TMI Blog2023 (2) TMI 986X X X X Extracts X X X X X X X X Extracts X X X X ..... ss account. This explanation was found to be correctly accepted by the AO, by the Hon ble High Court. In the present case before us the assessee had admitted to the same explanation in statement of partners recorded during survey, reproduced above admitting to the excess stock of gold, silver etc as out of its unaccounted business income and had also reflected the surrendered stock as part of stock of its business and shown the same as its business income. There is in fact no factual distinction between the said case and that before us. Therefore the proposition laid down by the Hon ble High Court will apply to the present case also. It is very much clear, therefore and we agree with the ld.counsel for the assessee, that facts relating to the disclosure in excess stock of the business of the assessee were there before the AO, and he had taken a plausible view on the same by treating it as business income of the assessee. Therefore, we hold, that there was no error in the order of the AO. Pr.CIT had invoked Explanation 2 to section 263 without first confronting the assessee with the same - non-mentioning of Explanation 2 to section 263 in the show cause notice - As section 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AT HIGH COURT] , relied upon by the ld.counsel for the assessee in support of this contention, the assessee, we hold, cannot derive any benefit from the same. We hold that the assessee cannot derive any benefit from the judgment of Hon ble High Court in the case of Shreeji Prints P. Ld. (supra), to the effect that non-mentioning of Explanation 2 to section 263 in the show cause notice will render entire revisionary order as non-est in the eyes of law. This contention raised by the ld.counsel for the assessee, is therefore, rejected. Appeal of the assessee is allowed on merits, and the legal contention raised by the assessee is dismissed. - ITA No.146/Ahd/2022 - - - Dated:- 11-1-2023 - Smt. Annapurna Gupta, Accountant Member And Shri T.R. Senthil Kumar, Judicial Member For the Assessee : Shri S.N. Soparkar, Sr. Advocate with Shri Parin Shah, AR. For the Revenue : Shri Vijay Kumar Jaiswal, CIT-DR. ORDER PER ANNAPURNA GUPTA, ACCOUNTANT MEMBER Present appeal has been filed by the assessee against order passed by the ld.Pr.Commissioner of Income Tax-1, Vadodara [hereinafter referred to as the ld.Pr.CIT ] dated 30.3.2022 in exercise of his revisionary ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t a normal rate of tax and levying penalty as per the normal provisions of section under section 271(1)(c) of the Act. 4. Briefly put, the error in the assessment order noted by the ld.Pr.CIT was the acceptance by the AO of the disclosure made by the assessee on account of excess stock and cash found during survey as business income, when allegedly in the absence of any explanation of the source of investment made therein it ought to have been treated as unexplained investment u/s 69 of the Act and taxed at higher special rate as per section 115BBE of the Act and penalty levied thereon as per section 271AAC of the Act. 5. Ld.counsel for the assessee pointed out that in response to the notice issued under section 263 of the Act, initiating revisionary proceedings, due reply was filed by the assessee pointing out that the issue had been examined during assessment proceedings, and all disclosure made during the course of survey itself regarding nature and source of investment. The ld.Pr.CIT rejected the contentions of the assessee and held that since on the impugned issue proper inquires and verification, which should have been made, had not been made by the AO, therefore, Expla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d order of the ld.Pr.CIT and also documents and case laws referred to before us by both the parties. For dealing with the issue before us it is relevant to first bring out a brief background of the case as emanates from the orders of the authorities below. 11. The assessee is a partnership firm engaged in trading in gold and silver ornaments in the name and style of ZAVERAT jewelers. Survey action under section 133A of the Act was carried out at the business premises of the assessee on 3.1.2017 during which certain discrepancies in physical stock and cash were found. On the basis of these discrepancies, the assessee admitted a total disclosure ofRs.1,00,96,756/- on account of the following; i) Excess gold ornaments stock found during the survey of Rs.95,96,759/-; ii) Excess silver ornaments stock found of Rs.1,60,329/-; iii) Gold from stock valuation at Rs.1,24,525/- iv) Other amounts accepted during survey of Rs.2,15,419/- 12. Thus the disclosure majorly related to excess stock of gold ornaments found during survey. The assessee had included the above disclosure as part of its business income for the purpose of taxation and paid taxes thereon. The same was acce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of the assessee-firm had been recorded, who had specifically mentioned that investments in stock of gold, silver etc. was made from their business income. He further contended that even in the annual accounts, the assessee had disclosed all these investments as forming part of the closing stock of the assessee, and Note to this effect was also made in the audited Balance Sheet of the assessee by the Auditors. He further pointed out that questionnaires were issued during assessment proceedings to which due reply was filed, and finally the AO passed the assessment order specifically noting the fact of discrepancy noted during the survey proceedings and the assessee making disclosure on account of the same of Rs.1,00,96,756/-. He contended that it was evident from the same that the assessee had furnished all information called for and after considering submissions of the assessee and material on record, the AO accepted the disclosure of surrendered income as business income of the assessee. He further pointed out that all these facts and the nature of the disclosure being admitted by the partners in their statement recorded during the survey and the amounts being treated as busines ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en Hundred Fifty Nine Only). Are ready to accept it your unaccounted business income of the current year i.e. F.Y.2016-17. Ans: Yes Sir, I on behalf of my firm agree and accept Rs.95,96,759/- as my unaccounted business income of current year due to excess stock found during the survey. 