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Income Tax Appellate Tribunal, JAIPUR BENCHES,”A” JAIPUR
Before: DR. S. SEETHALAKSHMI, JM & DR. DIPAK P. RIPOTE, AM
Assessee by : Shri P.C. Parwal, CA Revenue by: Shri Arvind Kumar, CIT-DR Date of Hearing : 15/07/2024 Date of Pronouncement: 23 /07/2024 ORDER PER: DR. S. SEETHALAKSHMI, JM This appeal filed by the assessee is directed against order of the ld. Pr. CIT(Centra), Jaipur dated 21-03-2024 for the assessment year 2018-19 raising grounds of appeal as under:-
2 SHRI MOTI LAL JAIN, ALWAR VS PR. CIT (CENTRAL), JAIPUR ‘’1. Under the facts and circumstances of the case, order passed by the Ld. PCIT u/s 263 is illegal & bad in law and the same be quashed.
2. The Ld. PCIT has erred on facts and in law in holding that the assessment order dt. 23.04.2021 passed u/s 143(3) is erroneous in so far as it is prejudicial to the interest of revenue as the excess stock of Rs.23,62,332/- found during the course of survey proceedings which has been disclosed by the assessee in his return of income has been charged by the AO at normal rates instead of at the rate provided u/s 115BBE of the Act ignoring that the same has arisen from the regular business activity of the assessee and thus can only be assessed under the head profits & gains of business liable for taxation under the normal provisions of the Act.’’ 2.1 The assessee is proprietor of M/s Sandeep Mineral Industries engaged in the business of manufacturing of mineral products. A survey u/s 133A of the Act was carried out at the business premises of assessee on 11.10.2017. In course of survey assessee in his statement dt. 11.10.2017 (PB-22) which continued on 12.10.2017, in reply to Q. No.16 (PB 26) submitted that since books of accounts were not complete, there is an excess stock of Rs.23,62,332/- which is offered for tax in the current year income. This statement was further confirmed by assessee on 13.10.2017 (PB 28-30). In this case, it is noted that the assessee filed the return on 25.09.2018 (PB 15-18) declaring total income of Rs.36,04,600/- which includes excess stock of Rs.22,14,825/- credited to P&L A/c (PB 20). Thus, the AO accepted the income returned by the assessee.
3 SHRI MOTI LAL JAIN, ALWAR VS PR. CIT (CENTRAL), JAIPUR 2.2 In this case, it is noted that the Ld. PCIT(Central), Jaipur issued show cause notice u/s 263 dt. 22.02.2024 stating that during the survey excess stock of Rs.23,62,332/- was found whereas assessee has declared only Rs.22,14,825/- in the return and P&L account on account of income surrendered during survey. Thus the assessee has surrendered short by Rs.1,47,507/- (Rs.2362332- Rs.2214825). In response to same assessee vide reply dt. 13.03.2024 submitted that to avoid future litigation and to purchase peace of mind, he has deposited tax along with interest on short surrender of Rs.1,47,507/-. The Ld. PCIT(Central), Jaipur further issued show cause notice u/s 263 dt. 13.03.2024 stating that excess stock of Rs.23,62,332/- is related to unexplained expenditure u/s 69C whereon tax would be charged at special rates u/s 115BBE whereas tax was charged at normal rates. Thus the order passed by AO is erroneous in so far as it is prejudicial to the interest of revenue. In response to the same assessee filed detailed reply on 20.03.2024 (PB 1- 11) & 21.03.2024 (PB 12-14). It is further noted that the Ld. PCIT(Central) by invoking clause (a) & clause (b) of Explanation 2 to section 263 set aside the assessment order to the file of AO. It is also noted that the ld. PCIT (Central) on examination of the details/ record available before him observed that the assessment order passed on 23-04-2021 for A.Y. 2018-19 by the AO is held to be erroneous in so far as it is prejudicial to the interest of the revenue for the purpose of section 263 of the Act. The said order has been passed by the AO in a routine 4 SHRI MOTI LAL JAIN, ALWAR VS PR. CIT (CENTRAL), JAIPUR and casual manner without applying the applicable sections of the Act. The issue of short declaration of excess stock of Rs. 1,47,507/- and non application of provisions of section 115BBE on surrendered excess stock of Rs. 23,62 332/- has remained to be