VALLABHANENI SRINIVAS CHOWDARY,HYDERABAD vs. ACIT, CENTRAL CIRCLE-1(4), HYDERABAD

Facts of the case, in brief, are that the assessee is an individual and derives income from salary, commission, house property and other sources. A search and seizure action u/s 132 of the Act was conducted in the case of M/s. Subhagraha Projects (India) Pvt. Ltd along with its group companies and connected concerns/individuals on 5.10.2018 during which the case of the assessee was also covered. The assessee filed his return of income u/s 139(1) of the Act for the A.Y 2019-20 on 31.08.2019 declaring total income of Rs.1,14,7,060/- including an amount of Rs.24.00 lakhs which was offered as additional income in course of search. The assessee had also returned an amount of Rs.80,000/- towards agricultural income and Rs.3,40,774/- as exempt income.

During the course of assessement proceedings, the Assessing Officer observed that total gold jewellery weighing at 3239 grams including gold jewellery pertaining to his other family members was found. The assessee could not submit any relevant documentary evidences in support of ownership of the gold Page 2 of 16 jewellery found in the bank locker and at his residence. Therefore, the excess gold jewellery weighed at 1390 grams, which was valued at Rs.40,39,700/-,was seized. After considering the number of family members as per CBDTs Instruction No.1916. Accordingly, the assessee Sri Anne Rajeswara Rao in his statement recorded u/s 132(4) on 1,12.2018.had admitted Rs.24,00,000- in his hands and also admitted an amount of Rs.21,00,000/- including unexplained cash of Rs.4,00,000/- and gold jewellery in the hands of his son i.e Sri Anne Manoj Chowdary. Accordingly, the total admission made in the hands of the assessee Shri Ann Rajeswara Rao for the AY under consideration is Rs.24,00,000/- towards unexplained jewellery seized during search. The assessee has included this additional declaration of Rs24,00,000/-in the return of income filed in response to notice issued u/s 153A and paid the taxes. thereon, Hence the said amount of Rs.24,00,000/- was treated by the Assessing Officer as unexplained gold jewellery u/s 69Aof the Act and accordingly brought to tax @ 60% u/s 115BBE.

In appeal, learned CIT (A) upheld the action of the Assessing Officer by observing as under:

Aggrieved with such order of the learned CIT (A) the assessee is in appeal before the Tribunal.

The learned Counsel for the assessee strongly objected to the order of the learned CIT (A) in confirming the action of the Assessing Officer in taxing the additional income of Rs.24.00 lakhs declared in the 132(4) statement recorded during the course of search u/s 69A r.w.s. 115BBE. He submitted that although the assessee had offered additional income of Rs.1,00,00,000/- in his hands and in the hands of his family members, in the statement recorded u/ 132(4) during the course of search, however, such offer was not based on any incriminating material found at the time of search. The assessee in order to buy peace with the Department had offered the additional income of Rs.1.00crore. Further, the jewellery found at the time of search from the premises and locker belonging to various family members totaling to (10) and if the CBDT instruction 1996 is followed, then the entire jewellery stands fully explained. Further, the various family members have declared exempt income being agricultural income, the details of which are as under:

The learned DR, on the other hand, heavily relied on the order of the Assessing Officer and the learned CIT (A). He submitted that when the assessee is unable to explain the source of such additional income, the learned CIT (A) was fully justified in upholding the action of the Assessing Officer in taxing the additional income of Rs.24.00 lakhs u/s 69A r.w.s. 115BBE.

We have heard the rival arguments made by both the sides, perused the orders of the AO and the learned CIT (A) and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us by both sides. We find during the course of search operation u/s 132 of the I.T. Act in the case of the assessee, cash of Rs.4.00 lakhs and total gold jewellery of 3239 gms were found. Out of the total gold jewellery, the jewellery weighing 1390 gms was determined as excess after considering the relevant guidelines of the CBDT. In the statement recorded u/s 132(4) the assessee declared an amount of Rs.1.00 crore as additional income in his hands and in the hands of his family members and accordingly admitted an additional income of Rs.24.00 lakhs in his return of income and filed the return of income admitting total income of Rs.1,14,75,060/-.Although the Assessing Officer has accepted the return of income declared at Rs.1,14,75,060/-, however, he treated the amount of Rs.24.00 lakhs as unexplained gold jewellery u/s 69A of the I.T. Act and brought the same to tax under the provisions of section 115BBE.

We find the learned CIT (A) upheld the action of the Assessing Officer in bringing the same to tax u/s 69A r.w.s. 115BBE. It is the submission of the learned Counsel for the assessee that when no incriminating material was found during the course of search and the assessee to buy peace with the Department has admitted additional income of Rs.1.00 crore in his hands and in the hands of his family members, therefore, bringing the additional income of Rs.24.00 lakhs to tax by applying the provisions of section 115BBE is not justified. It is his submission that family members of the assessee are also taxpayers and apart from regular income are also deriving agricultural income which is exempt from tax and therefore, the excess gold jewellery stands fully explained out of such regular source of income which is utilized for purchase of a part of jewellery.

