SMT. REKHA SHEKHAWAT vs. PRINCIPAL COMMISSIONER OF INCOME TAX

Case snapshot

Sections / provisions: 263

Questions before the Court / Tribunal

• Section 263 after survey disclosure: business-income character of additional income and adequacy of AO enquiry.
• What factual, statutory and procedural conditions control the relief?
• How does the operative order apply to the parties and the challenged proceeding?

Material facts and procedural background

Revision—Erroneous and prejudicial order—Lack of proper enquiry vis-a-vis assessment of additional income as business income—During the course of survey under s. 133A assessee's husband admitted unrecorded income in the case of his wife i.e., assessee which was stated to be advances made for property in the course of her real estate business—Unrecorded trade advances and cash in hand were brought in the books of accounts and formed part of business assets and thereafter used in day-to-day business activities—Questions which were raised and the answers given during the survey show that the additional income declared on account of advances and the cash found emanated from and related to the real estate business only—Even the Principal CIT has admitted in the impugned order that this income pertains to recovery of cash amounts of advances made by the assessee to the other persons for purchase of land/plots— Undisputedly the assessee is engaged in the real estate business and there is no undisclosed or unknown source of income and the source of additional income so admitted is clearly identifiable and is the regular business of real estate—Since the additional income is related to the…

The allegation of the Principal CIT is that there has been incorrect assumption of facts and law by the AO. However, on deep and careful consideration of the material on record including the finding recorded in the assessment order and the findings recorded in the order under challenge, no incorrectness and incompleteness is found in the appreciation of facts made by the AO. SS admitted unrecorded income in the case of his wife i.e., assessee of Rs. 28,95,300 for financial year 2016-17 which consisted of the property advances of Rs. 19,15,000 and cash of Rs. 9,80,300 and there was no other known or unknown source of business. Subsequent cash recoveries were made from such trade advances and the cash of Rs. 9,80,300 so admitted were incorporated in the regularly maintained books of accounts. It is noticed that the assessee has credited on 4th July, 2016 the cash declared in survey of Rs. 9,80,300 to her capital account which constituted a part of the closing balance of cash-in-hand on that day and was thereafter carried forward to 5th July, 2016 as opening balance. Similarly, property advance was also credited to the capital account and debited to advance for property declared.…

Hence, the undisputed facts indicate that the additional income so admitted was in the normal course of real estate business. Thus, undisputedly the assessee is engaged in the real estate business and there is no undisclosed or unknown source of income and the source of additional income so admitted is clearly identifiable and is the regular business of real estate. These facts are evidently clear to bring home the point that such additional income clearly falls under s. 14 r/w s. 28. The residuary provision under s. 56 which is titled as income from other sources, comes into the picture only and only when any item of income does not clearly fall under any specific head of income as per items A to E of s. 14. Where such income finds place under a particular head being business or profession, then there is no scope of invoking s. 56 in the context of s. 14. On the other hand, a clear reading of s. 115BBE provides that it is only such income which is of the nature of s. 68/69A and so on with reference to which only s. 115BBE could be invoked. When the additional income is related to the real estate business it is certainly assessable as business income and cannot be considered as…

The assessee, while showing the additional income so admitted in her return of income in the computation of its total income, has shown it under the head income from other sources. Although the Principal CIT has not very clearly made this fact as a basis of finding error in the assessment order yet however, the law on this aspect is very well settled that there cannot be any estoppel against statute. It cannot be denied that showing income in a particular head of income enumerated under s. 14 r/w various other heads is a highly technical task and even the tax consultants and chartered accountants may not correctly decide the proper classification under which head such income to be declared and/or assessed. Therefore, merely because the assessee has taken a mistaken view of the correct legal position by wrongly showing such additional income under head income from other sources, of the surrounding circumstances, such an admission cannot take away the right of a party to which he is otherwise entitled to, or in other words, to be assessed as business income. Law is

also well settled that no tax can be collected without the authority of law as guaranteed by Art. 265 of the Constitution of India. Therefore, even if the assessee has made some commitment but later on found wrong in law, it cannot work as an estoppel and the assessee, if still feels aggrieved in any manner, can pursue legal remedy. Hence, showing income under a wrong head in the return of income cannot be taken as an admission. Thus, the additional income was in the nature of business income and did not fall under s. 68 and/or s. 69 and consequently, s. 115BBE could not have been invoked. In view of the above discussion, the Principal CIT was not at all justified in invoking the provisions of s. 263.—CIT vs. Bajargan Traders (IT Appeal No. 258 of 2017, dt. 12th Sept., 2017), Ram Narayan Birla (ITA No. 482/Jp/2015, dt. 30th Sept., 2016), Chokshi Hiralal Maganlal vs. Dy. CIT (2011) 141 TTJ (Ahd)(UO) 1, Lovish Singhal vs. ITO (ITA Nos. 142 to 146/Jodh/2018, dt. 25th May, 2018) and Narayan Tatu Rane vs. ITO (2013) 7 NYPTTJ 1493 (Mumbai) followed; CIT vs. M. Pyngrope (1993) 109 CTR (Gau) 322 : (1993) 200 ITR 106 (Gau), CWT vs. Apar Ltd. (2002) 175 CTR (Bom) 312 and Mayank Poddar (HUF)…

Appellant / assessee submissions

Authorised Representative further submitted that requisite details as to the

submitted that the AO has explicitly mentioned that the assessee derives

3.1 It is submitted that the only source of income in the case, is the real

resulting from the same business of Rs. 9,80,300 it is submitted that

Revenue / respondent submissions

The packaged judgment does not separately label the respondent's submissions in an independently extractable passage. No contention is inferred; read the full order.

Court / Tribunal analysis and reasoning

‘2.10. We have heard the rival contentions and perused the material

"We have heard the rival contentions and perused the material available on

123 taxmann.com 207 (Kar). Further, we find that in the case of Narayan

Operative decision and relief

consequent thereto can be set aside, if found erroneous and prejudicial to

subject to penalty under s. 271AAC of the Act and accordingly set aside the

set aside the assessment order passed by the ITO on the ground that there

4. In the result, the appeal of the assessee is allowed.

Ratio and legal principle

• The packaged judgment addresses Section 263 after survey disclosure: business-income character of additional income and adequacy of AO enquiry. The precise proposition must be read with the Court/Tribunal's reasoning and operative directions.
• Reliance depends on matching the statutory version, jurisdiction, procedural stage and material evidence recorded in the judgment.

Why this judgment matters

This decision is relevant to practitioners and affected parties dealing with section 263 after survey disclosure: business-income character of additional income and adequacy of ao enquiry. Its value lies in showing how the adjudicating forum connected the applicable rule to the proved facts and procedural posture.

Practitioner action points

• Match the statutory version, jurisdiction, procedural stage and decisive evidence before relying on the result.
• Verify current appellate, review and SLP history and any later amendment or controlling authority.
• Attach the complete judgment to the working paper or filing and cite the paragraph/page supporting the proposition.

Does this case match your facts?

Section / provision impact

• 263 - apply the exact version considered in the judgment.

Case network

Similar issue / useful comparison

• Bridge India Fund, New Delhi v. ACIT - ITAT Mumbai - I Bench
• SECUNDRABAD CLUB VS. C.I.T.-V - Supreme Court of India
• PCIT v. Indravadan Jain, HUF - Court / Tribunal to be verified

Different outcome / possible distinction

• ACIT v. Ashok W. Wesavkar - Operative order controls
• ACIT CIR 6(1) VS ASAHI INFRA & PROJECTS LIMITED - Remanded / restored

Full judgment and source control

Read / download packaged judgment record

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