POONAM MARWAHA,AMRITSAR vs. ACIT DCIT CEN CIR, AMRITSAR

Per Udayan Dasgupta, J.M.:

This appeal is filed by the assessee against the order of the Ld. PCIT (Central)

Ludhiana, passed u/s 263 of the Act 61, dated 19/03/2024, which has arisen out of the assessment order passed u/s 143(3) dated 17/09/2021, passed by ACIT Central Circle, Amritsar.

2 I.T.A. No.306/Asr/2024 Poonam Marwaha v. ACIT DCIT

appeal are as follows:

“1. That the order passed u/s 263 by the Ld. PCIT is illegal, bad in law and without jurisdiction. The order passed by the Ld. AO u/s 143(3) is neither erroneous nor prejudicial to the interests of the revenue.

3 I.T.A. No.306/Asr/2024 Poonam Marwaha v. ACIT DCIT

conducting detailed inquiry enquiry and thereafter came to conclusion that provisions of section 115BBE are not applicable in the case of the assessee. 7.1 That the Ld. PCIT has erred invoking the provisions of section 263 without appreciating that the assessment u/s 143(3) cannot be set aside merely on the ground that inadequacy of enquiry by the AO with respect to source of surrender income would not in itself be a reason to invoke the powers enshrined in Section 263 of the Act.

of M/s Mohinder Pal and Sons, engaged in wholesale and retail trading of

“cosmetics” and has been regularly filing her return of income for earlier years, u/s

44AD of the Act 61. In course of survey u/s 133A of the Act 61, conducted at the business premises of the assessee on 7th February, 2019, excess stock of cosmetics ,

valued at Rs. 49,98,000/- was found and inventorised by the survey team and as per

observation in the survey report u/s 133A(1) , dated 08/02/2019, some loose papers

4 I.T.A. No.306/Asr/2024 Poonam Marwaha v. ACIT DCIT and diaries were impounded as evidence of purchase and sales , out of books of

accounts , even though no cash book was found at the business premises.

lakhs, as business income, over and above her normal profits derived from the said

business, to cover up and settle the alleged discrepancy of stock, and the same is also

evidenced by her replies to the statements recorded by the survey team in course of

survey.

disclosing a total income of Rs.56,05,590/-, which included the normal business

profits and the additional income disclosure of Rs.50 lakhs, (after considering

deductions under Chapter VIA) was accepted by the AO, in scrutiny u/s 143(3) , as

per normal procedure , after considering explanations and submissions filed by the

assessee in course of scrutiny proceedings, and the same has been subjected to tax at

normal rates.

of the Act 1961 , vide notice dated 01/03/2023, on the ground that income

surrendered during survey action should be treated as if the assessee is in possession

of unexplained money and treatment of tax liability thereon should be under the

5 I.T.A. No.306/Asr/2024 Poonam Marwaha v. ACIT DCIT provisions of section 69B of the Act 61 , and tax needs to be calculated as per section

115BBE of the Act, on the surrendered income.

asked for details of opening stock ( at the beginning of the year ) , details of month

wise purchase and sales throughout the year, details of stock as per books on survey

date, explanation regarding difference of valuation of stock as per books and as per

department valuation, evidence regarding incorrect valuation and comparative figures

for subsequent years, against which the assessee has filed her response to all the

required particulars as asked for along with written submission explaining the case in

details.

of the Act 61, and has referred to various decisions of various courts and tribunals, to

arrive at the conclusion that in the instant case the AO has failed to examine the

source of funds for making purchases of Rs.50 lakhs during the year and surrendered

by the assessee ( as excess stock ) , and also failed to enquire as to whether the said

funds are from business sources or unknown sources because according to him the

AO has simply accepted the reply of the assessee without verification , and as such,

the order being erroneous so far it is prejudicial to the interest of revenue , the same

was set aside for fresh assessment.

6 I.T.A. No.306/Asr/2024 Poonam Marwaha v. ACIT DCIT 9. In course of hearing before the tribunal the assessee has filed written

submissions and a judgment set consisting various case laws on which he relied upon

for arguments and a paper book consisting of various notices issued by the AO u/s

142(1) , in course of assessment proceedings and copies of assessee’s reply and

explanations filed before the AO on various dates , copy of survey report,

computation of income and copy of statement of the assessee recorded by survey

team, and other supporting papers.

excess stock at Rs. 50 Lakhs ( Rs. 49,98,000/- ) , by the survey team itself is

technically incorrect , because the same has been inventorised and valued at MRP

instead of cost price. It was submitted that the inventory process conducted by the

department consisted of about 60 pages, and the closing stock as on date of survey

was calculated by drawing up a trading account by taking into consideration the gross

profit rate for earlier years and the difference has been arrived at by taking into

consideration the value of stock inventory noted by the department at MRP and

closing stock calculated by applying GP rate as on date of survey. He further

submitted that if the said stock is properly valued at cost price (instead of MRP) the

calculation of excess stock value will be Rs. 17. 77 lakhs only (and not Rs. 50 lakhs)

which is narrated as under, and the same has been duly brought to the notice of the

AO vide letter dated 13/09/2021:

7 I.T.A. No.306/Asr/2024 Poonam Marwaha v. ACIT DCIT Stock calculated by department at MRP Rs.98,02,484/-

Less:-GST Elements Rs.(14,24,292 /- )

Less:-Margin and Discount Rs.(16,75, 638/- )

Less:-Stock as per books of A/c Rs.(49, 25,138/- )

Excess stock Rs.17,77, 416/-

the appellant at Question no 4 accepted the fact that the documents related to

annexure A-1 (Loose paper), represents cash sale slips not recorded in the books of

accounts [placed in page no 51 of PB], and in order to resolve and settle the matter ,

before the survey team , the appellant chose to offer the excess stock valued by the

survey team at Rs.49,98,000/- ( r/o Rs.50 lakhs ) as business income, over and above

the normal business profits arising from the same cosmetic business itself , because

no stock has been separately identified and it is the same nature and type of stock

rolling in the same trading business.

income of Rs.56,05,590/-, (which included the normal business profits and the

additional income disclosure of Rs.50 lakhs ), and tax has been paid at normal rates.

He further stated that even though the actual valuation of excess stock is only Rs.17.