A perusal of the statement recorded u/s 132(4) from Shri Anne Rajeswara Rao on 01.12.2018 shows that the value of 1390 gms of gold which according to the Revenue remained unexplained is only valued at Rs.40,39,700/-. The relevant questions and answers of the statement recorded u/s 132(4) read as under:

We therefore, are of the opinion that merely because the assessee has admitted an amount of Rs.1.00 crore in his hands and in the hands of various family members to buy peace of mind, bringing the amount of the additional income declared by the respective assessees to tax at higher rate as per the provisions of section 115BBE is not justified especially when no other incriminating material was found. In view of the above discussion, we are of the considered opinion that although the additional income declared by the assessee can be brought to tax, however, the same cannot be taxed at special rate under the provisions of section 115BBE. We therefore, set aside the order of the learned CIT (A) and direct the Assessing Officer to tax the additional income declared at Rs.24.00 lakhs under the normal provisions and not under the provisions of section 115BBE. The grounds raised by the assessee are accordingly allowed.

In the result, appeal filed by the assessee is allowed. ITA 176/Hyd/2023 – Shri Anne Manoj Chowdary 14. After hearing both the sides, we find the grounds raised by the assessee in the above appeal are identical to the grounds of appeal in ITA 175/Hyd/2023. Here the assessee has challenged the order of the learned CIT (A) in confirming the action of the Assessing Officer in taxing the additional income declared of Rs.21.00 lakhs at special rate u/s 115BBE. Since we has already decided the appeal in and has held that although the amount can be brought to tax, however, the provisions of section 115BBE are not applicable. Following similar reasonings, the grounds raised by the assessee in the impugned appeal are allowed.

In appeal, the learned CIT (A) upheld the action of the Assessing Officer.

Aggrieved with such order of the learned CIT (A) the assessee is in appeal before the Tribunal.

The learned Counsel for the assessee submitted that since the search party did not find any incriminating material during the course of search and there is neither any unexplained investment nor any unexplained expenditure or any unexplained assets found during the course of search, therefore, the amount of Rs.35.00 lakhs admitted as additional income in the return of income can at best be treated as income from other sources but cannot be brought to tax u/s 69B r.w.s. 115BBE.

The learned DR, on the other hand, heavily relied on the order of the Assessing Officer and the learned CIT (A).

We have heard the rival arguments made by both the sides, perused the orders of the AO and the learned CIT (A) and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us by both sides. We find the assessee in the instant case filed the return of income admitting total income at Rs.98,03,260/- which included an amount of Rs.35.00 lakhs offered as additional income in the statement recorded u/s 132(4) during the course of search. The amount of Rs.35.00 lakhs included cash found of Rs.7.00 lakhs and the balance amount on account of investment in various companies where the assessee is one of the Director. We find the Assessing Officer brought the amount of Rs.35.00 lakhs to tax u/s 69B r.w.s. 115BBE which has been upheld by the learned CIT (A) on the ground that the assessee could not furnish any explanation as to how such income has been earned and the Page 14 of 16 assessee failed to prove the nature and sources of such income. It is the submission of the learned Counsel for the assessee that the admission of additional income was not relevant to the seized material but put to an end to the litigation in respect of the search issues as a whole. It is his argument that the additional income admitted at Rs.35.00 lakhs may at best be treated as income from other sources u/s 56 of the I.T. Act and taxed as such but definitely not u/s 69A r.w.s. 115BBE. It is also his argument that there was neither any unexplained investment nor any unexplained expenditure or any unexplained asset found during the course of search. Therefore, the surrender of Rs.35.00 lakhs can be said to have been offered to cover up the discrepancy in respect of likely disallowance, if any.

Apart from the cash of Rs.7.00 lakhs found during the course of search, we find no other incriminating material has been found nor any unexplained investment or unexplained expenditure or unexplained asset were found. Under these circumstances, merely because the assessee has admitted total income of Rs.35.00 lakhs which includes cash found of Rs.7.00 lakhs, the provisions of section 69A/69B/115BBE in our opinion, cannot be applied to the entire amount. In our opinion, the provisions of section 69B r.w.s. 115BBE at best can be applied to the amount of Rs.7.00 lakhs of cash found during the course of search but not to the remaining Rs.28.00 lakhs. We therefore, modify the order of the learned CIT (A) and direct the Assessing Officer to apply the provisions of section 115BBE to the amount of Rs.7.00 lakhs and to tax the remaining amount of Rs.28.00 lakhs at normal rate. The grounds raised by the assessee are accordingly partly allowed.

In the result, ITA 175/Hyd/2023 & 176/Hyd/2023 are allowed and is partly allowed.