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Facts
The assessee filed its return for AY 2018-19, including Rs. 2.25 Cr disclosed during a survey u/s 133A, which the AO assessed as business income taxed at normal rates u/s 143(3). The PCIT initiated revisionary proceedings u/s 263, contending the AO's order was erroneous and prejudicial to revenue, arguing the disclosed income should be taxed at special rates u/s 115BBE or subject to Section 69A.
Held
The Tribunal held that the disclosed income of Rs. 2.25 Cr pertained to the assessee's business and was correctly taxed at normal rates by the Assessing Officer. The AO's view was plausible and reasonable after due inquiry, thus the assessment order was neither erroneous nor prejudicial to the interest of revenue. Consequently, the Tribunal quashed the PCIT's order passed under Section 263.
Key Issues
Whether the PCIT correctly invoked Section 263 of the Income Tax Act, 1961, to revise an assessment order where the Assessing Officer had accepted disclosed income from a survey as business income taxable at normal rates, instead of applying a special rate under Section 115BBE or invoking Section 69A.
Sections Cited
263, 133A, 143(3), 115BBE, 69A, 142(1)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, RAJKOT BENCH, RAJKOT
Before: DR. ARJUN LAL SAINI. & 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. PCIT”] vide order dated 31.03.2024, which in turn assessment order passed under section 263 of the Income Tax Act, 1961 (in short “the Act”), vide order dated 08.04.2021.
Grounds of appeal
raised by the assessee are as follows:
1. On the facts and circumstances of the case as well as law on the subject, learned Principal Commissioner of Income Tax - 1, Rajkot has erred in passing order u/s 263 of the Act for assessment year 2018-19without providing opportunity of personal hearing/through video conference mode even when the same was specifically requested by assessee.
2. On the facts and circumstances of the case as well as law on the subject, the Principal Commissioner of Income Tax 1. Rajkot has erred in passing order u/s 263 of the Act when order passed by Assessing Officer is neither erroneous nor prejudicial to the interest of revenue.
3. On the facts and circumstances of the case as well as law on the subject, learned Principal Commissioner of Income Tax-
1. 1. Rajkot has erred in passing order u/s 263 of the Act in the name of non-existing firm.
4. On the facts and circumstances of the case as well as law on the subject, learned Principal Commissioner of Income Tax-1. Rajkot has erred in passing order u/s 263 of the Act ignoring the fact that assessing officer has taken plausible view based on number of decisions of Tribunal/ High Court that survey income disclosed out of business transactions is required to be treated as business income.
5. It is prayed that order passed by Learned Principal Commissioner may please be quashed.
6. Appellant craves leave to add, alter or delete any ground(s) either before or in the course of hearing of the appeal.”
Brief facts of the case that the assessee had filed his return of income for 2018-19 on 11.10.2018 declaring total income of Rs. 17,34,57,900/-. In this case Survey action u/s 133A was conducted on 22.03.2018 for AY 2018-19 was selected for scrutiny assessment. The assessment has been finalized u/s 143(3) of the Income Tax Act, 1961 on 08.04.2021, and the Return of income is accepted.
That Ld. Pr.CIT has verify the record and noted that the assessment complied without inquiry and verification. A show cause notice was issued on 21.02.2024, and has not taken cognizance of the survey action and consequent disclosure of unexplained money found during the survey action. “(1) On perusal of records, it is seen that you have filed your return of income disclosing total income of Rs. 17,34,57,900/- which includes undisclosed income of Rs.2,25,00,000/- admitted during survey action, which is shown as regular income and paid tax @ normal rate instead of special rate u/s 115BBE of the I.T. Act. (2) While framing the assessment order the Faceless AO has not invoked the provision of Section 69A of the Act for the undisclosed income admitted by you during survey action. The 'Faceless AO has failed to treat income of Rs.2,25,00,000/-
admitted by you during the, survey action as unexplained and not charged section 115BBE of the IT Act. (3) Thus, the assessment order has been passed without making due inquiry/ verification/ invoking proper section. Hence, in terms of Explanation 2 to sec. 263, such order is erroneous in so far as it is prejudicial to the interests of revenue. (4) The above facts show that the assessment order passed u/s. 143(3) of the Act on 08.04.2021 by the Assessing Officer in respect of A.Y. 2018-19 appears to be erroneous and prejudicial to the interest of the revenue. Therefore, we intend to initiate proceedings u/s 263 of the Act and pass a suitable order before passing such order. The assessee hereby given an opportunity of being heard in the matter. Please state as to why the order passed by the Assessing Officer in your case should not be revised after making necessary inquiry. In this connection, the assessee requested to furnish your reply / submission / explanation or objection if any, by e-mail id rajkot.cit1@incometax.gov.in /speed post/ personally to this office on or before 27.02.2024.”