77 lakhs (as demonstrated in his calculation in above paragraph), the assessee on

8 I.T.A. No.306/Asr/2024 Poonam Marwaha v. ACIT DCIT good faith, as a gesture of cooperation, on the basis of surrender disclosure and

verbal commitment, before the survey team , has offered the entire amount of Rs. 50

lakhs , as additional income, from cosmetics business to be taxed at normal rates ,

and paid taxes accordingly.

of scrutiny proceedings , notices u/s 142(1) has been issued by the AO , and in the notice dated 18th January, 2021, the AO has raised queries for the purpose of making

verification in respect of purchases of goods , and has specifically raised question

calling for explanation of source of purchase of excess stock with documentary

evidences in connection with the disclosure of excess stock made in course of survey,

vis a vis explanation regarding entries contained in impounded documents in

Annexure A-1 and A-2 , consisting of loose sheets and diary.

various dates on 02/03/2021, 17/03/2021, 13/09/2021 and on 14/09/2021, explaining

the fact with supporting sales invoices , that inventory has been prepared on the basis

of MRP , which is valued at much on the higher side and in fact the excess stock

rolling in business is much less around Rs.17 lakhs ( approx ), which the Ld AR

argued is directly co related to the unrecorded purchase and sales invoices found in

course of survey, pertaining to cosmetics.

9 I.T.A. No.306/Asr/2024 Poonam Marwaha v. ACIT DCIT

08/02/2019, where there has been a clear finding of the survey team ( in col- 15 of

the report ) “Assessee has been found in the practice of purchase/ sales out of

books of accounts ”, to put forth his argument that the assessee is not engaged in any

other business , other than cosmetics and the excess stock so found is also of the

same nature and type which is regularly traded by the assessee and no other business

activity or income generating activity has been found by the survey team , other than

trading of cosmetics , and the excess stock found , is the excess that is rolling in the

same business and has been acquired out of unrecorded purchase and sales of the

same goods, and as such the additional income disclosed is to be assessed under the

head business income and the deeming provisions of section 69B (and provisions of

section 115BBE) , is not applicable to this case because the additional income so

surrendered is generated out of the same business.

to submit that written explanations has been furnished before the Ld PCIT vide reply

dated 29/01/2024 in support of all the grounds raised in his arguments:

Sr. Arguments Page of PB No 1. The A.O. had made Proper Enquiry while framing assessment u/s 143(3) 30 2. That the assessee was making purchase and sales outside the regular books of accounts. Therefore, the 31 additional income earned was invested in stock

10 I.T.A. No.306/Asr/2024 Poonam Marwaha v. ACIT DCIT

was justified in setting aside the order due to the fact that the order passed u/s

143(3) was erroneous and prejudicial to the interests of the Revenue, in view of

provisions contained in explanation 2 to section 263(1) in as much as the assessing

officer had failed to conduct inquiries and verification in respect of the source of

funds for making purchases of Rs. 50,00,000/- during the year and surrendered by the

appellant (as excess stock found during survey) was from business of the assessee or

from the unknown sources and to be taxed as per the provisions of section 115BBE.

(internal page no 27 of the order u/s 263 ) and he relied on various judicial decisions

contained in the revision order u/s 263 of the Act dated 19/03/2024.

the provisions of section 263 can only be invoked where both the condition vis

‘prejudicial to the interest of the revenue’ and expression ‘erroneous’ are

simultaneously fulfilled. In the absence of any of the above condition, the provisions

of section 263 stand vitiated.

11 I.T.A. No.306/Asr/2024 Poonam Marwaha v. ACIT DCIT

under Section 263 without satisfying the twin conditions prescribed by the section

and as interpreted by various courts. Specifically, the condition of an order being

"erroneous" can only be established if the Assessing Officer (AO) fails to conduct

any enquiry, which is not applicable in the present case. It is pertinent to note that the

appellant has provided detailed replies to the questionnaire, specifically addressing

the issue of the source of the excess stock surrendered. That summary of the replies

submitted on these specific points as contained in replies filed are as follows:-

Particulars Comments Page No Statement dated 08.02.2019 admitting the fact that the Question No 4 of statement dated 08.02.2019 51 appellant was making sale outside books of accounts Survey report dated 08.02.2019 stating the fact that the Annexure A-1 51 appellant was in practice of making sales outside books Statement dated 08.02.2019 of accounts Question 6 of notice dated 18.01.2021 (Please refer page Reply dated 08.02.2021 4-6 no 2 of paper book) That a separate trading account was prepared and was also filed ‘6 It is observed that during the course of survey at the time of filing of Tax audit report and is on record. However proceedings excess stock of Rs.49,98,000/- was found. copy is again enclosed at page no 92. The same figure was Please explain source of purchase of excess stock separately shown in computation of total income at page 4. Hence with documentary evidence and explain why the sane section 115BBE is not attracted. No stock register is maintained should not be added to your income as’ unexplained and this fact has also been given in the tax audit report by auditor investment in the form of stock. Also furnish updated in the form 3CB. stock register. That the Ld. AO had issued various questionnaires along Reply No. 3 dated 17-03-2021 8-9 with statutory notice(s). The Ld. AO called for books of The assessee has explained that the survey team has wrongly account vide notice dated 09.09.2021 page 10-11. calculated excess stock. The excess stock works at Rs.17,77,416/- against Rs.49,98,000/- calculated by the A.O. Reply no 4 dated 13.09.2021 12

12 I.T.A. No.306/Asr/2024 Poonam Marwaha v. ACIT DCIT

The appellant submitted that the inventory was prepared on MRP basis and not on cost basis. It was also submitted that the relevant bills and vouchers for verification will be furnished. Reply No 6 dated 14-09-2021 14 Purchase bills as called for by the A.O. were submitted to verify the veracity of claim made by the assessee Reply No 6 dated 14-09-2021 13 Submitted legal reply regarding non applicability of section 115BBE was submitted

made by the AO and it is not the case where no enquiry was made. It is settled law

that this power of revision can be exercised only where there is no enquiry, as

required under the law, is done. It is not open to enquire in case of inadequate

inquiry.

department at Maximum Retail Price (MRP) of Rs.98,02,484/- against the stock

value recorded at Rs 49,25,138/- in the regular books of accounts at cost price. It was

highlighted that MRP, as per the Standard Weight & Measurement Act, incorporates

taxes such as GST, and no additional charges can be levied from the customer

beyond this. It was further clarified that the MRP includes GST element and is

further subject to adjustment on account of margin on selling price. The correct value

of excess stock as per cost as submitted before the AO is worked out and the assessee

has put an alternate argument to demonstrate that the revenue is not prejudiced:

13 I.T.A. No.306/Asr/2024 Poonam Marwaha v. ACIT DCIT

“Additional argument on the aspect of prejudicial to the interest of revenue:

That the appellant vide reply dated 17.03.2021 specifically requested the AO to consider the correct stock. ( copy at page no 8-9 of the PB). In order to substantiate the same, the AO

specifically asked the appellant to provide purchase bills and the same were also submitted vide reply dated 14.09.2021 ( page 14 of PB). The AO framed the assessment u/s 143(3)

without making any addition by stating that the appellant had duly considered the amount

surrendered in the return of income filed.

