ASSISTANT COMMISSIONER OF INCOME TAX, MADURAI vs. JAYARAJ JAISON, TIRUNELVELI

For these grounds and any other grounds including amendments of grounds that may be raised during the course of the appeal proceedings, the order of learned CIT(Appeals) may be set aside and that of the Assessing Officer be restored. 3. The brief facts of the case are that the assessee is an individual engaged in the business of operating a bakery under the name and style of M/s.Jaison Bakery, situated in Tirunelveli District. A survey u/s.133A of the Act was conducted at the business premises of the assessee on 28.02.2020. During the course of the said survey, the Authorized Officer identified the following three issues:

With regard to the expenditure incurred on the construction of a building, the Authorized Officer sought clarification regarding the source of funds and supporting documentation for such expenditure. In response to Question No.9 of the sworn statement, the assessee stated that the building along with another house had been gifted to him by his brother two years prior, and he had subsequently undertaken the construction of a new building for business purposes, incurring an expenditure of Rs.60,00,000/-. Accordingly, the assessee agreed to offer the said amount as additional business income.

Further, the Authorized Officer inquired into the daily sales figures of the assessee. In response to Question No.10 of the sworn statement, the assessee admitted that the sales data had not been properly recorded or updated in the computer system maintained at the business premises. He further submitted that the average daily sales were approximately Rs.1,60,000/- on normal days, and around Rs.2,25,000/- on holidays and festival days. On the basis of this admission, the assessee offered an estimated amount of Rs.58,60,000/- as additional income on account of unaccounted sales for the relevant assessment year.

In light of the aforesaid discrepancies unearthed during the course of the survey, and based on the voluntary disclosures made by the assessee in the sworn statement recorded u/s.131 of the Act, the assessee made an aggregate disclosure of Rs.1,50,60,000/- (comprising Rs. 32,00,000/- towards sundry creditors, Rs. 60,00,000/- towards expenditure on construction, and Rs. 58,60,000/- towards suppression of sales) as additional business income for the assessment year under consideration. The relevant portion of the sworn statement, as extracted by the AO in the assessment order, is reproduced below:

Subsequently, the assessee filed his return of income for the relevant assessment year on 30.12.2020, declaring a total income of Rs.50,69,710/-, which included business income of Rs.52,71,322/-. The said business income was computed after crediting a sum of Rs.1,50,60,000/- to the Profit and Loss Account under the head “Income Offered Before IT Investigation u/s.133A”, corresponding to the voluntary disclosure made during the course of the survey proceedings. The return of income so filed was selected for compulsory scrutiny under CASS, and accordingly, a notice u/s.143(2) of the Act was issued to the assessee on 28.06.2021.

During the course of the assessment proceedings, the AO observed that the assessee had credited the sum of Rs.1,50,60,000/- in the Profit and Loss Account under the head “Income Offered Before IT Investigation u/s.133A” and had accordingly offered the same as business income. The AO further noted that the said amount had been classified as “Other Operating Revenues” in the return of income filed by the assessee and subjected to tax at the normal rates applicable to business income. Upon examining the nature of the disclosure, the AO opined that while the sum of Rs.58,60,000/- being the amount admitted by the assessee towards suppression of sales is clearly in the nature of business income and not in dispute, the remaining sum of Rs.92,00,000/-, comprising of Rs.32,00,000/- towards unexplained sundry creditors and Rs.60,00,000/- representing unexplained investment in construction of a building, cannot be treated as regular business income. The AO was of the view that this portion of the disclosure constituted unexplained cash credits and unexplained investment, respectively, and was therefore liable to be assessed under the provisions of section 115BBE of the Act, which prescribes a higher rate of tax for such unexplained income. Accordingly, the AO issued a show cause notice to the assessee, calling upon him to explain why the sum of Rs.92,00,000/- should not be taxed under the provisions of Section 68 / 69B r.w.s. 115BBE of the Act. The assessee was also specifically required to substantiate the genuineness and creditworthiness of the alleged sundry creditors amounting to Rs.32,00,000/-, and to furnish documentary evidence in support of the source and genuineness of the construction expenses amounting to Rs.60,00,000/-.

