Case Law Details
Hema Raman Vs PCIT (ITAT Delhi)
ITAT Delhi held that plausible approach adopted by AO cannot be labeled as erroneous. Hence, revisionary order under section 263 of the Income Tax Act is unsustainable in law.
Facts- The assessee is an individual and is deriving income from business of healthcare service and trading in medicine etc.
The survey operation u/s. 133A of the Act was carried out on the business premises of the assessee wherein the assessee admitted undisclosed income of Rs.40 lakh and surrendered the same as normal business income in her ITR. Thereafter, the case of the assessee was subjected to compulsory scrutiny as per the guidelines issued by CBDT.
The notices under S. 143(2) and 142(1) were sent online through online and requisite information and evidences were collected by AO. The AO inter alia took note of the additional income included by the assessee in its e-return of income and accepted the e-return without any adjustment while framing the e-assessment order u/s. 143(3) dated 20.12.2019 after making a brief reference to factum of survey and inclusion of additional income of Rs. 40 Lakhs in the ROI.
Thereafter, the Pr.CIT in exercise of revisionary powers, issued show cause notice dated 09.02.2022 under Section 263 of the Act requiring the assessee to show cause as to why the assessment framed under Section 143(3) should not be suitably amended/modified on the ground that such order is erroneous insofar as it is prejudicial to the interest of the Revenue.
Aggrieved, the assessee is in appeal before the Tribunal agitating supervisory jurisdiction usurped by the Pr. CIT u/s. 263 of the Act.
Conclusion- Held that the approach adopted by the Assessing Officer being plausible, the action of the Assessing Officer cannot be labeled as ‘erroneous’ although it may be prejudicial to the interest of the revenue. Thus, twin conditions of Section 263 are not simultaneously satisfied in the instant case. The jurisdiction usurped by the CIT under Section 263 thus fails on this parameter and hence the revisional order cannot be sustained in law. Consequently, the revisional order passed under Section 263 is quashed.
FULL TEXT OF THE ORDER OF ITAT DELHI
The captioned appeal has been preferred by the assessee relevant to Assessment Year 2017-18 against the revisional order passed by the Principal Commissioner of Income Tax, Rohtak [‘Pr. CIT(A)’ in short], dated 17.03.2022 passed u/s. 263 of the Income Tax Act, 1961 (“the Act”) concerning Assessment Year 2017-18.
2. The assessee has assailed the order of the Pr. CIT under Section 263 of the Act on the ground that the assessment order under revision is neither erroneous nor prejudicial to the interest of the Revenue and therefore, the CIT lacks jurisdiction to invoke the powers conferred under Section 263 of the Act.
3. Briefly stated, the assessee is an individual and is deriving income from business of healthcare service and trading in medicine etc. The Assessee filed his return of income for Assessment Year 2017-18 on 16.12.2017 showing income at Rs.55,02,880/-. The survey operation under Section 133A of the Act was carried out on the business premises of the assessee on 26.04.2016 wherein the assessee admitted undisclosed income of Rs.40 lakh and surrendered the same as normal business income in her ITR. Thereafter, the case of the assessee was subjected to compulsory scrutiny as per the guidelines issued by CBDT. The notices under S. 143(2) and 142(1) were sent online through online and requisite information and evidences were collected by the Assessing officer[AO]. The AO inter alia took note of the additional income included by the assessee in its e-return of income and accepted the e-return without any adjustment while framing the e-assessment order under Section 143(3) dated 20.12.2019 after making a brief reference to factum of survey and inclusion of additional income of Rs. 40 Lakhs in the ROI. Thereafter, the Pr.CIT in exercise of revisionary powers, issued show cause notice dated 09.02.2022 under Section 263 of the Act requiring the assessee to show cause as to why the assessment framed under Section 143(3) should not be suitably amended/modified on the ground that such order is erroneous insofar as it is prejudicial to the interest of the Revenue.
4. The show cause notice issued under Section 263 in this regard is extracted herein for ready reference:
Sub : Show Cause Notice U/s 263(1) of the Income Tax Act, 1961 for the A.Y. 201 7-18-reg.
Return declaring income of Rs. 55,02,880/- for the AY. 2017-18 was filed by you on 06.12.2017. Subsequently, the assessment for the year under consideration was completed u/s 143(3) of the Income Tax Act, 1961 by accepting the returned income by the Assistant Commissioner of Income Tax, Circle, Panipat vide order dated 20.12.2019.