That the same facts were presented before the PCIT and it was submitted that even if the

correct excess stock amounting to Rs. 1777416/- is considered and tax is calculated as per

the provisions of section 115BBE, the tax liability works out to Rs. 1386384/- [tax @78% including surcharge 25% and cess 4%]. In this regard your Honor’s kind attention is drawn

towards the fact that the appellant has already offered a sum of Rs. 50,00,000/- under the

head business income and has paid taxes amounting to Rs. 15,60,000/- which is higher than

the tax liability of Rs. 13,86,384/- as per the working given below: -

Value of Excess Stock 17,77,416/- Tax as per section 115BBE [1777416*60%*1.25*1.04] 13,86,384/- Tax paid by the appellant on income of Rs. 50L surrendered in return of income [50L*30%*1.04] 15,60,000/- Tax Payable NIL

to adhere to the twin conditions as embedded in section 263. In the circumstances

where only one of the conditions is satisfied and the condition is not dealt with, in

14 I.T.A. No.306/Asr/2024 Poonam Marwaha v. ACIT DCIT such circumstances the proceedings initiated vide section 263 are without

jurisdiction. That the said twin conditions are being produced hereunder: -

“(i) The order of the Assessing Officer sought to be revised is erroneous; and

(ii) it is prejudicial to the interests of the Revenue. If any one of them is absent i.e. if the assessment order is not erroneous but it is prejudicial to the Revenue, Sec.263 cannot be invoked.”

that no prejudice is caused to the revenue even if the correct excess stock is treated as

income and tax is calculated as per the provisions of section 115BBE. It is a settled

law that what is required to be taxed is the correct income and not the hypothetical

income. In this regard reliance is placed upon the circular issued by CBDT dated 11-

4-1955, 14(XL-35) wherein the Board ordered that the officers of the Income-tax

should not take advantage of ignorance of an assessee as to his rights. It is one of

their duties to assist the taxpayers in every reasonable way, particularly in the matter

of claiming and securing reliefs and in this regard, the officer should take the

initiative in guiding a taxpayer, where proceedings or other particulars before them

indicate that some refund or relief is due to him.

15 I.T.A. No.306/Asr/2024 Poonam Marwaha v. ACIT DCIT 25. It is a matter of record that proper enquiry was made by the AO and therefore,

it cannot be stated that no enquiry was made by the AO. In this regard reliance is

being placed upon the order of Delhi High Court in Geevee Enterprises v. Addl.

CIT 99 ITR 375 (Del.)that order would be erroneous only when the AO makes no

enquiries during the course of assessment proceedings. In arriving at this decision,

the Delhi High Court drew strength from the principles laid down by the Supreme

Court in Rampyari Devi Saraogi v. CIT [1968] 67 ITR 84 and Smt. Tara Devi

Aggarwal v. CIT [1973] 88 ITR 323 (SC). The underlying principle which emerges

from these judgments is that if an assessment order is passed without making any

enquiring, then such an order would be erroneous.

error committed by the Assessing Officer; it is only when an order is erroneous as

also prejudicial to revenue’s interest, that the provision will be attracted. An incorrect

assumption of the fact or an incorrect application of law will satisfy the requirement

of the order being erroneous. The phrase 'prejudicial to the interest of the Revenue'

must be read in conjunction with an erroneous order passed by the AO. Every loss of

Revenue because of the order of the AO cannot be treated as prejudicial to the

interest of the Revenue. For example, if the AO has adopted one of the two or more

courses permissible in law and it has resulted in loss of revenue, or where two views

are possible and AO has taken one view with which the CIT does not agree, it cannot

16 I.T.A. No.306/Asr/2024 Poonam Marwaha v. ACIT DCIT

be treated as an erroneous order prejudicial to the interest of the Revenue, unless the

view taken by the AO is totally unsustainable in law. In this regard reliance is being

placed upon the following case laws: -

“A) Malabar Industrial Co. Ltd. v/s CIT (2000) 243 ITR 83 (SC) in which it has been stated as under: -

Section 263 of the Income-tax Act, 1961 - Revision - Of orders prejudicial to interests of revenue - Assessment year 1983-84 - Whether in order to invoke section 263 Assessing Officer's order must be erroneous and also prejudicial to revenue and if one of them is absent, i.e., if order of Income-tax Officer is erroneous but is not prejudicial to revenue or if it is not erroneous but is prejudicial to revenue, recourse cannot be had to section 263(1) - Held, yes -

B) [2023] 152 taxmann.com 565 (Delhi) HIGH COURT OF DELHI Principal Commissioner of Income-tax v. H.T.L Ltd.*

Section 50C, read with section 263, of the Income-tax Act, 1961 - Capital gains - Special provision for computation of full value consideration (Revision) - Assessee had filed its return and same was processed under section 143(1) - Subsequently, Principal Commissioner invoked revision under section 263 on ground that a land was sold by assessee to an entity below value adopted by concerned authority for levy of stamp duty, and therefore, there was under-assessment of income to extent of differential amount, and accordingly, assessment made was contrary to provisions of section 50C as this aspect had not been inquired into - It was noted that assessee had run into rough weather, whereby its net worth was eroded - Accordingly, assessee went under SARFAESI proceedings - Record revealed that it was not assessee who effectuated sale of subject land and land was actually sold by secured lenders to recover dues owed to them by assessee - Principal Commissioner had failed to notice these underlying facts while invoking his powers under section 263 - Whether twin conditions for invoking powers under section 263 i.e. not only order should be erroneous, but it should also be prejudicial to interest of revenue were not met, therefore, Tribunal was justified in setting aside impugned revision order of Principal Commissioner - Held, yes [Paras 14 and 16 to 18] [In favour of assessee]