In response to the show cause notice, the assessee submitted before the AO that, as on 31.03.2020, there were no outstanding sundry creditors reflected in the books of account, and that the liabilities previously admitted during the course of the survey had been duly settled out of the voluntarily disclosed business receipts. It was further contended that the income generated from business activities, including the amounts disclosed during the survey, had been subsequently applied towards investment in the construction of the business premises.

The AO, however, was not convinced with the explanation of the assessee. The AO observed that the assessee had contended that a sum of Rs.32,00,000/-, reflected under the head "Sundry Creditors," had been duly settled as on 31.03.2020. However, the assessee failed to produce any documentary evidence in support of this contention, such as payment details, relevant bank statements, confirmation letters from the creditors, or any other supporting documentation substantiating the identity, creditworthiness, and genuineness of the claimed creditors. In the absence of such corroborative evidence, the AO concluded that the claim remained wholly unsubstantiated. The AO further observed that the assessee had not reflected any corresponding entries in the balance sheet evidencing the discharge or settlement of the said liabilities. Given the absence of any such entries either on the liabilities or assets side, the AO formed the view that the assessee’s explanation lacked credibility. Consequently, the AO treated the sum of Rs.32,00,000/- as unexplained credit u/s.68 r.w.s.115BBE of the Act.

With respect to the issue of construction expenditure amounting to Rs.60,00,000/-, the AO recorded that the assessee, in a sworn statement, had admitted to having incurred the said expenditure towards the construction of a commercial building. However, the AO noted that the balance sheet for the financial year 2019-20 disclosed only an amount of Rs.38,43,378/- under the head "Land and Building," thereby indicating a discrepancy of Rs.21,56,622/-. The assessee did not furnish any explanation or evidence to reconcile this difference. Moreover, no corresponding entries reflecting the said investment either in the form of capital introduced or borrowings were recorded in the books of account. Additionally, no documentary evidence such as vouchers, invoices, or bills was submitted to substantiate the said expenditure. In light of the foregoing, the AO concluded that the entire investment of Rs.60,00,000/- towards construction remained unexplained and accordingly treated the same as an undisclosed investment u/s.69B r.w.s 115BBE of the Act.

Accordingly, the assessment of the assessee was completed u/s.143(3) of the Act on 30.09.2022, making the aforementioned additions and subjecting the impugned amounts to tax at the rates prescribed under section 115BBE of the Act.

Being aggrieved by the assessment order, the assessee preferred an appeal before the ld.CIT(A), Chennai - 19.

During the course of appellate proceedings, the assessee submitted before the ld.CIT(A) that no sundry creditors existed as on 31.03.2020, as all the outstanding liabilities have been duly discharged out of business income. Accordingly, it was contended that the addition of Rs.32,00,000/- made by the AO on account of alleged unexplained sundry creditors is devoid of merit and liable to be deleted. With respect to the addition of Rs.60,00,000/- towards alleged unexplained investment, the assessee further submitted that the provisions of section 69B of the Act are inapplicable to the facts and circumstances of the present case. It was, therefore, urged that the addition made u/s.69B r.w.s 115BBE of the Act be deleted.

Considering the submissions made by the assessee during the course of the appellate proceedings, the ld.CIT(A) by the impugned order dated 30.07.2024 deleted the additions made by the AO namely: (i) the addition of Rs.32,00,000/- on account of alleged unexplained sundry creditors u/s.68 r.w.s 115BBE of the Act, and (ii) the addition of Rs.60,00,000/- on account of unexplained investment u/s.69B r.w.s 115BBE of the Act.