considered in the assessment order. Therefore, the AO has not verified the details which were required to be verified under the scope of scrutiny. The order of the AO is, therefore, liable to revision under the explanation (2) clause (b) and clause (a) of section 263 of the Act. The assessment order is set aside to be made afresh in the light of the observation made in this order. The AO is required to make necessary verification in respect of the observations made in this order after allowing reasonable opportunity to the assessee. The ld. Pr. CIT(Central) further wished in his order that he is not disturbing the assessment that has already been made and he is only passing an order for correction of the error committed by the AO on the issues discussed in his order and that too based upon independent satisfaction of the AO who will duly consider the replies of the taxpayer. 2.3 Aggrieved by the order of the ld. Pr. CIT (Central), the ld. AR of the assessee prayed before the Bench to quash to order passed u/s 263 of the Act by the ld.Pr. CIT (Central) submitting following written submission alongwith case laws.
5 SHRI MOTI LAL JAIN, ALWAR VS PR. CIT (CENTRAL), JAIPUR ‘’1. At the outset it is submitted that clause (a) & clause (b) of Explanation 2 to section 263 provides that order passed by AO is deemed to be erroneous in so far as prejudicial to the interest of revenue if the order is passed without making enquiries or verification which should have been made or the order is passed allowing any relief without enquiring into the claim. In the present case, AO has referred to Q. No.16 of the statement recorded during survey where assessee has surrendered the amount of Rs.23,62,332/- as his income of the year under consideration. However, in the return assessee offered Rs.22,14,825/- and on difference of Rs.1,47,507/- assessee paid tax with interest on 13.03.2024. The amount offered for tax has been subjected at normal tax by the AO because it represents the business income of the year under consideration. Thus when AO has taken a view, it is incorrect on part of Ld. PCIT to take a view that AO has not examined this issue and therefore invocation of clause (a) & (b) of Explanation 2 to section 263 is unjustified. Reliance in this connection is placed on the following cases:- (i) Smt. Rekha Shekhawat Vs. PCIT (2022) 99 ITR (Trib.) 69 (Jaipur) (Trib.) (Case laws compilation PB 1-24) In view of the fact that the unrecorded trade advances and cash in hand admitted during the course of survey u/s 133A emanated from and related to the real estate business carried on by the assessee and the same were later incorporated in the regular books of accounts, the additional income was in the nature of business income and did not fall u/s 68 and/or sec. 69 and therefore, Principal CIT was not justified in invoking the provisions of sec. 263 by holding that the assessment order was passed without considering that such additional income fell under the purview of ss. 68 and 69 and that tax was chargeable u/s 115BBE as against normal rates. (ii) Surya Hatchery Vs. PCIT (2023) 222 DTR 57 (Chd.) (Trib.) (Case laws compilation PB 25-53) AO having accepted the additional income surrendered by the assessee at the time of survey u/s 133A as normal business income after making enquiries into the nature of assessee's income and considering the assessee's replies and the relevant facts on record, it cannot be held that the assessment order has been passed without a proper enquiry and therefore, the Principal CIT was not justified in passing the impugned revisional order u/s 263 on the basis that the surrendered income is assessable as per the provisions of sec. 115BBE. (iii) CIT Vs. Embassy Brindavan Developers (2023) 294 Taxman 437 (SC) Notice issued in SLP against High Court’s order that where assessee purchased property for development of a Tech Park, however, same was sold for want of funds without any development whatsoever and AO had taken a view that assessee was liable to pay capital gain tax on profit from said transaction, merely because out of two plausible views available, AO had taken one view, jurisdiction u/s 263 could not be exercised.
