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Income Tax Appellate Tribunal, BENGALURU “C” BENCH, BENGALURU
Before: Shri George George K. & Ms. Padmavathy S.Shri Kasireddy Ranadheer Reddy vs DCIT, Central Circle - 2(1)
Date of hearing: 22/09/2022 Date of pronouncement: 26/09/2022 O R D E R Per: Padmavathy, A.M.
This appeal is against the order of the CIT(A)-11, Bengaluru dated 14.02.2022 for AY 2017-18.
The assessee raised the following grounds of appeal: - “1. The impugned rectificatory order is passed in haste without considering the relevant material facts and therefore, it is liable to be set-aside and cancelled.
2. The impugned order passed u/s 154 of the Act is void since it is issued without the Notice of demand u/s 156 of the Act.
3. The learned CIT(A) erred in confirming the impugned order u/s 154 dated, 28-09-2020 in as much as invoking of section 69A read with sections 115BBE and 271AAC with respect to the addition of Rs.4,28,85,414/- is bad in law since the issue did not constitute a prima facie mistake apparent from the records.
Shri Kasireddy Ranadheer Reddy 4. The impugned order of rectification u/s 154 passed to levy the taxes u/s 115BBE on the addition of Rs.4,28,85,414/- is bad in law: (i). Because, Section 69 or 69A is not invoked with respect to the additions made in the assessment order. (ii) Because, Section 271AAC is not invoked which should have been invoked if section 69 or 69A read with section 115BBE were to apply. (iii) Because, invoking of section 270A alleging under-reporting of income in the assessment order and non-initiation of penalty proceedings u/s 271AAC has placed the issue beyond the scope of prima facie mistake apparent from the records u/s 154 of the Act. (iv) Because, section 271AAC cannot be invoked in rectification order u/s 154, the question of invoking sections 69/69A r.w.s 115BBE did not arise. (v) Because, the learned AO has invoked section 69A as well as section 271AAC with respect to the addition of Rs.9,72,500/- and therefore it is not an inadvertent omission with respect to invoke these sections with respect to addition of Rs.4,28,85,414/- so as to bring it within the scope of section 154 of the Act. (vi) Because, the learned AO has assessed the amount of Rs.4,28,85,414/- under the head, 'income from other sources' and therefore, section 115BBE cannot be invoked.
The grounds are taken without prejudice to one another and the Appellant craves leave to add or delete or modify or revise any ground at the time of hearing before the Hon'ble ITAT.”
The assessee is an individual and he filed the return of income for AY 2017-18 on 25.03.2018 declaring total income of Rs.2,67,000/-. A search under Section 132 of the Income Tax Act, 1961 (the Act) was conducted on 23.09.2016 in the premises of M/s. Srinivasa Trust and in the residential premises of the assessee. The AO of the Trust after recording satisfaction that the seized assets belong to the assessee handed over the material to the AO of the assessee in accordance with the provisions of Section 153C of the Act for AY 2016-17. The assessee’s return of income for the year under consideration was taken up for scrutiny under Section 143(3) of the Act and notice in this regard was duly issued and served on the assessee. During the course of hearing the AO called on the assessee to furnish details pertaining to the documents seized during the course of search and the assesse was asked to show cause why the additions should not be made to the total income as per
Shri Kasireddy Ranadheer Reddy the evidences linked to the seized material. The assessee submitted that the loose sheets found during the course of search and in any case the documents have been included in the assessment proceedings completed u/s.143(3) r.w.s.148. The AO took into consideration the statement recorded and the incriminating material found during the course search wherein he noticed that certain unaccounted interest income and unexplained money were declared by the assessee in the statement recorded during search. The assessing office accordingly made the following additions under the head “income from other sources” while completing the assessment u/s.143(3).
(i) Undisclosed principle and interest – Rs.4,28,85,414 (ii) Unexplained money u/s.69A – Rs.9,72,500 Subsequently the AO passed rectification order under Section 154 of the Act stating that the tax on the additions made during the assessment proceedings is computed erroneously under normal rate of tax interest instead of higher rate of tax under Section 115BBE of the Act.
