Shri Haris Kalandan Mohammed Vs PCIT (ITAT Bangalore)
ITAT Bangalore held that for invoking the provisions of unexplained cash credit u/s 68 there has to be entries in the books of account for which no explanation should have been offered. As the declaration provided by the assessee is self-explanatory the provisions of section 68 cannot be invoked.
Facts-
During the search proceedings, the assessee admitted an amount of Rs. 28,84,727/- as undisclosed income on account of cash payment for the construction of house. However, the admitted amount was not disclosed in the return of income as according to assessee the same was included under the head ‘Income from other sources’. AO accepted the admission and order was passed.
Post examination of case records, PCIT issued notice u/s 263 alleging that source of receipts declared as commission remained unexplained and should have been brought to tax u/s 68 read with section 115BBE.
Being aggrieved by the order of PCIT, the assessee preferred the present appeal.
Conclusion-
We note that the Ld.PCIT has stated that AO should have treated the said income as unexplained cash credit and addition should have been made u/s. 68 of the Act. This contention is not accepted as for invoking the provisions of section 68 there has to be entries in the books of account for which no explanation is offered by assessee. In the present facts of the case, the declaration by assessee is based on a seized material which is self-explanatory in terms of the parties to whom payments have been made in cash as well as cheque towards construction.
In the present facts of the case, the order passed by the Ld.AO may be prejudicial however, it cannot be held to be erroneous and the Ld.AO had adopted one of the possible view.
FULL TEXT OF THE ORDER OF ITAT BANGALORE
Present appeal is filed by assessee against order dated 22/03/2022 passed by Ld.Pr.CIT u/s. 263 for A.Y. 2018-19 on 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 22/03/2022, 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] r. w.s. 153D of the Act dated 24/12/2019 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] r.w.s. 153D 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 passed an unsustainable order which is based purely on assumptions arid presumptions. The order is arbitrary and full of surmises, without considering the relevant material and considering irrelevant materials. Consequently, the order passed is a perverse order on the facts and circumstance of the case.
5. 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.
6. The learned Pr.CIT failed to appreciate that the amount declared by the appellant of Rs. 24,84,727/- as income from other sources, cannot be treated as unexplained credits as per section 68 of the Act and consequently the provisions of section 115BBE of the Act is not attracted on the facts and circumstances of the case.
7. 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 24/12/2019 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.
8. The Appellant craves leave to add, alter, substitute and delete any or all the grounds of appeal urged above.
9. For the above and other grounds to be urged during the hearing of the appeal, the Appellant prays that the appeal be allowed in the interest of equity and justice.”
2. Brief facts of the case are as under:
2.1 Search & seizure action U/s. 132 of the IT Act was carried out in the case of M/s. Mukka Sea Food Industries P Ltd and also at the residence of assessee on 08.2.2018. The assessee filed his return of income for the A.Y 2018-19 on 29.3.2019 declaring total income of Rs.1,59,34,350/-. Assessment U/s. 143(3) of the IT Act was completed on 24.12.2019 assessing the income at Rs.10,19,39,061/-.
2.2 During search proceedings, it was noticed that cash payments to the extent of Rs. 28,84,727/- towards construction of house had been made by the assessee which was not accounted. In the statement recorded U/s. 132(4) of the IT Act, 1961, the assessee admitted an amount of Rs. 28,84,727/- as undisclosed income on account of cash payment for the construction of house for AY 2018-19. However, the admitted income of Rs.28,84,727/- was not declared in the return of income filed for AY 2018-19. During the assessment proceedings, the assessee submitted that the additional income admitted during search proceedings on account of cash expense had been declared as commission income under the head “Income from other sources” in the return of income filed. The AO accepted the admission and assessment order was passed.
2.3 In the return of income filed for AY 2018-19, an amount of Rs.67,24,595/- was declared as commission under the head “Income from other sources” including the admitted amount u/s. 132(4) of the Act. Examination of case records by the Ld.PCIT, revealed that, during assessment proceedings, no further details was enquired regarding the money admitted during the search. 2.4 Subsequently, notice u/s. 263 was issued to the assessee dated 05/01/2022 which is as under:
“On examination of the assessment records, it is noticed that the assessment order passed u/s. 143(3) of the Income Tax Act for Asst Year 2018-19 on 24.12.2019 by the DCIT CC 1, Mangaluru is erroneous in so far it is prejudicial to the interests of revenue due to the reasons mentioned below:-
2. The ROI was filed on 29.03.2019 for the A.Y. 2018-19 declaring total income of Rs.1,59,34,350/-. Search and seizure action u/ s 132 of the I.T. Act, 1961 was carried out u/s 132 on 8.2.2018. Assessment u/s 143(3) of the Income-tax Act, 1961 was completed on 24.12.2019 assessing the income at Rs.10,19,39,061/-.
3. On a perusal of the records, following discrepancies are found:
During the course of search, it was noticed that unaccounted cash payments to the extent of Rs.28,84,727/- towards construction of house was made. In the statement recorded u/s 132(4) of IT Act during search proceedings, you admitted the amount of Rs.28,84,727/- as undisclosed income on account of cash payment for the construction of house for AY 2018-19.
4. The admitted income was not declared by you in the return of income filed for AY 2018-19. During assessment proceedings, it was submitted that the additional income admitted during search proceedings on account of cash expenses was declared in the return of income as commission received under the head ‘Income from other sources’. The Assessing officer accepted the contention and assessment order was passed accordingly.