C) [2022] 141 taxmann.com 512 (Gujarat) HIGH COURT OF GUJARATPrincipal Commissioner of Income-tax v. Shukla Dairy (P.) Ltd.*

17 I.T.A. No.306/Asr/2024 Poonam Marwaha v. ACIT DCIT

II. Section 40A(3), read with section 263, of the Income-tax Act, 1961 and rule 6DD of Income-tax Rules, 1962 - Business disallowance - Cash payment exceeding prescribed limit (Rule 6DD) - Assessment year 2013-14 - Assessee-company was engaged in business of manufacturing of dairy products - Assessee filed return and Assessing Officer passed assessment order after making certain additions - Principal Commissioner observed that assessee made cash payment in excess of Rs. 20,000 to milk sellers who were traders and said sellers would not be eligible for rule 6DD - Principal Commissioner invoked section 263 and remanded matter on ground that Assessing Officer failed to make any disallowances and cash payment in excess of Rs. 20,000 in a single day required detailed verification - Tribunal observed that during assessment proceedings, assessee submitted cash payment register and explained each item of proposed addition as per show cause notice of Assessing Officer and Assessing Officer, after going through cash payment register and explanation of each item, did not make addition - Tribunal thus, quashed revisionary proceedings on ground that order passed by Assessing Officer was neither erroneous nor prejudicial to interest of revenue - Whether Tribunal was justified in quashing order passed under section 263 - Held, yes [Para 12] [In favour of assessee]

D) [2021] 130 taxmann.com 496 (Gauhati) HIGH COURT OF GAUHATI CMJ Breweries (P.) Ltd. v. Union of India

Section 263 of the Income-tax Act, 1961 - Revision - Of orders prejudicial to interest of revenue (General Principles) - An order under section 263 was assailed on ground that condition precedent of initiating a proceeding under section 263 was absent and, therefore, impugned order was an order without jurisdiction - Whether two conditions of order being erroneous and prejudicial to interest of revenue have to be present at stage when Principal Commissioner or Commissioner initiates exercise of jurisdiction under section 263 - Held, yes - Whether where there was no prima facie satisfaction recorded by Principal Commissioner on basis of materials available on record that order of Assessing Officer which was sought to be reviewed under section 263 was an erroneous order as Principal Commissioner was yet to arrive at his prima facie conclusion and wanted matter to be examined further in-depth, no action could have been taken against assessee pursuant to proceeding initiated under section 263 - Held, yes [Paras 6 to 9]

E) [2022] 145 taxmann.com 590 (Calcutta) HIGH COURT OF CALCUTTA Principal Commissioner of Income-tax v.ReetaLakhmani* Section 10(38), read with section 263, of the Income-tax Act, 1961 - Capital gains - Income arising from transfer of long term securities (Penny stock shares) - Assessment year 2014- 15 - Whether before exercise of power under section 263 it is Principal Commissioner who has to apply its mind to issue and thereafter record reasons as to how twin conditions

18 I.T.A. No.306/Asr/2024 Poonam Marwaha v. ACIT DCIT of order of Assessing Officer being erroneous and prejudicial to interest of revenue are satisfied and then issue a show-cause notice to assessee - Held, yes - Whether where there was nothing on record to show that such an exercise was done by Principal Commissioner and rather, initiation of proceedings under section 263 on ground that assessee could not establish genuineness of transactions to prove that it had not indulged in any dubious share transactions meant to account for undisclosed income under garb of long term capital gain (LTCG) to claim exemption under section 10 (38) was based on a proposal given by Assessing Officer, exercise of jurisdiction under section 263 was not justified - Held, yes [Paras 8 and 9] [In favour of assessee]

section 263 and relied upon the Judgment of Sh. Narayan TatuRane Vs. ITO, I.T.A.

No. 2690/2691/Mum/2016, 70 taxmann.com 227 dt. 06.05.2016in which ITAT has

held that what is relevant for clause (a) of Explanation 2 to sec. 263 is whether the

AO has passed the order after carrying our inquiries or verification, which a

reasonable and prudent officer would have carried out or not. It does not authorize or

give unfettered powers to the ld. PCIT to revise each and every order, if in his

opinion, the same has been passed without making inquiries or verification which

should have been made. In our view, it is the responsibility of the Ld Pr. CIT to show

that the inquiries or verification conducted by the AO was not in accordance with the

inquiries or verification that would have been carried out by a prudent officer. Hence,

in our view, the question as to whether the amendment brought in by way of

Explanation 2(a) shall have retrospective or prospective application shall not be

relevant.

19 I.T.A. No.306/Asr/2024 Poonam Marwaha v. ACIT DCIT

together, the conclusion would be that PCIT, in his revisionary jurisdiction, cannot

say that the order with some enquiry done by the A.O. to be erroneous, he can hold

the non inquiry cases to be erroneous. However, in such cases he himself has to bring

on record the error and prejudice through independent verification and enquiry.

Commissioner of Income Tax (PCIT) to revise an order if it is deemed erroneous and

prejudicial to the interests of revenue. However, in this instance, the PCIT's revision

order contradicts the facts and circumstances of the case duly supported by

documentary evidence.

case laws cited by the ld. PCIT in his order:

Sr. Citation Brief Rebuttal No 1. [2018] 95 Section 68, read with section 263, of In the case relied upon by the taxmann.com 366 the Income-tax Act, 1961 - Cash PCIT, the AO had not made any (SC) credits (Revision) - Commissioner enquiry. However, in the instant had passed an order under section case, the AO had made proper SUPREME COURT 263 with observations that Assessing enquiry and had duly verified the OF INDIA Deniel Officer did not make any proper documents furnished by the Merchants (P.) Ltd. inquiry while making assessment and appellant from time to time. The v. Income-tax Officer accepting explanation of assessee same has been explained in detail insofar as receipt of share application at para no 1 of brief synopsis. money was concerned - High Court upheld order of revision - Whether

