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Income Tax Appellate Tribunal, INDORE BENCH, INDORE
This appeal by the Assessee is directed against the order dated 28.03.2023 of Pr. Commissioner of Income Tax passed u/s 263 of the Act for Assessment Year 2018-19. The assessee has raised following grounds of appeal:
“1.That on the facts and in the circumstances of the case and in law, the Ld Pr. CIT erred in setting-aside the order as passed by the Assessing Officer by invoking the provisions of section 263 of the Income-Tax Act, 1961 even when the assessment order was passed by the Assessing Officer under section 143(3) r.w.s 143(3A) r.w.s 143(3B) of the Income-Tax Act, 1961 after conducting necessary enquiries and after due application of mind wherein the assessing officer has duly taxed the excess stock ITANo.154/Ind/2023 Punya Shree Jewellers found during the course of survey at normal rate of taxes and not at the rates prescribed under section 115BBE of the Act.
That on the facts and in the circumstances of the case and in law, the Ld Pr. CIT erred in setting-aside the order as passed by the Assessing Officer by invoking the provisions of section 263 of the Income-Tax Act, 1961 and directing the Assessing Officer to reframe the assessment order in respect of applicability of section 115BBE of the Income-tax Act, 1961 on account of excess stock of Rs. 1,35,43,914/- found during the course of survey without properly appreciating the facts of the case and submissions made before him. even when the excess stock as found during the course of survey relates to business carried on by the appellant which being his main source of income is liable to be taxed under section 28 to 44 of the Income-tax Act, 1961 and not under section 69/69A of the Income-tax Act, 1961. Similar view has already been taken by Honble Jurisdiction Bench in the case of Shri Vijay Kumar Surana [ITA No.644/Ind/2019]”
2. There was a survey u/s 133A of the Act in case of the assessee on 20.02.2018. During the course of survey proceedings excess stock of jewellery was fond and consequently the assessee surrendered income of Rs.1,35,43,914/- on account of excess stock in the return of income. The assesse declared total income of Rs.1,40,02,467/- which included income from other sources of Rs.1,35,43,914/- as surrendered during the course of survey. The assessment was completed under the faceless scheme u/s 143(3) r.w. section 143(3A) & 143(3B) of the Act on 16.03.2021 whereby the AO accepted the returned income of Rs.1,40,02,467/-. Thereafter on examination of the assessment record the Pr. CIT found that the order passed by the AO is erroneous so far as prejudicial to the interest of the revenue as the AO has not applied provisions of section 115BBE in respect of the amount surrendered by the assessee on account of excess stock. A show cause notice ITANo.154/Ind/2023 Punya Shree Jewellers u/s 263 was issued on 20.12.2022 which was replied by the assessee vide letter dated 05.01.2023. The Pr. CIT was not impressed with the reply filed by the assessee and has passed the impugned order after relying on various judgments of Hon’ble High Courts as well as Hon’ble Supreme Court. Finally order of AO was set aside on the limited issue of applicability of provisions of section 115BBE and the AO was directed to reframe the assessment order after considering the issue and giving proper opportunity of being heard to the assesse. Aggrieved by the impugned order the assessee has filed the present appeal.
Before the Tribunal the Ld. AR of the assessee has submitted that the assessee is a partnership firm engaged in the business of trading of jewellery. During the course of survey the statement of the assessee was recorded wherein the assessee has surrendered the income of Rs.1,35,43,914/- on account of excess stock. The assessee has offered said income to tax in the return of income at normal tax rates. Ld.AR has submitted that the assessee explained source and nature of the excess stock in his statement recorded during the survey. He has referred to question no.2 and submitted that the assessee has explained nature of business of the assessee firm. He has then referred to question no.4 & 5 and submitted that the assessee has accepted the excess stock of gold & silver jewellery of Rs.1,35,43,914/- and surrendered the said amount to tax as an additional income over and above the regular income of the assesse.
