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Income Tax Appellate Tribunal, BENCH : COCHIN
Before: SMT. BEENA PILLAI & Ms. PADMAVATHY S.
Date of hearing : 13.01.2023 Date of Pronouncement : 20.01.2023 O R D E R
Per Padmavathy S, Accountant Member:
This appeal is against the order u/s. 263 of the Act passed by the Principal Commissioner of Income Tax, Kochi-1 dated 25.3.2022 for the assessment year 2017-18.
2. The assessee is an individual engaged in the business of dealership in Yamaha Two Wheelers. The assessee filed the return of income for assessment year 2017-18 on 7.3.2018 declaring a total income of Rs.22,20,333. The assessment was taken up for scrutiny under CASS and statutory notices were duly served on the assessee.
3. The AO during the course of hearing made an addition of Rs.3,99,70,930 towards unexplained creditors to the capital account of the assessee. The relevant extract from the AO’s order is as given below:-
“1. On going through the Income Tax Returns for the following A.Yrs. 2016-17 and 2017-18, there is an increase of the assessee's Capital account to the tune of Rs.4,21,91,260/- during the financial year 2016-2017. The total income returned for the A.Y. is only Rs. 22,20,330/- against such increase. In this connection, the assessee was requested to furnish the real source of your income which have been credited to his capital account.
The assessee had not furnished any evidences for the credits in his Capital account, during the, financial year other than the income returned as per the ITR, for the A.Y.2017-18. Thus, the expenditures in the asset side of the Balance Sheet as on 31.03.2017 of the assessee, against the amount of credits I in the Capital account as on 31.03.2017, is not explained by the assessee.
Accordingly, a sum of Rs.3,99,70,930/- ( Rs. 4,21,91,260/- minus Rs. 22,20,530/- as discussed above total income returned) is charged to tax as the income of the financial year 2016-17, relevant to the A.Y: 2017-18.”
The AO also made an addition of Rs.21,27,000 towards cash deposited by the assessee in the bank account during demonitisation period in Special Bank Notes (SBN) as undisclosed income. Accordingly the AO levied tax u/s. 115BBE on the undisclosed income. The credit to the capital account to the tune of Rs.3,99,70,930 was taxed at normal rates. Subsequently, the PCIT issued a show cause notice u/s. 263 for the reason that the unexplained credits to the capital account of the assessee was treated as business income and taxed at normal rate whereas the same should have been taxed u/s. 68 and accordingly should have been taxed u/s. 115BBE. To this extent, the PCIT was of the opinion that the order is erroneous and prejudicial to the interests of the revenue. The assessee submitted that the AO has taken a definite stand that the income is assessable under the head profits & gains of business or profession and such an inference cannot be faulted with as it is one of the plausible ways of earning income according to the AO. The assessee further submitted that it is settled law that when there are two options possible and the AO has opted one of the two options, then the PCIT cannot exercise his jurisdiction u/s.
The assessee further submitted that when the income is assessed under the head ‘profits & gains of business or profession’, then the same cannot be taxed u/s. 115BBE. The PCIT did not accept the submissions of the assessee and proceeded to set aside the order of the AO by holding that –
“6.1 It is a fact that the assessee admitted an income of Rs.22,20,330/- in his return of income for the AY 2017-18. During the course of assessment proceedings, it was seen that there was an increase in the assessee's capital account to the tune of Rs.4.21 crores. It was further seen that the assessee had deposited Specified Bank Notes (SBN) post demonetization in his bank account amounting to Rs.21.27 lakhs. In the absence of any explanation from the side of the assessee regarding the source for such credits/cash deposits, the AO treated them as unexplained and brought them to tax. While the unexplained cash deposits were taxed at prescribed rates u/s 115BBE @ 60% plus surcharge © 25%, the unexplained credits in the capital account was omitted to be taxed at these prescribed rates in accordance with provisions of section 115BBE. These unexplained credits found in the capital account amounting to Rs.3.99 crores ought to have also been taxed at special rates specified u/s 115BBE. But the AO failed to do so. 6.2 During the course of present revisionary proceedings u/s 263, the assessee submitted that the AO had treated the credits to the capital account as income under the head 'Profits and Gains of Business or Profession' and hence this income is not liable to be taxed under provisions of Section 115BBE. Further, the additions made by the AO, as stated by the assessee, are subject matter of appeal before the CIT(A) and according to the assessee, no revisionary proceedings will lie u/s 263. This view of the assessee is incorrect. As and when unexplained credits are determined by the AO, such sums of money should be taxed under the special rates specified u/s 115BBE. It is a fact that the AO has not subjected such unexplained credits in' the capital account at special tax rates specified u/s 115BBE. The assessee's further view is that since he has preferred appeal before the CIT(A) against the additions made by the AO, the present revisionary proceedings will not lie. But one can notice that the present revisionary proceedings are concerned with the incorrect adoption of tax rates on certain unexplained credits determined by the AO and are not concerned with the merits of the additions made by the AO in the impugned assessment order. To this extent, the appellate proceedings before the CIT(A) is distinguishable as against the revisionary proceedings before the undersigned and therefore the present revisionary proceedings is very much in order. In any case, it is apparent that the AO has wrongly adopted the tax rates while calculating the tax demanded on the amount of Rs. 3.99 crores being the unexplained credits in the assessee's capital account. 6.3 From the brief discussion as narrated above in the earlier paragraphs, it is evident that the AO has incorrectly assumed the facts of the case and has incorrectly applied the provisions of the Act in as much as tax rates have been wrongly adopted and tax demand incorrectly raised. In my view, the AO has passed the impugned assessment order in an erroneous fashion which is also prejudicial to the interest of the revenue.”
