Janatha Fish Meal & Oil Products Vs PCIT (ITAT Bangalore)
ITAT Bangalore held that assessee has paid money for the purpose of investment which is not disputed and therefore the provisions of Section 269ST of the Act is not applicable.
Facts-
Post search operations and proceedings, AO concluded the assessment by accepting the return of income filed by the assessee.
However, the PCIT stated that unexplained stock is offered under the head “income from other source” and not routing it through profit and loss account and therefore should be categorised as unexplained investment u/s.69C to be taxed at special rate of tax u/s. 11 5BBE. The PCIT further stated that the investment made in cash is in violation of Section 269ST of the Act and therefore to be assessed accordingly, which the AO failed to do. The PCIT therefore issued a show cause notice to the assessee in this regard. After considering the submissions made by the assessee the PCIT passed an order under Section 263 of the Act.
Being aggrieved, by the order of PCIT, the assessee has preferred the present appeal.
Conclusion-
The view of the ld. PCIT, in our opinion, is not the right reason for exercising revisionary powers u/s. 263 of Act, since the AO has brought out the details of excess stock in the table extracted above, and has also verified the fact that the income declared by the assessee includes the additional income offered towards excess stock. In our view the error envisaged by Section 263 of the Act is not one that depends on possibility as a guess work, but it should be actually an error either of fact or of law.
Held that the assessee has paid money for the purpose of investment which is not disputed and therefore the provisions of Section 269ST of the Act is not applicable.
Considering the facts of the case and the relevant provisions of the Act, we are of the view the action of PCIT invoking section 263 stating that the AO’s order is erroneous to the extent of AO not verifying whether investments are in violation of section 269ST is not tenable. We therefore quash the order of PCIT with regard to this issue.
FULL TEXT OF THE ORDER OF ITAT BANGALORE
This appeal is against the revision order passed under Section 263 of the Income Tax Act, 1961 (the Act) dated 28.03.2022 passed for AY 201 8-19 by the Principal Commissioner of Income Tax, (PCIT) Bangalore.
2. The assessee has raised the following grounds of appeal: –
“1. The order of revision passed by the learned Principal Commissioner of Income tax [Central], Bengaluru, under Section 263 of the Act dated 28/03/2022, in so far as it is against the Appellant is opposed to law, weight of evidence, probabilities, facts and circumstances of the Appellant’s case.
2. The learned Principal Commissioner of Income tax is not justified in law and on facts to set aside the assessment order passed under section 143 [3] of the Act dated 17/12/2019 and direct the assessing officer to modify the original assessment passed by the learned assessing officer, on the facts and circumstance of the case.
3. The learned Principal Commissioner of Income tax is not justified in passing an order under section 263 of the Act, as the order passed under section 143 [3] of the Act, was pursuant to proper enquiry by the learned assessing officer on the facts and circumstances of the case.
4. The learned Principal Commissioner of Income tax has grossly erred in revising the order passed by the learned Assessing officer without appreciating that there is no error, much less prejudicial to the interests of the Revenue to warrant a revision and therefore the order passed by the learned PCIT is ultra vires to the scope of Section 263 and requires to be cancelled on the facts and circumstances of the Appellant’s case. The direction to make thorough and detailed enquiry amounts to ordering fishing and roving enquires without any material in support thereof and consequently the impugned order passed is bad in law and is liable to be cancelled.
5. The learned Principal Commissioner of Income tax failed to appreciate that the said alleged declaration made on account of alleged difference in stock was treated as business income of Rs. 1,82,70,000/- by the appellant as well as by the learned assessing officer in the original order of assessment, and further failed to appreciate that the business income cannot come under the purview of the provisions of section 69C of the Act and consequently the provisions of section 11 5BBE of the Act is not attracted, on the facts and circumstances of the case.
6. The learned Principal Commissioner of Income tax failed to appreciate that once an item is considered as business income the same cannot be taxed as per the special rates under section 11 5BBE of the Act, on the facts and circumstances of the case.
7. The learned Principal Commissioner of Income tax, failed to appreciate that the appellant has already offered the alleged difference in stock once in the return of income and again by adjusting the stock in the books of the appellant which would enhance the profit of the appellant and consequently resulting in double taxation of the same item, which is not as per the intent of the legislature and consequently the observations of the learned Principal Commissioner of Income tax requires to be modified to this extent, on the facts and circumstances of the case.
8. The learned Principal Commissioner of Income tax, failed to appreciate that the provisions of section 269 ST of the Act is not applicable for the amounts paid by the appellant of Rs. 4,50,00,000/- and the said provisions are applicable only for the amounts received and consequently the said observation of the learned Principal Commissioner of Income tax to examine the applicability of the provisions of section 269ST is devoid of merits and consequently the said direction of the learned Principal Commissioner of Income tax requires to be cancelled, on the facts and circumstances of the
9. The learned Principal Commissioner of Income tax failed to appreciate that the Assessing Officer before completing the assessment order under section 143[3] r.w.s 153D of the Act on 17/12/2019 had made detailed enquiries calling for relevant records and documents and explanation pertaining to the matter at hand, the same being produced by the appellant during various instances during the assessment proceedings and further as per the provisions of section 153D of the Act an approval has been sought for passing the order of assessment and having applied their mind and considering the facts the order of assessment has been passed. Hence on the very same issue no action can be taken under Section 263 of the Act as the actions of the Assessing Officer is pursuant to applying his mind to the matter and in accordance with law.
