The Rajkot Bench of Income Tax Appellate Tribunal (ITAT) has held that the order passed by the Assessing Officer (AO) cannot be treated as prejudicial to interest of revenue when permissible in law.
The bench of Dinesh Mohan Sinha (Judicial Member) and Dr. Arjun Lal Saini (Accountant Member) has observed that when the Assessing Officer adopted one of the courses permissible in law and it has resulted in loss to the revenue, or where two views are possible and the Assessing Officer has taken one view with which the CIT does not agree, it cannot be treated as an erroneous order prejudicial to the interest of the revenue “unless the view taken by the Assessing Officer is unsustainable in law”.
The appellant/assessee has filed a return of income declaring total income for the assessment year under consideration. The assessment order under section 143(3) of the Income-tax Act was passed by accepting returned income.
Later on, Principal Commissioner of Income Tax (PCIT), has exercised his jurisdiction under Section 263 of the Income-tax Act, 1961. The Principal Commissioner of Income Tax, on verification of records of the assessee, for the assessment year, under consideration, it was noticed that during the previous year, a survey proceedings u/s 133A of the Act was conducted at the business premises of the assessee.
As on date of survey, difference in the valuation of stock was found in physical stock and as recorded in the books of account of the assessee. Accordingly, in the statement recorded during the survey proceedings, conducted under section 133A of the Income Tax Act, the partner of the assessee-firm, has admitted the same excess stock, as unaccounted income which was not recorded in the books and accounted as on the date of survey, and agreed to offer this income as current year’s income over and above the regular business income of the current year.
However, the manner of earning of the same has not been admitted/explained by the assessee at the time of survey proceedings under section 133A of the Income Tax Act and as also during the course of assessment proceedings. As such unaccounted excess stock was required to be taxed as per the provisions of section 69 r.w.s. 115BBE of the Income Tax Act.
However, the assessing officer has failed to do so and has taxed such additional income as regular income of the assessee. The assessing officer failed to examine these aspects of the assessee’s case while finalizing the assessment order. Such failure on the part of assessing officer rendered the assessment order passed under section 143(3) of the Income Tax Act, on 16/09/2021, for the AY 2019-20, erroneous in so far as it is prejudicial to the interest of the revenue within the meaning of the provisions of section 263.
The tribunal while allowing the appeal held that every loss of revenue as a consequence of an order of Assessing Officer cannot be treated as prejudicial to the interest of the revenue.
Case Details
Case Title: Sagar Jewellers Versus DCIT
Case No.: ITA No.222/RJT/2024
Date: 01/01/2025
Counsel For Appellant: K. C. Thaker
Counsel For Respondent: Sanjay Punglia
