TIRATH DASS (PROP M/S FANCY JEWELERS ),HARYANA vs. PR, CIT, ROHTAK

The Ld. PCIT, in exercise of jurisdiction conferred on him under section 263 of the Act issued the following show cause notice.

The assessment record for the period under consideration was called upon and examined. On such examination, it has been noticed that survey action u/s 133A was carried out at your business premises on 16.09.2016 in which you have offered an additional income of Rs. 90,63,000/- apart from normal business income which is largely in the nature of unexplained income which is liable to be added u/s 68/69/69A/698/69C of the Act As per your ITR, you have shown the surrender income as income from other sources and have paid taxes as per normal slab rates instead of tax payable at the rate of 60% u/s 115BBE of the Income Tax Act, 1961. However, neither you have furnished any proper explanation for paying tax at low rates, nor the AO has called for any documentary evidences/proper explanation for the same. In absence of any supporting documentary evidence and proper explanations, re-computation of tax is required to be made on surrendered income at the rate of 60% u/s 115BBE of the Act. Failure on the part of the AO to do so renders the assessment order erroneous in so far as it is prejudicial to the interest of revenue.

In view of the above, the assessment completed by the AO is, prima facie erroneous in so far as it is prejudicial to the interest of revenue. The same is, therefore, required to be suitably amended/modified u/s 263 of the Income Tax Act, 1961. You are, therefore, required to show cause as to why an appropriate order u/s 263(1) of the Act setting aside the assessment order passed as on 20.12.2019 should not be passed. In this connection, you may send your written reply along with supporting documentary evidences on the email-id( rohtak pcit@incometax.gov.in) or through e-proceedings by 16.02 2022. In case of no reply is received, it shall be assumed that you do not wish to say anything in the matter and the matter would be decided as per material on record without any further notice/intimation to you.”

The assessee submitted a detailed reply before the Ld. PCIT which appears at pages 121-127 of the Paper Book challenging the applicability of the provisions of section 263 of the Act to the facts of the assessee’s case.

The submissions/contentions of the assessee were not acceptable to the Ld. PCIT being devoid of merits. According to him, the surrendered income was in the nature of unexplained cash and unexplained stock and the same was liable to be added as income from other sources and tax was liable to be paid @ 60% under section 115BBE of the Act which the Ld. AO failed to do. Therefore, his order was erroneous and prejudicial to the interest of Revenue which he set aside with direction to the Ld. AO to pass fresh order in accordance with law.

Aggrieved, the assessee is in appeal before the Tribunal and all the grounds relate thereto.

At the very outset, the Ld. AR pointed out that it is a covered matter in favour of the assessee by the decision of the ITAT Delhi rendered on 30.11.2022 in for AY 2017-18 in the case of Shri Bharat Malhotra Prop. Shri Nathji Jewels, Karnal, Haryana who is son of the assessee. A copy thereof was placed on record. The Ld. AR submitted that the facts of the assessee’s case are exactly the same as those of his son. He submitted a chart showing therein the facts of the case of the assessee and facts in the case of his son. The Ld. AR therefore urged that the decision (supra) of the Tribunal in the case of the son of the assessee be followed in the case of the assessee before us.

The Ld. CIT-DR conceded that the facts of the assessee’s case are exactly the same as those of his son’s case. It was also agreed that applicability of the amended provision of section 115BBE is debatable. It was, however, contended that the Ld. AO had not conducted enquiry in the case.

We have considered the submissions of the parties and perused the record. We have gone through the decision (supra) of the Tribunal in the case of Shri Bharat Malhotra and observe that in his case also survey under section 133A was conducted on 15.09.2016 wherein he had admitted additional income of Rs. 9.50 lakh largely on account of unexplained cash. The assessee had e-filed his return on 17.10.2017 declaring income of Rs. 13,52,590/-. The case was selected for scrutiny and assessment under section 143(3) was framed at the returned income of the assessee. The Ld. PCIT set aside the assessment exercising jurisdiction conferred on him under section 263 of the Act. It is thus obvious that facts of the assessee’s case are identical with the facts of the case of Shri Bharat Malhotra. In both the cases the Ld. PCIT was of the view that the surrendered income was in the nature of unexplained cash and the same was liable to be added under section 68 of the Act and tax was liable to be paid at the rate of 60% under section 115BBE of the Act.

At this juncture, it is expedient to reproduce the relevant findings recorded by the Tribunal in Shri Bharat Malhotra’s case (supra) herein below:-

Taking a leaf out of the amended provisions, the PCIT was of the opinion that the tax rate should have been 60% instead of 30%, because of which the assessment order has become prejudicial to the interest of the Revenue.