The assessment record for the period under consideration was called upon and examined. On such examination, it has been noticed that survey action u/s 133A was carried out at your business premises on 26.04.2016 in which you have offered an additional income of Rs.40,00,000/- apart from normal business income which is largely in the nature of unexplained cash, excess stock & unexplained advances found as on the date of survey which is liable to be added u/s 68/69/69/69B/69C of the Act. As per your ITR, you have shown the surrender income as business income and have paid taxes as per normal slab rates instead of tax payable at the rate of 60% u/s. 115BBE of the Income Tax Act, 1961. However, neither you have furnished any proper explanation for paying tax at low rates, nor the AO has called for any documentary evidences/proper explanation for the same. In absence of any supporting documentary evidence and proper explanations, re-computation of tax is required to be made on surrendered income at the rate of 60% u/s. 115BBE of the Act.
Failure on the part of the AO to do so renders the assessment order erroneous in so far as it is prejudicial to the interest of revenue.
3. In view of the above, the assessment completed by the AO is, prima face erroneous in so far as it is prejudicial to the interest of revenue. The same is, therefore, required to be suitably amended/modified u/s 263 of the Income Tax Act, 1961. You are, therefore, required to show cause as to why an appropriate order u/s. 263(1) of the Act setting aside the assessment order passed as on 20.12.2019 should not be passed. In this connection, you may send your written reply along-with supporting documentary evidences on the email-id (rohtak.pcit@incometax.gov.in) or through e-proceedings by 16.02.2 022. In case of no reply is received, it shall be assumed that you do not wish to say anything in the matter and the matter would be decided as per material on record without any further notice/intimation to you.”
5. As per the show cause notice, the Pr. CIT observed on the basis of perusal of case record that the additional income of Rs. 40 lakh offered are largely in the nature of unexplained cash, excess stock and unexplained advances as on the date of survey which is liable to be assessed under Section 68/69/69A/69B/69C of the Act and consequently the tax payable on such undisclosed income is susceptible to enhanced tax rate of 60% as per Section 115BBE of the Act inserted in this regard. The Pr. CIT thus alleged that the Assessing Officer has incorrectly adopted the normal rate of taxation at 30% as offered by the assessee overlooking the counter veiling provisions of Section 115BBE of the Act. The response and explanation of the assessee towards show cause notice was taken note of, by the Pr. CIT as per paragraph 5 of its revisional order. On consideration thereof, the Pr. CIT passed the order under Section 263 of the Act whereby the assessment order was set aside with a direction to the Assessing Officer to make a fresh assessment de novo in terms of revisional order and in accordance with law in keeping with the provisions of Section 115BBE of the Act.
6. Aggrieved, the assessee is in appeal before the Tribunal agitating supervisory jurisdiction usurped by the Pr. CIT under Section 263 of the Act.
7. The ld. counsel for the assessee broadly reiterated its detailed submissions made before the Pr. CIT and submitted in furtherance that (i) the income surrendered in the course of survey carried out under S. 133A was clearly attributable to the business operations of the assessee and having regard to the inherent character of business income, such income was rightly offered as business income in the return of income; that applicability of Section 68/69/69A/69B/69C of the Act are thus excluded having regard to the nature of income declared and consequently Section 1 15BBE is not attracted in the facts of the case; (ii) the press release issued by the CBDT dated 11.2016 contemplated that accelerated rate of 60% would be applicable to black money holders who choose to disclose such black money after Pradhan Mantri Garib Kalyan Yojna, 2016 ends. The aforesaid scheme was floated by the Government as an opportunity to the assessee to come out with clean hands and was in force upto 31.03.2017 and therefore, the provisions of Section 115BBE would naturally apply only from a prospective date after the closure of the scheme. This would logically mean that Section 115BBE would apply to the Financial Year 2017-18, i.e., Assessment Year 2018-19 onwards whereas the present appeal concerns Assessment Year 2017-18. The ld. counsel also referred to the decision of the Co-ordinate Bench in the case of DCIT vs. Punjab Retail Pvt. Ltd. in ITA No.677/Indore/2019 order dated 08.10.2021 to submit that substituted provisions of Section 115BBE came into force subsequent to the survey operations and therefore income detected in survey would be governed by pre-amended provisions of Section 115BBE of the Act.
8. The ld. DR for the Revenue, on the other hand, relied upon the revisional order and submitted that Section 115BBE has duly come into force w.e.f. 01.04.2017 and applicable to Assessment Year 2017-18 onwards as per Taxation Laws (2nd Amendment) Act, 2016. It was contended that in the light of statutory enactment, the AO was guilty of depriving the Revenue of its lawful dues while framing assessment and hence committed error causing prejudice to the interest of revenue. It was thus contended that the Pr. CIT had ample jurisdiction under S. 263 read with Explanation-2 thereto to invoke the revisional powers conferred under S. 263 of the Act and thus no interference therewith is called for.
