RADHESHYAM PAPER MILLS PRIVATE LIMITED,LILAPAR ROAD,LILAPAR vs. PCIT-RAJKOT-1,INCOME TAXDEPARTMENT,OFFICE OF THE PRINCIPAL COMMISSIONER OF INCOME TAX,PCIT-RAJKOT-1, AAYKAR BHAVAN RING ROAD RACE COURSE RAJKOT

Succinctly, the factual panorama of the case is that assessee before us is a private Limited company and had filed its return of income for assessment year (A.Y.) 2019-20, on 28.02.2020, declaring total income of Rs.4,20,18,210/-. The assessee`s case was selected for complete scrutiny, on account of survey proceedings carried out on 12.02.2019 at the business premises of the assessee. The Assessment was finalized u/s 143(3) of the Act, on 23/09/2021, accepting returned income of Rs.4,20,18,210/-.

Later on, Learned Principal Commissioner of Income-tax (in short “Ld PCIT”) exercised his jurisdiction under section 263 of the Income-tax Act, 1961. On perusal of records, it was noticed by the learned PCIT that during the course of survey proceedings carried out on 12.02.2019 in the case of the assessee, the excess stock of finished goods of Rs.1,35,69,546/-, was found and which was disclosed by the assessee as unaccounted stock with an explanation that the excess stock consists of unaccounted stock generated from business income of current financial year, that is, the F.Y.2018-19, relevant to assessment year 2019–20. Further, the assessee has not furnished any cogent documentary evidence, like purchase bills, sales bills, name of purchaser, name of seller, source of payment, nature of transaction etc. in support of its claim that excess stock of Rs.1,35,69,546/- is out of unaccounted business income generated during the F.Y.2018-19, relevant to assessment year 2019–20. Since the assessee has not furnished any cogent documentary evidence in support its claim, such excess stock was required to be treated as unexplained within the meaning of section 69B of the Act and taxed u/s 115BBE of the I.T. Act.

Therefore, the Ld. PCIT issued a notice u/s 263 of the Act, dated 22.02.2024, which is reproduced by the PCIT in his order u/s 263 of the Act, on Page 2.

In response to the notice u/s 263 o the Act, the assessee submitted it’s reply before the Ld. PCIT, which is reproduced by the Ld. PCIT in his order u/s 263 of the Act vide Page No. 3 to 17. In its reply, the assessee submitted that excess stock was generated through business activities, and at the time of survey, it was declared that on excess stock, ITA.243/Rjt/2024/AY.2019-20 Radheshyam Paper Mills Pvt. Ltd. the assessee would offer the tax and also it would be shown in the books of accounts of the assessee. Accordingly, assessee has offered the same for taxation and also recorded such excess stock in the books of accounts. The assessee also submitted before the learned PCIT that assessing officer has conducted sufficient enquiry to examine such excess stock by issuing notice under section 142(1) of the Act, and in response to notice under section 142(1) of the Act, the assessee submitted its reply before the assessing officer with documentary evidence. Therefore, order passed by the assessing officer, is neither erroneous nor prejudicial to the interest of the revenue.

However, the Ld. PCIT rejected the contention of the assessee and observed that it is a fact that disclosure of Rs.1,35,69,546/-has been made by the assessee during the course of survey proceedings as undisclosed income of the assessee in addition to regular income for the financial year 2018-19. Thus, the amount of Rs.1,35,69,546/-disclosed during the survey action was not recorded in the books of accounts when the assessee has admitted it. Just to say that the excess stock found during the survey was part of the total stock is not sufficient to claim this unaccounted stock as part of business. To claim the stock as part of the business, the assessee ought to have explained the sources from which such stock was purchased, before the AO with corroborative documentary evidences. The primary onus to explain the unaccounted stock with corroborative documentary evidences was on the assessee and, then, to confirm the veracity of the explanation/claims of the assessee based on the supporting documents submitted was duty of the Assessing Officer. However, no such explanation is found from the assessment records. Therefore, the impugned assessment order passed by the A.O. u/s 143(3) of the Income-tax Act, 1961 on 23.09.2021 was ITA.243/Rjt/2024/AY.2019-20 Radheshyam Paper Mills Pvt. Ltd. set aside by ld.PCIT for fresh assessment, only to the extent of the issues discussed (supra) and also directed the Assessing Officer to pass a fresh assessment order after making necessary and proper enquiries.