6 SHRI MOTI LAL JAIN, ALWAR VS PR. CIT (CENTRAL), JAIPUR (iv) Bhikhabhai Rajabjai Dhameliya Vs. PCIT (2023) 201 ITD 424 (Surat) (Trib.) Where any inquiry, even inadequate was made by AO, that would not give occasion to invoke jurisdiction u/s 263 merely because Commissioner had different opinion unless view taken by AO is unsustainable in law.
(v) Dhanraj Chhipa Vs. PCIT (2023) 225 DTR 315 (Jodhpur) (Trib.) If there was any enquiry and a possible view was taken by the AO, it would not give occasion to the CIT to pass orders u/s 263 merely because he has a different opinion in the matter. Since the AO has examined the assessee's case and made complete enquiry regarding the issue raised in the revision proceeding, the Principal CIT was not justified in passing the impugned revision order. (vi) Satya Narayan Dhoot Vs. PCIT (2023) 222 DTR 177 (Jodhpur) (Trib.) AO having issued notice u/s 142(1) wherein he called for details of exempt income and also justification for various exemptions and deductions claimed in the return of income including the profit on sale of investments and the assessee having filed the break-up details of exempt income including exemption of long-term capital gain claimed u/s 10(38) in reply thereto, the Principal CIT was not justified in initiating revision proceedings on the basis that the AO has allowed the exemption without examining the claim.
It is a settled law that when the stock found in survey is clearly identifiable and related to the regular business of assessee, the alleged excess stock can be brought to tax only under the head business income and section 115BBE is otherwise not applicable. In this connection reliance is placed on the decision of Hon’ble Rajasthan High Court where the appeal filed by the department against the order of ITAT, Jaipur Bench in case of PCIT Vs. Bajargan Traders DBITA No.258/2017 order dt. 12.09.2017 (Case laws compilation PB 54-58) was dismissed. The Hon’ble ITAT in this case at Para 2.10 & 2.11 of the order (Case laws compilation PB 59-71) held as under:- “2.10. We have heard the rival contentions and perused the material available on record. During the course of survey, the assessee has surrendered an amount of Rs.70,04,814/- towards investment in stock of rice which had not been recorded in the books of accounts. Subsequently, in the books of accounts, the assessee has incorporated this transaction by debiting the purchase account and crediting the income from undisclosed sources. In the annual accounts, the purchases of Rs.70,04,814/- were finally reflected as part of total purchases amounting to Rs.33,47,19,658/- in the profit and loss account and the same also found included as part of the closing stock amounting to Rs.1,94,42,569/- in the profit/loss account since the said stock of rice was not sold out. In addition to the 7 SHRI MOTI LAL JAIN, ALWAR VS PR. CIT (CENTRAL), JAIPUR purchase and the closing stock, the amount of Rs.70,04,814/- also found credited in the profit and loss account as income from undisclosed sources. The net effect of this double entry accounting treatment is that firstly the unrecorded stock of rice has been brought on the books and now forms part of the recorded stock which can be subsequently sold out and the profit/loss therefrom would be subject to tax as any other normal business transaction. Secondly, the unrecorded investment which has gone in purchase of such unrecorded stock of rice has been recorded in the books of accounts and offered to tax by crediting the said amount in the profit and loss account. Had this investment been made out of known source, there was no necessity for assessee to credit the profit/loss account and offer the same to tax. Accordingly, we do not see any infirmity in assessee’s bringing such transaction in its books of accounts and the accounting treatment thereof so as to regularise its books of accounts. In fact, the same provides a credible base for Revenue to bring to tax subsequent profit/loss on sale of such stock of rice in future. 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 food grains, 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”. In the result, ground No. 1 of the assessee is allowed.”