20 I.T.A. No.306/Asr/2024 Poonam Marwaha v. ACIT DCIT

there was no reason to interfere with order of High Court and, thus, SLP was to be dismissed - Held, yes [Paras 5 to 6] [In favour of revenue] 2. [2015] 60 Section 68, read with section 263, of The cited case law pertains to taxmann.com 60 the Income-tax Act, 1961 - Cash share capital and is not relevant (Kolkata - Trib.) credit (Share capital) - Assessment to the issue of excess stock. The years 2008-09 to 2010-11 - Assessee case law in question involves an IN THE ITAT filed return offering meagre income assessee who filed a return with KOLKATA BENCH and issued share capital at huge minimal income while issuing 'B' premium, while making large share capital at a substantial investments in new companies at premium and making significant Subhlakshmi Vanijya much higher price than their real investments in new companies at (P.) Ltd. v. worth - Upon reassessment, Assessing prices considerably above their Commissioner of Officer did not invoke section 68, actual value. This case law does Income-tax-I, hence, Commissioner exercising his not apply to the present situation, Kolkata revisionary power under section 263 as the Assessing Officer (AO) set aside assessment orders directing conducted a thorough enquiry in Assessing Officer to make fresh the current case. Further the assessment after conducting detailed source is out of sales made enquiry and upon satisfying on outside books of accounts. genuineness of transaction - Whether order of Commissioner was not based on irrelevant considerations and further in present circumstances, he was not obliged to positively indicate deficiencies in assessment order on merits on question of issue of share capital at a huge premium - Held, yes - Whether since inadequate enquiry conducted by Assessing Officer was as good as no enquiry making order erroneous and prejudicial to interests of revenue, Commissioner was empowered to revise assessment order - Held, yes [Paras 17.i. & 20.g.] [In favour of revenue] 3 [2019] 105 Section 145, read with sections 133A The case law relied upon by the Principal Commissioner of taxmann.com 287 and 263, of the Income-tax Act, 1961 Income Tax (PCIT) is not - Method of accounting (Additions to

21 I.T.A. No.306/Asr/2024 Poonam Marwaha v. ACIT DCIT

(Punjab & Haryana) income) - Assessment year 2008-09 - applicable to the present case. In the cited case law, the issue Assessee was engaged in business of centered around a discrepancy manufacturing/trading of yarn and between the additional income fiber waste etc. - A survey under surrendered during a survey and HIGH COURT OF section 133A was conducted at the income declared in the PUNJAB AND business premises of assessee and subsequent return. Specifically, HARYANA during said survey, a sum of Rs. 2.15 the assessee in that case surrendered Rs. 2.15 crores crores was surrendered as an Principal during the survey but only additional income - Subsequently, Commissioner of declared Rs. 1.35 crores as assessee filed return declaring taxable income in the return, Income-tax, taxable income of Rs. 1.35 crores - which led the Commissioner to Ludhiana v. Venus Assessing Officer completed set aside the assessment for Woollen Mills, assessment under section 143(3) by further examination. Ludhiana making a small addition of Rs. 15,000 In contrast, in the present case, only - Commissioner opined that the assessee has surrendered the Assessing Officer was required to exact same amount of income in have carefully dealt with case the return as was admitted during especially where assessee had the survey. There is no surrendered Rs. 2.15 crores during discrepancy between the amount survey but in return filed of excess stock surrendered and subsequently, taxable income of only the income declared in the return. Rs. 1.35 crores was declared - He The Assessing Officer (AO) thus passed a revisional order setting conducted a thorough enquiry aside assessment - Whether in view and considered the correct of fact that Assessing Officer did not figures, and thus the case law apply mind to correctness of books of cited does not parallel the current account produced before her except facts. The proper application of to note that books of account were Section 145, read with Sections produced and test checked, 133A and 263, requires that the impugned revisional order passed conditions of the case law be met, under section 263 was to be upheld - which is not the situation here. Held, yes [para 9][In favour of revenue] 4 [2013] 29 Section 263, read with sections 2(47) In the case relied upon by the taxmann.com 70 and 14A, of the Income-tax Act, 1961 PCIT, the AO had not made any (Hyderabad - Trib.) - Revision - Of order prejudicial to enquiry. However, in the instant interest of revenue - Scope of case, the AO had made proper IN THE ITAT jurisdiction - Assessment year 2007- enquiry and had duly verified the HYDERABAD 08 - Commissioner in exercise of documents furnished by the power under section 263, set aside appellant from time to time.

22 I.T.A. No.306/Asr/2024 Poonam Marwaha v. ACIT DCIT

BENCH 'B' assessment order taking a view that Assessing Officer had not examined Mahalakshmi Liquor issues relating to investment of loan Promoters (P.) Ltd v. for non-business purposes and Commissioner of transfer of land within meaning of Income-tax-IV, section 2(47) - Whether, since, at Hyderabad time of making assessment, there was no enquiry by Assessing Officer on issues raised by Commissioner, impugned revisional order was to be upheld - Held, yes [Para 24] [In favour of revenue] 5 [2009] 31 SOT 353 Applicability of section 263 In the case relied upon by the (Chennai) (SB) Principal Commissioner of It is not necessary for the Income Tax (PCIT), the Assessing Commissioner to make further Officer (AO) failed to make any enquiries before cancelling the enquiry, which was a key factor IN THE ITAT assessment order of the Assessing leading to the revisional order. CHENNAI BENCH Officer. The Commissioner can However, in the present case, the 'D' (SPECIAL regard the order as erroneous on the AO conducted a thorough and BENCH) ground that in the circumstances of proper enquiry. The AO duly the case the Assessing Officer should verified all the documents Rajalakshmi Mills have made further inquiries before furnished by the appellant and Ltd. v. Income-tax accepting the statements made by the considered the explanations Officer, Company assessee in his return. The reason is provided during the assessment Circle III, obvious. Unlike the civil court which proceedings. Therefore, the Coimbatore is neutral to give a decision on the circumstances of the current case basis of evidence produced before it, are materially different, as the an Assessing Officer is not only an AO actively engaged in the adjudicator but is also an scrutiny of the appellant's investigator. He cannot remain records, unlike in the cited case. passive in the face of a return which This distinction renders the case is apparently in order but calls for law relied upon by the PCIT further enquiry. It is his duty to inapplicable to the present ascertain the truth of the facts stated situation. in the return when the circumstances of the case are such as to provoke an inquiry. The meaning to be given to the word 'erroneous' in section 263 emerges out of this context. The word