That the assessee replied to notice on 21.02.2024 and the reply was not tenable, and order dated 31.03.2024 passed with observation; “Keeping in view these facts, I am of the considered view that this is a fit case for invoking section 263 of I.T.Act as the twin condition namely, (i) the order of the Assessing Officer sought to be revised is erroneous; and (ii) it is prejudicial to the interest of revenue are satisfied. Accordingly, the impugned assessment order passed by the AO u/s. 143(3) of the I.T. Act, 1961 on 08.04.2021 is set aside for fresh assessment only to the extent of the issues discussed supra and direct the Assessing Officer to pass a fresh assessment order after making necessary enquiries.”
That the assessee filed an appeal before us, against the impugned order of the Ld. Pr. CIT, vide order dated 31.03.2024.
During the course of hearing, the Ld. AR of the assessee submitted that the income is disclosed in the Return of Income and as well as PL account separately. Entire details and books of account and verification of stocks were properly before the Ld. AO. The Ld. Counsel of the assessee also submitted that, during the survey proceeding the additional income of Rs. 2,25,00,000/- have been admitted and income duly has been paid by applying normal rate of Income Tax Act and an additional income was pertaining to the assessee’s business. Therefore, the assessee paid the Income Tax Act by applying normal rate. This fact has been duly examined by the assessing officer, therefore, the assessment order is neither erroneous nor prejudicial in the interest of revenue.
On the contrary, the Learned Senior Department Representative (hereinafter referred to as the “Ld. Sr. DR”) for the revenue, relied on the order of the Ld.PCIT.
We have heard both the parties and perused the material available on record. We note that the there is very limited prayer of the Ld. Counsel of the assessee that during the survey proceedings, at the business premises of the assessee, the assessee had made discloser of Rs. 2,25,00,000/- during the course of survey proceeding and paid the taxes, thereon, by applying the normal rate of income Tax Act. During the survey proceeding, the assessee also stated that before the survey team, this additional discloser belongs to the assessee’s business, therefore, the assessee has paid tax to the Government by applying normal rate of the Income Tax Act. There should not any harassment of the assessee. We note that the Ld. PCIT has invoked the jurisdiction u/s. 263 of the Act stating that the additional discloser of Rs. 2,25,00,000/- instead of special rate of Income Tax Act, which is prescribed u/s. 115BBE of the Act is applicable. We did not find any merit in the case, we have reached conclusion of the case that the disclosed income belongs to the assessee’s business, therefore, it attracts the normal rate of Income Tax Act and not especially u/s. 115BBE of the Act, as proposed by the Ld. PCIT.
We did not agree with the action of the Ld. PCIT in proposing special rate u/s. 115BBE of the Act, on the disclosed income by the assessee of Rs. 2,25,00,000/-. During the course of survey proceeding, to verify the disclosed income, the assessing officer has issued notice u/s. 142(1) of the Act, and in response to that notice the assessee has explained before the Assessing Officer that this discloser of Rs. 2,25,00,000/- made during the survey proceedings belongs to the assessee’s business income. Therefore, the assessing officer applied the normal rate of Income Tax Act. Hence, the assessing officer took the plausible view and reasonable view and taking into account reply of the assessee, therefore, order passed by the assessing officer is neither erroneous nor prejudicial to the interest of revenue. Hence, considering these facts and circumstances, we quashed the proceedings under section 263.
In the result, the appeal filed by the assessee is allowed for statistical purpose.
Order pronounced in the open court on 08/05/2025.