Similar view has been taken by Hon’ble ITAT, Jaipur Bench in case of DCIT Vs. Sh. Ram Narayan Birla order dt. 30.09.2016 and Sanjay Gupta Vs. ACIT ITA No.292/JP/2023 order dt. 17.07.2023 (Case laws compilation PB 72-78). In the present case also, excess stock of Rs.22,14,825/- has been duly incorporated in the books of accounts (PB 20) which has arisen in normal course of business of assessee. The stock found in survey is same stock in which the assesse regularly deals in. Copy of stock inventory prepared during course of survey is enclosed. Therefore, such income is taxable at normal rate and not u/s 115BBE of the Act. Thus when there are favorable decisions on this issue, proceedings u/s 263 is bad in law for which the cases referred at Point No.1 is relied upon. In view of above, order passed u/s 263 be quashed.’’ 8 ITA NO. 645/JP/2024 SHRI MOTI LAL JAIN, ALWAR VS PR. CIT (CENTRAL), JAIPUR On the other hand, the ld. DR supported the order of the ld. Pr. CIT and 2.4 refuted the submissions advanced by the ld. AR of the assessee. 2.5 We have heard the rival contentions and perused the material available on record. We find that the ld. PCIT(Central) has issued show cause notice u/s 263 dt. 13.03.2024 mentioning that during survey proceedings excess stock of Rs.23,62,332/- was found which is surrendered by the assessee. The excess stock of Rs.23,62,332/- was purchased out of books and therefore it is unexplained expenditure u/s 69C chargeable to tax at special rate u/s 115BBE and not at the normal rate. The assessee by referring to Q. No.16 of the statement recorded during survey contended that assessee surrendered the amount of Rs.23,62,332/- as income of the year under consideration out of which Rs.22,14,825/- was credited to P&L A/c which is offered to tax in the return of income and on the balance amount of Rs.1,47,507/- assessee paid the tax with interest on 13.03.2024. The AO in the assessment order after considering the fact that assessee has offered the excess stock as business income of the year under consideration has charged the tax at normal rate and when AO has accepted this view, his order cannot be considered as erroneous more so when there are decisions on this issue in favour of the assessee. We note that during the course of survey statement of assessee was recorded. In reply to Q. No.2 of the statement he stated that he is proprietor of Sandeep Minerals Industries and except this he is not doing any other work. Thereafter in 9 SHRI MOTI LAL JAIN, ALWAR VS PR. CIT (CENTRAL), JAIPUR reply to Q. No.16 of the statement when questioned about the difference in stock it is stated that the excess stock is due to not making updated entry in the books of accounts considering the nature of activity which is offered for tax as current year income. In the return filed assessee has offered the same under the head business income on which tax was paid at normal rate. The AO taking cognizance of the finding of the survey team, document found during course of survey, statement of the assessee & the return of income and after examination thereof and due application of mind has accepted that the income surrendered is chargeable to tax as business income of the year under consideration. Thus the view taken by the AO is clearly a plausible view considering the facts & circumstances of the present case and nothing has been pointed out as to how the view so taken is unsustainable in the eyes of law. In light of above, we are of the considered view that the order so passed by the AO cannot be held as erroneous due to lack of inquiry or for that matter requisite inquiry on the part of the AO more particularly when the ld. PCIT(Central) has not recorded any finding as to how considering the decision of Rajasthan High Court and other ITAT decisions placed before him, the order passed by AO is erroneous. We therefore find that merely stating that there was survey operation at the business premises of the assessee where excess stock is found on which provisions of section 115BBE of the Act are attracted, the same cannot be a basis for exercise of jurisdiction u/s 263 of the Act. In view of the 3.0. In the result, the appeal of the assessee is allowed.
Order pronounced in the open court on 23 /07/2024 Sd/- Sd/- (Dr Dipak P. Ripote) (Dr. S. Seethalakshmi) Accountant Member Judicial Member Jaipur Dated:- 23 /07/2024 *Mishra Copy of the order forwarded to: 1. The Appellant- Shri Moti Lal Jain, Alwar 2. The Respondent- The Pr. CIT (Central), Jaipur 3. The ld CIT 4. DR, ITAT, Jaipur 5. Guard File (ITA No. 645/JP/2024) By order,