AI Insights
The case revolves around the revisionary order passed by the Pr.CIT-1 Vadodara under section 263 of the Income Tax Act, 1961, concerning the assessee, Nilaykumar & Bros. Jewellers, for the assessment year 2017-18. The Pr.CIT had revised the scrutiny assessment order, which accepted the assessee's disclosure of excess stock and cash found during a survey under section 133A as 'business income', instead of treating it as unexplained investments under section 69B, which would attract a higher tax rate under section 115BBE and specific penalties under section 271AAC. The Tribunal examined whether the Pr.CIT's revision was justified and whether the Assessing Officer had erred in his initial acceptance of the assessee's disclosures.
Appeal details
Counselvise Citation
[2023] 140 COUNSELVISE.COM (IT) 133467 (ITAT-AHMEDABAD)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
8 month(s) 5 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
10-01-2023
Appeal Filed By
Assessee
Order Result
Allowed
Bench Allotted
A
Next Hearing Date
17-10-2022
Assessment Year
2017-2018
Appeal Filed On
05-05-2022
Judgement Text
आयकर अपीलीय अिधकरण आयकर अपीलीय अिधकरणआयकर अपीलीय अिधकरण आयकर अपीलीय अिधकरण, अहमदाबाद 瀈यायपीठ अहमदाबाद 瀈यायपीठअहमदाबाद 瀈यायपीठ अहमदाबाद 瀈यायपीठ ‘A’ अहमदाबाद। अहमदाबाद।अहमदाबाद। अहमदाबाद। IN THE INCOME TAX APPELLATE TRIBUNAL “A” BENCH, AHMEDABAD BEFORE SMT.ANNAPURNA GUPTA, ACCOUNTANT MEMBER AND SHRI T.R.SENTHIL KUMAR, JUDICIAL MEMBER ITA No.146/Ahd/2022 Assessment Year :2017-18 Nilaykumar& Bros. Jewellers ‘Zaverat’, The Jewellers, G-2 Dindayal Upadhyay Vanijya Bhavan Station Road, Anand. PAN : AADFN 4502 H Vs. Pr.CIT-1 Vadodara. (Applicant) (Responent) Assessee by : Shri S.N. Soparkar, Sr.Advocate with Shri Parin Shah, AR Revenue by : Shri Vijay Kumar Jaiswal, CIT-DR /D a t e o f H e a r i n g : 1 8 / 1 0 / 2 0 2 2 /D a t e o f P r o n o u n c e m e n t : 1 1 / 0 1 / 2 0 2 3 आदेश/O R D E R PER ANNAPURNA GUPTA, ACCOUNTANT MEMBER Present appeal has been filed by the assessee against order passed by the ld.Pr.Commissioner of Income Tax-1, Vadodara [hereinafter referred to as “the ld.Pr.CIT”] dated 30.3.2022 in exercise of his revisionary jurisdiction under section 263 of the Income Tax Act, 1961 [hereinafter referred to as "the Act" for short]for the Asst.Year 2017-18. 2. The grounds raised in this appeal are as under: “1. Ld. Pr. CIT Vadodara-1 erred in law and on facts revising a scrutiny assessment order which is neither erroneous nor prejudicial to the interest ITA No.146/Ahd/2022 2 of revenue. The action of Id. Pr. CIT revising an order passed after extensive verification of the details on record is without any justification to invoke revisional jurisdiction. 2. Ld. Pr. CIT erred in law and on facts holding order erroneous on the alleged ground that the order was framed without any inquiry or verification to examine the source of investment made in the excess stock found during survey proceedings which could be considered as made out of undisclosed sources of income. 3. Ld. Pr. CIT erred in law and on facts in passing impugned order on the alleged ground of possible violation of Sec. 69B of the Act attracting provision of Sec. 115BBE to charge tax at 60% of the income. 4. Ld. Pr. CIT further erred in law and on facts holding scrutiny assessment order as erroneous in so far as prejudicial to the interest of revenue on the alleged ground of AO charging penalty u/s 270A of the Act whereas income was required to be charged u/s 69B attracting penalty u/s 271AAC of the Act. 5. Ld. Pr. CIT erred in law and on facts revising scrutiny assessment order relying on Hon'ble Delhi high court judgments on completely different set of facts.” 3. The ld.counsel for the assessee began by pointing out that revisionary power ,under section 263 of the Act ,was exercised by the ld.Pr.CIT on noticing from the records before him that disclosuremade by the assessee, on account of surplus stock and cash found during survey action on him under section 133A of the Act, had been accepted by the Assessing Officer (AO) as “business income”, whereas, the assessee having not given any explanation regarding the source of investment in the same , it ought to have been treated as unexplained investments as per the provisions of section 69B of the Act and consequently subjected to tax at the higher special rate provided under section 115BBE of the Act and penalty thereon levied as per the provision of section 271AAC of the Act, as opposed to the AO treating the disclosure as “business income”, thus taxing it at a normal rate of tax and levying penalty as ITA No.146/Ahd/2022 3 per the normal provisions of section under section 271(1)(c) of the Act. 4. Briefly put, the error in the assessment order noted by the ld.Pr.CIT was the acceptance by the AO of the disclosure made by the assessee on account of excess stock and cash found during survey as business income, when allegedly in the absence of any explanation of the source of investment made therein it ought to have been treated as unexplained investment u/s 69 of the Act and taxed at higher special rate as per section 115BBE of the Act and penalty levied thereon as per section 271AAC of the Act. 5. Ld.counsel for the assessee pointed out that in response to the notice issued under section 263 of the Act, initiating revisionary proceedings, due reply was filed by the assessee pointing out that the issue had been examined during assessment proceedings, and all disclosure made during the course of survey itself regarding nature and source of investment. The ld.Pr.CIT rejected the contentions of the assessee and held that since on the impugned issue proper inquires and verification, which should have been made, had not been made by the AO, therefore, Explanation 2 to section 263 was applicable, and the assessment accordingly was held erroneous causing prejudice to the Revenue. The ld.Pr.CIT set aside the assessment order with direction to the AO to pass fresh assessment order after taking into consideration the issues as were already considered