10 .The learned Principal Commissioner of Income tax failed to appreciate that the provisions of section 269ST of the Act is not applicable for the amounts paid by the appellant of Rs.4,50,00,000/- and the said provisions are applicable only for the amounts received and consequently the said observation of the learned Principal Commissioner of Income tax to examine the applicability of the provisions of section 269ST is devoid of merits and consequently the said direction of the learned Principal Commissioner of Income tax requires to be cancelled, on the facts and circumstances of the case.”
3. The assessee is a partnership firm and filed the return of income for assessment year under consideration on 29.11.2018 declaring an income of 7,58,25,710/-. A search and seizure operation was conducted on 08.02.20 18. The case was selected for scrutiny and notice under Section 143(2) of the Act dated 16.11.2019 was issued and served on the assessee. During the course of assessment the assessing officer (AO) called on the assessee to furnish details pertaining to incriminating materials found during the course of search and also the incomes offered to tax under the statement recorded u/s. 132(4) during search. The assessee submitted the details called for by the AO and the AO concluded the assessment by accepted the return of income filed by the assessee.
4. The PCIT noticed that the following amounts which have been admitted by ShriAnand Kumar, one of the partners in the assessee firm in his statement under Section 132(4) of the Act are offered as additional income by the assessee in the return of income u/s.139(1) and the same has been accepted by the AO in the assessment completed u/s. 143(3)
(i) The difference in the value of stock as per the books of accounts and physical stock for an amount of Rs.1,82,70,000/-.
(ii) A sum of Rs.4.50 crores was invested byassessee in cash that has not been recorded in the books of account.
5. The PCIT stated that unexplained stock is offered under the head “income from other source” and not routing it through profit and loss account and therefore should be categorised as unexplained investment u/s.69C to be taxed at special rate of tax u/s. 11 5BBE. The PCIT further stated that the investment made in cash is in violation of Section 269ST of the Act and therefore to be assessed accordingly, which the AO failed to do. The PCIT therefore issued a show cause notice to the assessee in this regard. After considering the submissions made by the assessee the PCIT passed an order under Section 263 of the Act setting aside the order of the AO by stating as under: –
“11. In view of the facts, it is held that the Assessment Order passed by the Assessing Officer is erroneous so far as it is prejudicial to the interest of the Revenue as per the provisions of Clause (a) of Explanation (2) to the Section 263 of the Income Tax Act, 1961. The details of excess stock found during survey proceedings needs to be verified and enquired into as to whether the same is in the nature of unexplained cash expenditure u/s 69C in the books of account and whether the same is required to be taxed u/s 11 5BBE of Income Tax Act. Further cash investment amounting to Rs.4.5 crore made during the period under consideration needs to be verified as to whether the said transaction arc in violation of section 269ST of the Act. The claims of the assessee made during current proceedings require in depth enquiry and investigation by the Assessing Officer. Hence, the assessment order dated 17.12.2019 is hereby partly set-aside to the file of the Assessing Officer for passing a fresh Assessment Order after making thorough enquiry on above issues and after considering the submissions made by the assessee during current proceedings.”
6. Aggrieved by the order of the PCIT the assessee is in appeal before the Tribunal.
Additional income towards excess stock
7. With regard to whether the excess stock should be assessed as unexplained expenditure u/s.69C of the Act the learned A.R. made the following submissions: –
i) That the additional amount declared on account of alleged difference in stock amounting to Rs. 1,82,70,000/- itself is not correct, for the reason that actually there was no difference of stock as alleged during the course of search conducted and the declaration was made by the assessee only to buy peace with the department.
ii) That the assessee is in the business of manufacturing and sale of Fish Meal and also engaged in the business of trading in Soluble Paste and Powder which is procured by its sister concerns and is only doing the trading activity as regard to the two items are concerned. The said manufacturing of Soluble paste and Powder is manufactured by its sister concern i.e. Janatha Agro Products, which actually operates in the assessee premises. During the search the learned search officials on the day of search had in fact while verifying the stock of inventory had inadvertently considered the stock of Soluble Paste and Powder which is actually not manufactured by the assessee which is the reason for excess physical stock found by the Department.
iii) That the search happened before the end of the financial year and therefore the assessee adjusted the inventory in its books to the extent of allegation made by the search officials and resulting in an increase in the profit of the assessee has also declared in the computation of total income under the head business income.
iv) That on account of the pressure and without verifying the facts and records, the assessee firm with a view to avoid any controversy and litigation with the department, agreed with the allegation made by the investigating officers and offered the additional income in the return of income filed by it without realising that the same has been offered by adjusting in the stock of inventory which has an effect of enhancing the profit of the assessee.
v) That through the declaration made in the inventory as well as the computation of total income under the head business income, the assessee has paid the applicable taxes.
vi) That the assessee has in fact declared the additional income in its profit and loss account and thus, the provisions of section 11 5BBE of the Act is not at all applicable to the facts of the present case.
viii) That these facts have been submitted before the assessing officer and the assessing officer in the assessment proceedings has made enquiries and applied his mind as regard to the taxability of the inadvertent declaration made by the assessee amounting to Rs. 1,82,70,000/- on account of difference in stock and has treated the same as business income and accepted the taxation of the said alleged inadvertent declaration as business income.
8. The learned D.R. supported the order of the PCIT.
9. We have heard the rival contentions and perused the material on record. We notice that during the search proceedings the inventory of physical stock was verified and the difference between the stock as per the books and the physical stock was compared and then addition of Rs.1,82,70,000/- was computed as under: –