20. Referring to the above, the ld.counsel for the assessee pointed out that both the partners had categorically stated that the excess stock of silver ornaments, gold ornaments or gold coated frames was unaccounted business income of the assessee for the current year. 21. Our attention was thereafter drawn to PB page No.63 being profit loss account of the assessee firm during the year disclosing all the excess stock found during the survey as part of the closing stock as under: NILAY KUMAR BROS. JEWELLERS PROFIT LOSS A/C FOR THE YEAR ENDED ON 31 MARCH 2017 COSOLIDATED OF ANAND H.O. NADIAD BRANCH Particulars SCH 31-3-2017 Rs. SALES (A) 1 62,02,24,125.05 ADD CLOSING STOCK STOCK IN HAND (ANAND AND NADIAD) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 74/-. So total Disclosure is Rs.1,00,96,759/- and the same is recorded as Income of Books of Accounts. 23. Referring to the same, he pointed out that it was evident that the assessee had treated the same in his books of accounts also, as part of its business income only. 24. He thereafter drew our attention to various notices issued during the assessment proceedings placed before us in PB page no.40 to 41 and 84-85. Response of the assessee to the same was placed before us at PB Page No.42 to 83 and 86 to 807. Finally, our attention was drawn to para 3 and 3.1 of the assessment order wherein the AO had accepted claim of the assessee of treating the surrendered amount as part of its business income as under: 3. The assessee firm is a trader in Gold and Silver ornaments under the name and style of ZAVERAT the jewellers.A survey action u/s 133A of the IT Act was carried on 03/01/2017 at the business premises of the assessee in connection with large cash deposits made in the bank accounts during the demonetization period. During the survey proceedings, certain discrepancies in physical stock and cash were found. On the basis of these discrepancies, the assesse admit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... BBE of the Act. ii) Abdul Hamid Vs. ITO, 117 taxmann.com 986 (Gauhati-Trib). 26. With respect to the aforesaid decision, it was pointed out that the issue in the said case was identical as that in the present case of revisionary power under section 263 being exercised for not invoking section 115BBE on the addition made on account of undisclosed business turnover of the assessee. Our attention was drawn to para-14 to 18 of the order as under: 14. Next ground on which ld PCIT has exercised jurisdiction under section 263 of the Act was that the Assessing officer had failed to tax the undisclosed income of Rs. 3,65,933/- as per provisions of section 115BBE of the Income-tax Act, 1961. In order to understand whether the provisions of section 115BBE are applicable to the assessee or not, let us first go through the provisions of section 115BBE of the Act, which reads as follows: 15BBE. Tax on income referred to in section 68 or section 69 or section 69A or section 69B or section 69C or section 69D. 1. Where the total income of an assessee includes any income, referred to in section 68, section 69, section 69A, section 69B, section 69C or section 69D, the i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Income of the assessee, has been considered as undisclosed business receipt or turnover of the assessee for the financial year 2013-14 relevant to the assessment year 2014-15 o v e r above the gross turnover declared by him. The margin of net profit has been taken @ 4% on audited gross turnover in the Return of Income filed by the assessee. Accordingly, margin of profit has been taken @ 4% on undisclosed turnover of Rs. 91,48,326/- which comes to Rs. 3,65,933/- and added back as undisclosed business income to the returned income. Since, the assessing officer has applied his mind and treated the undisclosed amount in bank account as undisclosed business receipt or turnover of the assessee, therefore provisions of section 115BBE does not apply to the assessee. 16. Even, ld PCIT while exercising his jurisdiction under section 263 of the Act treated the undisclosed amount in bank account as undisclosed business receipts/turnover, vide para No. 2 of the order of ld PCIT, which is reproduced below for ready reference: 2. Proposal for revision u/s 263 of the Income-tax Act, 1961 was received on the issue (a) low rate of net profit was considered on undisclosed business ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee during the course of assessment proceedings, placed before us also, do not reveal any such pointed queries being raised by the AO, but we find that all facts relating to disclosure were there with the AO. The partners in the statement recorded during survey had admitted to the excess stock of silver, gold and even cash found, as relating to the undisclosed business income of the assessee. All the excess stock so admitted and disclosed was reflected in the P L account