9. We have considered the rival submissions on the maintainability of revisional action in the factual matrix towards taxability of income surrendered in the course of survey prescribed under Section 1 15BBE of the
9.1 Section 263 of the Act confers power upon the Pr.CIT/CIT to call for and examine the records of a proceeding under the Act and revise any order, if he considers the same to be erroneous and prejudicial to the interest of the Revenue. The Pr.CIT can however take recourse to revision under Section 263 of the Act only where the assessment order is erroneous as well as prejudicial to the interest of the revenue. The twin conditions are required to be satisfied simultaneously. The Pr.CIT in the present case has purported to act in exercise of power under Section 263 of the Act and thereby has sought to modify the re-assessment order passed by the Assessing Officer under Section 143(3) of the Act.
9.2 In the context of the case, the Pr.CIT essentially observed that the income surrendered by the assessee in the course of survey proceedings, amounting to Rs.40 lakh in aggregate comprising of (i) excess cash found on business premises Rs.10 lakh (ii) excess stock in business premises Rs.20 lakh and (iii) unaccounted advance to staff as per note book Rs.10 lakh , has been wrongly accepted by AO as business income instead of assessing the same as undisclosed income chargeable under Section 68/69/69A/69C and consequently Assessing Officer has failed to apply the accelerated rate of tax @ 60% on such income contemplated under Section 115BBE instead of 30% offered by the assessee. The Pr.CIT thus alleged that the order passed by the Assessing Officer is erroneous in so far as prejudicial to the interest of the revenue.
10. It is trite that two pre-requisites must co- exist before the designated authority to enable him to exercise the revisional jurisdiction conferred on him namely; (i) the order should erroneous (ii) the error must be such that it is prejudicial to the interest of the revenue. However, an erroneous order does not necessarily mean an order with which the Pr.CIT is unable to agree or does not show assent of mind. It may be pertinent to note that the Assessing Officer while passing the assessment performs quasi judicial functions. An order of assessment passed by the Assessing Officer cannot be ordinarily interfered only because some another view is also plausible. If in the given facts and circumstances of the case, two views are possible and one view which is legally plausible has been adopted by the Assessing Officer then, it is trite, existence of other possible view alone would not be sufficient to enable the designated authority to exercise powers conferred under Section 263 of the Act. The provisions of Section 263 cannot be invoked to correct each and every type of mistake or error allegedly committed by the Assessing Officer. The error should be material and grievous and continuance of such error would not be befitting to the interest of revenue. The appreciation of material placed before the AO is, exclusively within his domain which cannot be freely interdicted by a superior officer while exercising revisional powers. It goes without saying that if so permitted, will render the task of the AO arduous and prone in almost every case.
11. In this backdrop, turning to the facts, the Assessing Officer in the assessment order duly noted the factum of survey operation carried out under Section 133A of the Act at the business premises of the assessee on 04.2016. In the course of survey proceedings, certain loose documents were found and impounded on the basis of which the assessee surrendered Rs.40 lakh during the year as his unaccounted income. It is also an admitted position that assessee has duly reflected the aforesaid amount in his income tax return and has paid taxes thereon albeit at normal rate. Thus, the controversy as per the revisional order hinges on a narrow compass. The assessment order has been sought to be revised on the ground that undisclosed income in the nature of unexplained cash, unexplained stock and unexplained advances surrendered during the course of survey proceedings were required to assessed under Section 68/69/69A/69C etc. and consequently the assessee was required to pay tax under Section 115BBE at a penal rate of 60% applicable w.e.f. 01.04.2017 and thus applicable to Assessment Year 2017-18 in question. The nature and character of income so offered, has thus sought to be realigned by the revisional action to tax such income at penal rate.
12. The assessee, on the other hand, contends that firstly, the income declared in survey at business premises bears proximate nexus to the business operations and therefore, assessable under Section 28 of the Act as offered, in distinction to Section 68/69/69A/69C etc which are essentially meant to cover unidentified undisclosed income genre unconnected to business activities. As contended, the undisclosed income was detected in the course of survey and was found to be integrally connected to business activities. The applicability of S. 68/ 69/69A/69C thus stands ousted in the fact situation. As a corollary, the provisions of Section 115BBE have no applicability in the facts of the case. Secondly, the Co-ordinate Bench of Tribunal in the case of DCIT vs. Punjab Retail Pvt. Ltd. in ITA No.677/Ind./2019 Assessment Year 2017-18 order dated 08.10.2021 has noted that 2nd amendment to Section 115BBE has come into force w.e.f. 15.12.2016 whereas the income tax survey was conducted prior thereto and therefore, the additional income surrendered before the 2nd amendment will be chargeable at the ordinary rate of 30%.