Aggrieved by the order of the Ld. PCIT, the assessee is in appeal before us.

Shri P.J. Raiyani, the Ld. Counsel for the assessee, vehemently submitted that Assessing Officer made addition on account of excess stock found during the course of survey. The Ld. Counsel for the assessee stated that during the course of survey the assessee has explained to the survey team that how such excess stock was generated and the assessee has also explained that such excess stock belonged to the assessee’s business, therefore, no addition should have been made under the head income from other sources and this excess stock is not liable to be taxed u/s 115BBE of the Act. The ld.Counsel also submitted that assessing officer has conducted sufficient enquiry to examine such excess stock by issuing notice under section 142(1) of the Act, and in response to notice under section 142(1) of the Act, the assessee submitted its reply before the assessing officer with documentary evidences. Therefore, order passed by the assessing officer, is neither erroneous nor prejudicial to the interest of the revenue, hence, order of the Ld. PCIT may be quashed.

On the other hand, the Ld. D.R. for the Revenue submitted that during the survey proceedings excess stock was found and for the excess stock no purchase bills and the party name from whom the excess stock was purchased and the nature and source of this excess stock etc. have not been explained before the Assessing Officer. Therefore, ld.DR submitted that no proper enquiry about the nature and ITA.243/Rjt/2024/AY.2019-20 Radheshyam Paper Mills Pvt. Ltd. source of the stock have been conducted by the assessing officer, therefore order passed by the assessing officer is erroneous and prejudicial to the interest of the revenue.

In a rejoinder, the Ld. Counsel submitted that assessee’s excess stock pertains to the assessee’s business, therefore, provisions of Section 115BBE of the Act do not apply in the assessee`s case under consideration.

We have heard both the parties and carefully gone through the submission put forth on behalf of the assessee along with the documents furnished and the case laws relied upon, and perused the fact of the case including the findings of the ld PCIT and other materials brought on record. We note that the assessee furnished documents and evidences, before the Assessing officer, in aspect of excess stock, which were examined by the assessing officer, as it is evident that during the assessment proceedings, the assessing officer issued notice under section 142(1) of the Act, asking the questions in respect of excess stock/ shortage of stock. Therefore, having examined the details and documents submitted by the assessee, the assessment order was framed by the assessing officer, after applying his mind. Besides, the assessee has admitted the excess stock, during the survey proceedings and paid the taxes, thereon, by showing in the books of accounts, hence there is no loss of revenue. We also note that assessee submitted all documents and evidences, before the assessing officer, such as balance sheet, profit and loss account stock statement etc. during the assessment proceedings, and assessing officer has examined them. Hence, such assessment order should not be erroneous as well as prejudicial to the interest of revenue.

