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

Per Prashant Maharishi, Vice President 1. This appeal is filed by Mr. Narayana Rao Hebri (the assessee/appellant) for the assessment year 2017-18 against the appellate order passed by the National Faceless Appeal Centre, Delhi (NFAC) [ld. CIT(A)] dated 29.8.2024 wherein the appeal filed by the assessee against the Page 2 of 22

assessment order passed u/s. 143(3) of the Income-tax Act,
1961 [the Act] by the ACIT, Circle 1, Shivamogga on 17.7.2019 was dismissed.
2. The assessee has raised the following grounds of appeal :-
“1. The Order of the Learned Commissioner
(Appeals) as far as it is prejudicial to the interest of the Appellant is not justified in law and on facts and circumstances of the case.
2. The Assessment Order passed under section 143(3) is bad as the Learned Assessing Officer having proposed to complete assessment ex-parte, ought to have passed the said order only under section 144. 3. As regards additional income of Rs.
1,14,20,100/-:
3.1. The Lower Authorities are not justified in assessing the additional income of Rs.
1,14,20,100/- declared by the Appellant in his return of income merely on the basis of statement recorded without any evidence collected in the course of the said survey.
3.2. The Lower Authorities have erred in levying tax on an additional income offered by the Appellant is in contravention of the Article
265
of the Constitution of India,
Instruction
F.
No.
286/2/2003-IT (INV. II), dated 10.03.2003, Letter
[F.No. 286/98/2013-IT (INV.II)], dated 18.12.2014
and Circular No. 14(XL-35), dated 11.04.1955. 4. Without prejudice, as regards levying tax &
surcharge by invoking section 115BBE:
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when the conditions of the said section are not satisfied.
4.6. The Learned Commissioner (Appeals) is not justified in making various observations which are purely his ipse dixit, perverse and contrary to the facts, being based on surmises and conjecture.
5. As regards addition of Rs. 24,00,000/-:
5.1. The Learned Commissioner (Appeals) is not justified in upholding the action of the Assessing
Officer in making addition of Rs.24,00,000/- representing cash deposit as unexplained cash credit under section 68, when the conditions of the said section are not satisfied.
5.2. The Learned Commissioner (Appeals) is not justified in upholding the impugned addition when the Appellant established that he had sufficient source for deposit of cash to the bank account.
5.3. The Lower Authorities are not justified in rejecting the explanation of the Appellant of cash withdrawals being the source of Rs.24,00,000/- by taking unsustainable contentions that the Appellant could not have held the cash for a long time and ought to have deposited the cash in the bank, thereby stepping into the shoes of the Appellant.
5.4. The Lower Authorities, having failed to bring on record any evidence to establish that the cash drawn was used for any other purpose, ought to have accepted the explanation of the appellant that the cash withdrawn was used for making tax payment.
5.5. Without prejudice and assuming without conceding that the statement recorded during the survey under section 133A is reliable, the Lower
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Authorities are not justified in failing to read the said statement wholly and fully but reading the same to their convenience.
5.6. The Learned Commissioner (Appeals) is not justified in making various observations which are purely his ipse dixit, contradictory, contrary facts and based on only surmises and conjecture.
5.7. The Learned Commissioner (Appeals) has failed to appreciate that having accepted that additional income offered to tax in survey proceeding, the impugned addition is duplicating in nature resulting in taxing the same amount twice over.
5.8. The Lower Authorities have unjustly refused to grant the benefit of telescoping.
6. As regards levy of interest of Rs. 2,97,176/- under section 234A of the Act:
6.1. The Learned Assessing Officer is not right in law and on facts in levying interest under section 234A of Rs. 2,97,176/ -.
6.2. The Learned Assessing Officer is not justified in levying the aforesaid interest when the impugned addition is not tenable.
For the above Grounds and for such other Grounds which may be allowed by the Honourable Members to be urged at the time of hearing, it is prayed that the aforesaid appeal be allowed.”

This return was taken up for scrutiny and notice u/s. 143(2) was issued on 11.8.2018. A further notice u/s. 142(1) was also issued on 17.1.2019. 4. 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/-.
5. 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.
6. 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
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statement, noted that from 2.4.2016 to 2.8.2016 the assessee has withdrawn Rs.28,30,000/-, however there is no cash withdrawal from 3.8.2016 till 24.11.2016. He also rejected the claim of the assessee that above sum is the sources of funds for payment of taxes holding that withdrawals are made for real estate business. Further with respect to withdrawals, the reason for keeping huge cash is not given. Thus, cash payment of tax of Rs.24 lakhs on 24.11.2016 was taxed as unexplained cash credit u/s. 68 of the Act by invoking provisions of section 115BBE of the Act.
7. 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.
8. 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).
9. 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 Page 8 of 22

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.
10. 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.
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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 Page 12 of 22

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.
16. 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.
17. 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 Page 13 of 22

