NARAYANA RAO HEBRI,SAGAR vs. THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-1, SHIVAMOGGA

The brief facts of the case show that assessee is an individual engaged in real estate business, filed his return of income on 20.11.2017 at total income of Rs.1,91,25,040/-.

A survey u/s. 133A was conducted at the business premises of the assessee on 27.9.2016 wherein the assessee agreed to offer a sum of Rs.1,14,20,100/- as additional income by way of letter dated 29.9.2016. The assessee furnished its return of income on 20.11.2017 at a total income of Rs.1,91,25,040/-. In the above sum, the assessee included an additional income offered of Rs.1,14,20,100/-.

By way of notice u/s. 142(1), the ld. AO called for information with respect to payment of tax in cash during the demonetization period. Assessee was given 2 different opportunities; however, no response was received. Further, a final opportunity was given wherein the assessee furnished a reply stating that he has paid the income tax of Rs.24 lakhs during Nov. 2016 in cash and source of the same is withdrawal from Corporation Bank Current A/c and rent received from tenants and other advances received. The assessee submitted a bank account copy.

The ld. AO considered the explanation of the assessee and noted that assessee has failed to furnish any documentary evidence, except the bank statement with respect to source of the funds. He further, on verification of the bank

Further as survey u/s. 133A was conducted on 27.9.2016, the disclosure made therein of Rs.1,14,20,100 admitted as undisclosed income under the head income from other sources and assessee has paid only the normal taxes. According to the AO, this amount should have been offered u/s. 115BBE of the Act.

Accordingly, assessment order u/s. 143(3) was passed on 17.7.2019 determining the total income of Rs.2,15,21,882/-. The assessee aggrieved with the above assessment order preferred appeal before the ld. CIT(Appeals).

The first issue was with respect to unexplained cash income of Rs.24 lakhs. The assessee submitted that Rs.24 lakhs should be part of the additional income already offered of Rs.1,42,20,100 by giving the benefit of telescoping and no separate addition of Rs.24 lakhs could have been made. Thus, there is doubly taxed income. The ld. CIT(A) rejected the explanation of the assessee and held that additional income offered by assessee is on the basis of omission and commission in the computation of his income and therefore such tax payment could not be part of that disclosure. Accordingly, this addition was confirmed.

The second issue involved is that additional income offered during the survey of Rs.1,14,20,100/- if charged u/s. 115BBE of the Act, according to the assessee, it should not have been included as undisclosed income. The assessee submitted that the above disclosure is not because of any difference, but only for the purpose of omission or commission in the computation of income. Therefore, deeming provisions of section 69 and 69A could not have been invoked. It was further stated that the assessment order also did not make any reference to specific section whether provisions of section 115BBE is applicable. He also stated that the provisions of section 68 etc. do not apply. Assessee also argued that disclosure made during the course of survey is not a confession of undisclosed income. The assessee referred to his statement recorded on 29.7.2016. It was submitted that such disclosure was without any material and is merely a bald statement without evidence, which could not have been used against the assessee.

The ld. CIT(A) categorically held that explanation offered by the appellant for the source of income disclosed in the computation of income was not found to be satisfactory and therefore application of provisions of section 68 would apply and section 115BBE will automatically get invoked. Hence the appeal of the assessee was dismissed.

The assessee aggrieved with the same is in appeal before us.

The ld. AR submitted that ground No.1 raised is general in nature and therefore no arguments were advances. Accordingly, the same is dismissed.