ITANo.154/Ind/2023 Punya Shree Jewellers Ld. AR has submitted that the authorized officer has even calculated the tax on the said surrendered income in question no.5 which was paid by the assessee. Thus, the tax liability of the assessee on the said surrendered income was already calculated at normal rate of tax being the source of the excess stock as unaccounted business income of the assessee. Ld.AR has then referred to the notice issued by the AO u/s 142(1) dated 02.03.2021 along with questionnaire in Annexure to the said notice and submitted that the AO has raised specific query about complete details in respect of income declared during the survey u/s 133A as well as quantitative details of all the valuable items of gold and silver with valuation report showing in the balance sheet for the year under consideration. The assessee filed reply to section 142(1) vide letter dated 08.03.2021 and explained that during the course of survey excess stock of Rs.1,35,43,914/- had been declared by the assesse as current year income. The AO after considering the reply of the assessee has accepted the return income therefore, the AO has conducted due inquiry to verify the correctness of the return of income and after his satisfaction the AO has accepted the return income. Ld.AR has relied upon the judgment of Hon’ble Andhra Pradesh High Court in case of Pr. CIT vs. Deccan Jewellery Pvt. Ltd. and submitted the excess stock as a result of suppression of profit from business over the year cannot be treated as undisclosed investment u/s 69 of the Act and therefore, the provisions of section 115BBE cannot be applied. Ld.AR then relied ITANo.154/Ind/2023 Punya Shree Jewellers upon the decision of Chandigarh, ITAT in case of Gandhi Ram vs. PCIT 197 ITD 677 and submitted that the Tribunal has held that when the AO duly taken cognizance of the statement recorded during the course of survey and passed the assessment order after due application of mind the same cannot be held as erroneous due to lack of inquiry or for that matter requisite inquiry on the part of the AO. Thus, Ld. AR has submitted that when the AO has taken a view that normal tax rate is applicable on the surrendered income then the Pr. CIT is not allowed to invoke the provisions of section 263 of the Act merely because he did not agree with view of the AO. Further the Ld.AR has submitted that provisions of section 263 cannot be invoked for applying higher rate of tax u/s 115BBE. He has also relied upon the following decisions:
1. 1. Pr. CIT vs. Deccan Jewellers (P.) Ltd. 132 taxmann.com 73 2. Pr. CIT vs. Alwar vs. Bajarang Traders (D.B. Income Tax Appeal No.258/2017) 3. Chokshi Hiralal Maganlal vs. DCIT 45 SOT 349 4.
4. DCIT vs. Shri Ram Narayan Birla ITANo.482/JP/2015 5. Gandhi Ram vs. Pr. CIT 145 taxmann.com 109 6. M/s Brij Mohandas Devi Prasad vs. ACIT (ITANo.428/Ind/2022
On the other hand, ld. DR has submitted that the assessee has admitted income on account of excess stock found during the survey and surrendered the same as additional income over and above normal business income of the assessee. Therefore, it was not income form business activity of the assesse but the same will be assessed as income from other sources u/s 69B/69C. Ld. DR has further submitted that tax liability calculated by the authorized Page 5 of 15 ITANo.154/Ind/2023 Punya Shree Jewellers officer at the time of survey is not binding on the AO when the same is not as per the provisions of income Tax Act and particularly section 115BBE of the Act. Ld.DR has referred to the assessment order and submitted that there is complete lack of inquiry on the part of the AO on this issue of applicability of higher rate of tax. The AO has not even raised any question on this issue of applicability of provisions of section 115BBE nor there was any explanation by the assessee for the sources and nature of surrendered income. Ld. DR has relied upon the impugned order of Pr. CIT and submitted that Pr. CIT in para no.4 of the impugned order has referred that the AO has simply accepted that the assesse has incorporated the excess stock in the profit and loss account without examining nature of surrender.
We have considered the rival submissions as well as relevant material on record. The Pr. CIT has invoked provisions of section 263 on the ground that the AO has not conducted due inquiry on the issue of applicability of provisions of section 115BBE in respect of surrendered income of Rs.1,35,43,914/- on account of excess stock found during the survey. Ld. AR of the assessee has challenged the impugned order of the Pr. CIT on the ground that the AO has conducted due inquiry and then accepted the returned income. The AO has issued a notice u/s 142(1) dated 02.03.2021 placed at page no.46 & 47 of the paper book as under:
ITANo.154/Ind/2023 Punya Shree Jewellers ITANo.154/Ind/2023 Punya Shree Jewellers ITANo.154/Ind/2023 Punya Shree Jewellers 5.1 In the said show cause notice the AO has raised two quarries (iv) & (v) regarding the details of income declared during the survey proceedings u/s 133A. In reply the assessee has explained in para 4 of letter dated 08.03.2021 as under: “During the survey proceedings u/s 133A of the Income Tax Act, the excess stock of Rs 1,35,43,914/- has been declared by assessee as current year income. Copy of statement recorded during survey proceedings along with other relevant documents is enclosed.”
5.2 Thus, the AO has issued a limited query to verify the quantum of surrendered income declared during the proceedings u/s 133A and in reply also the assesse has given details of the total amount of income declared by the assessee. As it is apparent and manifest from the show cause notice issued u/s 142(1) as well as reply filed by the assessee that the AO has not taken up the issue of higher rate of tax u/s 115BBE of the Act while passing the assessment order. The assessment order is completely silent about any such query raised or inquiry undertaken by the AO. During the course of survey proceedings the assessee in the statement has surrendered this amount on account of excess stock and also promise to pay the due tax as per provisions of Income Tax Act. The Authorised Officer of survey though calculated the tax liability on the surrendered amount at normal rate of tax however, if the said calculation is not in accordance with the provisions of the Income Tax Act the same would not be binding on the decision of the AO while passing the assessment order.