as part of the closing stock of the business of the assessee . Even the Auditors had given their comments on this disclosure by the assessee as part of its business income only. Therefore, all facts pertaining to the disclosure, as being from unaccounted business income, was there before the AO. We have also noted, as pointed out by the ld.counsel for the assessee, that in several cases, Courts have held that excess stock of business found is to be treated as business income of the assessee. The ITAT Jodhpur Bench , in the case of Lovish Singhal (supra) categorically held excess stock of business found during survey to be in the nature of business income of the assessee . The ITAT relied on the decision of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also reflected the surrendered stock as part of stock of its business and shown the same as its business income. There is in fact no factual distinction between the said case and that before us. Therefore the proposition laid down by the Hon ble High Court will apply to the present case also. 30. It is very much clear, therefore and we agree with the ld.counsel for the assessee, that facts relating to the disclosure in excess stock of the business of the assessee were there before the AO, and he had taken a plausible view on the same by treating it as business income of the assessee. Therefore, we hold, that there was no error in the order of the AO. The jurisdiction assumed by the Ld.PCIT is held to be not in accordance with law and the order passed u/s 263 of the Act is liable to be set aside for this reason alone. 31. Taking up the next argument of the ld.counsel for the assessee that the ld.Pr.CIT had invoked Explanation 2 to section 263 without first confronting the assessee with the same. In this regard, he has drawn our attention to the decision of Hon ble jurisdictional High Court in the case of Pr.CIT Vs. Shreeji Prints P.Ltd. in Tax Appeal No.828 of 2019 dated 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion issued by the Board under section 119; or (d) the order has not been passed in accordance with any decision which is prejudicial to the assessee, rendered by the jurisdictional High Court or Supreme Court in the case of the assessee or any other person. 34. As is evident from the above, section 263 empowers Commissioners/ Pr.Commissioners to exercise revisionary power where they find any order passed by the AO to be erroneous so as to cause prejudice to the interest of the Revenue. Explanation 2 to the section lists circumstances in which the assessment order passed will be deemed to be erroneous, which amongst other, includes an order passed without making inquiries or verification which should have been made as per clause (a) of the Explanation, which clause has been invoked by the ld.Pr.CIT in the present case. 35. Having said so, it is but obvious that what Explanation 2 does is only clarify and enlist the circumstances specifically where an assessment order will be deemed to be erroneous. It only explains the scope of the section and clearly by no stretch expands its scope. The import or object of an Explanation was explained by the Hon ble apex court in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uring the survey in excess stock found, he need not specifically point out that he has invoked Explanation-2 to sub-clause (a) to the section which is to the same effect of inadequate inquiries conducted qualifying as error in assessment order. The fact that he clearly brings out the reason why he found assessment order erroneous, is sufficient in itself and self-explanatory. It need not to be technically qualified by pointing out the specific clause in respect to which the reason pertained. The entire objectives of confronting anything to the assessee in the process of rendering justice is to offer an opportunity to other party to come up with his/her arguments or contentions in defense. In the present case, it is not disputed that the assessee had been specifically pointed out the error in the order of the AO of nonconducting inquiry relating to the particular issue. The assessee was required to respond to the same, which he did by pointing out that due inquiry was conducted. The fact of mentioning Explanation 2 sub-clause (a) in the notice by the ld.Pr.CIT which dealt with this specific reason or error in the order of the AO of non-conducting of inquiry, therefore, is of no cons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the AO on unsecured loans received by it from two parties. The question framed before the Hon ble High Court was therefore whether the ITAT order was correct when adequate inquiries were not made by the AO. The Hon ble High Court answered the question against the Revenue, noting that the ITAT had given a finding of fact that the AO had made full inquiries in detail and accepted the genuineness of the loans received by the assessee, and such view of the AO was plausible view, and therefore the assessment cannot be said to be erroneous or prejudicial to the interest of the Revenue. Hon ble High Court held that in view of such finding of the fact arrived at by the Tribunal, no question of law arose and the appeal of the Revenue was accordingly dismissed. 41. At para-5 of the judgment, Hon ble Court has noted that the Tribunal observed that the ld.Pr.CIT had not mentioned in the show cause notice the invocation of Explanation 2 to section 263 of the Act, though it passed the order invoking the said section and the Tribunal found the order to be not appropriate and sustainable in law. Para-5, as above, is just a noting by the Hon ble High Court of the findings of the ITAT whil ..... 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