The observations of the ld.CIT(A) in deleting the addition of Rs.32,00,000/- made by the AO u/s.68 r.w.s 115BBE of the Act, on account of unexplained sundry creditors, are as under:

The ld.DR, Ms.Gouthami Manivasagam, JCIT, placing reliance on the grounds of appeal and the assessment order, submitted that during the course of the survey proceedings, the assessee had made a disclosure of Rs.32,00,000/- on account of unexplained sundry creditors and Rs.60,00,000/- on account of unexplained investment in building construction. The ld.DR contended that the said disclosure constituted income over and above the regular business income and, therefore, was liable to be assessed at the special rate of tax as prescribed u/s.115BBE of the Act, and not as part of the normal business income.

The ld.DR, therefore, submitted that the ld.CIT(A) erred in law and on facts in deleting the additions made by the AO without proper appreciation of the evidence and circumstances on record. The ld.DR thus prayed that the order of the ld.CIT(A) be set aside and the additions made by the AO be restored by allowing the Revenue’s appeal.

Per contra, the ld.AR for the assessee, Shri R.Venkata Raman, Chartered Accountant, supporting the order of the ld.CIT(A) made the following written submission:

Further, no material was found to prove that the assessee had incurred expenses towards construction during the impugned assessment year.

Furthermore, no material was found indicating that the assessee had suppressed sales. 4. Thus, the question of recording the statement of the assessee u/s.131 of the Act and offering additional income does not arise.

We note that a survey u/s.133A of the Act was conducted at the business premises of the assessee, during the course of which the assessee made a disclosure of Rs.1,50,60,000/- as additional business income. The disclosure was made to account for various discrepancies identified during the survey, namely: (i) unexplained sundry creditors amounting to Rs.32,00,000/-, (ii) unexplained investment in construction expenditure amounting to Rs.60,00,000/-, and (iii) suppression of sales amounting to Rs.58,60,000/-.

Pursuant to the said disclosure, the assessee, in the return of income filed for the relevant assessment year, offered the sum of Rs.1,50,60,000/- as income by crediting it to the Profit and Loss Account under the head “Income Offered Before IT Investigation u/s 133A”. Out of the disclosed amount, the AO accepted Rs.58,60,000/- towards suppressed sales as part of the assessee’s business income, and no dispute exists in respect thereof.

However, with respect to the balance sum of Rs.92,00,000/-, comprising Rs.32,00,000/- on account of unexplained sundry creditors and Rs.60,00,000/- towards unexplained investment in building construction, the AO held that the said income did not arise from regular business operations and, therefore, could not be assessed as business income. The AO accordingly treated the amount as unexplained under the deeming provisions of sections 68 and 69B of the Act, and subjected it to tax at the special rate prescribed u/s.115BBE of the Act.

In appellate proceedings, the ld.CIT(A) deleted the addition of Rs.32,00,000/- made u/s.68 of the Act, holding that as on 31.03.2020, no balance of sundry creditors existed in the books of account, and hence, the requirement of making an addition towards unexplained sundry creditors did not arise. As regards the addition of Rs.60,00,000/- made u/s.69B, the ld.CIT(A) noted that the assessee had already included this amount within additional income of Rs.1,50,60,000/- disclosed in the return of income, categorically reflecting it as offered during survey. The ld.CIT(A) held that once the assessee had voluntarily offered such income to tax by crediting in his profit and loss account and in his return of income, there was no basis for the AO to again treat the same as unexplained investment and subject it to tax u/s.69B r.w.s 115BBE of the Act. Thus, the ld.CIT(A) deleted the additions made by the AO. The issue now arising for our consideration is whether the ld.CIT(A) is right in deleting the additions amounting to Rs.92,00,000/- made by the AO towards unexplained sundry creditors and unexplained investment.

Upon careful consideration of the material available on record and the submissions advanced, we find that there is no dispute with respect to the fact that the sum of Rs.32,00,000/-, as recorded in the impounded notebook, represents outstanding liabilities in the nature of sundry creditors related to the business operations of the assessee. These liabilities are directly attributable to purchases and/or expenses incurred in the normal course of the assessee's business of running a bakery and tea stall. Therefore, such liabilities are integrally linked to the business activity and cannot, by any stretch, be construed as unexplained cash credits or income from undisclosed sources.