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.
18. 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.
19. 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 Page 14 of 22

disputed. It was also argued that rate of tax u/s 115 BBE is automatic and there is no infirmity in the same.
20. 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.
21. As per ground number 2 the claim of the assessee is that assessment order should have been passed under section 144 of the act which is passed under section 143 (3) of the act, so it is bad in law and therefore deserves to be quashed. In this case the learned assessing officer issued a letter dated 13/02/2019 directing the assessee to comply with the notices already issued under section 142 (1) of the Act. Further letter was also issued on 10/4/2019 wherein reference was made to original notice issued under section 142 (1) of the Act dated 17/1/2019 and one more letter dated 13/2/2019 wherein it was stated that the assessee has Page 15 of 22

been given 2 opportunities, however no response has been filed. Therefore, a final opportunity was given to the assessee to furnish such details by 18/4/2019. Letter further stated that failure to furnish such details, assessment would be completed ex parte under section 144 on the basis of information available on the records. Further another letter was issued on 10/05/2019 which also states that assessee has been given 2 opportunities which were not complied with and therefore the assessment would be completed under section 144 of the Act. It is the claim of the assessee that assessee submitted its response on 20/05/2019 and thereafter no response was submitted and therefore the assessing officer should have passed the assessment order under section 144 of the Act.
22. 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
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November 2016 , sources are out of the self-withdrawal from Corporation bank current account and rent received from tenants and other advances amounts. Assessee also submitted copy of bank statement. It is apparent that assessee has partly complied with the notice issued under section 142 (1) of the act.
23. 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
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distinguishable and does not support the case of the assessee. Accordingly ground number 2 is dismissed.
24. 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.
25. 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 Page 18 of 22

Complete scrutiny case. Therefore, the ld AO was precluded in examining any other issue other than the issue of ‘
examination of payment of tax in cash during demonetization period.’ Thus, the issue of examination of income disclosed during survey was never an issue for which ROI was picked up for limited scrutiny. Thus, the ld AO was not permitted to look into this aspect at all. This issue has also not been raised by assessee either before the ld AO or before the ld CIT (A), therefore, there is no occasion before lower authorities to consider this aspect , hence it cannot be said that those authorities failed to consider about taxability of this item in the hands of assessee. As the issue before us is concerned, ground before us is not that the above amount is not taxable, but the lower authorities have failed to consider the same. Even other full facts are not placed before us, such as statements of assessee, manner of disclosure, facts and circumstances of disclosures as well as relevant documents of survey, therefore , in absence of such details placed before us by the assessee, therefore we cannot decide about the taxability of the same.
26. There is another angle to the issue which is as under :- i.
Survey in this case took place on 27/09/2016, ii.
Assessee himself made disclosure giving various reasons such as omission and commission. Therefore,
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it is right that only assessee was aware what for he is disclosing the sum.
iii.
ROI was filed on 20-11-2017, In the ROI assessee himself offered this income as income from other sources.
iv.
In the computation also assessee did not give any breakup or basis of such disclosure made.
v.
Assessee was silent before ld AO , did not make any claim of non-taxability of above sum.
vi.
Assessment took place and assessee accepted the same.
vii.
Before CIT (A) , even did not raise any ground about the non-taxability of sum disclosed in survey. Only
Ground no 3 was regarding applicability of section 115
BBE .
viii.
This ground was raised in appeal memo before us though not decided by the lower authorities against the assessee, as it was not agitated before them by assessee.
ix.
It is disclosure of assessee made voluntarily, he did not retract it but owned it in ROI and also did not show or explain any error or omission, which Page 20 of 22

assessee was only aware about, raising these issues now after 8 years, that too without showing what prompted him for disclosure and what prevented him in not retracting it and now throwing onus on revenue to show the evidence of disclosure is clearly not acceptable.
27. Therefore, ground no 3 is dismissed.
28. 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 juri iction 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.
29. 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 Page 21 of 22

payment of taxes. In absence of any such contrary evidence, it is not possible to reject the explanation of the assessee that such sum withdrawn in cash from bank account of the assessee on earlier occasion is available for payments of taxes in cash. The ld lower authorities have rejected the explanation of the assessee without any contrary material, and, hence, such rejection is not justified. Thus, we hold that addition of Rs 24,00,000/- u/s 68 is not justified in view of available cash on hand supported by cash withdrawal from bank account and evidenced by the bank statements , in absence of any contrary evidence of utilizing cash withdrawal for any other purposes. Thus, orders of the lower authorities are reversed on this issue. Accordingly, ld AO is directed to delete this addition. Ground no 5 is allowed.
30. In the result, the appeal of assessee is partly allowed.
Pronounced in the open court on this 22nd day of May 2025. (SOUNDARARAJAN K.)
VICE PRESIDENT

Bangalore, 22nd May 2025. /Desai S Murthy /
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By order