Gujarat High Court
The Principal Commissioner Of Income ... vs Dharti Estate on 23 January, 2024
Author: Bhargav D. Karia
Bench: Bhargav D. Karia
NEUTRAL CITATION
C/TAXAP/72/2024 ORDER DATED: 23/01/2024
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IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/TAX APPEAL NO. 72 of 2024
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THE PRINCIPAL COMMISSIONER OF INCOME TAX-1 , RAJKOT
Versus
DHARTI ESTATE
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Appearance:
MR KARAN G SANGHANI(7945) for the Appellant(s) No. 1
for the Opponent(s) No. 1
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CORAM:HONOURABLE MR. JUSTICE BHARGAV D. KARIA
and
HONOURABLE MR. JUSTICE NIRAL R. MEHTA
Date : 23/01/2024
ORAL ORDER
(PER : HONOURABLE MR. JUSTICE BHARGAV D. KARIA)
1. By this Tax Appeal under Section 260A of the Income Tax Act, 1961 (for short 'the Act'), the appellant revenue has proposed the following questions of law arising out of the order dated 13th July, 2022 passed by the Income Tax Appellate Tribunal, Rajkot (for short 'the Tribunal') in ITA No.92/RJT/2020 for Assessment Year 2015-16.
(i) Whether the Hon'ble Tribunal was justified in quashing the order u/s. 263 of the Income Tax Act of Ld. PCIT on the basis that the impugned income was business income despite the provisions of section 68 to 69D r.w.s. 115BBE of the Act?
(ii) Whether the Hon'ble Tribunal was justified in quashing the order u/s. 263 of the Income Tax Act of Ld. PCIT despite Page 1 of 8 Downloaded on : Thu Jan 25 20:40:03 IST 2024 NEUTRAL CITATION C/TAXAP/72/2024 ORDER DATED: 23/01/2024 undefined pendency of the SLP before the Hon'ble Apex Court in the case of Deccan Jewellers (P.) Ltd [2021] 132 taxmann.com 73 (Andhra Pradesh)?
(iii) Whether the Hon'ble Tribunal was justified in quashing the order u/s. 263 of the Income Tax Act of Ld. PCIT contrary to the judgment of the Hon'ble Apex Court in the decision of Malabar Industrial Co. Ltd.
v. Commissioner of Income-tax [2000] 109 Taxman 66 (SC)?
2. Brief facts of the case are as under.
2.1 It is the case of the appellant revenue that a survey under Section 133A of the Act was conducted at the premises of the assessee during the Assessment Year 2015-16. During the course of the survey, disclosure of Rs.75,15,000/- has been made by the assessee. Thereafter, the case of the assessee was selected for manual scrutiny and returned income of the assessee was accepted. The PCIT noted that the disclosed amount must be taxed under Section 115BBE of the Act rather than being shown as business income. In verification of computation of income, it was seen that the assessee has claimed an amount of Rs.03,53,280/- as interest to partners and Rs.44,85,820/- as remuneration of partners which are not permissible deductions as per the provisions of Section 115BBE of the Act. Therefore, the assessment order being erroneous and prejudicial Page 2 of 8 Downloaded on : Thu Jan 25 20:40:03 IST 2024 NEUTRAL CITATION C/TAXAP/72/2024 ORDER DATED: 23/01/2024 undefined to the appellant revenue, was revised by PCIT directing the Assessing Officer to pass fresh assessment order only to the extent of issue.
2.2 Being aggrieved by the said order, assessee preferred Appeal before the Tribunal.
2.3 The Tribunal, by the impugned order, has dismissed the Appeal by observing as under.
"5.1 A perusal of the assessment records show that the assessing officer had made inquiries in respect of the assessment amount of Rs.3,53,280/- paid as interest to partners and Rs.44,85,820/- as remuneration paid to partners during the course of assessment proceedings. It is settled law that if the assessing officer has taken one of the views which is possible in law, the assessment order cannot be said to be erroneous and prejudicial to the interest of the revenue. The Gauhati Tribunal in the case of Abdul Hamid v. ITO [2020] 117 taxmann.com 986 (Gauhati Trib.) held that where Department had itself accepted undisclosed amount of assessee in his bank account as undisclosed "business receipts/turnover", section 115BBE would not attract. In the case of Babulal K. Daga 387 ITR 114 (Gujarat High Court), the respondent-assessee who was engaged in the business of transportation was subjected to survey proceedings during which he had admitted an expenditure of Rs. 77.01 lakhs out of undisclosed source. In the return filed by the assessee for the relevant assessment year, the Assessing Officer though took note of such income, allowed set off against the business expenditure. The Commissioner however was of opinion Page 3 of 8 Downloaded on : Thu Jan 25 20:40:03 IST 2024 NEUTRAL CITATION C/TAXAP/72/2024 ORDER DATED: 23/01/2024 undefined that such expenditure would be covered under section 69C and hence the business expenditure could not be set off against such income. He accordingly set aside the assessment by invoking section 263. The Gujarat High Court held that even in case of unaccounted receipts of a businessman, it is only the profit element embedded in the business which can be taxed and not the entire amount. In other words, if the assessee can point out that even on unaccounted receipts, expenditure was also incurred for the purpose of business, it would be only the reasonable profit on such receipts which should be taxed. Thus, revision order was not sustainable. In the case of Deccan Jewellers (P.) Ltd. [2021] 132 taxmann.com 73 (Andhara Pradesh), the High Court held that where nature and source of excess stock found during search was not specifically identifiable from profits which had accumulated from earlier years, AO was justified in holding that said excess stock was not undisclosed investment of assessee and no case of perversity or lack of enquiry on part of Assessing Officer was made out so as to render