HAPLOOS PLYBOARDS PRIVATE LIMITED, YAMUNANAGAR,YAMUNA NAGAR vs. THE DEPUTY COMMISSIONER OF INCOME TAX (CIRCLE) YAMUNANAGAR, YAMUNANAGAR

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ITA 1649/CHANDI/2025Status: DisposedITAT Chandigarh01 September 2026AY 2017-20185 pages
AI SummaryPartly Allowed

What did the Tribunal hold?

The Tribunal held that the surrender should be treated as business income and not subject to the higher tax rates under Section 115BBE. The disallowances under Section 14A and ad-hoc expenses were upheld.

What were the facts?

During a survey, the assessee surrendered Rs. 100 Lacs for excess stock and cash, offering it as business income. The AO proposed taxing this surrender at higher rates under Section 115BBE, which the assessee contested.

What were the issues?

Whether the surrender made during survey is to be treated as business income or income taxable at higher rates under Section 115BBE, and the applicability of Section 115BBE for the assessment year.

Which sections of the Income-tax Act were involved?

Section 115BBE,Section 14A,Section 143(3),Section 69B,Section 133A

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, “A” BENCH, CHANDIGARH

Before: HON’BLE SHRI MANOJ KUMAR AGGARWAL, AM & HON’BLE SHRI RAJESH DAMODARLAL SHARMA, JM

आदेश / O R D E R MANOJ KUMAR AGGARWAL (Accountant Member) 1. Aforesaid appeal by assessee for Assessment Year (AY) 2017-18 arises out of an order of learned Commissioner of Income Tax (Appeals)-3, Gurgaon [CIT(A)] dated 30.10.2025 in the matter of an assessment framed by Ld. Assessing Officer [AO] u/s 143(3) of the Act on 20.12.2019. Having heard rival submissions, the appeal is disposed-off as under.

2.

The assessee being resident corporate assessee is stated to be engaged in manufacturing of ply and ply board. The business premises of the assessee was subjected to survey on 21.09.2016 wherein the assessee surrendered an amount of Rs.100 Lacs i.e., Rs.90.40 Lacs for excess stock & Rs.9.60 Lacs for excess cash. The said surrender was made in the computation of income. The Ld. AO proposed taxing the same as per higher rates provided u/s 115BBE. The assessee stated that this surrender was made as ‘Business Income’ and higher rate as per Sec.115BBE was not to be applied for this surrender. However, Ld.AO rejected the argument of the assessee and applied higher rate of tax to this surrender. 3. The Ld. AO also computed disallowance u/s 14A @1% of monthly average of investments and made disallowance of Rs.76,712/-. Another adhoc disallowance of Rs.5 Lacs was made on account of expenditure claimed under the head salaries and wages, power & fuel and repairs to machinery since the assessee only furnished ledger extracts and few of the payments were made in cash. The Ld. CIT(A) confirmed the assessment against which the assessee is in further appeal before us. Our findings and Adjudication 4. Upon perusal of assessee’s computation of income as placed on record, it could be seen that the surrender of Rs.100 Lacs has been made as ‘business income’ only. The said surrender has been made for excess stock and excess cash as found during survey at assessee’s business premises. From perusal of assessee’s computation of income, it could be seen that the assessee do not have any other

