Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, RAJKOT BENCH, RAJKOT
Before: SMT.ANNAPURNA GUPTA & MS. SUCHITRA R. KAMBLE
PER ANNAPURNA GUPTA, ACCOUNTANT MEMBER
Present appeal has been filed by the assessee against order passed by the ld. Principal Commissioner of Income Tax-I, Rajkot [hereinafter referred to as “ld.CIT(A)”] dated 25.01.2022 passed under section 263of the Income Tax Act, 1961 [hereinafter referred to as "the Act" for short]for the Asst. Year 2017-18.
The grounds raised by the assessee are as under:
1. That on the facts and circumstances of the case and in law, the order passed by the Principal Commissioner of Income-tax (PCIT) Rajkot-1, u/s 263 of the Income-tax Act, 1961 ('the Act') setting aside the assessment framed u/s 143(3) of the Act as erroneous and prejudicial to the interest of the revenue is without jurisdiction, bad in law and void ab-initio. 2.0 That on the facts and circumstances of the case and in law, the Principal Commissioner of Income-tax (PCIT) Rajkot-1 erred in holding that the assessment order is erroneous and prejudicial to interest of revenue on the issue of applicability of section 115BBE. 2.1 That on the facts and circumstances of the case and in law, the Principal Commissioner of Income-tax (PCIT) Rajkot-1 erred in exercising jurisdiction u/s 263 by setting aside the aforesaid issue even though the same had been discussed and scrutinized by the Assessing Officer in detail while framing the assessment u/s 143(3) of the Act. 2.2 That on the facts and circumstances of the case and in law, the Principal Commissioner of Income-tax (PCIT) Rajkot-1 erred in setting aside the order by stating that the assessing officer has not conducted any inquiries or applied his mind on the issue of applicability of section 69A and section 115BBE of the Act.
As transpires from the order of the ld.Pr.CIT, revisionary powers were exercised finding the assessee to have been incorrectly allowed the income surrendered by it during survey ,of Rs.15.00 lakhs, to be treated as being in the nature of business income liable to tax @ 30%,which , as per the Ld.PCIT, ought to have treated as unexplained income/credit u/s 68 of the Act, and subjected to tax at a higher rate i.e. 60% as prescribed under section 115BBE of the Act.
The facts which emerge out of the order of the ld.Pr.CIT are that during the impugned year, survey action under section 133A of the Act was carried out on the assessee on 26.02.2017, and during the course of survey, the assessee made a disclosure of Rs.15 lakhs as unaccounted receipts. The assessee being in medical practice, had made such surrender and returned the same as his professional receipts, taxed at the normal rate i.e. 30% plus surcharge at 12%. As per the ld.Pr.CIT, the AO had made no inquiries nor considered
3 the record of survey before accepting the surrender as pertaining to its professional receipts. That the said income surrendered ought to have been taxedat the rate of 60% plus surcharge at 25% of such tax u/s 115BBE of the Act in the absence of any valid explanation of the source of the same. Accordingly, the Ld.PCIT held that the AO had mistakenly not charged the undisclosed income with wrong application of law, and without verifying the facts on record.
We have noted from the order of the ld.Pr.CIT that on issuance of show cause notice to the assessee by the ld.Pr.CIT due reply was filed by the assessee, and after going through the said reply and the records of the assessee, the ld.Pr.CIT found that the assessee had explained that the surrender made pertained to his professional receipts. But he noted that this fact was not verified by the AO either from the records pertaining to survey, the statement recorded during survey or the outcome of any inquiry during the course of survey, or any assessment proceedings. As per the ld.Pr.CIT, the AO had not carried outany verification from the records of survey proceedings nor made any independent inquiry before accepting the assessee’s claim that the disclosure pertained to his professional receipts, and this lack of inquiry on the part of the AO, according to the ld.Pr.CIT, had resulted in the assessment order being erroneous causing prejudice to the Revenue. His finding in this regard at para 5 and 6 of the order are as under:
“5. I have gone through the records carefully. It may be mentioned that two essentials condition for invoking the provisions of section 263 of I.T. Act are that the order passed by the AO is erroneous and prejudicial to the interest of revenue. The assessee has submitted that he has disclosed the unaccounted professional receipts during the course of survey and the source of income was the medical practice which has been explained in the statement recorded u/s.131(1A) of the Act. The assessee's submission that the undisclosed income was professional receipt or otherwise needs verification from the facts available on record including the records pertaining to survey proceedings. To determine the issue one has to go to the records / documents found during the course of survey, the statements recorded of the assessee and outcome of any enquiries during the course of survey and thereafter in the assessment proceedings. However, none of the above verifications have been carried out by the AO while completing the assessment which ought to have been done so to determine the taxability under the provisions of section 115BBE of the Act.