along with the issue discussed in his order under section 263 of the Act. ITA No.146/Ahd/2022 4 6. The ld.counsel for the assessee, thereafter, proceeded to make his arguments against the order passed under section 263 of the Act, which briefly put were to the effect: i) That all proper disclosure regarding the surrender made during survey and regarding source of investments therein, was made by the assessee, and was there before the AO, who after considering the same, had allowed claim of the assessee of treating the disclosure as “business income” of the assessee. ii) That considering the fact of the surrender relating to excess stock of business and cash found, the view taken by the AO of treating the disclosure as “business income” of the assessee was in conformity with judicial pronouncements and hence a probable view. That therefore there was no error in the order of the AO accepting disclosure of the surrender made by the assessee as its business income; iii) That since the stand taken by the assessee of returning surplus stock and cash surrendered during survey as business income was supported by various judicial decisions the AO , by accepting the same, had taken one of the possible view which could not be said to be in error. iv) That ld.Pr.CIT had applied Explanation 2 to section 263 of the Act without confronting the assessee of invoking the same in the show cause notice issued and the Hon’ble jurisdictional High Court had held such application to be against law. ITA No.146/Ahd/2022 5 8. The ld.DR countered by stating that no pointed query was raised by the AO during assessment proceedings on the issue of disclosure made during the survey, and therefore, it could not be said that any inquiry or verification was conducted on the issue; That expl 2 to section 263 had been rightly applied to the facts of the present case and further that it was not necessary to show cause invocation of Explanation 2 to section 263 of the Act before applying it. 9. Both parties relied on various case laws in support of their contentions. 10. We have heard both the parties and have carefully perused order of the ld.Pr.CIT and also documents and case laws referred to before us by both the parties. For dealing with the issue before us it is relevant to first bring out a brief background of the case as emanates from the orders of the authorities below. 11. The assessee is a partnership firm engaged in trading in gold and silver ornaments in the name and style of “ZAVERAT” jewelers. Survey action under section 133A of the Act was carried out at the business premises of the assessee on 3.1.2017 during which certain discrepancies in physical stock and cash were found. On the basis of these discrepancies, the assessee admitted a total disclosure of Rs.1,00,96,756/- on account of the following; i) Excess gold ornaments stock found during the survey of Rs.95,96,759/-; ii) Excess silver ornaments stock found of Rs.1,60,329/-; ITA No.146/Ahd/2022 6 iii) Gold from stock valuation at Rs.1,24,525/- iv) Other amounts accepted during survey of Rs.2,15,419/- 12. Thus the disclosure majorly related to excess stock of gold ornaments found during survey. The assessee had included the above disclosure as part of its business income for the purpose of taxation and paid taxes thereon. The same was accepted by the AO and on the income disclosed during the survey, penalty proceedings under section 270A was initiated for under reporting of the income. 13. As per the ld.Pr.CIT this disclosure made by the assessee on account of excess stock of gold, silver etc. was to be treated as unexplained investments as per section 69B of the Act since source of the investment in the same remained unexplained; that accordingly as per law, the disclosure was to be subjected at special higher rate of tax as per the provisions of section 115BBE of the Act, as opposed to the normal rate on which taxes were paid by the assessee by including the same as being part of its business income. Further, penalty as per the law, on such unexplained investment was tobe levied as per the provisions of section 271AAC which specifically dealt with the levy of penalty in case of income determined under section 69B of the Act. The ld.Pr.CIT found that the AO had conducted no inquiry on the source of these investments in stock as disclosed by the assessee, and therefore, by accepting them as “business income”, the assessment order passed was in error ,causing prejudice to the Revenue. ITA No.146/Ahd/2022 7 14. We shall now deal with the various contentions raised by the ld.counsel for the assessee against the said revisionary order by the ld.Pr.CIT. 15. The first contention of the ld.counsel for the assessee, • That the matter had been examined during assessment proceedings and all facts relating to the disclosure, as to the nature and source of the investment, being there before the AO which showed clearly that such investments were made from the undisclosed business income of the assessee, therefore the AO had rightly accepted the disclosure made by the assessee, as being in the nature of “business income”; • that the facts before the AO could have possibly lead him to take a view that the investments were made from undisclosed business income since in various judicial pronouncements both by the ITAT and Hon’ble High Courts, disclosure made of excess stock of business was held to be in the nature of “business income” • that, therefore, the AO had taken a plausible view, and there was accordingly no error in the order of the AO. 16. On the issue that the matter had been examined during assessment proceedings, the ld.counsel for the assessee contended that during survey the statement of partners of the assessee-firm had been recorded, who had specifically mentioned that investments in stock of gold, silver etc. was made from their business income. He further contended that even in the annual accounts, the assessee had disclosed all these investments as forming part of the closing stock of the assessee, and Note to this effect was also made