TMI Blog2023 (5) TMI 272X X X X Extracts X X X X X X X X Extracts X X X X ..... has introduced a deeming provision. The AO has failed to verify this aspect of the impugned excess stock declared during the survey. Therefore, the assessment order is erroneous and prejudicial to the interest of the revenue. If the Pr.CIT/CIT is of the opinion that inquiry required to be made in a particular case has not been made the assessment order will be deemed to be erroneous and prejudicial to the interest of the revenue. In this case the AO has failed to apply proper and correct section of Income Tax Act to the Investment in the Undisclosed Stock . The undisclosed investment in the unaccounted stock needs to be taxed separately as Income of the assessee as per the deeming provision of the Act. The tax liability is calculated as per section 115BBE of the Act. Hon ble Madras High Court in the case of SVS Oil Mills[ 2019 (5) TMI 1392 - MADRAS HIGH COURT] has upheld the addition of excess stock found during survey u/s 69B.The AO has failed to verify this aspect. Hence, we are of the opinion that the Assessment Order is erroneous and prejudicial to the interest of the revenue. This is not the case where two plausible views are possible and the AO has adopted one plau ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to amend, alter, modify, delete or add a new ground of appeal before or at the time of hearing. Brief facts of the case: 2. As per the assessment order and the paper book of the assessee, the assessee is in the business of Manufacturing, trading of Gold Silver Ornaments. The assessee is a firm. It had filed return of Income for A.Y. 2015-16 on 16/10/2015 declaring total income of Rs.15,06,560/-. The assessee s case was selected for scrutiny assessment. The assessment order u/s 143(3) for AY 2015-16 was passed on27/11/2017 accepting the returned income. 2.1 The Pr.CIT Pune after verification of records issued notice u/s.263 dated 16/2/2021 and then passed order u/s 263 dated 18/03/2021. This order was challenged by the Assessee before the ITAT. The ITAT in ITA 115/Pune/2021 vide order dated 31/05/2022 set aside the order u/s 263 to the Pr.CIT for denovo adjudication after giving opportunity to the assessee. The Pr.CIT passed an order u/s 263 after giving opportunity to the assessee on 22/11/2022. The relevant part of the Order u/s 263 is reproduced here as under : Quote, 5. In compliance with the order of the Hon ble ITAT, a fresh notice was issued by the un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d.AR submitted that the assessee had declared undisclosed stock of Rs.30,01,499/- during the survey conducted on 19/12/2014. The Ld.AR submitted that the said stock has been shown in the Profit and Loss Account for A.Y.2015-16 by the assessee as the assessee had time to file the return of Income for AY 2015-16. This fact has been explained to the AO during the scrutiny assessment. The Ld.AR invited our attention to Paper book page 28 which was notice u/s 142 dated 29/09/2017 vide which specific question was asked regarding survey declaration. The assessee replied the said notice vide his letter dated 14/10/2017 which was at page number 31-39 of the paper book. The ld.AR submitted that the assessee had explained the AO regarding the survey declaration and how the assessee had shown it in the P L account. Therefore, ld.AR submitted that the AO had carried out necessary verification and applied his mind. Hence Ld.AR submitted that the assessment order was not prejudicial and erroneous. Departmental Representative s Submission: 4. The Ld. Commissioner of Income Tax, Mr. Sardar Singh Meena, Departmental Representative strongly relied on the order of the Pr. CIT. Ld. DR took us ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er to question number 18, the partner of the firm has specifically admitted that he has discussed the issue with the CA Mr. S.P. Vaidya who was present during the entire survey operation, and then admitted the declaration of additional income of Rs.34,99,999/- for AY 2015-16. Thus, there is no dispute that there was excess stock of Gold and Silver which was not recorded in the books. 5.2 The assessee in the return of Income for AY 2015-16 has shown the said excess stock found during the survey in the Trading Account in Closing Stock. The AO has accepted the returned Income of the assessee. It is the claim of the appellant assessee that AO had verified the issue of excess stock. However, the question before us is that had the assessee shown the unaccounted Excess Stock found during the survey u/s 69B separately in the computation of Income ? The obvious answer is NO. 5.3 In this case it is a fact that there was unaccounted stock, means the assessee had used its unaccounted money to purchase the said stock. The said stock is outside its purchase register. It means it is unexplained investment . The AO had erroneously not verified this aspect. Section 69B is reproduced here as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... therein by the Assessing Officer is erroneous in so far as it is prejudicial to the interests of the revenue, he may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment. Explanation 1. For the removal of doubts, it is hereby declared that, for the purposes of this sub-section, (a) an order passed on or before or after the 1st day of June, 1988 by the Assessing Officer shall include ****** (b) record shall include and shall be deemed always to have included all records relating to any proceeding under this Act available at the time of examination by the Principal Commissioner or Commissioner; (c) where any order referred to in this sub-section and passed by the Assessing Officer had been the subject matter of any appeal filed on or before or after the 1st day of June, 1988, the powers of the Principal Commissioner or Commissioner under this sub-section shall extend and shall be deemed always to have ext ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y decision, prejudicial to the assessee, rendered by the jurisdictional High Court or Supreme Court in the case of the assessee or any other person. This amendment will take effect from 1st day of June, 2015. [Clause 65] Unquote. 7. Thus, the Memorandum has clarified that the expression erroneous inso far as prejudicial to the interest of revenue was a contentious issue hence in order to provide clarity the explanation 2 has been introduced w.e.f. 01/06/2015. Thus, as per Explanation 2 of Section 263 an assessment order is Erroneous and Prejudicial to the Interest of the Revenue if the ld. Commissioner or ld. Pr. Commissioner of Income Tax is of the opinion that it has been passed without making proper inquiry or verification which should have been made. Thus, with the introduction of Explanation 2 to Section 263, the Act has widened the powers of CIT/PCIT of revision. The explanation 2 to Section 263 has introduced a deeming fiction. The Explanation 2 to Section 263 has explained the meaning of word erroneous for the purpose of section 263. Therefore, after the introduction of explanation 2 to section 263, it is the relative satisfaction of the CIT/PCIT regarding enquiry re ..... X X X X Extracts X X X X X X X X Extracts X X X X
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