13. On appraisal of facts, we are persuaded by the first limb of the arguments. The determination of true nature and character of income is highly contextual and law has not devised any straight jacket formula in this regard. The classification of income under a particular head of income may significantly vary having regard to the nuanced facts of each case. When seen contextually, the additional income in instant case was conceded by the assessee in the course of survey operations at her business premises. The income surrendered is sort of lumpsum figures offered in the form of excess stock, unaccounted advance to staff, excess cash generated etc. from business operations. Such additional income confessed in survey at business premises gives a facial impression of business attributes. In the light of assertions made in statement in survey and post survey proceedings placed in the paper book, the assessee appears to have made out an arguable case that such income is concomitant of business activities and thus impressed with the character of business income as correctly disclosed in the ROI. The action of AO is not open to attack as erroneous where a view taken is in the realm of a possible view and not found to be wholly incongruous to facts or law. On the face of available facts, one can not say without any reservation that no plurality of opinion can exist on the point and such additional income cannot be treated as business income at all as adjudged by AO. This makes the action of the AO is the league of being plausible. The power of review cannot be exercised to collect more taxes merely owing to the reason that the law now provides for penal and steep rate of taxation by bringing such income within the ambit of S. 68/ 69 etc.
13.1 Significantly, the PCIT, while seeking to set aside the action of AO and remitting the matter back for further enquiries, did not bring any definite material to show any incorrect assumption of such facts on this score. Besides, no observations are found in the impugned revisional order suggesting a course to be adopted towards manner of determining true character of additional income or the nature of enquiries expected from AO.
13.2 In the similar factual circumstances and in the context of section 263, the Hon’ble Andhra Pradesh High Court in the case of PCIT vs. Deccan Jewellera (P) Ltd. ( 2021) 132 taxmann.com 73(AP) held the action of AO cannot be said be marred by any perversity and the revisional order was set aside.
13.2 Taking into account the entire conspectus of the matter, we thus find merit in this plea. The pre-requisites of S. 263 are clearly not found to be fulfilled.
14. We shall now also turn to other argument propelled on behalf of the Assessee that substituted enactment of section 115BBE came into force with assent of President of India w.e.f 15.12.2016 by Taxation Laws (second amendment) Act, 2016 [applicable w.e.f 01.04.2017] and thus income arising to assessee prior to its substitution from 15th Dec. 2016 shall be governed by erstwhile provision of S. 115BBE. In other words, the substituted section shall not apply to income arising or accruing prior to aforesaid date of its substitution whereby the tax rates stood increased from 30% to 60%. As further contended, the additional income in the instant case had already come to surface in survey which was conducted on 26.04.2016 i.e prior to the date when the substituted provision of S. 115BBE came to effect. Consequently, such additional income can be assessed by virtue of erstwhile provisions of S. 115BBE prevailing at the time of its accrual of income only and not by substituted provision which came to life later. A reference was to the decision rendered by the co-ordinate bench in the case of DCIT vs. Punjab Retail Pvt. Ltd. [ITA no. 677/Ind/2019 order dated 08/10/2021]
14.1 It is difficult to agree with such plea. Admittedly, while the survey was conducted prior to substitution/ modification of S. 115BBE, the assessment year concerned continues to be AY 2017-18 . The ROI was filed after the substituted amendment had come into force. The amended provision also came into force w.e.f 01.04.2017 i.e. AY 2017-18 notwithstanding the fact that it was substituted in Dec., 2016. Section 4 of the Act postulates that the law applicable at the beginning of an assessment year would apply to all income of the previous year unless excluded by express enactment.