his decision erroneous under Explanation 2 to section 263. The ITAT Chandigarh in the case of Bajaj Sons Ltd. [2021] 128 taxmann.com 406 (Chandigarh Trib.) held that where director of assessee-company surrendered a certain sum during search, and Assessing Officer treated said sum as income from unexplained sources and invoked provisions of section 115BBE and charged tax at a higher rate, since Assessing Officer had not pointed out any unexplained credit in books of account, provisions of sections 68, 69, 69A, 69B, 69C and 69D were not attracted on surrendered amount and aforesaid surrender not being covered under provisions of sections 68, 69, 69A, 69B, 69C and 69D, Page 4 of 8 Downloaded on : Thu Jan 25 20:40:03 IST 2024 NEUTRAL CITATION C/TAXAP/72/2024 ORDER DATED: 23/01/2024 undefined provisions of section 115BBE were not attracted. The ITAT Jaipur in the case of Hari NarainGattani [2021] 123 taxmann.com 8 (Jaipur Trib.) held that where assessee surrenders undisclosed income during search action for relevant year, it is not necessary that tax rate has to be charged as per provision of section 115BBE. The facts of the case were that Assessing Officer completed assessment in case of assessee under section 143(3) at assessed income of Rs.41.78 lakhs which included income surrendered pursuant to search of Rs.22.19 lakhs as current year's business income offered to tax, by charging tax and interest at normal rates and raised nil demand. Thereafter, Assessing Officer issued notice under section 154 on ground that tax rate on surrendered income was to be charged as per provision of section 115BBE. However, it was found that there was nothing stated in either pre-amended or post-amended provisions of section 115BBE that where assessee surrenders undisclosed income during search action for relevant year, tax rate has to be charged as per provisions of section 115BВЕ. The ITAT held that there was no finding that provisions of section 115BBE had been invoked by Assessing Officer during assessment proceedings and tax rate had been charged at rate of 30 per cent on surrendered income under section 115BBE and thus, action of Assessing Officer in rectifying and increasing rate of taxation from 30 per cent to 60 per cent on undisclosed income in view of amended section 115BBE did not come within purview of section 154. The ITAT accordingly held that the action of Assessing Officer in invoking jurisdiction under section 154 was not legally tenable. Again, the ITAT Jaipur in the case of Sudesh Kumar Gupta [2020] 117 taxmann.com 178 (Jaipur - Trib.) held that where while Page 5 of 8 Downloaded on : Thu Jan 25 20:40:03 IST 2024 NEUTRAL CITATION C/TAXAP/72/2024 ORDER DATED: 23/01/2024 undefined completing assessment under section 143(3), Assessing Officer did not invoke provisions of section 69, provisions of section 115BBE which were contingent on satisfaction of requirements of section 69, could not be independently applied by invoking provisions of section 154.
5.2 In a considered view, during the course of assessment proceedings, the assessing officer had made due enquiries and was aware of the fact that assessee had disclosed the amount as "business income"
in his return of income in respect of which it had claimed expenditure in relation interest/remuneration paid to to partners. After making due enquiries, the assessing officer allowed the claim of the assessee by treating the undisclosed income found during survey as assessee's "business income" and allowing corresponding expenditure against the same in the assessment proceedings. Therefore, in light of the facts of the case and the judicial precedents on the subject as discussed above, in our view, Ld. PCIT has erred on facts and in law in invoking section 263 provisions in the instant facts, to hold that the order passed by the assessing officer is erroneous and prejudicial to the interests of the revenue. In the result, the appeal of the assessee is allowed.
4. As observed by the Tribunal, the Assessing Officer has made sufficient inquiry and as such during the course of regular assessment under Section 143(3) of the Act, by assessing the income of Rs.41.78 lakhs which included the income surrendered pursuant to the search of Rs.22.19 lakhs as current year's business income Page 6 of 8 Downloaded on : Thu Jan 25 20:40:03 IST 2024 NEUTRAL CITATION C/TAXAP/72/2024 ORDER DATED: 23/01/2024 undefined offered to tax by charging tax and interest at normal rates and raised new demand. Notice was also issued by the Assessing Officer under Section 154 of the Act on the ground that the tax rate on the surrendered income was to be charged as per Section 115BBE, however it was found that there was nothing stated in either pre-amended or post-amended provision of Section 115BBE that when the assessee surrendered undisclosed income during the search action for the relevant years, higher tax rate is required to be charged.
5. In the facts of the case, during the course of assessment proceedings, as the Assessing Officer had made due inquiries and was aware of the fact that the assessee had disclosed the income as business income in his return of income in respect of which it had claimed expenditure in relation to interest and remuneration paid to partners and after making inquiries, Assessing Officer allowed the claim of the assessee by treating undisclosed income found during the survey as assessee's business income and in view such finding of facts arrived at by the Tribunal, we are of the opinion that no substantial question of law arises from the impugned order of the Tribunal.
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6. The Appeal being devoid of any merit, is accordingly dismissed.
(BHARGAV D. KARIA, J) (NIRAL R. MEHTA,J) ANUP Page 8 of 8 Downloaded on : Thu Jan 25 20:40:03 IST 2024