2025 (6) TMI 284 - AT - Income Tax

Revision u/s 263 - Surrender on account of unaccounted cash and on account of unaccounted advances - Whether the sum surrendered by the assessee during the survey action ought to have been charged to tax under the special provisions of section 115BBE read with section 69A or rightly assessed as business income? HELD THAT - We find that the Chandigarh Bench of the Tribunal in the case of Gandhi Ram 2022 (8) TMI 377 - ITAT CHANDIGARH as held AO has duly taken cognizance of statement of the assessee recorded during the course of survey the surrender letter and the return of income and after examination thereof and due application of mind has not drawn any adverse inference and income has been rightly assessed under the head business income . The order so passed by the AO cannot be held as erroneous due to lack of enquiry or for that matter requisite enquiry on the part of the AO. Where the AO after due appreciation of facts and circumstances of the case assessed the income under the head business income and didn t invoke the deeming provisions as so suggested by the Id PCIT we do not believe that there is any error on part of the Assessing officer and the order so passed by him cannot be held as erroneous. Decided in favour of assessee.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Tribunal in this appeal are:

(a) Whether the Principal Commissioner of Income Tax (PCIT) was justified in assuming jurisdiction under section 263 of the Income Tax Act, 1961, to revise and set aside the assessment order passed under section 143(3) of the Act?

(b) Whether the assessment order passed by the Assessing Officer (AO) was erroneous or prejudicial to the interests of the revenue, given that the AO had conducted due enquiry and applied his mind before accepting the surrendered income as business income?

(c) Whether the sum of Rs. 40,00,000 surrendered by the assessee during the survey action ought to have been charged to tax under the special provisions of section 115BBE read with section 69A, or rightly assessed as business income?

(d) Whether the Explanation 2 to section 263, inserted w.e.f. 01.06.2015, was correctly applied by the PCIT in revising the assessment?

(e) Whether the case laws cited by the PCIT to justify revision proceedings are applicable to the facts of the present case?

2. ISSUE-WISE DETAILED ANALYSIS

Issue (a) & (b): Jurisdiction under Section 263 and Validity of Assessment Order

Legal Framework and Precedents: Section 263 of the Income Tax Act empowers the PCIT to revise an assessment order if it is found to be erroneous and prejudicial to the interests of the revenue. However, it is well settled through judicial precedents that mere difference of opinion between the AO and the PCIT does not justify exercise of revision jurisdiction. The AO's order is not to be interfered with if it is based on a possible view after due enquiry and application of mind. Relevant precedents relied upon by the assessee include CIT vs. Nirav Modi, PCIT vs. Shreeji Prints (P.) Ltd, and various decisions of the Tribunal including Dev Raj Hi Tech Machines Ltd vs. DCIT and PCIT vs. Deccan Jewellers P. Ltd.

Court's Interpretation and Reasoning: The Tribunal observed that the AO had conducted detailed scrutiny after the survey action, issued specific questionnaires regarding the surrendered amount, and examined the books of account produced by the assessee. The AO accepted the surrendered sum of Rs. 40,00,000 as business income and passed the assessment order without any adverse remark. This indicated that the AO had applied his mind and taken a possible view on the matter.

The PCIT's initiation of revision proceedings under section 263 was primarily based on a difference of opinion regarding the taxability of the surrendered amount. The Tribunal held that such difference of opinion cannot be a ground for invoking section 263, especially where the AO has made due enquiry and recorded a reasoned order. The Tribunal relied heavily on the decision in the case of Gandhi Ram (ITA No. 121/Chd/2021), where the jurisdictional Bench of the Tribunal held that the AO's order could not be held erroneous merely because the PCIT held a different view.

Key Evidence and Findings: The assessee's surrender was made during a survey under section 133A, and the surrendered amount was credited to the profit and loss account and taxed accordingly. The AO's scrutiny included examination of the assessee's statement, books of account, and detailed replies to questionnaires. The PCIT, however, ignored these facts and passed the revision order without recording specific findings on the applicability of the deeming provisions.

Application of Law to Facts: The Tribunal applied the principle that revision under section 263 is not justified where the AO has taken a possible view after applying his mind. Since the AO had accepted the surrendered amount as business income after due enquiry, the revision order was held to be unsustainable.

Treatment of Competing Arguments: The Revenue argued for revision based on the applicability of section 115BBE and section 69A, contending that the surrendered amount should be taxed at a special rate. The assessee contended that the surrender was part of regular professional income and that the AO had duly considered and accepted this view. The Tribunal favored the assessee's submissions, emphasizing the settled legal principle against interference by the PCIT on mere difference of opinion.

Conclusions: The Tribunal concluded that the PCIT's assumption of jurisdiction under section 263 was erroneous and that the assessment order passed by the AO was neither erroneous nor prejudicial to the interests of the revenue.

Issue (c): Taxability of Surrendered Amount under Section 115BBE and Section 69A

Legal Framework and Precedents: Section 115BBE provides for a special tax rate of 60% (plus surcharge and cess) on income referred to in sections 68 to 69D, which generally relate to unexplained cash credits, investments, and similar unexplained sources. Section 69A deals with unexplained investments. Explanation 2 to section 263 was inserted to clarify the scope of revision proceedings in cases involving such unexplained income.

Court's Interpretation and Reasoning: The Tribunal noted that the surrender was made on 30.08.2016, whereas section 115BBE was introduced with effect from 15.12.2016. Therefore, the provisions of section 115BBE were not applicable at the time of the survey or assessment. Further, the AO had accepted the surrendered amount as business income from the medical profession, which was the sole source of income of the assessee.