23 I.T.A. No.306/Asr/2024 Poonam Marwaha v. ACIT DCIT

'erroneous' in that section includes cases where there has been failure to make the necessary inquiries. It is incumbent on the Assessing Officer to investigate the facts stated in the return when circumstances make such an inquiry prudent and the word 'erroneous' in section 263 includes the failure to make such an enquiry. The order becomes erroneous because such an enquiry has not been made and not because there is anything wrong with the order if all the facts stated therein are assumed to be correct. [Para 3]

In the instant case, the Assessing Officer failed to make any enquiry in regard to the allowability of the provision for gratuity. As such, the order was erroneous and prejudicial to the interests of the revenue. Therefore, the conditions precedent for assuming jurisdiction under section 263 did exist in the facts of the instant case. [Para 4] 6 [2011] 11 Section 263 of the Income-tax Act, 1. That the appellant vide reply dated 17.03.2021 specifically Taxmann.com 1961 - Revision - Of orders pointed out to the AO that the 183(Ranchi) prejudicial to interest of revenue - excess stock works out to Assessment years 1991-92 to 1993-94 Rs.1777416/- and not Rs. 50L as - Whether Commissioner may offered by the appellant. It was consider an order of Assessing also requested to provide the IN THE ITAT Officer to be erroneous not only when benefit of excess income offered CIRCUIT BENCH, against the actual excess stock of it contains some apparent error of RANCHI Rs. 1777416/- and frame the reasoning or of law or of fact on face assessment by taking into of it but also when it is a stereo-typed consideration the correct figures. order which simply accepts what The copy of reply as submitted assessee has stated in his return and before the AO is enclosed at Dr. Rabindra Kumar fails to make enquiries or examine page no 8-9 of the PB. Singh v. genuineness of claim which are called Commissioner of

24 I.T.A. No.306/Asr/2024 Poonam Marwaha v. ACIT DCIT

Income-tax for in circumstances of case - Held, 2. Furthermore, the issue regarding the valuation of stock (Central), Patna yes - Assessee was employed in by the authorized officer at MRP Department of Animal Husbandry of was once again apprised to the State Government - Search and AO vide reply dated 13.09.2021 seizure operations were carried out in which is enclosed at page no 12. case of assessee and his family members during course of which 3. Further, it was also brought to the knowledge of the AO that the incriminating papers and documents provisions of section 115BBE are were found and seized - Thus, notice not applicable in the present case under section 148 was issued calling and also relied upon the various upon assessee to file his return of judgements passed ITAT and high income - In compliance, assessee filed Courts. [Refer reply dated his return which was accepted under 14.09.2021 at page no 13 of the section 143(3) - Commissioner in PB] exercise of power under section 263, 4. The AO further asked to submit set aside assessment order holding more purchase bills to that while completing assessment, substantiate the claim of the Assessing Officer failed to make appellant that the inventory was necessary enquiries from assessee worked out by applying MRP. and his relatives - Whether since, in The appellant submitted the same instant case, search and seizure vide reply dated 14.09.2021 which is enclosed at page no 14 operations were carried out by of the PB. Department leading to recovery of incriminating materials, it was 5. Thereafter, the AO time and incumbent upon Assessing Officer to again issued notices to verify the collect relevant information not only claim of the appellant and only from assessee but also from all after careful examination of concerned agencies - Held, yes - documents brought on record, Whether, therefore, inaction and completed the assessment for the failure on part of Assessing Officer AY 2019-20 vide order passed u/s in making requisite inquiries and 143(3) on 17.09.2021 whereby verifications rendered assessment the returned income of Rs. order passed by him erroneous and 5605590/- was duly accepted. prejudicial to interest of revenue - Held, yes - Whether in view of above, 6.In the case law replied upon the impugned revisional order passed by A.O. has not made proper enquiry Commissioner was to be upheld - from the relatives on the contrary Held, yes in extant case proper enquiry was made.

25 I.T.A. No.306/Asr/2024 Poonam Marwaha v. ACIT DCIT

7 [2005] 95 ITD 326 Section 263 of the Income-tax Act, In the case relied upon by the (PUNE) 1961 - Revision - Of orders Principal Commissioner of prejudicial to interest of revenue - Income Tax (PCIT), the Assessing IN THE ITAT PUNE Assessment year 1995-96 - Officer (AO) failed to make any BENCH Commissioner set aside assessment enquiry, which was a key factor order on grounds that Assessing leading to the revisional order. Officer had not made proper However, in the present case, the enquiries in regard to (a) AO conducted a thorough and Ambika Agro considerable increase in salary and proper enquiry. The AO duly Suppliers v. Income- account writing fees; (b) genuineness verified all the documents tax Officer, Wd. 2(6), of debts; (c) genuineness of furnished by the appellant and Jalgaon transactions on cash payment considered the explanations exceeding Rs. 10,000, identity of provided during the assessment payee and circumstances compelling proceedings. Therefore, the assessee to make cash payments; and circumstances of the current case (d) genuineness of unsecured loans are materially different, as the taken from certain persons - Whether AO actively engaged in the acceptance of assessee’s explanation scrutiny of the appellant's without any enquiry rendered records, unlike in the cited case. assessment order erroneous as well This distinction renders the case as prejudicial to interests of revenue law relied upon by the PCIT - Held, yes - Whether Commissioner inapplicable to the present had given cogent reasons in support situation. of his action and, therefore, Commissioner, having wide powers under section 263, had rightly set aside assessment order - Held, yes Section 263, read with section 145, of The case law cited by the 8 [2002] 121 the Income-tax Act, 1961 - Revision - Principal Commissioner of TAXMAN 29 (AHD.) Of orders prejudicial to interests of Income Tax (PCIT) is not (MAG.) revenue - Assessment year 1998-99 - applicable to the present case for Assessment order determining the following reasons: IN THE ITAT assessee-contractor’s contract

26 I.T.A. No.306/Asr/2024 Poonam Marwaha v. ACIT DCIT

AHMEDABAD receipts was set aside by In the cited case law, the issue Commissioner (Appeals) with arose because the Assessing BENCH ‘A’ directions to Assessing Officer to Officer (AO) failed to conduct the reduce/delete addition after getting required investigation, RAMESHCHANDRA copies of accounts from payers - verification, and probe after MALERAM VARMA Assessing Officer passed order receiving directions from the V. DEPUTY Commissioner (Appeals) to giving appeal effect without COMMISSIONER conducting required investigation, review the contract receipts. As a OF INCOME-TAX verification and probe - Whether result, the AO's order was found order passed by Assessing Officer to be patently erroneous and was patently erroneous and prejudicial to the interests of revenue. prejudicial to interest of revenue - Held, yes In contrast, the AO in the present case actively conducted a thorough investigation and verification of the appellant’s records. The AO diligently reviewed and scrutinized all documents and explanations provided by the appellant, including those related to the surrender of excess stock. The assessment was carried out with due diligence and care, ensuring that all relevant facts and figures were appropriately considered. Therefore, unlike the AO in the cited case, the AO in this case did not exhibit any failure to investigate or verify, making the cited case law inapplicable to the current situation.

pronouncements, the order passed u/s 263 be annulled, considering the facts and

circumstances of the case and in the interest of natural justice.