We find that in assessee`s case one common grievance of learned PCIT was that assessing officer did not make proper enquiry/ examination, therefore, order passed by the assessing officer, was found by the learned PCIT, as erroneous and prejudicial to the interest of the revenue. We find that in case of assessee, the assessing officer issued notice under section 142(1) of the Act, wherein the assessing officer had asked questions from the assessee, in respect of source of the excess stock, as we have noted above. In response to the notice of the assessing officer, the assessees submitted their replies before the assessing officer. Therefore, we find that enquiry was conducted by the assessing officer in case of assessee`s case, however, as per learned PCIT, proper enquiry/ examination, was not made by the assessing officer. We find that in case of assessee, there is no denying the fact, as detailed above and acknowledged in the assessment order u/s. 143(3) of the Act, that in response to notices u/s. 143(2)/142(1) and further requisitions made during the course of assessment proceeding, the A/R of the assessee appeared from time to time and produced/ submitted necessary details/documents as per requisitions in relation to the issues raised by the Ld. Pr. C.I.T., which were examined by Assessing Officer. Therefore, it is the appraisal of the same records which are already with the Ld. A.O. and the Ld. Pr. C.I.T. took a different view than adopted by the A.O. on the same set of facts, which is not permissible u/s. 263 of the Act. In the above circumstances, the view taken by the A.O. was one of the possible views and the assessment order passed by him could not be held to be erroneous and prejudicial to the interests of revenue. There is difference between ‘Lack of enquiry’ and ‘inadequate enquiry’. It is for the AO to decide the extent of enquiry to be made as it is his satisfaction as what is required under law. Reliance is placed on the decision of CIT v. Sunbeam Auto Ltd. [(2010) 332 ITR 167], ITA.243/Rjt/2024/AY.2019-20 Radheshyam Paper Mills Pvt. Ltd. wherein Hon’ble Delhi High Court has held that if there was any inquiry, even inadequate, that would not by itself, give occasion to the Commissioner to pass order u/s 263 of the Act, merely because the Commissioner has a different opinion in the matter and that only in cases where there is no enquiry, the power u/s 263 of the Act can be exercised. The ld. PCIT cannot pass the order u/s 263 of the Act on the ground that further/thorough enquiry should have been made by assessing officer.

Further, it was settled by Hon`ble Supreme Court in the case of Malabar Industrial Co. Ltd. vs. CIT [(2000) 243 ITR 83 (SC)] wherein it was held that if the A.O. adopts one of the possible courses available in the scheme of the I.T. Act which results in any loss of revenue or when two views are possible and the A.O. adopts one of them with which the PCIT does not agree, then it would not be an order prejudicial to the interest of revenue for invoking the jurisdiction u/s. 263 of the Act. In other words, the Ld. Pr. C.I.T. on the same set of facts and evidences on record was of the opinion that the A.O. should have examined the facts further and AO has not made proper enquiry, and assessing officer should have taken the stand, which the Ld. Pr. C.I.T. hinted in the impugned order u/s 263 of the Act. This is not permissible under law. For better appreciation, the relevant portion of the judgment in the case of Malabar Industrial Co. Ltd. vs. CIT (supra) is quoted below : “The phrase “prejudicial to the interests of the Revenue” has to be read in conjunction with an erroneous order passed by the Assessing Officer. Every loss of revenue as a consequence of an order of the Assessing Officer, cannot be treated as prejudicial to the interests of the Revenue, for example, when an 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 ITA.243/Rjt/2024/AY.2019-20 Radheshyam Paper Mills Pvt. Ltd. interests of the Revenue unless the view taken by the Income-tax Officer is unsustainable in law”.

We note that the Ld. Pr. C.I.T. by invoking his jurisdiction u/s. 263 of the Act is giving another opportunity to the Ld. A.O., which is not permissible. Hon’ble Bombay High Court in the case of Ranka Jewellers vs. Addl. CIT (328 ITR 148) relying on the decisions of Hon’ble Supreme Court in the cases of Malabar Industrial Co. Ltd. vs. CIT (supra) and CIT vs. Max India Ltd. [(2007) 295 ITR 282 (SC)], has held that once the issue was considered by the A.O., the remedy of the revenue could not lie in invoking of the jurisdiction u/s. 263 of the Act. Therefore, the order of the Ld. C.I.T. was definitely outside the purview of section 263 of the Act. As noted above, the exercise aimed at ascertaining the correct income of the assessee has been fulfilled by the Ld. A.O. by exercising his quasi-judicial functions vis-a-vis passing the assessment order u/s.143(3) of the Act. Therefore, certainly it is not a case wherein adequate enquiries at the assessment stage were not carried out or assessment was made in haste. However, what is an opinion formed as a result of these enquiries and verification of the materials is something which is in exclusive domain of the Assessing Officer, and even if Ld. Pr. Commissioner does not agree with the results of such enquiries, the resultant order cannot be subjected to revision proceedings. For that we rely on the decision of the Coordinate Bench of I.T.A.T., Kolkata in the case of Smt. Juthika Kar vs. ITO [I.T.A. No.1128/Kol/ 2009, dated 16.5.2012 ], wherein it has been held as under (relevant portion) :- “8……However, what is opinion formed as a result of these enquiries is something which is in exclusive domain of the Assessing Officer, and even if Commissioner has such results of enquiries, the resultant order cannot be subjected to revision proceedings. The conclusions arrived at as a result of enquiries cannot be tinkered with in the revision proceedings. The conclusions being drawn up as a result of enquiry is a highly subjective ITA.243/Rjt/2024/AY.2019-20 Radheshyam Paper Mills Pvt. Ltd. exercise and as to what is appropriate conclusion is something on which perceptions vary from person to persons. These variations in the perceptions of the Assessing Officer vis-a-vis that of the Commissioner, cannot render an order erroneous and prejudicial to the interest of the revenue.”