Key Evidence and Findings: The assessee maintained audited books of account, filed returns declaring professional income, and credited the surrendered amount in the profit and loss account. There was no other source of income. The AO did not make any adverse remark regarding the source or nature of the surrendered amount. The assessee's statement during the survey and replies to questionnaires supported the contention that the surrender was part of professional income.

Application of Law to Facts: Since the surrendered amount was part of the professional income and the AO accepted it as such, the deeming provisions under section 115BBE and section 69A were not attracted. The Tribunal emphasized that the PCIT failed to record any specific finding on the applicability of these provisions before revising the assessment.

Treatment of Competing Arguments: The Revenue contended that the surrendered amount was unexplained and should be taxed under the special provisions at a higher rate. The assessee rebutted this by showing that the surrender was part of business income and that the AO had accepted this view. The Tribunal sided with the assessee, noting that the PCIT's view was not consistent with the facts and law.

Conclusions: The Tribunal held that the surrendered amount was rightly assessed as business income and the special provisions of section 115BBE and section 69A did not apply.

Issue (d): Applicability of Explanation 2 to Section 263

Legal Framework and Precedents: Explanation 2 to section 263 clarifies the scope of revision proceedings in cases involving unexplained income covered under sections 68 to 69D, introduced w.e.f. 01.06.2015.

Court's Interpretation and Reasoning: The Tribunal observed that the AO had applied his mind and completed the assessment after due enquiry, accepting the surrendered amount as business income. The Explanation 2 could not be invoked retrospectively to justify revision proceedings where the AO had taken a possible view prior to the insertion of this Explanation.

Key Evidence and Findings: The survey and surrender predated the insertion of Explanation 2. The AO's order was passed after due application of mind and enquiry. The PCIT did not record any specific findings on the applicability of Explanation 2 before revising the assessment.

Application of Law to Facts: The Tribunal held that the Explanation 2 could not be applied to override the AO's considered order in this case.

Treatment of Competing Arguments: The Revenue relied on Explanation 2 to justify revision, but the assessee demonstrated that the AO's order was not erroneous. The Tribunal found the PCIT's reliance on Explanation 2 misplaced.

Conclusions: The Tribunal held that Explanation 2 to section 263 was not applicable to the facts of the case and could not be used to sustain the revision order.

Issue (e): Applicability of Cited Case Laws by PCIT

Legal Framework and Precedents: The PCIT cited various case laws to support revision proceedings under section 263. The assessee contended that these cases were distinguishable on facts and not applicable.

Court's Interpretation and Reasoning: The Tribunal examined the precedents cited by both parties and found that the facts of the cited judgments were materially different. The Tribunal relied on the jurisdictional decision in Gandhi Ram's case, which was factually similar and held that the AO's order could not be revised on mere difference of opinion.

Key Evidence and Findings: The Tribunal noted that the PCIT did not record specific findings distinguishing the present case from those precedents relied upon by the assessee.

Application of Law to Facts: The Tribunal applied the principle of consistency and precedent, holding that the PCIT's reliance on inapplicable case laws did not justify revision.

Treatment of Competing Arguments: The Revenue's reliance on case laws was countered by the assessee's demonstration of factual dissimilarity and binding precedents favoring the assessee's position.

Conclusions: The Tribunal held that the case laws cited by the PCIT were not applicable to the facts of the present case and thus did not support the revision proceedings.

3. SIGNIFICANT HOLDINGS

The Tribunal crystallized the following principles and conclusions:

"We therefore find that the Assessing officer has duly taken cognizance of statement of the assessee recorded during the course of survey, the surrender letter and the return of income, and after examination thereof and due application of mind has not drawn any adverse inference and income has been rightly assessed under the head 'business income'. In light of the same, we are of the considered view that the order so passed by the Assessing officer cannot be held as erroneous due to lack of enquiry or for that matter, requisite enquiry on the part of the Assessing officer."

"Where the Assessing officer after due appreciation of facts and circumstances of the case, assessed the income under the head 'business income' and didn't invoke the deeming provisions as so suggested by the Id PCIT, we do not believe that there is any error on part of the Assessing officer and the order so passed by him cannot be held as erroneous."

"The Id. PCIT without recording any specific findings as to the applicability of deeming provisions has gone ahead and held that the deeming provisions are applicable in the instant case. Even for sake of argument, where such a view is taken on face value, it would be a case where a different view has been expressed by the Id PCIT, however, the same doesn't lead to the conclusion that the view taken by the Assessing officer as erroneous as the AO has taken into consideration the entirety of facts and circumstances of the case, the explanation offered by the assessee during the course of survey regarding the source of such income and thereafter, has assessed the income under the head 'business income'. The view so taken by the Assessing officer is after due application of mind and as unsustainable in the eyes of law."

"In the facts and circumstances of the present case, where there are specific questions asked during the course of survey regarding the nature and source of income and which has been adequately responded to by the assessee and thereafter acted upon in terms of disclosing the income in the return of income under the appropriate head of income and where the same is duly examined and taken into consideration by the Assessing officer during the course of assessment proceedings, the order so passed by the Assessing officer cannot be held as erroneous in nature."

"In light of aforesaid discussions and in the entirety of facts and circumstances of the case, the order so passed by the Id PCIT u/s 263 cannot be sustained in the eyes of law and is hereby set-aside and that of the Assessing officer is sustained."

Accordingly, the Tribunal allowed the appeal of the assessee and quashed the revision order passed under section 263, thereby upholding the assessment order passed under section 143(3).