MANSUKHBHAI KANJIBHAI KAKADIYA,RAJKOT vs. PR. CIT-1 , RAJKOT

Grounds of appeal raised by the assessee are as follows:

Brief facts of the case that the assessee filed return of income for AY 2018-19 on 29.09.2018 declaring total income of Rs. 5,45,960/-. A survey operation u/s. 133A was conducted at the business premises of the assessee on 19.02.2018. During the survey proceeding the assessee admitted that an amount of Rs. 30,04,549/- being the unaccounted sales during the year. The assessee was agreed to surrender income on sale as unexplained income and pay tax. The difference between physical stock and stock as per the books, as unaccounted sales made during the year under consideration. That an income was computed by order of Ld. AO (NFAC) on 16.04.2021, are as under:

The Ld. PCIT has initiated the proceedings u/s. 263 of the Act, A show cause notice issued on 11.03.2024. Upon perusal of the record of assessment and notice that there was survey u/s. 133A(1) of the Act and assessment complied u/s. 143(3) of the Act. During the survey proceedings you had surrendered an amount of Rs. 30,04,549/- being difference physical stock and stock as per the books, as an unaccounted sales made during this year. The surrendered value of unaccounted sales ought to have been treated as unexplained income under the provisions of section 69 of the I. T. Act. Hence, in view of the above, it is clear that total income of 30,04,549/- being unaccounted sales which covered u/s. 69 of the Act should be taxed u/s. 115BBE of the Act.

In response to the show cause notice the assessee filed a reply, relevant paras are reproduced;

After considering the reply of the assessee, the Ld. PCIT was of the view that this is a fit case for invoking section 263 of I. T. Act as, since, the twin conditions were satisfaction namely. (i) the order of the Assessing Officer sought to be revised is erroneous and (ii) it is prejudicial to the interests of the revenue and satisfied.

Hence, the assessment order passed u/s. 143(3) r.w.s. 143(3A) & 143(3B) of the I.T.Act on 17.04.2021 is erroneous and prejudicial to the interest of revenue in terms of Explanation-2(a) to section 263(1) of the I.T.Act.

Accordingly, the impugned assessment order passed by the AO u/s. 143(3) r.w.s. 143(3A) & 143(3B) of the I. T. Act, 1961 on 16.04.2021 is set aside the order and the Ld. PCIT order 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. Suitable additions may be made, if required, under the relevant sections of the I. T. Act and appropriate penalty proceedings may be initiated.

That the assessee filed an appeal before us, against the impugned order of the Ld. Pr. CIT(A), vide order dated 31.03.2024.

During the course of hearing, the Ld. AR of the assessee submitted that the AO has issued noticed on 18.03.2021, wherein specifically query asked for about the amount of Rs. 30,04,549/- as unaccounted sale, again Ld. AO issued notice on 24.03.2021 for specifically asked for unaccounted sale of Rs. 30,04,549/- in reply to the notice, the assessee submitted and explain about the unaccounted sale was not recorded that is why there is a difference and the profit calculated @9.98% on sale has been taxed, all details of sale, stock register, sales statement P&L and trading account etc., were submitted before the Ld. AO. In view of the above facts and conditions laid down in sec. 263 of the Act is not satisfied. That the impugned order need to be quashed. The Ld. AR relied on the various judgements;

On the contrary, the Ld. CIT(DR) for the revenue submitted that the discrepancy in stock was found during the course of survey proceedings u/s. 133A of the Act. The Ld. CIT(DR) for the revenue has relied on the order of the Ld.PCIT.

We have heard both the parties and material available on record. We note that the Prima Facie the observation for issuing of notice u/s 263 of the Act without quantifying the probable loss of revenue and the nature of omission on the part of AO, the present show cause notice is nothing but would tantamount to be a change of opinion which cannot be a subject matter of action u/s 263 of the Act. This is against the principles laid down by the Hon'ble Apex Court in the case of Parshuram Pottary Works Ltd vs. ITO, 106 ITR 01. We note that the excess stock found during the survey proceedings of Rs. 30,04,549/- pertain to assessee’s business. However, due to different valuation techniques the excess stock was work out by the survey team and also the assessee was agreed to pay the tax and in fact the assessee offered the same for tax. We note that the grievance of Ld. PCIT in exercising the jurisdiction u/s. 263 of the Act, that unaccounted sale which pertains to the excess stock should be taxed u/s. 115BBE of the Act, instead of considered as normal business Income Tax rate. We find that during the survey proceedings, it has been categorically stated that the stock of goods pertains to the business of the assessee and the survey team did not find any evidence contrary to the submission of the assessee. Therefore, it is clear that the excess stock pertains to the assessee’s business and should be taxed under the normal rate of Income Tax Act. These facts were already examined by the Assessing Officer, during the assessment proceeding by issuing notice u/s. 142(1) of the Act. Thereafter, the assessing officer has made an assessment of Income and tax levied on income of the assessee. We note that the AO has taken a view which was a legally plausible view for making an assessment. Accordingly, the following ratio of various judgements (referred above); we have no hesitation in holding that the Ld.PCIT had wrongly invoked the revisionary power u/s. 263 of the Act. In our considered view, this is not a fit case for acquiring the jurisdiction u/s. 263 of the Act.