According to ground No.2, the claim of the ld. AR is that the AO has passed the assessment order u/s. 143(3) of the Act which should have been passed u/s. 144 of the Act. For this proposition, the ld. AR referred to the notice dated 21.6.2019 issued by the ld. AO wherein the assessee was asked to furnish source of material evidence for tax payment of Rs.24 lakhs in cash. It was further stated that if assessee fails to furnish, then the assessment order would be completed ex parte u/s. 144 of the Act. Therefore, the contention of the ld. AR is that after giving notice u/s. 144 of the Act on 21.6.2019, the assessment order passed u/s. 143(3) of the Act is bad in law. He referred to the provisions of section 144 of the Act and further referred to notice dated 10.5.2019 placed at page 154 of PB and notice dated

With respect to ground No.3, he submits that the survey was conducted on 27.9.2016 where the assessee offered additional income of Rs.1,14,20,100. He submits that such disclosure is though offered by the assessee in its computation of income, in the absence of any evidence, such income could not have been taxed. It was submitted that in answer to Q.9 of the statement, the above income was offered to cover up any omission or commission in the income of the assessee. There is no such omission or commission found during the course of assessment proceedings or during the survey proceedings, therefore though assessee has offered the income in its computation of income and return, same could not have been taxed. He further referred to page 163 of PB wherein the letter dated 29.9.2016 has been placed which is addressed to the AO wherein the assessee has voluntarily offered a sum of Rs.1,14,20,100 as income for taxation purpose. Such offer was made voluntarily to buy peace of mind and to cooperate with the income tax department and to cover errors in accounts, reconciliation and other accounting errors. The ld. AR submits that as such disclosure could not have been taxed in the absence of any evidence of undisclosed income. He further referred to Instruction No.286-2003 dated 10.3.2003 wherein it is stated that a disclosure without evidence could not have been taken. He further stated that assessee has not objected to the same in the assessment stage as well as on the appellate stage. The assessee has paid the tax by offering the above income in its computation of total income, but despite all this evidence, assessee before us is raising an issue that such income which is offered by the assessee as income in the computation of total income and return of income originally filed, could not have been taxed in the hands of the assessee. The ld. AR submitted that not objecting the same before us or at other stage would not make the claim of assessee as non-genuine. He further referred to the communication from the revenue. Therefore, according to him, the income so offered by the assessee has erroneously been taxed by the AO and now the Tribunal direct the AO to exclude the same.

Ground No.4 raised by the assessee is with respect to levy of tax and surcharge by invoking the provisions of section 115BBE of the Act. It was submitted that the case of the assessee was selected for limited scrutiny. He referred to the notice dated 11.8.2018 u/s. 143(2) of the Act which is placed at page 144 of the PB. According to that notice, the case of the assessee was picked up for limited scrutiny only for verification of payment of tax in cash during the demonetization period. He submits that there is no reference to charging of tax u/s. 115BBE of the Act and therefore charging of surcharge and higher rate of tax is devoid of any merit.

On Ground No.5 it was submitted that the ld. AO has wrongly taxed Rs.24 lakhs as undisclosed income. He submits that the provisions of section 68 does not apply to the facts of the case as expenditure is for payment of tax and section 68 does not apply to such transaction. According to him, no such sum as credited in the books of account, but in fact debited for payment of taxes. Even otherwise, he submits that the provisions of section 115BBE could not have been invoked. He also submits that assessee has explained the sources of payment of taxes as bank withdrawal and other receipts. He submits that assessee has available cash withdrawal of Rs 28 lakhs and taxes paid in cash is only Rs 24 Lakhs. Thus, sources are properly explained.

Ld. AR submitted 143 pages of written submission containing multiple arguments on the issues relying up on plethora of judicial precedents and insisted that same may be considered for deciding the appeal.

The ld. DR vehemently submitted that assessee has paid tax of Rs.24 lakhs for which source of payment is not available and therefore there is no infirmity in the order passed by the ld. lower authorities. The assessment order is correctly passed by ld AO u/s 143 (3) of the act. Even otherwise it is not shown how assessee is aggrieved with the same. The issues of taxation of survey disclosure was not raised before lower authorities so , now after such a long time assessee cannot ask the revenue to show the evidence. In fact, it is the statement of assessee himself about disclosure, so it is the assessee who is in know of things of such omission or commission, revenue is not required to find out the same when assessee offered the same in ROI and which is not disputed. It was also argued that rate of tax u/s 115 BBE is automatic and there is no infirmity in the same.