Aggrieved, the assessee is in appeal before the Tribunal.
6. The assessee raised the following grounds:-
“1. The learned Principal Commissioner of Income Tax erred in invoking the provisions of Section 263 of the Income Tax Act in the manner in which it has been done.
2. The learned Principal Commissioner of Income Tax ought to have appreciated that this is not a case where provisions of Section 115BBE of the Income Tax Act apply to the addition of Rs. 3,99,70,930/- made in the assessment.
3. The learned Principal Commissioner of Income Tax ought to have noticed that the Assessing Officer consciously made the addition under the head "Business" as could be seemed from Page-2 of the assessment order.
4. The learned Principal Commissioner of Income Tax ought to have noticed that the appellant had a turnover of Rs. 9,84,68,896/- income returned by the appellant is not sufficient and accordingly added to the total income. Therefore the question of invoking Section 115BBE in respect of such an addition does not arise.
5. The learned Principal Commissioner of Income Tax ought to have appreciated that the addition itself is a subject matter of appeal before the Commissioner of Income Tax (Appeals), so much so the question of invoking the provisions of Section 263 of the Income Tax Act does not arise.
The findings of the learned Principal Commissioner in Para- 7 is perverse and mere setting aside of the assessment for examination and passing a speaking order is bad in law.
Appellant prays that the order of the PCIT u/s 263 may be quashed.”
The ld. AR reiterated the submissions made before the lower authorities. The ld. AR submitted that the addition of Rs.3,99,70,930 is in appeal before the CIT(A) and therefore the provisions of section 263 are not attracted to such issue. In this regard, the ld. AR relied on the decision of the Hon’ble Supreme Court in the case of CIT v. Shri Arduda Mills Ltd., 231 ITR 50 (SC) followed again by the Supreme Court in the case of CIT v. Jaykumar B Patil, 236 ITR 469 (SC). The ld. AR without prejudice submitted that the AO has categorically mentioned that the asset side of the balance sheet exceeds the liabilities side and the credits in the capital account represents income of the FY 2016-17 which substantiates the fact that the AO has clearly taken a definite stand that the income is assessable under the head profits & gains of business or profession. The ld. AR also submitted that the case of the assessee is covered u/s. 44AB of the Act and the audit report was available with the AO at the time of assessment wherein the assessee has reported a turnover of Rs.12,35,47,974 which influenced the AO to infer that the income by way of credit is out of the assessee’s business income. The ld. AR also submitted that when the particular income is assessed as business income, then it cannot be stated that the provisions of section 115BBE should have been applied and that the income is liable for tax only at the normal rate as applicable.
The ld. DR relied on the order of the PCIT.
We have heard the rival submissions and perused the material on record. We notice that the AO in the assessment order the extract of which is reproduced in the earlier part of this order has given a clear finding that the assessee was requested to furnish the real source of income which has been credited to his capital account and that the assessee had not furnished any evidence for the same. The AO has also given a finding in the assessment order that the assessee has misrepresented his real income to the extent of unexplained difference in the capital account between two balance sheet dates. From these findings of the AO, it is clear that the source for credit in the capital account is not explained by the assessee. The contention of the ld. AR that when the income is taxed under the head profits & gains of business or profession, the same cannot be taxed u/s. 115BBE is not acceptable since the PCIT has held the order of the AO to be erroneous for the reason that the AO has not verified the source of the credit to the capital account and when the source is not explained, the same needs to be taxed u/s. 115BBE. The argument of the ld. AR that the AO has taken one plausible view of the unexplained capital to be treated as business income is not tenable as the AO himself has admitted the fact that source is unexplained and when the source is not explained it is not correct on the part of the AO to treat credit to the capital account as business income without any substantiation. We therefore no reason to interfere with the order of the PCIT setting aside the order of assessment u/s. 263 of the Act.
In the result, the assessee’s appeal is dismissed.
Pronounced in the open court on this 20th day of January, 2023.