Aggrieved assessee preferred an appeal before the CIT(A) contending that the addition of Rs.4,28,85,414/- is added not under Sections 69 to 69A of the Act and therefore the AO cannot pass rectification order revising the tax on the impugned addition under Section 115BBE of the Act. The CIT(A) did not accept the contention of the assessee and proceeded to uphold the levy of tax u/s.115BBE by stating that -
“4.3 The submissions of the appellant have duly been considered. The initiation of penalty is subsequent to the determining of undisclosed income. The penalty initiated would be relevant to the nature of addition made but an incorrect mentioning of the Section under which penalty is initiated would not change the nature of the undisclosed income. So the argument of the appellant that the AO had initiated penalty under Section 270A of the Act rather than under Section 271AAC of the Act and so the additions for undisclosed income were not under Section 69/69A of the Act, deserves to be rejected. 4.4 Although the AO has not indicated the relevant Section while making the additions; however the discussion relating to the additions itself shows that the Shri Kasireddy Ranadheer Reddy same were on the basis of deemed income under Section 69/69A of the Act. During the search certain documents were found which showed lending of loans and earning of interest over a period of time including the year under consideration. Neither the same were recorded in any books of account of the appellant nor had he explained the same. So the additions could have been made under Section 69/69A of the Act only. There cannot be two views on this issue. Non mentioning of the Section by the AO cannot be treated as fatal to the additions. Since the provisions of Section 69/69A of the Act were applicable the tax was required to be calculated as per provisions of Section 115BBE of the Act. As the AO had not done so, it was a mistake apparent from record and the AO has correctly rectified the same. So the action of the AO is upheld and the grounds of appeal
1 to 3 as raised by the appellant are dismissed.”
5. Aggrieved, assessee is in appeal before the Tribunal.
The learned A.R. submitted that the AO has levied the penalty under Section 270A of the Act on the ground that the income was under reported and this would mean that he has not made the addition under Sections 69 or 69A of the Act. It is submitted that if the argument that the section numbers were omitted to be mentioned while making the addition is to admitted then there is no reason the AO to levy penalty under section 270A as income understated whereas he should have levied penalty under Section 271AAC of the Act. The learned A.R. also brought to your attention that one more addition which is made towards unexplained money in the said assessment order is clearly stated to be made under Section 69 of the Act and the AO has rightly initiated penalty proceedings under Section 271AAC of the Act for the said addition. Therefore it was contended that it is a conscious decision on the part of the AO not to make the addition u/s.69/69A and not done by oversight as claimed by the revenue. Without prejudice the learned AR submitted that section 115BBE was invoked in the assessment order under reference i.e. order u/s. 143(3) r.w.s. 153C dated 31.12.2018 and since invoking of section 115BBE r.w.s. 69 requires satisfaction on the part of the assessing officer, it is not permissible to invoke the said section, in rectification order u/s.154. It is therefore submitted that the scope of section 154 cannot be extended to an issue which require
Shri Kasireddy Ranadheer Reddy recording of satisfaction by the assessing officer. The learned AR also submitted that the scope of section 154 is limited and confined to mistakes prima facie apparent from the record and in the given case taxing the addition is not prima facie apparent since the proposed addition is not done under 69 / 69A by the assessing officer. In any case the ld AR submitted that whether the income assessed is to be taxed applying section 115BBE is debatable i.e. being capable of interpretation and therefore, it falls outside the scope of section 154.
The learned DR argued that the entire addition is made based on the incriminating material found during the course of search and on the statement recorded from the assessee. The learned DR also submitted that it is an admitted fact that the income is not recorded in the books and the source for the principle and interest amount was not substantiated by the assessee and therefore the addition can be made under Sections 69 of 69A of the Act only. The learned DR further submitted that mere omission on the part of the AO to mention the section cannot take away the nature of income and the AO has rightly invoked section 115BBE for levy of tax which he missed to do in the original assessment. It is also contended by the learned DR that the AO in the rectification order is not rectifying the mistake of the nature of addition since the same is already decided to be undisclosed and what the AO has done in the rectification order is only the rate of tax which was erroneously charged in the original assessment. The learned AR therefore submitted that this correction is very much within the scope of section 154.