in the ITA No.146/Ahd/2022 8 audited Balance Sheet of the assessee by the Auditors. He further pointed out that questionnaires were issued during assessment proceedings to which due reply was filed, and finally the AO passed the assessment order specifically noting the fact of discrepancy noted during the survey proceedings and the assessee making disclosure on account of the same of Rs.1,00,96,756/-. He contended that it was evident from the same that the assessee had furnished all information called for and after considering submissions of the assessee and material on record, the AO accepted the disclosure of surrendered income as business income of the assessee. He further pointed out that all these facts and the nature of the disclosure being admitted by the partners in their statement recorded during the survey and the amounts being treated as “business income” of the assessee was pointed out to the ld.Pr.CIT also during revisionary proceedings. 17. In this regard, he drew our attention to Paper Book(PB)page no.33 being the statement of Shri Biral Soni, a partner of the assessee-firm recorded on 4.1.2017 with regard to the question raised to him with respect to the discrepancy in the stock of silver ornaments at question no.20-22 amounting to Rs.1,60,329/- and discrepancy in gold coated frame stock amounting to Rs.1,24,252/- and the reply of the assessee as under: Q. 20. as on 03/01/2017 trade-wise stock details ? Ans. 20. as on 03/01/2017 trade-wise stock details ! " # $ 1. Gold Jewellery& Bullion 24722.15 Gms 2. Silver Ornaments & Bullion 111.146 Kgs ITA No.146/Ahd/2022 9 3. Platinum 75.97 Gms 4. Diamond studded 511.7 Gms gold Gold Jewellery 68.16 Ct Diamond 5. Frame Gold Coated 128 Pcs. Rs. 4,63,059/- Q.21 % Books of A/c & silver ornaments & Bullion net wt. 111.146 kgs ै ( % ) % * premise % physical stock taken & + 115.257 kgs silver , + ै$ -! , . / # ? Ans. 21 , & 0 1 2 % % 2 % physical verification & + 115.257 kgs silver , + ै as per books % % 2 111.146 kgs silver , + ै$ 4.111 kgs silver stock difference 3 + value Rs. 1,60,329/- ै % premise % , + ै 4 # Rs. 1,60,329/- Tax 5 % ै 1 2 $ Q.22 ( ) % * % Books of A/c % % % 6+ ै gold coated frames % stock & % Rs. 4,63,059/- % value % frames # physical verification 7 as per valuer valuation report premise Rs. 8,39,016/- % frames , +% # , 8 % 2 frames stock value & -! , ? Ans. 22 , firm books of A/c & as on 03/01/2017 Rs. 4,63,059/- value % frames # $ 4 valuer % valuation report & frames value ,+ ै selling price ै 4 9 selling price % 30-35% & purchase % # 8 physical verification & % 2 % frames value , + ै Rs. 8,39,016/- ै 9 Actual purchase value Rs. 5,87,311/- (70%) ITA No.146/Ahd/2022 10 ै 8 Actual stock difference Rs. 1,24,252/- ै 4 ! # Tax 5 % ै 1 2 $ 18. Our attention was thereafter drawn to the statement of Shri Nilaykumar Soni another partner in the firm recorded during survey placed before us at PB Page no.13 to 19, more particularly page no.19 where at question no.20, it was pointed out that the assessee was asked to explain discrepancy in cash as under: Ques: As per books of account cash-in-hand is Rs.33,13,803 whereas cash found physically is Rs.16,98,550/- . Please justify the difference ? Ans: At the time of taking customer booking orders, some customers are giving old ornaments as part of order advance. The said advance is received in old ornaments. However, the same is wrongly entered in the books as cash receipt. Further, some partners withdrawal may not be 4entered in the books. Expenses may be pending for recording. So due to those three reasons, physical cash in hand is less than cash shown in the books. 19. Thereafter to question nos.22 and 23 the assessee was asked to explain discrepancy in gold as under: “Ques.22 : As per physical stock of record, stock of gold ornaments & bullions is 44716.945 gms. However, as per books of accounts stock of gold ornaments, bullion and 18 carat gold ornaments is 41325.864 gms. So there is physical difference of gold stock is 3391.08 gms. Please clarify the difference in stock position and explain in details ? Ans: I don’t have any ideal regarding the difference in stock of gold ornaments & bullions. But I am agree to accept the value of stock in difference as income of the firm in current year i.e. 2016-17. This income is over and above the business income earned regularly. Ques.23 : Current valuation of stock of gold/bullion and ornaments at Rs.28,300/10 gms. Thus, total valuation of excess stock found comes to Rs.(3391.081 x 2830) Rs.95,96,759/- i.e. Rupees Ninety Five Lakh Ninety Six Thousand Seven Hundred Fifty Nine Only). Are ready to accept it your unaccounted business income of the current year i.e. F.Y.2016-17. Ans: Yes Sir, I on behalf of my firm agree and accept Rs.95,96,759/- as my unaccounted business income of current year due to excess stock found during the survey.” ITA No.146/Ahd/2022 11 20. Referring to the above, the ld.counsel for the assessee pointed out that both the partners had categorically stated that the excess stock of silver ornaments, gold ornaments or gold coated frames was unaccounted business income of the assessee for the current year. 21. Our attention was thereafter drawn to PB page No.63 being profit & loss account of the assessee firm during the year disclosing all the excess stock found during the survey as part of the closing stock as under: NILAY KUMAR & BROS. JEWELLERS PROFIT & LOSS A/C FOR THE YEAR ENDED ON 31 MARCH 2017 COSOLIDATED OF ANAND – H.O. & NADIAD – BRANCH Particulars SCH 31-3-2017 Rs. SALES (A) 1 62,02,24,125.05 ADD – CLOSING STOCK STOCK IN HAND (ANAND AND NADIAD) 13,69,66,663.00 EXCESS GOLD ORNAMENTS STOCK DECLARE AS INCOME 95,96,759.00 EXCESS SILER ORNAMENT STOCK DECLARE AS INCOME 1,60,329.00 GOLD FRAM STOCK VALUATION DECLARED AS INCOME 1,24,252.00 (B) 14,68,48,003.00 22. Thereafter our attention was drawn to PB Page No.75 containing Note by the Auditors on the surrender made during the survey as under: “(e) During the year, firm is running market show room at Nadiad. Only sales and old ornaments purchase transactions is taken place at Nadiad Branch. Consolidated financial statement of Anand-HO and Nadiad – Branch is prepared after auditing individual accounts of Anand-HO and Nadiad Branch. (f) Survey under section 133A of Income Tax Act was beer conducted en 03.01. 