We have carefully considered the rival contention and perused the orders of the learned lower authorities. The Ld AR has filed a paper book containing 171 pages which contains written submission of 143 pages. During hearing ld AR over and above his oral arguments advanced also pressed upon to consider this written submission. We have perused and considered the same. For the sake of simplicity involved in the appeal , after considering the several judicial precedents cited before us , we have decided the grounds of appeal on substantive basis and kept all other technical issues raised before us aside, as those are not required to be adjudicated.

Looking to the facts, it is apparent that the notice under section 142 (1) was issued on 17/1/2019 , wherein it was asked that the assessee has made large payment of tax in cash during demonetization period and the assessee was asked to furnish the details of payment of tax in cash made during demonetization period with source for the same for verification. As this notice was not complied with a further letter on 13/2/2019 was issued for non-compliance of the above notice which was replied to by the assessee on 20 May 2019 submitting the partial information stating that the assessee has paid the income tax of ₹ 24 lakhs during

According to the provisions of section 144 (1) (b) of the act if any person fails to Comply with all the terms of a notice issued under subsection (1) of section 142 of the act, then only the assessing officer has power to pass an assessment order under section 144 of the act. In the present case the assessee has complied with part of the notice. Therefore, it cannot be stated that the assessee has failed to comply with all the terms of notice and therefore the assessment order should have been passed under section 144 of the act. Accordingly, as the assessee has complied with part of the notice under section 142 (1) of the act, the assessment order passed under section 143 (3) of the act is in accordance with provisions of the law. Assessee could not show that it has failed to comply with notice under section 142 (1) completely. Thus, as the assessee has made partial compliance of such notice, the claim of the assessee that the order should have been passed under section 144 of the act is devoid of any merit. Several judicial precedents cited by the assessee in written submission are clearly

Ground number 3 of the appeal is that lower authorities are not justified to tax the additional income of Rs 1,14,20,100/– declared by the assessee in his return of income on its own because it was offered on the basis of statement recorded during survey , for which there were no evidence collected. The assessee has heavily relied upon the instructions issued by the Central Board of Direct Taxes as well as the circular which says that disclosure without evidence should not have been taken by the survey party. The assessee has also referred to the Survey Manual, 2019 wherein in paragraph number 4. 4 and 4.6 clearly provides the manner of investigation and assessment in such cases.

We have considered written submission made by the assessee on this ground placed at page number 16 – 57 of the paper books. Facts clearly shows that assessee has on his own disclosed this amount in his ROI by including it in computation of total income under the head ‘ income from other sources.’ Assessee has also deposited due tax thereon .The case of the assessee was selected for limited scrutiny by issue of notice u/s 142 (1) dated 11/8/2018 to examine a solitary issue of examination of payments of tax in cash during demonetization period. It is not the case of the parties that anytime the Limited scrutiny was converted into

There is another angle to the issue which is as under :-

Therefore, ground no 3 is dismissed.

Ground no 4 is with respect to applicability of tax and surcharge on the above disclosure levied u/s 115 BBE of the Act, we are of the view that as it is a case of limited scrutiny the ld AO could not have exceeded his jurisdiction by charging higher rates of tax and surcharge on the above survey disclosure without converting the case of scrutiny from limited scrutiny to complete scrutiny. Accordingly, ld. AO is not correct to the extent of levy of Higher rate of tax u/s 115 BBE and consequent surcharge, if any, on the above disclosure. Thus, ground no 4 of the appeal is allowed.

As far as addition of Rs 24,00,000/- as unexplained cash credit u/s 68 of the Act, which is tax payment in cash, facts shows that assessee has deposited income tax of Rs 24,00,000/- in cash on 27/11/2016. Claim of assessee is that he has withdrawn a sum of Rs. 28,05,000/- from his corporation bank account. There is no evidence that such withdrawal of cash is utilized for some other purposes than

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