27 I.T.A. No.306/Asr/2024 Poonam Marwaha v. ACIT DCIT 32. We have heard the rival submissions and considered the materials on record

and the paper book submitted by the assessee. We observe that the Ld PCIT , has

basically raised two issues , firstly , it has been alleged that the AO has failed to

examine the source of funds for making purchase of Rs. 50 lakhs during the year and

surrendered by the assessee ( in respect of the excess stock found during survey ) and

secondly , even if the queries has been raised in scrutiny proceedings , through notice

u/s 142(1) , by the AO , it was not examined whether the surrendered income was

generated in regular course of business or it has been generated from undisclosed

source of income , and on this aspect of the matter the Ld PCIT , has relied upon the

judgment of the jurisdictional High Court in the case of M/s Khushi Ram and Sons

Pvt Ltd in ITA No : 126 of 2015 dated 21/07/2016 , where it was held that it is not

necessary that the surrendered amount is from business income. It could be on

account of any other transaction legal or otherwise. Merely because an assessee

carries on certain business, it does not necessarily follow that the amounts

surrendered by him are on account of its business transactions. There is no

presumption that absent anything else an amount surrendered by an assessee is his

business income. It is for the assessee to establish the source of such surrendered

amount.”

the survey team, are the same nature and type of goods i.e. Cosmetics, which is

28 I.T.A. No.306/Asr/2024 Poonam Marwaha v. ACIT DCIT regularly traded by the assessee in her usual course of business, and in course of

survey the department has not been able to unearth any other documents or papers to

arrive at any different conclusion that the assessee has any other source of income

earning activity other than the business of cosmetics. In other words the excess

STOCK has not been separately identified and the loose papers and documents ,

diaries , impounded as per Annexure - 1 and 2 ( of impounded documents ) points to

the fact that there has been unrecorded transactions of purchase and sales outside

books of accounts pertaining to the same business of“ cosmetics ”, in which the

assessee transacts, in usual course of her business, and as such the nexus or the link

in between the excess stock found and the assessee business is established and

whatever excess that has been found , is the excess stock , that is rolling in the same

business and it has no independent identity of its own and is part and parcel of the

normal business stock and what is not declared to the department is the receipt from

business ( and not any investment ) because it cannot be co-related with any specific

assets .

coordinate Bench decision in the case of of M/s A.P. Knit Fab Vs. DCIT in ITA No.

732/Chd/2022, dated 15.02.2024 are as follows; relevant portion is reproduced

below: I.T.A.No.178/Asr/2024 Assessment Year: 2019-20 (relevant portion

reproduced )

29 I.T.A. No.306/Asr/2024 Poonam Marwaha v. ACIT DCIT

“8.12. In the instant case as well, there is no physicaldistinction between the accounted stock and unaccounted stock. No such physical distinction was found by the Revenue either. We therefore find that the difference in stock so found out by the authorities has no independent identity and is in terms of value terms only and thus part and parcel of entire stock therefore, it cannot be said that there is an undisclosed asset which existed independently and thus, what is not declared tothe department is receipt from business and not any investment as it cannot be co-related with any specific asset and the difference should thus be treated as business income. 8.13. In light of aforesaid discussion and in the entirety of facts and circumstances of the case, the income so surrendered on account of investment in excess stock during the course of survey cannot be brought to tax under the deeming provisions of section 69B of the Act and the same has to be assessed to tax under the head “business income”. In absence of deeming provisions, the question of application of section 115BBEdoesn’t arise and normal tax rate shall apply. The AO is thus directed to assess the income under the head “Income from Business/profession” and apply the normal rate of tax.”

Rajasthan High Court in the case of PCIT vs. Bajargan Traders ITA 258/2017

dated 12.09.2017.( Only relevant portion reproduced)

“2.11. Having said that, the next issue that arises for consideration is whether the amount surrendered by way of investment in the unrecorded stock of rice has to be brought to tax under the head “business income” or “income from other sources”. In the present case, the assessee is dealing in sale of foodgrains, rice and oil seeds, and the excess stock which has been found during the course of survey is stock of rice. Therefore, the investment in procurement of such stock of rice is clearly identifiable and related to the regular business stock of the assessee. The decision of the Co-ordinate Bench in case of Shri Ramnarayan Birla (supra) supports the case of the assessee in this regard. Therefore, the investment in the excess stock has to be brought to tax under the head “business income” and not under the head income from other sources”.

30 I.T.A. No.306/Asr/2024 Poonam Marwaha v. ACIT DCIT Hon’ble Andhra Pradesh High Court in the case of Deccan Jewellery Pvt Ltd (1)

( 2021) 132 taxmann.com73( Andhra Pradesh ) dated 02/08/2021, where on an

almost identical facts, it was held by the court , that where nature and source of

excess stock found during search was not specifically identifiable from profits which

has accumulated from earlier years , AO was justified in holding that the excess stock

was not undisclosed investment of the assessee and no case of perversity or lack of

enquiry on part of assessing officer was made out so as to render this decision

erroneous under explanation 2 to section 263 .

(2) Similar views has been taken by the ITAT, Jaipur Bench in the case of Rajmal

Kanwar vs CIT ( 2017 ) 82 taxmann.com119 (Jaipur ITAT No 142( JP)of 2015 ,

where the AO has made sufficient enqueries, considered survey records, and

surrender made by assessee and after considering submissions of assessee completed

assessment proceedings u/s 143(3) , assessment order could not be held to be an

erroneous order which was prejudicial to the interest of revenue.

