No Revision u/s 263 when AO after careful examination and detail enquiry took a plausible view that the provisions of section 115BBE of the Act are not applicable.
In a recent judgment, ITAT Amritsar held that where the Assessing Officer (AO) after careful examination of the submissions made by the assessee and after conducting detail enquiry, has taken a plausible view that the provisions of section 115BBE of the Act are not applicable, assessment cannot be set aside merely on the ground of inadequacy of enquiry by the AO with respect to source of surrender of income.
ABCAUS Case Law Citation:
4384 (2025) (01) abcaus.in ITAT
Important Case Laws relied upon by Parties:
Geevee Enterprises v. Addl. CIT 99 ITR 375 (Del.)
M/s Khushi Ram and Sons Pvt Ltd
Rampyari Devi Saraogi v. CIT [1968] 67 ITR 84
M/s A.P. Knit Fab Vs. DCIT
PCIT vs. Bajargan Traders
Smt. Tara Devi Aggarwal v. CIT [1973] 88 ITR 323 (SC).
In the instant case, the assessee had challenged the revisionary order passed u/s 263 of the Income Tax Act, 1961 (the Act) by the PCIT(A) as illegal, bad in law and without jurisdiction.
The appellant was an individual assessee and sole proprietor engaged in wholesale and retail trading of “cosmetics” and has been regularly filing her return of income for earlier years under the provisions of presumptive taxation u/s 44AD of the Act.
In course of survey u/s 133A of the Act, conducted at the business premises of the assessee, excess stock was found and inventorised by the survey team and as per observation in the survey report u/s 133A(1) , some loose paper and diaries were impounded as evidence of purchase and sales, out of books of accounts, even though no cash book was found at the business premises.
In course of survey, the assessee voluntarily disclosed an amount of Rs. 50 lakhs, as business income, over and above the normal profits, to cover up and settle the alleged discrepancy of stock, and the same was also evidenced by replies to the statements recorded by the survey team in course of survey.
Subsequently, the return of income was filed by the assessee including the normal business profits and the additional income disclosed. In scrutiny u/s 143(3), as per normal procedure, and after considering explanations and submissions filed by the assessee in course of scrutiny proceedings, and the return was accepted subjecting the income disclosed to tax at normal rates.
Subsequently the PCIT assumed jurisdiction u/s 263 of the Act on the ground that income surrendered during survey action should be treated as if the assessee is in possession of unexplained money and treatment of tax liability thereon should be under the provisions of section 69B of the Act 61 , and tax needs to be calculated as per section 115BBE of the Act, on the surrendered income.
Before the Tribunal, the assessee submitted that in course of scrutiny proceedings , notices u/s 142(1) had been issued by the AO , and in one notice, the AO had raised queries for the purpose of making verification in respect of purchases of goods , and had specifically raised question calling for explanation of source of purchase of excess stock with documentary evidences in connection with the disclosure of excess stock made in course of survey, vis a vis explanation regarding entries contained in impounded documents, consisting of loose sheets and diary.
Further, it was submitted that the assessee in his various replies and submissions had explained the fact with supporting sales invoices that inventory had been prepared by the Department on the basis of MRP, which was valued at much on the higher side and in fact the excess stock rolling in business was much less around Rs.17 lakhs ( approx ), which was directly co related to the unrecorded purchase and sales invoices found in course of survey, pertaining to cosmetic.
Also, relying on the clear finding of the survey team that assessee had been found in the practice of purchase/ sales out of books of accounts, to put forth his argument that the assessee was not engaged in any other business , other than cosmetics and the excess stock so found is also of the same nature and type which is regularly traded by the assessee and no other business activity or income generating activity had been found by the survey team.
The assessee also raised an additional argument that no prejudice was caused to the Department and it was submitted that that even if the correct excess stock amounting to Rs. 17 lakhs is considered and tax is calculated as per the provisions of section 115BBE, the tax liability works out to be lesser than tax paid by the assessee on the disclosed income under normal provisions.
Thus, the assessee argued that no prejudice was caused to the revenue even if the correct excess stock is treated as income and tax is calculated as per the provisions of section 115BBE. In this regard reliance was placed upon the circular issued by CBDT dated 114-1955, 14(XL-35) wherein the Board ordered that the officers of the Income-tax should not take advantage of ignorance of an assessee as to his rights. It is one of their duties to assist the taxpayers in every reasonable way, particularly in the matter of claiming and securing reliefs and in this regard, the officer should take the initiative in guiding a taxpayer, where proceedings or other particulars before them indicate that some refund or relief is due to him.
The Tribunal observed that as a matter of record, proper enquiry was made by the AO and therefore, it cannot be stated that no enquiry was made by the AO. The Delhi High Court following the judgment of the Hon’ble Supreme Court held that order would be erroneous only when the AO makes no enquiries during the course of assessment proceedings.
The Tribunal placing reliance on several judgments opined that phrase ‘prejudicial to the interest of the Revenue’ must be read in conjunction with an erroneous order passed by the AO. Every loss of Revenue because of the order of the AO cannot be treated as prejudicial to the interest of the Revenue. For example, if the AO has adopted one of the two or more courses permissible in law and it has resulted in loss of revenue, or where two views are possible and AO has taken one view with which the CIT does not agree, it can not be treated as an erroneous order prejudicial to the interest of the Revenue, unless the view taken by the AO is totally unsustainable in law.
Further, the Tribunal noted that the excess stock had not been separately identified and the loose papers and documents , diaries , impounded pointed to the fact that there had been unrecorded transactions of purchase and sales outside books of accounts pertaining to the same business of“ cosmetics”, in which the assessee transacts, in usual course of business, and as such the nexus or the link in between the excess stock found and the assessee business was established and whatever excess that had been found, was the excess stock, that was rolling in the same business and it had no independent identity of its own and is part and parcel of the normal business stock and what was not declared to the department was the receipt from business (and not any investment) because it cannot be co-related with any specific assets.
Further, the Tribunal observed that assessee in course of assessment proceedings had specifically demonstrated with supporting sales invoices and calculation of the entire inventory of stock, that if the said excess stock was valued at costs, the difference will only be of an amount of Rs. 17 lakhs (approx ), and not Rs.50 lakhs. Neither the AO nor the PCIT had been able to counter the said argument of the assessee, nor could they find any fault in the computation and calculation put forth by the assessee as regards the stock value, at cost , as claimed by the assessee.
Also, the Tribunal pointed out that various High courts have laid down the law that powers of revision cannot be exercised on the ground that the assessing officer should have gone deeper into the matter or should have made a more elaborate discussion.
The Tribunal opined that the AO after careful examination of the submissions made by the assessee and after conducting detail enquiry, has taken a plausible view that the provisions of section 115BBE of the Act, was not applicable in the instant case and the said assessment cannot be set aside merely on the ground of inadequacy of enquiry by the AO with respect to source of surrender of income.
The Tribunal held that there was no perversity or lack of enquiry on the part of the assessing officer to render the decision erroneous under explanation 2 to section 263 of the Act, and the order passed by the AO was neither erroneous nor prejudicial to the interest of revenue.
Accordingly, the Tribunal held that the assumption of jurisdiction u/s 263 by the PCIT was not legally justified and the consequential order passed u/s 263 of the Act was set aside.
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