ITANo.154/Ind/2023 Punya Shree Jewellers 5.2 The AO in the computation sheet of assessment order has given the details of heads of income reported by assesse as under:
ITANo.154/Ind/2023 Punya Shree Jewellers 5.3 Thus, the surrendered income on account of excess stock was declared by the assesse under the head ‘other sources’ and the same was assessed by the AO as income from other sources. There is no quarrel on the point that if the AO has raised the query on this issue of applicability of provision of section 115BBE which was replied by the assessee then question of lack of inquiry does not arise. However, in the case of the assessee the AO has not even taken up this issue despite the income was assessed as income from other sources and therefore, this case does fall in the category of complete lack of inquiry on the part of the AO. The Pr. CIT has considered this issue in pra 4 to 6 of the impugned order as under:
“4. I have considered the written submission of the assessee and have perused the documents available on records. On examination of the records, it is found that the applicability of Section 115BBE is clearly applicable owing to the fact that the assessee has offered the entire unaccounted income admitted during the course of survey for taxation in the form of unaccounted stock by showing additional income, which in turn proves beyond doubt the admittance on the part of the assessee that they had unaccounted stock of Rs. 1,35,43,914/- as on the date of survey which should have been treated as unexplained investment within the meaning of Section 69/69A of the Act which is liable to be taxed under the provisions of Section 115BBE. The AO has completely ignored the section 115BBE, inserted in the Income Tax Act with effect from 1st day of April, 2013, which clearly lays out the path that as to how the taxation rates will be applied in respect of addition made under section 68, section 69, section 69A, section 69B, section 69C or section 69D. AO has simply accepted that the assessee has incorporated the excess-stock in the P&L account without examining the nature of surrender. Needless to mention that the function of assessing authority is not only of adjudicator but also of investigator. In the present case, it is quite apparent from assessment-order that the AO has not made requisite Page 11 of 15 ITANo.154/Ind/2023 Punya Shree Jewellers enquiry to ascertain the nature and tax implications of the impugned incomes. Reliance is placed on the decision of hon'ble ITAT at Indore in the case of Chandan Garments Private Ltd. Vs PCIT (ITAT Indore) dated 02/12/2022 wherein PCIT's action u/s 263 was upheld for invoking Section 115BBE in a surrender case.
5. In view of the facts narrated in para 4, it is clear the A.O. has failed to do proper enquiry on the issue at the time of assessment proceedings hence, the assessment order passed by the Assessing Officer is erroneous in so far as it is prejudicial to the interest of revenue. The A.O. has not applied his mind. Non-application of mind leads to order passed by the Assessing Officer being erroneous in so far as it is prejudicial to the interest of revenue. Section 263 of the IT Act empowers the Principal Commissioner of Income- tax ('PCIT') to revise assessment orders which are "erroneous" in so far as they are prejudicial to the interests of the Revenue. To expand the term "erroneous" in Section 263 of the IT Act, Explanation 2 was inserted by way of the Finance Act, 2015 with effect from June 01, 2015. The rationale for inserting this Explanation, as stated, was to bring clarity to the meaning of the expression "erroneous", given that Courts had, so far, interpreted the expression in a narrow manner. With the insertion of this Explanation, specifically clause (a), an assessment order passed without making inquiries or verification, which should have been made/conducted by the Assessing Officer, would also be amenable to exercise of jurisdiction under Section 263 of the IT Act. In the case reported in [2012] 24 taxmann.com 215 (Gauhati), Commissioner of Income-tax v. Jawahar Bhattacharjee, the Hon'ble high court of Gauhati has held: "The object of section 263 is to correct an erroneous order prejudicial to the interest of revenue, as the department has no right to file an appeal against the order of the Assessing Officer. While the power is not meant to be substitute for the power of the Assessing Officer to make assessment, the same can certainly be exercised when order of the Assessing Officer is erroneous and prejudicial to the interest of the revenue" Further, the Hon'ble High Court of M.P. in the case of CIT Vs Deepak Kumar Garg, 299 ITR 435 has held as under: "From the order of the assessing officer, it is clear that for want of time, assessing officer had done only a semblance of enquiry and that too, in very slip-shod manner, as is clear from the post script in Page 12 of 15 ITANo.154/Ind/2023 Punya Shree Jewellers the order of assessing officer. Assessing Officer accepted the version of the assessee without proper enquiry as a result substantial amount of taxable income was not brought to tax. In such case assessment