(3) ITAT Amritsar Bench in the case of M/s Active Tools Pvt Ltd vs DCIT -II , Jallandhar [2021] 8 TMI 905 ITA No: 260/ ASR/2019 , where in an almost identical

case it has been held that when two views are possible , then the view taken by the

assessing officer cannot be said to be wrong as the same was not to the liking of the

31 I.T.A. No.306/Asr/2024 Poonam Marwaha v. ACIT DCIT opinion of the Ld PCIT , for which the Hon’ble bench relied on Supreme court in the

case of Max India [2007]11 TMI 12- Supreme Court.

survey team, it is seen that the assessee in course of assessment proceedings has

specifically demonstrated with supporting sales invoices and calculation of the entire

inventory of stock, that if the said excess stock is valued at COSTS , the difference

will only be of an amount of Rs. 17 lakhs ( approx ) , and not Rs.50 lakhs , as it is has

been made out to be . Neither the AO nor the Ld PCIT, in course of proceedings,

before them , has been able to counter the said argument of the assessee, nor could

they find any fault in the computation and calculation put forth by the assessee as

regards the stock value , at cost , as claimed by the assessee.

arguments regarding the process of valuation of the stock at cost and did not find any

fault in respect of such valuation. Leading through the said calculation in respect of

valuation of the stock at costs, the assessee proceeded a step further to demonstrate

by way of an alternate argument, that if the stock value is taken at costs and tax is

imposed as per provisions of section 115BBE, even then also the tax so arrived at

will be covered by the tax actually paid by the assessee and as such there is no

prejudice to Government revenue.

32 I.T.A. No.306/Asr/2024 Poonam Marwaha v. ACIT DCIT 38. Now coming to the issue as to whether proper enquiry was made by the AO ,

it is seen from records that specific queries were raised during assessment , and the

assessee has furnished detail replies to all the queries in respect of purchase of stock ,

along with documentary evidences of purchase and sale bills and invoices , where it

has been explained by way of written submissions , to have come out of receipts from

unrecorded sales proceeds and the excess income earned, is naturally ploughed back

into the same business , which is reflected as excess stock in trade , and it is the same

income which is being surrendered to be taxed under the head “ business income” .

As such the source of the amount required for purchase of excess stock is well

explained to the satisfaction of the AO to have come out of sale proceeds of

cosmetics, and he has accepted the same after examination of the purchase and sales

invoice vis a vis impounded documents and stock inventory of identical goods.

enquiry on the part of the AO. In fact the AO has conducted enquiry and has applied

his mind by raising queries and examining the documentary evidences produced

before him and after conducting necessary enquiry , has taken a possible view in the

matter, which is a legally acceptable view and as such there cannot be any basis to

invoke the provisions of section 263 to revise the assessment.

33 I.T.A. No.306/Asr/2024 Poonam Marwaha v. ACIT DCIT 40. We further observe that various High courts has laid down the law that powers

of revision cannot be exercised on the ground that the assessing officer should have

gone deeper into the matter or should have made a more elaborate discussion .

are as under:

(1) CIT vs Hindusthan Marketing and Advertising Co Ltd 196taxmann368( Delhi High Court ) : Whether in view of the fact that ITO had made reasonably detailed enquiries , had collected relevant materials and discussed facets of case with assessee , order of Commissioner to direct fresh assessment by going deeper into matter would not form a valid or legal basis to exercise jurisdiction under section 263 - Held YES. (2) CIT vs Jain Uday fabrics pvt ltd [2024]165taxmann.com833 Punjab and Haryana High Court, (3) PCIT vs Anindita Steels Ltd [2022] 137 taxmann.com203 ( Calcutta High Court ) (4) CIT vs Goyal Private family Specific Trust [1987]35taxmann.522( Allahabad )

survey , nor the AO in course of assessment proceedings , has brought any adverse

material on record , to prove the fact that the assessee had any income other than the

business of cosmetics and the assessee has also explained the source of the income so

surrendered before the survey team to have arisen out of business of cosmetics itself,

and the said explanation has also been accepted by the AO after adequate enquiry and

34 I.T.A. No.306/Asr/2024 Poonam Marwaha v. ACIT DCIT verification of documents produced before him , and he has arrived at a logical

conclusion , which a prudent person , would have arrived under the circumstances.

examination of the submissions made by the assessee and after conducting detail

enquiry, has taken a plausible view that the provisions of section 115BBE of the Act

61, is not applicable in the instant case and the said assessment cannot be set aside

merely on the ground of inadequacy of enquiry by the AO with respect to source of

surrender of income .

after applying his mind has made enquiries and has taken a plausible view and passed

an assessment order same cannot be disturbed by invoking the explanation 2 of

section 263 merely because the view taken was not acceptable by the Ld. PCIT.

(1) Gujrat High Court in the case of PCIT vs National Diary Development Board [2024] 158 taxmann.com514, (2) Calcutta High Court in the case of Britannia Industries Ltd [2023]146taxmann.com246, (3) Bombay High Court in the case of PCIT vs Shivshahi Punarvasan Prakalp Ltd [2023]155taxmann.com408 (4) Calcutta High Court in the case of CIT vs M K Foundation [2023]148 taxmann.com314 (5) Karnataka High Court in the case of CIT vs Chemsworth Pvt Ltd [2020]119taxmann.com358 (6) Gujrat High Court in case of PCIT vs S.N.Trade Link Pvt Ltd [2022]145taxmann.com73

35 I.T.A. No.306/Asr/2024 Poonam Marwaha v. ACIT DCIT 45. As such, after taking into consideration the entire factual aspect of the matter,

and being enlightened by the judicial precedents laid down by various High Courts,

on the issue, we find that in the instant case , there is no perversity or lack of enquiry

on the part of the assessing officer to render the decision erroneous under

explanation 2 to section 263 of the Act 61, and the order passed by the AO , is neither

erroneous nor prejudicial to the interest of revenue , and we hold that the assumption

of jurisdiction u/s 263 by the Ld PCIT in the instant case is not legally justified and

the consequential order passed u/s 263 of the Act 61, is hereby set aside.

Order pronounced in accordance with Rule 34(4) of the Income Tax (Appellate

Tribunal) Rules, 1963 as on 09.01.2025

Sd/- Sd/- (Vikram Singh Yadav) (Udayan Dasgupta) Accountant Member Judicial Member *GP/Sr.PS* Copy of the order forwarded to: (1)The Appellant: (2) The Respondent: (3) The CIT concerned (4) The Sr. DR, I.T.A.T True Copy By Order