Saitawadekar Jewellers Vs CIT (ITAT Pune)
ITAT Pune held that revisionary proceedings under section 263 sustained as AO failed to apply proper and correct section of Income Tax Act to the investment in the undisclosed stock.
Facts- 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.
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.
Conclusion- Held that 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 vs ACIT 418 ITR 442 has upheld the addition of excess stock found during survey u/s69B. 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 plausible view. Hence, the order u/s 263 is upheld qua ‘the investment in the undisclosed stock’.
FULL TEXT OF THE ORDER OF ITAT PUNE
This appeal filed by the Assessee is directed against the order of ld. Principal Commissioner of Income Tax, Pune-1dated 22.11.2022emanating from the order of the Assessing Officer dated 27.11.2017 under section 143(3) of the Income Tax Act, 1961 for the A.Y.2015-16. The Assessee has raised the following grounds of appeal:
“1. On the facts and circumstances of the case and in law the Ld. PCIT in his order u/s 263, while giving effect to the order dtd.31.05.2022 of the honorable ITAT, erred in making the following additions to the income determined vide assessment order dated 27.11.2017 and directing the assessing officer to accordingly give effect to his order:
a. Addition of income declared during the source of survey on account of excess stock of Rs.30,01,449.
b. Disallowance on account alleged cash payments in violation of Section 40A(3).
even though, as was substantiated in the submission to the Ld. PCIT, there isneither any violation of S.40A (3) nor the excess income declared during surveyhas remained to be disclosed, which fact was duly examined by the AO duringthe assessment proceedings u/s 143(3).
The appellant therefore prays that the order of the PCIT be annulled.
The appellant craves leave to add 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 undersigned on 10.11.2022 calling the submission and supporting material, if any. In compliance with this notice, the assessee submitted its written submission on 13.11.2022, which is brought on record. In this written submission, the assessee admitted that there was excess stock found during the course of survey u/s 133A of the Income-tax Act, 1961 to the tune of Rs. 30.01,449/- which was declared by the assessee as unexplained. The assessee further stated that this unexplained stock has duly been added in the stock while finalizing the Balance Sheet and Profit & Loss account.
Thus, it is undisputed fact that there was unexplained stock of Rs.30,01,449/- which was disclosed by the assessee as additional income of the year. The treatment given to this excessstock in theProfit & Loss account is not correct. The unexplained stock found in the survey is to be taxed under section 69/69B of the Income-tax Act, 1961 and it would be in addition to the regular income of the assessee as is held in the following cases:-
1. Vimla Stores vs CIT (2009) 308 ITR 89 (Pat)
2. Dhanush General Stores vs CIT (2011) 339 ITR 651 (CG)
3. Fakir Mohd Haji Hasan vs CIT, 249 ITR 290 (Guj)
In view of the law laid down in these cases, the amount of excess stock found during the survey viz. Rs. 30,01,449/- is to be added back in the assessee’s regular income. The tax on this amount is to be computed u/s 115BBE of the Income-tax Act, 1961.
6. The assessee has made purchases to the tune of Rs.8,23,642/- from Un-Registered Dealers and that too in cash. Thus, it is to be added u/s 40A(3) of the Income-tax Act, 1961. On this issue, the assessee submitted that the Assessing Officer in the order passed u/s 143(3) r.w.s. 263 has not made any addition on this issue and hence it stands deleted which is evident from the assessment order. Since the order of the Assessing Officer has become infructuous in view of the order of the Hon’ble ITAT and hence, the stand taken by the Assessing Officer cannot be pleaded against this addition. Nothing else has been submitted by the assessee on this issue and hence, I presume that the assessee has nothing to submit further. I, therefore, add Rs.8,23,642/- in the returned income of the assessee.” Unquote.
Submission of Ld. Authorised Representative (ld.AR):
3. The Ld.AR of the assessee filed a factual paper book. The Ld.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 through the statement of Mr. Mangesh Saitavadekar, partner of assessee recorded during the survey on 19/12/2014. Ld. DR submitted that excess stock was found during the survey. The partner has accepted this fact that the excess stock found during the survey was not recorded in the books of the firm. Therefore, the partner accepted additional income of the assessee. The Ld. DR submitted that ‘excess stock , found means the assessee had invested his unaccounted money in purchase of the said excess stock which was admittedly not recorded in the regular books. This means, the impugned ‘excess stock’ found during the survey was ‘unexplained money, bullion, jewellery’ as mentioned in the section 69A,69B of the Act. Therefore, the impugned excess stock should have been added u/s 69B of the Act which is taxable u/s 115BBE. However, the AO has not added it u/s 69B, hence the assessment order is erroneous. Whether the assessee had submitted the details or not is not important in this case as the AO has erroneously not applied the correct section of the Act. The Ld. DR read out the Section 263 and its explanation. Ld. DR submitted that as per the explanation to Section 263, the assessment order is erroneous and prejudicial to the interest of the revenue.
Findings and Analysis:
5. We have heard both the parties and perused the records. It is a fact that excess stock was found during the survey conducted on 19/12/2014. It is an admitted fact by the partner of the assessee firm that the said excess stock was not recorded in the books of the firm. In the statement the partner of the firm in question number 3 has admitted that the books are written up to 19/12/2014 i.e. up to the date of the survey. The partner has admitted in answer to question number 17 that the excess stock of 1058.686 grams in fine weight of Gold and 1060.825 grams of silver was not recorded in the books. The statement of the partner was recorded in the presence of Authorized representative Mr. S.P. Vaidya CA. The partner of the Assessee firm had admitted additional income as under :