order would be erroneous and prejudicial to the interest of the revenue because law enjoins upon the assessing officer to make assessment order bringing all taxable income to tax. The enquiry held in a perfunctory manner could not be said to be a proper enquiry before passing the assessment order. This cannot be ground to shut out the jurisdiction of the Commissioner that an adequate enquiry was conducted by the assessing officer. We may clarify that order of the Commissioner is in two parts. Part one consists of reasons for issuing the show cause notice, and later part deals with findings recorded by the Commissioner after affording opportunity of hearing to the assessee. As stated above, Commissioner has recorded a categorical finding that order of assessing officer for want of adequate enquiry, was erroneous and prejudicial to the interest of revenue and after setting aside the assessment order, remanded the matter to the assessing officer for fresh assessment on merits. The Commissioner also directed assessing officer to observe rules of natural justice and to provide opportunity of hearing to assessee before making fresh assessment order on merit. This adequately safeguards the interest of the assessee and would cause no prejudice.In Daga Entrade (P.) Ltd.'s case [(2010) 327 ITR 467], the Hon'ble Gauhati High Court held that if the order of the Assessing Officer was passed ignoring relevant material, causing prejudice to the interest of the revenue, suo-moto revisional jurisdiction could be exercised by the Commissioner, In the case of Daniel Merchants Private Limited vs. ITO (Supreme Court) reported in (SC 23976/2017) hon'ble SC dismissed SLP and held: "In all these cases, we find that the Commissioner of Income Tax had passed an order under Section 263 of the Income Tax Act, 1961 with the observations that the Assessing Officer did not make any proper inquiry while making the assessment and accepting the explanation of the assessee(s) in so far as receipt of share application money is concerned. On that basis the Commissioner of Income Tax had, after setting aside the order of the Assessing Officer, simply directed the Assessing Officer to carry thorough and detailed inquiry. It is this order which is upheld by the High Court. We see no reason to interfere with the order of the High Court. The Special Leave Petitions are dismissed."
ITANo.154/Ind/2023 Punya Shree Jewellers In the case of CIT vs. Amitabh Bachchan 384 ITR 200 (SC) the hon'ble Supreme Court has held: "Even if AO applies mind and decides not to assess expenditure as unexplained u/s 69C because the assessee withdrew the claim for deduction, the CIT is entitled to revise the assessment on the ground that the matter needed further investigation" Reliance is also placed on the order of the hon'ble SC in Rajmandir Estates P. Ltd. V. Pr.CIT (245 Taxman 127 (SC)) wherein the order under 263 was upheld due to lack of requisite enquiry by AO. As discussed in para 4 above, the Assessment Order is held "erroneous" in so far as it is prejudicial to the interest of the revenue. I, accordingly set aside the assessment order on the limited issues discussed in para 4 above. Accordingly, I direct the assessing officer to tax the stock surrender addition of Rs. 1,35,43,914/- under section 69/69A r.w.s. 115BBE of the IT Act 1961 in the limited set- aside proceedings. Assessing Officer is also directed to initiate penalty proceedings under section 271AAC of I.T.Act 1961 in the limited set-aside proceedings as the AO has initiated penalty proceedings in a wrong section in the original order (in view of the fact that the AO has failed to invoke Sec. 115BBE resulting in penalty getting invoked in Sec. 270A).
6. In the result, for the reasons mentioned above, the assessment order u/s 143(3) r.w.s. 143(3A) & 143(3B) dated 16.03.2021 for Assessment Year 2018-19 is directed to be set aside on the limited issues as discussed above. The Assessing Officer is directed to reframe the assessment order after considering above said issues after giving proper opportunity of being heard to the assessee.”
5.4 Thus, the Pr. CIT has referred and relied upon various decisions including the decision of the jurisdictional High Court in case of CIT vs. Deepak Garg 229 ITR 435 as well as decision of the Hon’ble Supreme Court. Accordingly in the facts and circumstances of the case we do not find any error or illegality in the impugned order of the Pr. CIT setting aside the order of the AO on the issue of applicability of the provisions of section 115BBE as there is a complete lack of inquiry on the part of the AO on this issue. The Page 14 of 15 ITANo.154/Ind/2023 Punya Shree Jewellers decisions relied upon by the Ld.AR of the assessee will not help the case of the assessee when there is a complete lack of inquiry on the part of the AO. The AO shall consider and decide this issue in accordance with provisions of section 115BBE of the Act after considering relevant facts and in accordance with law. We have not expressed any view on the merits of the issue.
In the result, appeal of the assessee is dismissed.
Order pronounced in the open court on 21 .12.2023.