Akashdeep Cloth Centre Vs PCIT (ITAT Pune)
AO’s acceptance of excess stock as business income upheld- 115BBE not attracted- Survey surrender as business income — Pune ITAT quashes PCIT’s 263 revision
Both assessees, partnership firms engaged in cloth trading, were subjected to survey u/s 133A on 06.03.2019, during which excess cash of ₹2.04 lakh & excess stock of ₹73.21 lakh were found. They voluntarily declared total additional income of ₹75.25 lakh in their returns for A.Y. 2019-20.
AO completed assessments u/s 143(3) r.w.s. 144B on 26.08.2021 accepting the declared income as business income and taxed it under normal rates.
PCIT later, on examining records, observed that the AO failed to apply Section 69/69B r.w.s. 115BBE, which mandates a higher tax rate (60%) on unexplained investments or cash. He held that the surrendered income was unexplained, as no documentary evidence of its source was furnished, and hence assessment was erroneous & prejudicial to Revenue’s interest. He, therefore, set aside the assessment directing the AO to redo it.
Assessee’s Contention
- AO had specifically raised a query (Notice u/s 142(1) dated 05.08.2021) asking to substantiate the treatment of the additional income.
- Assessee explained vide reply dated 06.08.2021 that both excess cash & stock arose from normal business operations—miscellaneous unrecorded festival-season sales & estimation differences in cloth stock—and were already credited to P&L as business income.
- Once AO accepted this plausible view after enquiry, revision u/s 263 was not permissible.
- Relied on Malabar Industrial Co. Ltd. v. CIT (243 ITR 83 SC) and Gabriel India Ltd. (203 ITR 108 Bom) that revision is invalid when AO has taken one possible legal view.
- Also cited Deccan Jewellers (438 ITR 131 AP) and Mahavir Ashok Enterprises (167 taxmann.com 396 Chhattisgarh HC) holding that excess stock found during survey, when explained as business income, cannot be treated as unexplained investment.
Revenue’s Argument
