revenue under Section 263 of the Act. Accordingly, the assessment order passed under Section 143(3) of the Act for A.Y. 2017-18 was set aside, and the AO was directed to conduct a fresh inquiry.
Aggrieved by the order of PCIT the assessee is in appeal before us with following grounds of appeal: Tulsi Reality vs. The Pr.CIT-1 Asst. Year : 2017-18 4
1. Ld. Pr. CIT Vadodara-1 erred in law and on facts revising a scrutiny assessment order which is neither erroneous nor prejudicial to the interest of revenue.
2. The action of ld. Pr. CIT revising an order passed after extensive verification of the details on record is without any justification to invoke revisional jurisdiction.
3. Ld. Pr. CIT erred in law and on facts holding order erroneous that was framed without any inquiry or verification to examine whether the cash receipts as noted in the impounded documents and admitted during survey proceedings were in the nature of business receipts by calling for the details of identity, confirmation of the persons from whom cash has been received.
4. Ld. Pr. CIT erred in law and on facts in passing impugned order on the alleged ground of possible violation of Sec. 269ST and 274DA inserted w.e.f. 01.04.2017.
5. Ld. Pr. CIT erred in law and on facts revising scrutiny assessment order relying on Hon'ble Delhi high court judgments on completely different set of facts. Your appellant craves leave to add, amend, alter, edit, delete, modify or change all or any of the grounds of appeal before the appeal is heard and decided.
During the course of hearing before us, the Authorized Representative (AR) of the assessee argued that as admitted during the course of survey u/s. 133A of the Act, the assessee recorded the income in its books of accounts and disclosed under profit and loss account. The AR stated that the AO issued notice u/s 142(1) of the Act on 10-10-2019 and asked specifically about undisclosed income of Rs.50,10,000/- as admitted during the course of survey and after due verification completed the assessment. The AR further pointed out that the said amount was disclosed under the head “Indirect Income” under the profit and loss account. The AR also stated that the books of accounts of the assessee are audited in accordance with the provisions of the Act and therefore the nature of income is a business income. The AR placed Tulsi Reality vs. The Pr.CIT-1 Asst. Year : 2017-18 reliance on decision of the Co-ordinate Bench in case of sister-concern Aadhya Infrastructure and Aadhya Reality (ITA No. 132,133/Ahd/2022). The AR further stated that each unaccounted receipt was less than Rs.2,00,000/- and therefore the provision of 269T are not applicable.
5.1. The AR further submitted that the assessee is following percentage completion method for recognizing revenue as recommended by the ICAI and the same is disclosed in the accounting policies submitted to the AO. The AR submitted that as per the said method the assessee has recognized only Rs.2,98,48,372/- out of total amount of Rs.6,88,63,109/- received and reported in service tax return. The AR argued that when the AO has accepted the method of revenue recognition, the discrepancy is assumed to be explained. In respect of said discrepancy in the gross revenue of Rs.3,90,14,737/-, it was asked to the AR to place on records the copies of notices indicating the issue being enquired into by the AO. The AR submitted the copies of the notices dated 31-10-2019 and 07-11-2019 which were not part of the paper book. The AR agreed that the said issue of difference between amounts as per the 360- degree module (CBEC Service Tax Data) amounting to Rs.6,88,63,109/- and the revenue from operations declared in the return amounting to Rs.2,98,48,372/-, was not inquired into by the AO during the course of assessment proceedings. However, the AR pointed out that the AO has copy of assessment order u/s 143(3) r.w.s. 263 read with section 144B of the Act wherein the issue was inquired into by the AO and found to be in order.
The Departmental Representative (DR), on the other hand, relied on the order of PCIT and stated that the information about the discrepancy Rs.3,90,14,737/- was available with the AO in the ITBA portal and the AO Tulsi Reality vs. The Pr.CIT-1 Asst. Year : 2017-18 failed in conducting the inquiry. In respect of the PCIT’s observation relating to unaccounted receipts of Rs.50,10,000/- the DR stated that the AO has failed to enquire into the details of such receipts as the details were not provided by the assessee.
We have considered the submissions made by both parties, the order of the PCIT under Section 263, and the assessment order passed by the AO under Section 143(3) of the Act. We note that in the case of Aadhya Infrastructure and Aadhya Reality (ITA No. 132,133/Ahd/2022), the assessee had provided a list of amounts received from members along with financial statements. However, in the present case, the assessee neither furnished such details to the AO nor to the PCIT. Furthermore, even during the reassessment under Section 143(3) r.w.s. 263, the assessee failed to provide such details, as evident from the reassessment order. Thus, the reliance on Aadhya Infrastructure and Aadhya Reality is misplaced, as in that case, the assessee had substantiated its receipts with supporting documents, whereas in the present case, the assessee has failed to furnish necessary details.
7.1. While proceedings under Section 263 are independent, we find that one of the issues pointed out by the PCIT, relating to the discrepancy in gross receipts, has become infructuous due to its resolution in the reassessment order. However, the issue relating to the undisclosed income of Rs.50,10,000/- was not properly inquired into by the AO. The assessee also failed to place on record its reply to the notice under Section 142(1) dated 10-10-2019. The AO is also silent on this reply in the order and has not recorded his satisfaction or otherwise on the issue raised in the said notice. Tulsi Reality vs. The Pr.CIT-1 Asst. Year : 2017-18 7.2. Our summarized findings are : a. The AO failed to conduct an adequate inquiry regarding the undisclosed income of Rs.50,10,000/-, particularly with respect to its source and nature. b. The assessee did not furnish necessary confirmations or identity details of the persons from whom cash was received. Further, during the course of subsequent proceedings under Section 143(3) r.w.s. 263 of the Act, the assessee failed to provide necessary details of receipts, which ultimately resulted in the confirmation of the addition. The AO did not examine the applicability of Section 69A r.w.s. 115BBE of the Act, which could have warranted taxation at a higher rate. c. The AO did not examine the applicability of Section 69A r.w.s. 115BBE of the Act, which could have warranted taxation at a higher rate. d. The discrepancy in gross receipts, as pointed out by the PCIT, was examined in subsequent proceedings under Section 143(3) r.w.s. 263 of the Act and found to be in order, making this issue infructuous.
7.3. Considering the above findings, we hold that the PCIT was justified in invoking jurisdiction under Section 263 as the AO’s failure to conduct proper inquiry rendered the assessment order erroneous and prejudicial to the interest of revenue. Accordingly, the order passed by the AO under Section 143(3) of the Act is set aside to the extent of the undisclosed income of Rs.50,10,000/-, with a direction to the AO to conduct a fresh inquiry into the issue in accordance with law.
7.4. Considering the above findings and in accordance with the grounds of appeal
, we hold that the PCIT was justified in invoking jurisdiction under Section 263 of the Act as the AO’s failure to conduct proper inquiry rendered the assessment order erroneous and prejudicial to the interest of revenue. The Tulsi Reality vs. The Pr.CIT
1. Asst. Year : 2017-18 assessee has not been able to provide sufficient evidence to rebut the observations of the PCIT.