2017, On verification of Copy "Statement of Oth” and other details, it is found that Excess of stock of Gold ornament & silver is found in Survey and the same accepted by an Assessee as Income of the year. Further excess Cash on Hand is also found ITA No.146/Ahd/2022 12 during the Survey and the same is also accepted as current year income. Total Excess Cash found during Survey is of Rs.1,09,045/- (One Lakhs Nine Thousand Forty Five). The same is taken as Direct Income in Books of Accounts. Excessof Gold Ornament found during Survey is 3391.081 grams and the same is recorded in books of account by considering rate of Rs.2830 per gram. So total value of excess gold stock recorded in books is Rs.95,96,759/- (i.e. 2830 x 3391.081 grams) similarly excess stock of silver ornaments found during the survey is 4111.00 grams at rate of Rs.39.00 per gram of Silver Ornaments (Rs.39,000/- per kg.) is taken. So Rs.1,60,329/- (39 x 4111 grams) is recorded as Income in Books of Account. Further, Income treated due to difference in Frame Valuation is Rs.1,24,252/- and Amount treated as income due to other irregularities is Rs.1,06,374/-. So total declaration in Survey is, Excess gold Ornaments Rs.95,96,759.00/- Excess Cash : Rs.1,09,045/- Excess Silver Ornaments Rs.1,60,3279/-, Income treated due to difference in Frame Valuation is Rs.1,24,252/- and Amount treated as Income due to Other Irregularities is Rs.1,06,374/-. So total Disclosure is Rs.1,00,96,759/- and the same is recorded as Income of Books of Accounts.” 23. Referring to the same, he pointed out that it was evident that the assessee had treated the same in his books of accounts also, as part of its business income only. 24. He thereafter drew our attention to various notices issued during the assessment proceedings placed before us in PB page no.40 to 41 and 84-85. Response of the assessee to the same was placed before us at PB Page No.42 to 83 and 86 to 807. Finally, our attention was drawn to para 3 and 3.1 of the assessment order wherein the AO had accepted claim of the assessee of treating the surrendered amount as part of its business income as under: “3. The assessee firm is a trader in Gold and Silver ornaments under the name and style of "ZAVERAT" the jewellers.A survey action u/s 133A of the IT Act was carried on 03/01/2017 at the business premises of the assessee in connection with large cash deposits made in the bank accounts during the demonetization period. During the survey proceedings, certain discrepancies in physical stock and cash were found. On the basis of these discrepancies, the assesse admitted a total disclosure of Rs.1,00,96,756/- . With regard to large cash deposits made in bank accounts, it was found that said cash deposits were part of regular business income. 3.1 During the assessment proceedings, the assessee has furnished the information called for. After considering the submissions of the assessee and material on record, the income returned is accepted. Since, the assessee had under reported the income of Rs.1,00,96,756/- which was disclosed during the survey proceedings, penalty proceedings u/s.270A are initiated for under reporting of income.” ITA No.146/Ahd/2022 13 25. As for the case laws relied upon by the ld.counsel for the assessee for the proposition that surrender made on account of business stock of the assessee was to be treated as part of its business income only reference was made to the following decisions: i) Shri Lovish Singhal Vs. ITO, ITA No.143 to 145/Jodh/2018 dated 25.5.2018 wherein our attention was drawn to para-13 of the order as under: “13. I have heard the rival contentions and record perused. I have also carefully gone through the orders of the authorities below. I have also deliberated on the judicial pronouncements referred by the lower authorities in their respective orders as well as cited by the ld AR during the course of hearing before the ITAT in the context of factual matrix of the case. From the record, I find that during the course of survey, income was surrendred by the assessee on account of stock, excess cash found out of sale of stock and also in respect of incriminating documents. As per judicial pronouncements cited by the ld. AR and also the decision of Hon’ble Rajasthan high court in the case of Bajrang Traders in Income Tax Appeal No. 258/2017 dated 12/09/2017 I observe that the Hon'ble High Court in respect of excess stock found during the course of survey and surrender made thereof was found to be taxable under the head ‘business and profession’. Similarly in respect of excess cash found out of sale of goods in which the assessee was dealing was also found to be taxable as business income. Applying the proposition of law laid down in the judicial pronouncements as discussed above, I hold that the lower authorities were not justified in taxing the surrender made on account of excess stock and excess cash found U/s 69 of the Act. Thus, there is no justification for taxing such income U/s 115BBE of the Act.” ii) Abdul Hamid Vs. ITO, 117 taxmann.com 986 (Gauhati- Trib). 