5. In the return of income filed for AY 2018-19, an amount of Rs.67,24,595/ – was declared as commission under the head ‘Income from other sources’ including the undisclosed cash expenses declared during search proceedings. Examination of case records revealed that no further details was submitted regarding receipt of commission. As such, the sources of receipts declared as commission remained unexplained and should have been brought to tax as per the provisions of Section 68 rws 115I3BE of Income Tax Act.
6. Since the AO failed to tax the commission income u/s 68 r.w.s 115BBE of Income Tax Act, the assessment order is erroneous and prejudicial to the interests of revenue and I propose to invoke the provisions of section 263 of the Income Tax Act.
7. In this regard, you are hereby, given an opportunity of being heard and show cause as to why the impugned order should not be enhanced/ modified or set aside for a fresh assessment under section 263 of the Income-tax Act, 1961. This opportunity is being given to you to furnish your reply in respect of the impugned issue, either in person or through your Authorised Representative in this office on 01.2022 at 10.30 A.M. If you do not avail this opportunity, it will be presumed that you have nothing to say in the impugned matter and the issue will be decided on the basis of the facts available on records and on merits of the case.”
2.5 Assessee in response to the above notice, furnished reply objecting the review proceedings vide letter dated 10/02/2022 by submitting as under:
“The order passed U/ s. 143(3) dt. 24.12.19 is neither erroneous in law nor prejudicial to the interests of the revenue. The learned AO has passed the order and the additional commissioner has approved the same. Hence, there is application of mind by two assessing authorities.
It may be noted that, the additional income declared during the search proceedings is duly offered in the return of income filed. The learned AO made the proposal to assess the income as declared during the search. In this regard, it was submitted that an additional income of Rs. 28,84,727/ – was offered in the statement recorded U/ s. 132(4). But subsequently on verification of seized materials it was noticed that an amount of Rs. 4,00,000/ – was considered twice while arriving at the additional income of Rs. 28,84,727/ -. Hence, after reducing the said amount net income of Rs. 24,84,727/ – was offered under the head Income from other sources. During the assessment proceedings the learned AO has made a specific enquiry on the income declared and after considering the reply filed, the learned AO held as under :-
The claim of the assessee is verified and the same is in order. In view of the above, the investment of Rs. 24,84,727/- in the construction of residence at Pandeshwara is assessed as the income of the assessee. It is evident from the above that the learned AO has verified the claim and considered it in the order. Thus, it is to be noted that the present proposal for revision is because of mere change of opinion. It is settled law that the mere change of opinion or view would not enable the CIT to exercise jurisdiction u/s. 263 of the Act more so, when the AO had considered the details and the explanation offered by the assessee.
Change of opinion by reappraising the evidence is not within the parameters of revisional jurisdiction of the Commissioner under section 263 of the Act. Further to attract the provisions of section 68 as alleged in the notice U/ s. 263 the primary condition of a sum found credited to books of the assessee is not satisfied. Hence provisions of section 68 do not apply. Even assuming that the provisions of section 68 is applicable, the income is not assessable under section 68 as both the nature and source is explained as the receipt is in the nature of income and source is the commission received. The provisions of section is applicable if the assessing officer is not satisfied with explanation provided, but in the instant case, the assessing officer as well as the approving authority are satisfied with the nature and source explained.
In view of the above, I submit that the order is not erroneous in so far as it is prejudicial to the interest of revenue. Hence, it is humbly prayed that the proposal for revision of order may kindly be dropped.”
2.6 The Ld.PCIT observed and held as under:
“9.1 The contention of the assessee is correct to the extent that additional income declared during search proceedings was declared in the return of income; however the AO failed to examine the source of cash expenses declared as commission in the return of income. In absence of source of cash expenses the same should have been treated as unexplained cash credit in the books of account and taxed under section 115BBE of Income Tax Act, which was not done. There is no change of opinion on the issue as claimed by the assessee as the assessing officer had not made any enquiries on the details of commission received such as source of the same, from whom the same is received, mode of receipt or services rendered by assessee for receipt of the same. Hence the contention of the assessee is not acceptable.
10. In view of the facts, it is held that the Assessment Order passed by the Assessing Officer is erroneous so far as it is pre-judicial 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 declaration of cash payment of Rs.28,84,727/- as commission income under the head ‘Income from other sources’ in the return of income filed require verification and proper enquiry by the assessing officer as to whether the same is in the nature of unexplained cash credit u/s 68 in the books of account and whether the same is required to be taxed u/s 1 15BBE of Income Tax Act. Hence, the assessment order dated 24.12.2019 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.
11. It is further directed that the Assessing Officer will provide sufficient opportunity of being heard to the assessee during the course of the set-aside proceedings.”
2.7 Aggrieved by the above order of the Ld.PCIT, assessee is in appeal before this Tribunal.
3. At the outset, the Ld.AR in Ground no. 3 assessee raised a legal issue, wherein, the review proceedings is challenged, based on the submission that, the assessment order passed u/s. 143(3) was after taking necessary permissions as per section 153D of the Act. It is the submissions of the Ld.AR that under such circumstances, the review proceedings is bad in law.
4. He placed reliance on the following decisions in support.