The moot point is as to whether the amendment is prospective or retrospective as on the date of survey he amended provisions were not there in the statute. 17. In our considered opinion, this is clearly a debatable issue which cannot be subject matter of assumption of jurisdiction u/s 263 of the Act. 18. A perusal of section 115BBE of the Act shows that where the total income of the assessee includes any income referred to in sections 68, 69, 69A, 69B, 69C or 69D, the income tax payable shall be @ 30% on income so referred to in the said sections. Further, in terms of amended provisions of section 115BBE of the Act by Taxation Laws, Second Amendment Act 2016, it provides that where the total income of the assessee includes any income referred to in sections 68, 69, 69A, 69B, 69C, and 69D and reflected in the return of income furnished under section 139 or total income of the assessee determined by the assessing officer, any income referred to in sections 68, 69, 69A, 69B, 69C, or 69D if such income is not reflected in the return of income furnished under section 139 of the Act, income tax payable shall be @ 60% on income so referred in the said section. 19. Change which has been brought about in the provisions relates to income so referred to in the afore-stated sections so defined which is either not reflected in the return of income or determined by the assessing officer and in both the cases it will be covered by the provisions of section 115BBE of the Act and the rate of taxation has been increased from 30% to 60% on such specified income. 20. There is, therefore nothing stated in the pre-amended or post amended provisions of section 115BBE of the Act that where the assessee surrenders undisclosed income during search action for the relevant year, the tax rate has to be charged as per provisions of section 115BBE of the Act. Therefore, the applicability of the amended provisions which prompted the PCIT to assume jurisdiction under section 263 of the Act is highly debatable issue, and therefore, in our understanding of the law, the PCIT has wrongly assumed jurisdiction. 22......................... the declaration made by the assessee before the JCIT, Karnal Range, Karnal, vide letter dated 16.11.2016 clearly and categorically states: “During the course of this operation, cash has been found in excess at the business premises when compared to cash available in our books of account. The assessee hereby offers to surrender 13 an additional income of Rs. 9,50,000/- on account of above discrepancy in addition to any regular income for the year ending 31.03.2017.” 23. The above offer was clear that the assessee is surrendering the income in addition to his regular income, which is business income and, therefore, the income surrendered by the assessee is also part of business income. 24. Merely because in the return of income inadvertently an amount has been shown under the head “Income from other sources”, would not change the colour of income surrendered. 27. It is a settled position of law that powers u/s 263 of the Act can be exercised by the Commissioner on satisfaction of twin conditions, i.e., the assessment order should be erroneous and prejudicial to the interest of the Revenue. By 'erroneous' is meant contrary to law. Thus, this power cannot be exercised unless the Commissioner is able to establish that the order of the Assessing Officer is erroneous and prejudicial to the interest of the Revenue. Thus, where there are two possible views and the Assessing Officer has taken one of the possible views, no action to exercise powers of revision can arise, nor can revisional power be exercised for directing a fuller enquiry to find out if the view taken is erroneous. This power of revision can be exercised only where no enquiry, as required under the law, is done. It is not open to enquire in case of inadequate inquiry. Our view is fortified by the decision of Hon'ble High Court of Bombay in the case of CIT vs. Nirav Modi, [2016] 71 Taxmann.com 272 (Bombay).

Considering the facts of the case in hand, in totality, in light of judicial decisions discussed here in above, we set aside the order of the PCIT and restore that of the Assessing Officer dated 23.12.2019 framed under section 143(3) of the Act.

In the result, the appeal of the assessee in is allowed.”

We respectfully follow the decision (supra) of the Tribunal in the case of Shri Bharat Malhotra. We do not agree with the contention of the Ld. CIT- DR that the Ld. AO had not made any enquiry. We have observed that the Ld. AO had issued questionnaire along with statutory notice(s) sent to the assessee in response to which the assessee had filed written reply along with necessary documents and evidence. He perused and considered them. Not only this, the Ld. AO called for books of account which he verified. In our considered view it is not a case of no enquiry.

On the facts and in the circumstances of the assessee’s case and respectfully following the decision (supra) of the Tribunal in the case of Shri Bharat Malhotra, we vacate the order of the Ld. PCIT and restore the assessment order dated 06.12.2019 passed by the Ld. AO under section 143(3) of the Act.

In the result, the appeal of the assessee is allowed.