26. With respect to the aforesaid decision, it was pointed out that the issue in the said case was identical as that in the present case of revisionary power under section 263 being exercised for not invoking section 115BBE on the addition made on account of undisclosed ITA No.146/Ahd/2022 14 business turnover of the assessee. Our attention was drawn to para-14 to 18 of the order as under: “14. Next ground on which ld PCIT has exercised jurisdiction under section 263 of the Act was that the Assessing officer had failed to tax the undisclosed income of Rs. 3,65,933/- as per provisions of section 115BBE of the Income-tax Act, 1961. In order to understand whether the provisions of section 115BBE are applicable to the assessee or not, let us first go through the provisions of section 115BBE of the Act, which reads as follows: "15BBE. Tax on income referred to in section 68 or section 69 or section 69A or section 69B or section 69C or section 69D. 1. Where the total income of an assessee includes any income, referred to in section 68, section 69, section 69A, section 69B, section 69C or section 69D, the income-tax payable shall be the aggregate of— (a) the amount of income-tax calculated on income referred to in section 68, section 69, section 69A, section 69B, section 69C or section 69D, at the rate of thirty per cent; and (b) the amount of income-tax with which the assessee would have been chargeable had his total income been reduced by the amount of income referred to in clause (a). 2. Notwithstanding anything contained in this Act, no deduction in respect of any expenditure or allowance shall be allowed to the assessee under any provision of this Act in computing his income referred to in clause (a) of sub-section (1)." Before us, the limited question is that whether business receipts/business turnover is taxable under section 115BBE of the Act? As per the intention of legislature, the burden to apply section 115BBE and section 68 to section 69D of the Act rest on revenue shoulder. That burden cannot be discharged on the basis of assumption and presumption made by the assessing officer. Having gone through the section 115BBE, as noted above, we are of the view that business activity related income may not ordinarily get placed u/s 68 to section 69D of the Act. In the assessee's case under consideration, the assessee submitted before the assessing officer that deposits of Rs. 91,48,326/- in bank account No. 21956697434, were business receipts. The relevant para of the assessment order is reproduced below: "On being confronted the assessee made submission on 27/12/2016 stating that out of aggregate deposits of Rs. 95,33,717/- made in the said bank account A/c No. 2195697434 Rs. 91,48,326/-was his business receipt, Rs. 3,73,870/- are maturity proceeds of daily deposit accounts and Rs. 11,521/- was interest Income on savings account. After his father's death, the assessee was started doing business using the above bank account in question, which was not reflected in his Return of income." 15. We note that assessing officer in his assessment order has also treated the undisclosed amount in bank account as undisclosed business receipts/turnover. We reproduce the relevant para of assessment order where assessing officer treated the undisclosed amount as undisclosed business receipts/turnover: ITA No.146/Ahd/2022 15 "Accordingly, the amount of Rs. 91,48,326/-, which was not accounted for gross turnover in the profit & loss account in the Return of Income of the assessee, has been considered as undisclosed business receipt or turnover of the assessee for the financial year 2013-14 relevant to the assessment year 2014-15 o v e r & above the gross turnover declared by him. The margin of net profit has been taken @ 4% on audited gross turnover in the Return of Income filed by the assessee. Accordingly, margin of profit has been taken @ 4% on undisclosed turnover of Rs. 91,48,326/- which comes to Rs. 3,65,933/- and added back as undisclosed business income to the returned income." Since, the assessing officer has applied his mind and treated the undisclosed amount in bank account as undisclosed business receipt or turnover of the assessee, therefore provisions of section 115BBE does not apply to the assessee. 16. Even, ld PCIT while exercising his jurisdiction under section 263 of the Act treated the undisclosed amount in bank account as undisclosed business receipts/turnover, vide para No. 2 of the order of ld PCIT, which is reproduced below for ready reference: "2. Proposal for revision u/s 263 of the Income-tax Act, 1961 was received on the issue (a) low rate of net profit was considered on undisclosed business turnover and........" Since, ld PCIT has himself treated the amount of undisclosed bank account as undisclosed business receipts/turnover, therefore the question of application of the provisions of section 115BBE does not apply to the assessee under consideration. 17. Furthermore, the assessing officer while giving appeal effect to the order of ld PCIT under section 263 of the Act, had shown the undisclosed amount of bank account under the head business income, vide order of assessing officer under section 143(3)/263 of the Act dated 28-11-2019. 18. Our view is further fortified by the Judgment of the Coordinate Bench of Mumbai in the case of ACT Central Circle-13 Mumbai v. Rahil Agencies, order dated 23 November, 2016 wherein it was held that section 115BBE does not apply to business receipts/business turnover. The findings of the Coordinate Bench are given below: 27. Our attention was also drawn to the decision of the Hon’ble Andhra Pradesh High Court in the case of Principal Commissioner of Income Tax vs Deccan Jewellers (P) Ltd (2021) 132 taxman.com 73(Andhra Pradesh) pointing that the issue was identical with the facts of the assesses case and the hon’ble court had set aside the order passed u/s 263 of the Act holding that in view of the consistent view of judicial authorities, the excess stock of gold and ITA No.146/Ahd/2022 16 diamond jewellery surrendered by the assessee, dealing in the same, could not be treated as unexplained investments u/s 69B of the Act. Copy of the order was placed before us. 28. The Ld.DR though pointed out that no pointed queries relating to the stock surrendered by the assessee was made by the AO and therefore it could not be said that inquiries were conducted on the issue by the AO.As for the reliance on the decision of the Hon’ble Andhra Pradesh High Court, Ld.DR stated that the same was distinguishable on facts since in the said case it was noted that the AO had conducted inquiries on the stock surrendered regarding their nature and source. 