Loading judgment…
Facts
During a survey operation, excess stock of Rs. 29,49,876 and excess cash of Rs. 7,50,159 were found. The assessee explained the stock difference as a valuation discrepancy and the cash as business receipts. The assessment order was finalized accepting the returned income.
Held
The Principal Commissioner's order directing a fresh assessment was erroneous and prejudicial to the interest of revenue. The Tribunal held that the excess stock and cash were related to the assessee's business and adequately explained, thus Section 69/A/B/C and 115BBE of the Act were not attracted.
Key Issues
Whether the Principal Commissioner was justified in revising the assessment order under Section 263 for alleged erroneous treatment of excess stock and cash found during survey.
Sections Cited
263, 133A, 143(3), 144B, 69, 69A, 69B, 115BBE
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, RAJKOT BENCH, RAJKOT
Before: DR. ARJUN LAL SAINI & SHRI DINESH MOHAN SINHA
आदेश / O R D E R PER DINESH MOHAN SINHA, JM:
Captioned appeal filed by the assessee is directed against the order passed by the Principal Commissioner of Income Tax[(in short “Ld. Pr.CIT”] u/s. 263 of the Act, vide order dated31.03.2024.
Grounds of appeal
raised by the assessee are as follows: 1.That the Ld. PCIT Range
1. Rajkot has grievously erred in contending that the assessment order passed u/s 143(3) r.w.s 144B dated 17/04/2021 is erroneous (AY 2018-19) Viral Vinodbhai Karia v. PCIT and prejudicial to the interest of the revenue thereby directing the Ld. AO to reframe the assessment accordingly. 2. That the appellant craves for leave to add, amend and/or modify the grounds of appeal.
Brief facts of the case that the appellant is an individual engaged in broking business of commodities. The assessment year under consideration is AY 2018-19. The appellant filed his return of income for the year under consideration on 31/10/2018 along with the Tax Audit Report declaring therein net taxable income of Rs. 43,33,270/-. In the case of the appellant survey proceeding u/s 133A were carried out on 15/02/2018 &16/02/2018 during the course of survey excess stock of Rs. 29,49,876/-and excess cash of Rs. 7,50,159/ were recorded. As far as the excess stock is concerned, the difference of Rs. 29,49,876/ pertained to the valuation of the stock as on the date of the survey as compared with the value reflected in the books of accounts. No excess stock in terms of physical quantities was found. As far as the excess cash of Rs.7,50,159/- is concerned, the appellant duly accepted the same and added it to his income for the AY under consideration. The assessment for the year under consideration was completed u/s 143(3) vide order dated 17/04/2021 and after due verification the Ld. AO accepted the income as returned by the appellant and assessed accordingly.
Later on, Ld. PCIT exercised his jurisdiction u/s. 263 of the Act, and noted that the order passed u/s 143(3) r.w.s. 144B dated 17/04/2021 was erroneous and prejudicial to the interest of revenue. On perusal of record, it was notices by Ld. PCIT that during the course of survey proceedings carried out on 15.02.2018 & 16.02.2018, excess stock of Rs.29,49,876/- was found which was disclosed as unaccounted stock, such excess stock is required to be treated as unexplained within the meaning of sec. 69 of the Act and (AY 2018-19) Viral Vinodbhai Karia v. PCIT taxed u/s 115BBE of the I.T. Act. The AO has failed to treat the excess stock of Rs.29,49,876/- as unexplained within the meaning of section 69B of the IT Act and not charged tax u/s. 115BBE of the IT Act.
Similarly, during the course of survey proceedings carried out on 16.02.2018 excess cash of Rs.7,50,159/- was found and which was disclosed as unaccounted cash, such excess cash is required to be treated as unexplained within the meaning of sec. 69A of the Act and taxed u/s 115BBE of the I.T. Act. The AO has failed to treat the excess cash of Rs.7,50,159/- as unexplained within the meaning of section 69A of the IT Act and not charged tax u/s section 115BBE of the IT Act.”