6. The above facts will indicate that AO has not conducted any inquiries / applied his mind and law in respect of taxing the undisclosed income @ 60% as per the provisions of section 115BBE of IT Act. Such cases where the assessment has been completed without conducting any inquiries tantamount to erroneous orders as also order prejudicial to the interest of Revenue. For such proposition of law. Reliance is made on following cases:
1 Rampyari Devi Sarogi Vs. CIT (SC) 67 ITR 84 2. Malabar Industrial Co. Ltd. Vs. CIT(SC) 243 ITR 83 3. Swarup Vegetable Products Industries Ltd. Vs. CIT (ALL) 187 ITR 412 4. Gee Vee Enterprises Vs. Addl.CIT&Ors (Del.) 99 ITR 375 5 Rajalakshmi Mills Ltd. Vs. ITO (ITAT, SB-Chennai) 121 ITD 343, 313 ITR(AT) 182 6 SRM Systems & Software Pvt. Ltd. Vs. ACIT 2010-TIOL-646-HC- MAD-IT. 7 Shakti Credits Ltd Vs. CIT 2015 Tax Pub (DT) 3058 (Luck.'A1 Trib) 8. Shoreline Hotel Pvt.Ltd. Vs. CIT 2015 Tax Pub (DT) 2982 (Mum.'E" Trib.) 9. Kapil Ratan Associates Vs CIT 2015 Tax Pub (DT) 2931 (Mum.'A1 Trib) 69 SOT 188 (Mum.) 10. Swadeshi Vilas Private Ltd Vs. ACIT dated 25- 09-2013 The Hon'ble Supreme Court in the case of Malabar Industrial Co. Ltd. Vs CIT [2000] 109 Taxman 66 (SC)/[2000] 243 ITR 83 (SC)/[2000] 159 CTR 1 (SC), has also affirmed the same proposition of law.”
The ld.Pr.CIT also referred to the Explanation-2 to section 263 of the Act to strengthen his case, pointing out that as per the said Explanation, the order passed by the AO shall be deemed to erroneous causing prejudice to the Revenue, if the order is passed without made any inquiry to the claim. His findings in this regard at para 8-9 of his order are as under:
"Explanation 2.-For the purposes of this section, it is hereby declared that an order passed by the Assessing Officer shall be deemed to be erroneous in so far as it is prejudicial to the interests of the revenue, it, in the opinion of the Principal Commissioner or Commissioner, -
(a) The order is passed without making inquiries or verification which should have been made; 5 (b) The order is passed allowing any relief without inquiring into the claim; (c) The order has not been made in accordance with any order, direction or instruction issued by the Board under section 119; or (d) The order has not been passed in accordance with any decision which is prejudicial to the assessee, rendered by the jurisdictional High Court or Supreme Court in the case of the assessee or any other person.
9. As per the Explanation 2, the order passed by the Assessing Officer shall be deemed to be erroneous in so far as it is prejudicial to the interest of the revenue if the order is passed allowing any relief without inquiring into the claim.
However, the AO did not conduct any such inquiries or verification and simply accepted the assessee's submission. In this manner the assessee's case is also covered under para 'a' of Explanation 2, of section 263(1) of I. T. Act. Therefore the order passed by the AO is erroneous and prejudicial to the interest of revenue to that extent.”
Thus, the finding of the error by the ld.Pr.CIT in the assessment order in the present case is vis-à-vis lack of inquiry by the AO on the issue of surrender made by the assessee during the survey, before accepting it as professional receipts of the assessee.
Having gone through the order of the Ld.PCIT, the assessment order passed u/s 143(3) of the Act sought to be revised by the Ld.PCIT and having heard both the parties and considered all documents referred to before us, we hold that the impugned order passed u/s 263 of the Act is not sustainable .And the reason for the same is that we do not find any basis for the finding of error by the Ld.PCIT pertaining to lack of inquiry on the issue of income surrendered by the assessee, that in fact the records reveal to the contrary that due inquiry was conducted by the AO who had thereafter taken a plausible view accepting the surrender as relating to the business income of the assessee liable to tax at the rate of 30%.
During the course of hearing before us the ld. counsel for the assessee pointed out from documents placed in paper book and facts
6 on record that the due inquiry on the issue of surrender of Rs.15lacs made by the assessee during survey was conducted by the AO and the view taken by the AO of accepting the assessee’s surrender as being in the nature of professional income was a plausible view.