29. We have gone through all the above and we find merit in the contention of the ld.counsel for the assessee. Though the ld.DR has argued that it is a clear cut case of no inquiries made since no pointed queries with respect to the source of disclosure made by the assessee in excess stock of gold, silver and cash was made by the AO, which we find to be correct as notices issued to the assessee during the course of assessment proceedings, placed before us also, do not reveal any such pointed queries being raised by the AO, but we find that all facts relating to disclosure were there with the AO. The partners in the statement recorded during survey had admitted to the excess stock of silver, gold and even cash found, as relating to the undisclosed business income of the assessee. All the excess stock so admitted and disclosed was reflected in the P&L account as part of the closing stock of the business of the assessee . Even the Auditors had given their comments on this disclosure by the assessee as part of its business income only. Therefore, all facts ITA No.146/Ahd/2022 17 pertaining to the disclosure, as being from unaccounted business income, was there before the AO. We have also noted, as pointed out by the ld.counsel for the assessee, that in several cases, Courts have held that excess stock of business found is to be treated as business income of the assessee. The ITAT Jodhpur Bench , in the case of Lovish Singhal (supra) categorically held excess stock of business found during survey to be in the nature of business income of the assessee . The ITAT relied on the decision of the Hon’ble Rajasthan High Court in the case of Bajrang Traders (supra) for the proposition. In the case of Abdul Hamid(supra) revisionary jurisdiction assumed for unaccounted business turnover being accepted by the AO as business income, was held to be without jurisdiction finding no error in the said acceptance of the AO. The error noted by the PCIT in the said case was to the same effect as in the present case, of the unaccounted business turnover to be treated as income from undisclosed sources and subjected to tax u/s 115BBE of the Act ,which was rejected by the ITAT holding that it had been rightly accepted as business income by the AO. More notably the Hon’ble Andhra Pradesh High Court has in identical background of facts held the disclosure of excess stock of gold ,diamond silver jewellery by an assessee dealing in such stock to be in the nature of business income and not income from undisclosed sources. The Hon’ble High Court has noted that the acceptance by the AO of excess stock as business income was consistent with the view taken by various judicial authorities and the AO had therefore taken a plausible view on the matter. That therefore there was no question of any error in the order of the AO so as to justify exercise of revisionary power by the Ld.PCIT in the said case. Though the Ld.DR has pointed out factual distinction in the said ITA No.146/Ahd/2022 18 case as proper inquiries were noted to be conducted by the AO on the issue, but we find that the same is of no consequence and does not alter the applicability of the said decision to the facts of the present case before us. We have noted that in the said case in response to queries raised by the AO seeking explanation as to why the surrender should not be treated as unexplained investment in the said case, the assessee had merely submitted that excess stock was part of its mixed lot of stock both declared and undeclared, invested out of its undisclosed business income of earlier years and further the assessee had disclosed the same as its business income in its Profit and Loss account. This explanation was found to be correctly accepted by the AO, by the Hon’ble High Court. In the present case before us the assessee had admitted to the same explanation in statement of partners recorded during survey, reproduced above admitting to the excess stock of gold, silver etc as out of its unaccounted business income and had also reflected the surrendered stock as part of stock of its business and shown the same as its business income. There is in fact no factual distinction between the said case and that before us. Therefore the proposition laid down by the Hon’ble High Court will apply to the present case also. 30. It is very much clear, therefore and we agree with the ld.counsel for the assessee, that facts relating to the disclosure in excess stock of the business of the assessee were there before the AO, and he had taken a plausible view on the same by treating it as business income of the assessee. Therefore, we hold, that there was no error in the order of the AO. ITA No.146/Ahd/2022 19 The jurisdiction assumed by the Ld.PCIT is held to be not in accordance with law and the order passed u/s 263 of the Act is liable to be set aside for this reason alone. 31. Taking up the next argument of the ld.counsel for the assessee that the ld.Pr.CIT had invoked Explanation 2 to section 263 without first confronting the assessee with the same. In this regard, he has drawn our attention to the decision of Hon’ble jurisdictional High Court in the case of Pr.CIT Vs. Shreeji Prints P.Ltd. in Tax Appeal No.828 of 2019 dated 3.2.2020,placed before us in PB Page No.57 to 60 and further decision of Hon’ble Apex Court in the said case upholding the order of jurisdictional High Court reported in 130 taxamnn.com 294. 32. We have gone through the said decisions and are not in agreement with the contentions of the ld.counsel for the assessee. The reason for the same is elaborated below. 33. To understand the import of the argument that the invocation of Explanation 2 to section 263 was to be confronted before being applied, it is necessary to see what Explantion-2 tosection263 is all about. For this purpose, provision of section 263(1) of the Act along with the Explanation2 to the same are reproduced hereunder: 263. (1) The [Principal Chief Commissioner or Chief Commissioner or Principal Commissioner] or Commissioner may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by the Assessing Officer [or the Transfer Pricing Officer, as the case may be,] is erroneous in so far as it is prejudicial to the interests of the revenue, he may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, [including,— (i) an order enhancing or modifying the assessment or cancelling the assessment and directing a fresh assessment; or ITA No.146/Ahd/2022 20 (ii) an order modifying the order under section 92CA; or (iii) an order cancelling the order under section 92CA and directing a fresh order under the said section]. Explanation 1.