Therefore, the Ld. PCIT issued a notice to the assessee to explain the transaction of excess stock and cash. The appellant filed detailed reply explaining that as far as the excess stock of Rs.29,49,876/- was concerned, the same was a valuation difference and no excess stock in physical terms was found, during the course of survey. The excess cash of Rs.7,50,159/- is concerned, the same was duly offered as income and brought to tax accordingly and since both the excess stock and cash are related to business, no question of invoking Section 115BBE arose submission of the assessee reproduced; The assessee submitted that excess stock was found of Rs. 29,49,876/- during the course of survey proceedings, but nowhere in the statement recorded u/s 131(1A) by Mr. Pankaj Kariya, any amount of excess stock had been found by survey officer in survey proceedings and accepted by assessee. The statement of Shri Pankaj Kariya recorded u/s 131(1A), It’s clearly mentioned in Q. 15 of the statement that no excess stock was found during survey. In fact, it was found during the survey proceedings that during the physical verification of the stock the quantity was found same as mentioned in the books indicating there has been no difference quantity wise. However, there was difference of valuation, meaning (AY 2018-19) Viral Vinodbhai Karia v. PCIT assessee suppressed the rate of valuation of stock for limited purpose of not paying the advance tax. However, it did not meant that there was no intention of not paying the self-assessment tax after the end of financial year. During the scrutiny assessment u/s 143(3) assessee had submitted the stock account from 17.02.2018 to 31.03.2018. which clearly indicates that assessee has admitted the stock as stock of regular business. It had also been accepted by assessing officer while finalizing the scrutiny u/s 143(3) of the Act.
In respect of the excess cash found from assessee premises it was submitted that excess cash was from sale of goods in which the assessee was already dealing. Hence, it was part of the business income. Nowhere in the statement recorded under oath u/s 131(1A), it was mentioned that excess cash was found as a part of undisclosed source of income. Further no evidence has been found by officer that there was any other undisclosed source of income. Nowhere in the statement of the officer has enquired that whether there was any other undisclosed source of income and no questions has been asked regarding the same by the officer during in the survey.
During the scrutiny assessment u/s 143(3) we had submitted the cash account from 17.02.2018 to 31.03.2018. It clearly indicates that assessee has admitted the cash as cash of regular business. Further the assessee briefly conclude points as below:
No excess stock was found during survey as there was no quantity wise difference between physical stock and stock recorded in books of accounts. Only valuation difference was found in between physical stock and stock recorded in books of accounts for limited purpose of not paying advance tax. Hence there was discrepancy in valuation of stock as confirmed during scrutiny conducted u/s 143(3). The assessee had surrendered to the discrepancy in valuation of stock during survey. No other incriminating documents were found during survey which suggested that assessee doing any other undisclosed business. The physical verification of stock conducted during survey concluded that the stock was identifiable with the one which was recorded in the books of accounts. There was no evidence found which suggested otherwise.
(AY 2018-19) Viral Vinodbhai Karia v. PCIT When no excess stock was found and the valuation difference found was added under the business head, there is no question of applying the deeming provisions u/s 69 of the Act and taxing the same u/s 115BBE of the Act. No other inquiries were made during survey or after survey during scrutiny assessment that whether assessee was involved in any other undisclosed business. With regard to excess cash found during survey nowhere in the source of excess cash and nowhere in the replies the assessee has statement recorded, the survey officer has asked assessee to explain admitted the same having been earned from undisclosed sources. The survey officer has merely asked the assessee to explain the difference and assessee has instantly admitted the same as "Additional Undeclared Income" in addition to regular income. Therefore, from questions raised and replies given, it cannot be inferred that additional undeclared income was earned from undisclosed or unknown sources. Hence applying the deeming provisions of section 69A and taxing the same u/s 115BBE was not tenable. The assessee had disclosed the surrendered income voluntarily in income tax return, during assessment and the same was accepted by AO without disputing the same. Hence deeming provisions should not be applied to such income and such income should not be taxed u/s 115BBE of the Act.