14.2 It is a cardinal principle of the tax law that the law to be applied is that in force in the assessment year unless otherwise provided expressly or by necessary implication. There is no question of the assessee possessing any vested right under the law as it stood before the amendment. The Hon’ble Gujarat in the case of CIT vs. Nirmal Textiles 224 ITR 378 (Guj.) observed as under:
“Section 4 of the Act is the charging section which provides that where any Central Act enacts that income-tax shall be charged for any assessment year at any rate or rates, income-tax at that rate or those rates shall be charged for that year in accordance with, and subject to the provisions of the Act in respect of the total income of the previous year of the person. The provision is obvious, that the charge of income-tax does not come into existence before enactment of a Central Act brings it to life by requiring the charge of income-tax in respect of the income of the previous year. It is also clear that the tax chargeable under s. 4 is the tax for the assessment year for which charge has been brought to life and is not charge ipso facto coming into existence at the time of earning income during the previous year, i.e., tax is to be assessed for the assessment year in respect of the income of the previous year and not vice versa, namely, tax is not to be assessed for the previous year but is assessed for the assessment year in respect of income of the previous year. In that the charge under the income-tax is apparently distinct than the one which arises under the levy of tax like sales-tax where the charge would be operative as soon as the transaction of sale takes effect as at that point of time the liability is incurred on that transaction.”
14.3 In terms of charging and substantive provisions of Section 4 of the Act, the nature of levy under the Act is an annual charge on the income earned during the previous year relevant to the assessment year. The undisclosed income falling under the sweep of S. 68/69 etc. cannot thus escape the effect of substituted provisions of S. 115BBE coming into operation in the previous year relevant the assessment year AY 2017-18 in question. The provision of S. 4 and relevant judicial view was not brought to the notice of the co-ordinate bench cited on behalf of the Assessee. Hence, with utmost respect, the decision rendered without taking note of statutory provision of S. 4 and eludication of law by judicial precedents thereon in Punjab Retail case is sub silentio order and is thus of no moment and is without any persuasive value.
14.4 We also turn to the judgment rendered by the full bench of Hon’ble Supreme Court in Vatika Township. The ratio of judgment in the case of CIT Vs. Vatika Township Private Limited, (2014) 367 ITR 466 (SC) held that the legislation which modifies accrued rights or which imposes obligations or impose new duties or attach a new disability have to be treated as prospective, unless the legislative intent is clearly to give the enactment a retrospective effect. In that case that the Hon’ble Supreme Court held that the proviso to S. 113 of the Act levying a surcharge on undisclosed income inserted by Finance Act, 2002 was prospective and would not apply to earlier assessment years. In that case, the surcharge was intended to be levied for income arising in relation to block period of 1-4-1989 to 10-02-2000 by virtue of a post facto legislative amendment which was turned down. In the present case, the amendment was carried out before the close of the previous year unlike the case of Vatika. The facts in the instant case are quite different. The amended law of S. 115BBE was in force at the beginning of the assessment year 2017- 18 in question unlike the case of Vatika. The ratio of Vatika would thus have no application and the law applicable at the beginning of the assessment year would thus be applicable and tax rate applicable as per substituted S. 115BBE would apply for all income falling in the ambit of Section 115BBE without any further bifurcation of the previous year.
14.5 The plea that substituted provision of S. 115BBE is not applicable for the earlier period in the same previous year thus fails at the threshold.
15. In this view of the matter, we are dis-inclined to agree with the second plea for lack of jurisdiction for revision exercised by the PCIT under S. 263 of the Act.
16. We also take note of another argument advanced on behalf of the assessee that in view of the PTI press release by CBDT dated 28.11.2016 whereby the amended Section 115BBE of the Act providing hiked taxation @ 60% would come into effect after the closure of PMGKY Scheme which, according to the Assessee, ended on 31.03.2017. The assessee thus contends that the income arising after 3 1.03.2017 would only face the wrath of penal rate of S. 115BBE of the Act and would thus apply to AY 2018-19 onwards.
16.1 We do not see any merit in this plea either. The substituted provision of S. 115BBE has come into effect w.e.f. 1-4-2017 and would thus apply to all transaction covered in the previous year relevant to AY 2017-18, to the extent applicable. The press release referred is in the context of setting right the default in relation to unaccounted banned notes. The press release does not in any manner reads down the substituted provisions of S. 115BBE which are far wider in its scope and ambit. The salutary principles of charging Section 4 discussed in para 13 above would apply mutatis mutandis.
16.2 The plea towards applicability of substituted provision of S. 115BBE from AY 2018-19 instead of AY 2017-18 provided in the Act thus fails.
17. In conclusion, in the light of discussion in para 13 supra, the approach adopted by the Assessing Officer being plausible, the action of the Assessing Officer cannot be labeled as ‘erroneous’ although it may be prejudicial to the interest of the revenue. Thus, twin conditions of Section 263 are not simultaneously satisfied in the instant case. The jurisdiction usurped by the CIT under Section 263 thus fails on this parameter and hence the revisional order cannot be sustained in law. Consequently, the revisional order passed under Section 263 is quashed.
18. In the result, the appeal of the assessee is allowed.
Order pronounced in the open Court on 12/05/2023.
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