—For the removal of doubts, it is hereby declared that, for the purposes of this sub-section,— .... ..... ..... .... Explanation 2.—For the purposes of this section, it is hereby declared that an order passed by the Assessing Officer [or the Transfer Pricing Officer, as the case may be,] shall be deemed to be erroneous in so far as it is prejudicial to the interests of the revenue, if, in the opinion of the Principal [Chief Commissioner or Chief Commissioner or Principal] Commissioner or Commissioner,— (a) the order is passed without making inquiries or verification which should have been made; (b) the order is passed allowing any relief without inquiring into the claim; (c) the order has not been made in accordance with any order, direction or instruction issued by the Board under section 119; or (d) the order has not been passed in accordance with any decision which is prejudicial to the assessee, rendered by the jurisdictional High Court or Supreme Court in the case of the assessee or any other person.” 34. As is evident from the above, section 263 empowers Commissioners/ Pr.Commissioners to exercise revisionary power where they find any order passed by the AO to be erroneous so as to cause prejudice to the interest of the Revenue. Explanation 2 to the section lists circumstances in which the assessment order passed will be deemed to be erroneous, which amongst other, includes an order passed without making inquiries or verification which should have been made as per clause (a) of the Explanation, which clause has been invoked by the ld.Pr.CIT in the present case. 35. Having said so, it is but obvious that what Explanation 2 does is only clarify and enlist the circumstances specifically where an assessment order will be deemed to be erroneous. It only explains the scope of the section and clearly by no stretch expands its scope. The import or object of an Explanation was explained by the Hon’ble apex court in the case of Sundaram Pillai v Pattabiraman AIR 1985 SC 582,593 as : ITA No.146/Ahd/2022 21 The object of an Explanation has been explained in an earlier case as follows:— (a) to explain the meaning and intendment of the Act itself, (b) where there is any obscurity or vagueness in the main enactment, to clarify the same so as to make it consistent with the dominant object which it seems to subserve, (c) to provide an additional support to the dominant object of the Act in order to make it meaningful and purposeful, (d) an Explanation cannot in any way interfere with or change the enactment or any part thereof but where some gap is left which is relevant for the purpose of the Explanation, in order to suppress the mischief and advance the object of the Act it can help or assist the Court in interpreting the true purport and intendment of the enactment, and (e) it cannot, however, take away a statutory right with which any person under a statute has been clothed or set at naught the working of an Act by becoming an hindrance in the interpretation of the same. Explanations are not substantive provisions and are inserted to clear up any ambiguity in the section. They only clarify an existing law. Normally Explanations do not enlarge the scope of the section but only explain the scope. Explanation 2 to section 263, clearly provides additional support to the dominant object of section 263, specifically pointing out situations where assessment orders will be deemed to be erroneous. The main provision of the section and its import has not been altered by the explanation. Therefore where section 263 itself has been invoked and the reason for finding the assessment order erroneous clearly pointed out to the assessee during revisionary proceedings to the effect that adequate inquiries were not conducted by the AO on the issue in question , Explanation 2 to section 263 (a) also being to the same effect of assessment orders being deemed to be erroneous on account of lack of adequate ITA No.146/Ahd/2022 22 inquiry, we see no reason why pointedly the Explanation also needs to be brought to the notice of the assessee while applying it to the case. 36 Once the ld.Pr.CIT brings to the notice of the assessee the reason why he finds the assessment order to be erroneous, which in the present case was inadequate inquiries conducted by the AO on the nature of disclosure made by the assessee during the survey in excess stock found, he need not specifically point out that he has invoked Explanation-2 to sub-clause (a) to the section which is to the same effect of inadequate inquiries conducted qualifying as error in assessment order. The fact that he clearly brings out the reason why he found assessment order erroneous, is sufficient in itself and self-explanatory. It need not to be technically qualified by pointing out the specific clause in respect to which the reason pertained. The entire objectives of confronting anything to the assessee in the process of rendering justice is to offer an opportunity to other party to come up with his/her arguments or contentions in defense. In the present case, it is not disputed that the assessee had been specifically pointed out the error in the order of the AO of non- conducting inquiry relating to the particular issue. The assessee was required to respond to the same, which he did by pointing out that due inquiry was conducted. The fact of mentioning Explanation 2 sub-clause (a) in the notice by the ld.Pr.CIT which dealt with this specific reason or error in the order of the AO of non-conducting of inquiry, therefore, is of no consequence or relevance, since the assessee in very simple