However, the Ld. PCIT rejected the above contention of the assessee and stated that impugned order of assessment dated 17.04.2021 is erroneous and prejudicial to the interest of revenue Ld. PCIT directed to AO to make fresh assessment to the extent of the issue discussed above and hence the Ld. PCIT set aside the assessment order.
Aggrieved by the order of the Ld. PCIT the assessee is in before this Tribunal.
During the course of argument, the Ld. Counsel for the assessee argued that survey was conducted on 15.02.2018 & 16.02.2018 on the business premises of the assessee, during the survey proceedings, the excess stock of Rs. 29,49,876/- (on valuation basis) and excess cash of Rs. 7,50,159/- was found, there was no error in the order of the Ld. PCIT. The assessee has declared that the excess stock and excess cash in the Books of Accounts, and declared in the ROI stock and cash, and all records were produced before the AO during the course of assessment proceedings, The assessment order
On the other hand, the Ld. DR for the revenue stated that without considering the excess stock and excess cash, which were found during the survey proceedings on 15.02.2018 & 16.02.2018, the AO framed the assessment order u/s. 69, which is erroneous and prejudicial to the interest of revenue.
We have heard both the parties and material available on record. We note that, there was survey operation u/s. 133A of the Act, on 15.02.2018& 16.02.2018 and during the survey proceedings, it was noted that excess stock of Rs. 29,49,876/- and excess cash of Rs. 7,50,159/- at the business premises of the assessee was found. It was explained by the Appellant that during survey proceedings, the stock difference of Rs. 29,49,876/- was due to valuation as per books of accounts and valuation done by survey authority, however, there was no difference in quantity of stock found by Survey Authority. Regarding excess cash of Rs. 7,50,159/-, it was explained that the business receipt of the Appellant as it was found from the business premises. Hence, it was explained that entire difference in valuation of stock and cash found in the business premises was pertaining to current year business, and thus, the source was explained. Hence, Sec. 69/A/B/C r.w.s. 115BBE of the Act is not attracted.
11.1. We further note that the assessee has filed return of income declaring net income of Rs. 43,33,270/- including the income surrendered during the survey in respect of valuation difference and excess cash found. Hence, there is no loss to the revenue.
(AY 2018-19) Viral Vinodbhai Karia v. PCIT The details of the above income offered by the assessee on account of stock difference is available with AO as the same has been offered by the assessee as business income for A. Y. 2018-19. We note that the AO issued a notice on 25.02.2021 to the assessee and, the assessee filed reply along-with documents/details, the same was considered during the course of assessment proceedings and the assessment completed on 17.04.2021 by the AO. We note that the Ld. AR brought to the notice that there was no excess stock found it was only on valuation of stock as per books and as per survey authority the difference was found and the cash was found, which was immediately surrendered before the survey authority with a view that the same will be recorded in the books of account and due tax will be paid to the government and hence all these are considered to be normal business income. There is no material available on record to say that the income from of other source then of the business incomes. The assessee relied upon the judgement, o Sagar Jewellers v. Deputy Commissioner of Income Tax, [2025] 172 taxmann.com 201; “Where excess stock found during survey was declared by assessee as income in return filed for relevant assessment year and moreover assessee had explained causes of excess stock and discrepancy in stock and this excess stock and discrepancy in stock were related to assessee's business, no addition under section 115BBE, at higher rate of taxation was to be imposed on assessee Where excess stock found during survey was declared by assessee as income in return filed for relevant assessment year, since assessee had explained nature of discrepancy in closing stock and Assessing Officer after conducting necessary enquiries accepted returned income, impugned invocation of revisionary jurisdiction under section 263 was not justified”
We observe that the Principal Commissioner is factually incorrect in observing that there was no enquiry by the assessing officer during the Page | 7 (AY 2018-19) Viral Vinodbhai Karia v. PCIT course of assessment. Accordingly, in light of the facts of the instant case, and the judicial president of the subject, we hold that the order passed by Principal Commissioner u/s. 263 of the Act is liable to be set aside.
In the result, the appeal filed by the assessee is allowed.
Order pronounced in the open court on 01-08-2025.