We further observe that in order to address the discrepancies noted during the course of the survey, particularly with respect to the said amount of Rs.32,00,000/- shown as sundry creditors in the impounded records, the assessee voluntarily agreed to offer the said sum as business income as part of the total disclosure of Rs.1,50,60,000/-, and duly credited the same in the Profit and Loss Account for the relevant assessment year.

Significantly, in the sworn statement recorded from the assessee u/s.131 of the Act during the course of the survey proceedings, specifically in response to Question No.11, the assessee clearly stated that the additional income being disclosed pertains to business income. This statement has not been found to be false or misleading by the survey team or the AO. On the contrary, the assessee has honoured his commitment by offering the disclosed income of Rs.1,50,60,000/- to tax as business income and crediting the same in the Profit and Loss Account as on 31.03.2020.

In such circumstances, the treatment of the amount of Rs.32,00,000/-, which has already been offered to tax as part of the business income, as an unexplained cash credit u/s.68 of the Act, and thereby subjecting it to tax again under the provisions of section 115BBE of the Act, results in a clear instance of double taxation. This not only violates the principles of natural justice but also lacks legal justification, as section 68 is applicable only in cases where the nature and source of a credit entry in the books of account remain unexplained or are not satisfactorily established. Here, the assessee has adequately explained both the nature and source of the amount in question, which pertains to regular business transactions, namely sundry creditors arising out of purchases/expenses.

Moreover, we find that there is no finding by the AO or the survey team to indicate that the assessee has engaged in any activity generating income outside the scope of the declared business. There is also no allegation or evidence suggesting that the amount of Rs.32,00,000/- represents any form of unexplained or unaccounted money sourced from outside the business. The entire disclosure has been accepted as emanating from the business activity of the assessee.

In view of the foregoing analysis and having regard to the facts and circumstances of the case, we are of the considered opinion that the addition of Rs.32,00,000/- made by the AO u/s.68 r.w.s 115BBE of the Act, is unsustainable in law and on facts. The ld.CIT(A) has rightly appreciated the legal position and factual matrix of the case and has correctly deleted the said addition. We, therefore, find no infirmity in the impugned order passed by the ld.CIT(A) and accordingly uphold the same. Consequently, the grounds of appeal raised by the Revenue are devoid of merit and are hereby dismissed.

Furthermore, it is significant to note that the assessee, voluntarily included the sum of Rs.60,00,000/- as part of the total income declared during the year under the head "business income." This was duly reflected in the Profit & Loss Account, wherein the total disclosure of Rs.1,50,60,000/-, inclusive of the said amount, was credited and offered to tax under normal provisions. The assessee, having no other source of income apart from the declared business activity, rightly categorized the disclosure as business income, which was accepted as such in the return of income.

Therefore, once the income offered during the survey has been brought to tax as business income, and there is no contrary finding that it emanated from any other source or constitutes investment from unexplained sources, taxing the same income again under the deeming provisions of Section 69B r.w.s.115BBE of the Act would lead to double taxation and result in manifest injustice. Section 115BBE is not intended to override genuine declarations of business income, particularly when the nature and source of such income have been clearly explained and duly accounted for.

In view of the foregoing discussions, in the present facts and circumstances of the case, we are of the considered opinion that the addition of Rs.60,00,000/- made by the AO u/s.69B r.w.s 115BBE of the Act is devoid of merit, not supported by evidence, and is liable to be struck down, which the ld.CIT(A) has rightly deleted it. Accordingly, the deletion of the impugned addition does not warrant any interference. Consequently, the grounds raised by the Revenue are bereft of substance and are accordingly dismissed.

In the result, the appeal filed by the Revenue is dismissed.