He pointed out that a specific query in this regard was raised during assessment proceedings, to which due reply was filed by the assessee. Our attention was drawn to the PB Page No.16 being notice u/s 142(1) of the Act issued during assessment proceedings, specifically asking the assessee regarding declaration of unaccounted receipts of Rs.15 lakhs, and as to why it is not to be taxed under section 69 read with section 115BBE of the Act. The said show cause notice is reproduced hereunder:
Our attention was drawn to the reply filed by the assessee in response to this show cause notice, explaining that the assessee being in the medical profession, the amount surrendered was unaccounted professional receipts declared as such in his duly
7 audited financial statement also, and accepted by the officials of the Department during the survey, who had taken cheque for tax on the same, accepting it as professional receipts of the assessee. The relevant reply dated 25.12.2019 was placed before us at PB Page No.24 to 26 as under:
Our attention was also drawn to the statement recorded of the assessee during the survey translated in English, placed before us at page No.53 to 54, wherein it was pointed out that to a specific question no.2, asking the assessee about his business/professional activity, the assessee had stated to be a MD doctor, doing medical practice at Parli Cosmetic Laser Centre, and that he mainly worked on skin diseases and cosmetic laser surgery.
Another specific query, being question no.10 was also pointed out as raised regarding his approximate income for the year, in response to which the assessee surrendered Rs.15 lakhs on account of additional unaccounted professional receipts. They read as under:
It is clearly evident from the above that inquiries were conducted by the AO regarding the nature of income surrendered during survey by the assessee.
Our attention was also drawn to judicial pronouncements to the effect that where the assessee has no other source of income, other than the business income and the AO had conducted inquiry and perused the details submitted, and taken a decision to accept the explanation provided by the assessee after proper application of mind, the provision of section 115BBE of the Act could not be invoked to tax the income as deemed income. That therefore the view of the ld.Pr.CIT invoking the provisions of section 263 on this aspect was not justified. Reference in this regard was made to the decision
11 of ITAT, Bangalore Bench in the case of Karthik Estate Vs. Pr.CIT, dated 24.8.2022. Copy of the order was placed before us.
Our attention was also drawn to various decisions of the ITAT holding surrender made by the assessee relating to its business or professional receipts,to be accepted as such in circumstances, where no other identifiable assets or expenditure was found by the Department for invoking section 69A/B/C of the Act, in the case of Fashion World Vs. ACIT, and in the case of Bajaj Sons Ltd. Vs. DCIT, ITA No.1127/Chd/2019.
It is clearly evident from the above that the assessee had surrendered Rs.15 lakhs in the statement recorded during survey as pertaining to his unaccounted professional receipts. The Department had not come across any assets or expenditure, which could be termed as incriminating in nature, on confronting which the assessee had made impugned surrender. In fact, the statement reveals that the surrender was voluntarily made by the assessee in response to the query as to what is to be its income for the year. In the absence of any material found during survey provoking surrender by the assessee, and in light of the fact that the assessee had voluntarily surrendered its professional receipt of Rs.15 lakhs, disclosed the same in its financial statements, which was duly audited, the acceptance of the same by the AO as professional receipts evidently was in accordance with judicial pronouncements and therefore justified.
The Ld.PCIT, we find, has ignored all the above facts as well as legal propositions which were very much part of record before him, and went on to hold that no inquiry was conducted by the AO on the 12 issue of surrender of income during survey by the assessee. Even the Ld.DR was unable to controvert the above facts pointed out by the Ld.Counsel for the assessee before us.
The Ld.PCIT’s finding of non inquiry vis-a-vis the documents and statements recorded during survey, is not based on any hard facts. In fact, the facts on record reveal AO having conducted due inquiry on the issue of surrender made by the assessee and considering the statement of the assessee during survey making voluntary surrender of professional unaccounted receipts , his acceptance of the surrender as business income is in accordance with law .
The Ld.PCIT has merely stated no inquiry conducted by the AO on the records of survey before him, but not pointed out how and on what basis he arrived at this finding.Merely stating that the AO has not examined the records/documents pertaining to the survey cannot be basis for finding the assessment order erroneous. The documents pertaining to the survey form part of the record which was there before the Ld.PCIT also and was required to be examined by him for finding error in the assessment order. He was duty bound to go through these records, and point out how the documents pertaining to the survey revealed the acceptance of Rs.15 lakhs surrender made by the assessee as business income, to be an error on the part of the AO. The ld.Pr.CIT – could have arrived at a valid finding of error on the basis of his own examination of records including document or statement recorded of the assessee during survey action undertaken by him under section 133A of the Act. He has not pointed out as to how the documents pertaining to survey
13 could not have lead to a reasonable belief as entertained by the AO that the income surrendered pertained to his professional receipts.
We therefore hold that there is no basis for the finding of error by the Ld.PCIT of no inquiry by AO in the assessment framed in the present case and the facts on record reveal otherwise. The order passed u/s.263 of the Act is therefore held to be without valid jurisdiction and is therefore not sustainable in law.
The view taken by the AO is a plausible view on the matter.
The order of passed by the ld.Pr.CIT under section 263 of the Act is hereby set aside, and the appeal of the assessee is allowed.
In the result, the appeal of the assessee is allowed.