We have heard the rival contentions and perused the material on record. During the assessment proceedings the AO verified the material found during the course of search and also perused the statement recorded under Section 132(4) of the Act. It is noticed that the assessee in the statement recorded has explained the assessee receives income from agricultural land and also some
Shri Kasireddy Ranadheer Reddy interest on hand loans given by the assessee. The assessee while answering Q.No.10 has stated that the source for these hand loans is his agricultural income and the interest income over the years. It can be observed from the order of the AO in para 11.1 where the AO has noted down certain facts as those emerging out of the statement recorded from the assessee wherein the AO himself has stated the fact that the assessee earn income from agriculture and money lending business. From the perusal of AO’s order it is also noticed that the AO has made the impugned addition on the contention that (a) No books of accounts are maintained, (b) The loans are given in cash and (c) the loose sheets found during the course of search cannot be said to not belong to the assessee. The AO has not raised any contention pertaining to the source of the money used by the assessee for money lending business. Therefore it can be said that the source is not disputed here. Section 69A of the Act reads as follows – 69A. Where in any financial year the assessee is found to be the owner of any money, bullion, jewellery or other valuable article and such money, bullion, jewellery or valuable article is not recorded in the books of account, if any, maintained by him for any source of income, and the assessee offers no explanation about the nature and source of acquisition of the money, bullion, jewellery or other valuable article, or the explanation offered by him is not, in the opinion of the 57[Assessing] Officer, satisfactory, the money and the value of the bullion, jewellery or other valuable article may be deemed to be the income56 of the assessee for such financial year.]
In the given case it is an admitted fact that the source for the money lending business is agricultural income and the interest income earned by the assessee. In the light of these factual findings we see merit in the argument by the learned A.R. that the decision of the AO to make addition without invoking section 69 /69A and also initiation of penalty proceedings under Section 270A of the Act is taken consciously. It cannot therefore be said that invocation of Section 69A and consequently Section 115BBE of the Act is accidental
Shri Kasireddy Ranadheer Reddy omission by inadvertence to be termed as prima facie mistake apparent from record for the purpose of rectification under Section 154 of the Act.
We also notice that the assessee during the course assessment has denied the ownership of the loose sheets found in the course of search and has also submitted that these have already been considered in the assessment of the earlier assessment year. The AO has made the addition by relying on the fact that some additions are done in the assessment done u/s.143(3) r.w.s.148 for AY 2016-17. Therefore on the legal issue whether the addition can be termed as made u/s.69A by a rectification order u/s.154, we are of the considered view that the impugned addition whether to be made u/s.69A is highly debatable in view of the submissions made by the assessee denying ownership of the document found in the course of search. When the taxability of the addition under a specific section is a point of contention / debatable, the tax levied on the said addition cannot be said to be not debatable. It is also noticed that the Jaipur Bench of the Tribunal in the case of Sudesh Kumar Gupta (2020) 117 taxmann.com 178 dealt with similar issue with regard to invoking provisions of Section 154 of the Act for applying addition under Section 69 of the Act and held as under: - “12. It is therefore not a case where provisions of section 69 have been invoked by the Assessing Officer while passing the assessment order u/s. 143(3) and at the same time, he has failed to apply the rate of tax as per section 115BBE of the Act. Had that been the case, it would clearly be a case of rectification and powers under Section 154 can be invoked. However, in the instant case, the Assessing Officer has not invoked the provisions of section 69 at first place while passing the assessment order u/s. 143(3), therefore, the provisions of section 115bbe which are contingent on satisfaction of requirements of section 69 cannot be independently applied by invoking the provisions of section 154 of the Act. We therefore upheld the order of the ld. CIT(A) and the matter is decided in favour of the assessee and against the Revenue.”
We further notice that the Hon'ble Karnataka High Court in the case of PCIT vs. Mphasis Software and Services (India) Pvt Ltd [IT Appeal No. 244 of 2021, dated 25-10-2021] held that invoking section 154 would be untenable
Shri Kasireddy Ranadheer Reddy when the matter requires adjudication upon the issue which is debatable issue. In view of these discussions and considering the decisions of the jurisdictional High Court we hold that the AO is not correct in passing the order of rectification u/s.154 enhancing the tax liability of the assessee u/s.115BBE and we therefore delete the same. The appeal is allowed in favour of the assessee.
In the result, the appeal filed by the assessee is allowed.
Dictated and pronounced in the open Court on 26th September, 2022.