Income surrender during survey on account of low GP rate not taxable to higher tax rate under deeming provisions u/s 115BBE – ITAT
In a recent judgment, the ITAT Chandigarh has held that mere fact that survey has been carried out on the business premises of the assessee and assessee had agreed to surrender additional business income on account of low GP rate, the same cannot be form the basis for invocation of jurisdiction u/s 263 holding that the income so offered under normal provisions should suffer taxation under the deeming provisions read with section 115BBE of the Act.
ABCAUS Case Law Citation:
4275 (2024) (10) abcaus.in ITAT
In the instant case, the assessee had challenged the order passed by the PCIT assuming revisionary jurisdiction u/s 263 of the Income Tax Act, 1961 (the Act) and holding that order passed by the Assessing Officer (AO) was erroneous and prejudicial to the interest of the Revenue because the surrendered income declared during the course of survey had not been treated as unexplained money in the hands of the assessee under section 69B and not charged to higher tax u/s 115BBE of the Act.
The assessee filed his return of income which included amount surrendered during the course of survey and paid tax at normal rate on the surrendered income. Thereafter, the case of the assessee was selected for compulsory scrutiny being a survey case and notice under section 143(2) and 142(1) alongwith questionnaire was issued.
In response to those notices, the assessee furnished the requisite information/ documentation and the explanation so sought by the AO. Thereafter, the returned income was accepted by the AO.
However, PCIT observed that the assessee had shown surrendered income as business income and income from other sources and tax was calculated at normal rate on the said income surrendered during the course of survey action but no explanation was given by the assessee in respect of income surrendered and no documentary evidence was submitted during the course of assessment proceedings.
As per the PCIT, surrendered income should be treated as unexplained income as the assessee was in possession of unexplained money and tax liability thereon should be as per the provisions of Section 69B and the tax should have been calculated under section 115BBE of the Act.
Accordingly, the PCIT held that the assessment order passed by the AO under section 143(3) was apparently erroneous in so far as prejudicial to the interest of the Revenue within the meaning of Section 263 of the Act and the assessee was issued a show cause as to why the order so passed by the AO should not be set aide.
The submissions filed by the assessee were not accepted by the PCIT. He held that the returned income as “income from other sources” and sources thereof was neither explained by the assessee nor the AO conducted any inquiry as to examine the source of the said income. It was held how the said income under the head “income from other sources” was accounted for in the books of account was also not examined by the AO. It was held that from the reading of Section 115BBE of the Act and the provisions of Section 68 to 69D, where the assessee failed to offer explanation about any credit/income or expenditure or investment, the income is deemed as unexplained and has to be subjected to tax under section 115BBE of the Act and that the explanation of the assessee on this issue was not found on record therefore the non- inquiry by the AO rendered the assessment order as erroneous and prejudicial to the interest of the Revenue and the assessment order was set aside to the file of the AO to pass a fresh order after affording adequate opportunity to the assessee.
The Tribunal noted that as per copy of authorization under section 133A(1) of the Act it had been stated that on account of lower profit margin, it is a fit case for action under section 133A of the Act.
It was further noted that as per preliminary report filed by the survey team during the course of survey it had been stated that no discrepancy had been found regarding the stock as well as the cash book and it had been further stated that during the course of survey proceedings and examination, it was found that the assessee has declared G.P. rate at a very low rate in seeds account whereas there is a huge margin in seeds account and when confronted, the assessee has agreed to declare his return of income for the relevant Assessment Year for increased profit and tax will be paid thereon accordingly to cover up leakage in G.P. rate shown.
The Tribunal further noted that the said authorization to carryout survey proceedings as well as preliminary report of the survey team was part of the record which was not just available to the AO but also to the PCIT and the same form the basis and foundation for selection of case of the assessee for compulsory scrutiny and consequent assessment proceedings and passing of order by the AO u/s 143(3) which was the subject matter of revisionary proceedings u/s 263 of the Act.
The Tribunal opined that it was on account of low GP rate in respect of trading in seeds that the assessee had agreed during the course of survey to file his return of income declaring higher income. The assessee subsequently honoured the commitment so made and has filed the return of income declaring higher income and paid taxes thereon at normal rate of tax. The income so offered was clearly in respect of regular business activity undertaken by the assessee in terms of trading in seeds and where additional income had been offered by the assessee, the same was clearly in the nature of business income and mere disclosure thereof wherein part of such income has been disclosed under the head “business income” and part under the head “income from other sources”, admittedly wrongly. However, it will not change the very character of the income so disclosed.
The Tribunal noted that there was no finding by the survey team that any other undisclosed income/investment/asset had been found during the course of survey. Even during the course of assessment proceedings, no such finding in terms of any other undisclosed income had been recorded by the AO and there was nothing on record available at the time of examination by the PCIT nor there was any finding to this effect by the PCIT.
The Tribunal stated that the mere fact that survey has been carried out on the business premises of the assessee and assessee has agreed to surrender additional business income on account of low GP rate, the same cannot be form the basis for invocation of jurisdiction u/s 263 holding that the income so offered under normal provisions should suffer taxation under the deeming provisions read with section 115BBE of the Act.
The Tribunal stated that for invocation of deeming provisions, the conditions specified therein needs to be specified and merely the fact that survey operations have been carried out, the said provisions cannot be applied by default which apparently happened in the instant case where the PCIT sought to invoke the same by exercise of his jurisdiction u/s 263 of the Act. The Tribunal opined that there was no material on record before the PCIT for the basis to invoke his jurisdiction u/s 263 of the Act and hold the assessment order as erroneous in so far as prejudicial to the interest of the Revenue.
Accordingly, the Tribunal set-aside the order so passed by the CIT(A) and the order of the AO was sustained.
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