The aforesaid position gets further strength from the decision of Hon’ble jurisdictional High Court in the case of CIT vs. J.L. Morrison (India) Ltd. (2014) 366 ITR 593 (Cal), the relevant finding of which is applicable to the facts of the present assessee is quoted below : “85. Whether the assessment order dated March 28, 2008, was passed without application of mind is basically a question of fact. The learned Tribunal has held that the assessment order was not passed without application of mind. The records of the assessment including the order- sheets go to show that heard from time to time. In deciding the question the court has to bear in mind the presumption in law laid down in Section 114 clause (e) of the Evidence Act: “that judicial and official acts have been regularly performed.

Therefore, the court has to start with the presumption that the assessment order dated March 28, 2008, was regularly passed. There is evidence to show that the Assessing Officer had required the assessee to answer 17 questions and to file documents in regard thereto. If the Assessing Officer cannot be shown to have violated any form prescribed for writing an assessment order, it would not be correct to hold that he acted illegally or without applying his mind. ” [Emphasis given]”

It is a settled position in law that provisions of section 263 of the Act do not permit substituting one opinion by another opinion. Therefore, the order of the Ld. Pr. C.I.T. cannot be sustained on the principle of ‘erroneous’ nature of the order of the A.O., as it is not erroneous. Further, in the instant case, to reiterate, there was no allegation by the Ld. DR for the revenue, that the evidences produced by these assessees before assessing officer were fictitious or invented, thus accepted the authenticity of the same. Such an order cannot be called erroneous and prejudicial to interests of revenue only because the A.O. made the assessment without discussing such details therein, as held by the Coordinate Bench of ITAT Kolkata in the case of Chroma ITA.243/Rjt/2024/AY.2019-20 Radheshyam Paper Mills Pvt. Ltd. Business Ltd. vs. DCIT (2004) 82 TTJ 540 (Cal).Further support in this connection is taken from the decision of Hon’ble Delhi High Court in the case of CIT vs. Vikas Polymers (2012) 341 ITR 537 (Del). Relevant part of the observation in this regard reads as under : " This is for the reason that if a query is raised during the course of scrutiny by the Assessing Officer, which was answered to the satisfaction of the Assessing Officer, but neither the query nor the answer was reflected in the assessment order, that would not by itself lead to the conclusion that the order of the Assessing Officer called for interference and revision." [Emphasis supplied] 17. Since we find that the AO has made enquiries and the action of AO in accepting the claim of assessee that excess stock has been disclosed by the assessee and shown in the books of account and assessee also paid the due taxes thereon, and after detailed enquiry, the assessing officer took a plausible view, therefore, the Ld. PCIT ought not to have exercised his revisional jurisdiction and, therefore, we quash the impugned revisional order dated 31.03.2024 of the Ld. PCIT and allow the appeal of the assessee.

In the result, appeal OF the assessee is allowed.