source of income except business income. We also find that during survey, statement of Shri Sham Sunder Aggarwal was recorded u/s 133A on 21.09.2016 which is kept on record. In this statement, the assessee was confronted with issue of excess cash and stock vide question nos. 14 & 15. Upon perusal of the same, it could be seen that the assessee has accepted the discrepancy and offered additional income as ‘misc. business income’ only. The surrender has accordingly been honored by the assessee in the computation of income. In our considered opinion, the statement is to be accepted as a whole and not in a piecemeal manner. The assessee has surrendered this amount in the statement as ‘misc. business income’ only and offered the surrender in the computation of income accordingly. Therefore, the assessee’s version that it was nothing but business income is to be accepted. Our view find supports from the decision of this Tribunal in the case of A.P. Knit Fab vs. DCIT (ITA No.732/Chd/2022 dated 15.02.2024). The bench, after due consideration of various other decisions, held that when the revenue has not pointed out that the excess stock had any nexus with any other receipts other than the business being carried on by the assessee, the same could not be considered as income from other sources. Where there is a clear nexus of physical stock with the stock in which the assessee regularly deals in and recorded in the books of accounts, the discrepancy would clearly be in the nature of business income. No independent undisclosed asset existed. It was finally held that the income so surrendered on account of investment in excess stock during the course of survey could not be

brought to tax under the deeming provisions of Sec. 69B but the same was to be assessed as “business income” which would be subjected to normal rate of tax. We find that this case law duly supports the case of the assessee and following the same, we would hold that the impugned surrender has to be accepted as ‘business income’ only. 5. Another angle to the issue is that Hon’ble Rajasthan High Court, in its recent decision titled as Deepak Maratha (CWP No.3625/2020 dated 27.05.2026) held that the amendment to Sec.115BBE prescribing higher rate of tax of 60% would apply only from 01.04.2017 i.e., Financial Year 2017-18 onwards. The Hon’ble Court’s conclusion was as under: - 17. SUMMARY/CONCLUSION As an upshot of the discussion and analysis, as above, in our opinion, the Correct Legal Position which emerges is summarized as below :- (i) The law applicable to an assessment year is the law in force on the first day of that year — i.e., 01st April. A provision coming into force after that date, without express retrospective language, cannot be applied to assessments for that year. (ii) Changes in law occurring after the commencement of a financial year cannot govern the tax liability for that year unless the amendment is expressly made retrospective. (iii) The amendment to Section 115BBE came into force on 01.04.2017 i.e. the first day of financial year 2017-18. For FY 2016-17, the law in force on 01.04.2016, prescribing a rate of 30%, must govern. The enhanced rate of tax @60% came into force on 01.04.2017 and can apply only from that date, i.e. for financial year 2017-18 onwards. (iv) The Taxation Laws (Second Amendment) Act, 2016 contains no express language for it’s retrospective effect of section 115BBE. 18. We thus hold that the Taxation Laws (Second Amendment) Act, 2016 is prospective in effect as specified therein (from 15.12.2016 except the amendment of Section 115BBE, which is effective from 01.04.2017). The question framed in para 8.1, in the preceding part, is answered accordingly. 19. The appellate authority shall therefore proceed further to adjudicate the assessment order impugned before it keeping in mind what has been enunciated hereinabove, in accordance with law. 20. The petition stands disposed of in the aforesaid terms

The Hon’ble Court held that higher rate of tax as prescribed u/s 115BBE would apply from FY 2017-18 onwards i.e. from AY 2018-19 only. This case law further supports the case of the assessee that the impugned surrender could not be subject to higher rate of tax for this year. 6. So far as the disallowance u/s 14A is concerned, the same has been computed as per statutory mandate only. The adhoc expenses disallowance of Rs.5 Lacs is quite reasonable. The same do not warrant any interference on our part. No other ground has been urged in the appeal. 7. The appeal stand partly allowed. Order pronounced on 01st September, 2026 -Sd- -Sd- (RAJESH DAMODARLAL SHARMA) (MANOJ KUMAR AGGARWAL) JUDICIAL MEMBER ACCOUNTANT MEMBER AS Dated: 01.09.2026 आदेश की �ितिलिप अ�ेिषत /Copy of the Order forwarded to : 1. अपीलाथ�/Appellant 2. ��थ�/Respondent 3. आयकरआयु�/CIT 4. िवभागीय�ितिनिध/DR 5. गाड�फाईल/GF

BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL KENDRIYA SADAN, SECTOR – 9A CHANDIGARH

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