words has been confronted with the error. Mentioning of Explanation 2 to sub-clause (a) is therefore only technical addendum to the same. As we mentioned above, the ITA No.146/Ahd/2022 23 Explanation did not expand the scope of section but only explained the scope of section, and therefore, once the specific section has been invoked, it is not necessary to mention any specific Explanation thereto which has been invoked. Therefore, this contention of the ld.counsel for the assessee is rejected outrightly that the order needs to be set aside for the reason that ld.Pr.CIT did not confront the assessee before invoking Explanation 2 to sub-clause (a) to section 263 of the Act. 37. As for the decision of the jurisdictional High Court in the case of Shreeji Prints (supra), relied upon by the ld.counsel for the assessee in support of this contention, the assessee, we hold, cannot derive any benefit from the same. 38. On going through the decision of the Hon’ble High Court ,we find that the decision is not on the question framed before it whether Explanation to section 263 of the Act can be said to be validly invoked without first confronting it to the assessee. In the case before Hon’ble High Court in the decision relied upon by the Ld.AR, the Revenue had proposed the following questions as substantial question of law before the Hon’ble High Court: "(a) Whether on the facts and in the circumstances of the case and in law, the Hon'ble ITAT is correct in holding that the PCIT was not empowered and entitled to revise assessment order u/s. 263 of the Act r/w Explanation 2 thereto by ignoring that the order passed by the AO is erroneous in so far as it is prejudicial to the interest of revenue in as much as the Assessing Officer has passed the assessment order without making inquires/verification in the light of the unsecured loans of Rs. 2.49 Crores received from M/s. Georgette Tradecom Pvt. Ltd (GTPL) and M/s. PurbaAgro Food Pvt. Ltd (PAFPL)? (b) Whether on the facts and in the circumstances of the case and in law, the Hon'ble ITAT is correct in cancelling the impugned order u/s. 263 of the I.T. Act and allowing all the grounds of the Assessee?" ITA No.146/Ahd/2022 24 40. The Revenue had challenged the order of the ITAT setting aside the order passed by the ld.Pr.CIT under section 263 of the Act on account of inadequate inquiry made by the AO on unsecured loans received by it from two parties. The question framed before the Hon’ble High Court was therefore whether the ITAT order was correct when adequate inquiries were not made by the AO. The Hon’ble High Court answered the question against the Revenue, noting that the ITAT had given a finding of fact that the AO had made full inquiries in detail and accepted the genuineness of the loans received by the assessee, and such view of the AO was plausible view, and therefore the assessment cannot be said to be erroneous or prejudicial to the interest of the Revenue. Hon’ble High Court held that in view of such finding of the fact arrived at by the Tribunal, no question of law arose and the appeal of the Revenue was accordingly dismissed. 41. At para-5 of the judgment, Hon’ble Court has noted that the Tribunal observed that the ld.Pr.CIT had not mentioned in the show cause notice the invocation of Explanation 2 to section 263 of the Act, though it passed the order invoking the said section and the Tribunal found the order to be not appropriate and sustainable in law. Para-5, as above, is just a noting by the Hon’ble High Court of the findings of the ITAT while allowing the assesses appeal. We find that it is only on the facts of the case as found by the ITAT that the issues were all duly examined by the AO and the AO had taken plausible view, that Hon’ble Court had upheld order of the Tribunal dismissing the appeal of the Revenue. ITA No.146/Ahd/2022 25 42. Thus it is apparent from the above that the decision of the Hon’ble High Court was not to the effect that Expl 2 to section 263 not being confronted to the assessee its invocation was invalid. Neither was the decision rendered in the backdrop of this question before the Hon’ble High Court, nor does the Hon’ble High Court hold so in its order. What is noted in the order to this effect is only its noting of the findings of the ITAT while setting aside the order passed u/s 263 of the Act. Therefore the decision of the Hon’ble jurisdictional High Court cannot be read as holding that order passed u/s 263 of the Act is invalid when Expl to section 263 is invoked without confronting it to the assessee. 43. It is settled law that a precedent is an authority only for what it actually decides and a decision on a question that has not been argued cannot be treated as a precedent. Judgments must be read as a whole and observations in judgements should be considered in the context in which they are made and in the light of the questions that were before the court. The Hon’ble apex court has held so in the case of CIT vs Sun Engineering Works Pvt. Ltd.198 ITR 297 (SC). In the case of Padma Sundra Rao v State of TN 255 ITR 147(SC) the Hon’ble Apex Court had laid down that a ratio laid down by the Court have to be read in the context of the entire facts leading to the said ratio. 44. In view of our elaborate discussion as above, we hold that the assessee cannot derive any benefit from the judgment of Hon’ble High Court in the case of Shreeji Prints P. Ld. (supra), to the effect that non-mentioning of Explanation 2 to section 263 in the show cause notice will render entire revisionary order as non-est in the ITA No.146/Ahd/2022 26 eyes of law. This contention raised by the ld.counsel for the assessee, is therefore, rejected. 45. In effect however, appeal of the assessee is allowed on merits, and the legal contention raised by the assessee is dismissed. 46. In the result, appeal of the assessee is allowed in above terms. Order pronounced in the Court on 11 th January, 2023 at Ahmedabad. Sd/- Sd/- (T.R. SENTHIL KUMAR) JUDICIAL MEMBER (ANNAPURNA GUPTA) ACCOUNTANT MEMBER Ahmedabad, dated 11/01/2023
