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Facts
During a search operation, Rs. 40,00,000/- in cash was found at the assessee's business premises. The assessee admitted the cash pertained to unaccounted business transactions and offered it as income for the relevant assessment years. However, the AO treated the cash as unexplained money under Section 69A and taxed it under Section 115BBE.
Held
The Tribunal held that the AO erred in taxing the entire seized cash under Section 69A as unexplained money, especially since the assessee had voluntarily declared it as business income and paid taxes thereon. The invocation of Section 115BBE was also deemed erroneous. The action led to double taxation, which is impermissible.
Key Issues
Whether cash found during a search, voluntarily declared by the assessee as business income and taxed accordingly, can be reassessed as unexplained money under Section 69A and taxed at a higher rate under Section 115BBE.
Sections Cited
69A, 115BBE, 132, 131(1A), 144, 153B(1)(b), 139(1), 142(1), 153A, 68, 69, 69B, 69C, 69D
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Income Tax Appellate Tribunal, ‘C’ BENCH, CHENNAI
Before: SHRI MANU KUMAR GIRI & SHRI S. R. RAGHUNATHA
PER S. R. RAGHUNATHA, ACCOUNTANT MEMBER:
This appeal by the assessee is filed against the order of the Commissioner of Income Tax (Appeals), Chennai, for the assessment year 2021-22, vide order dated 30.08.2024.
The assessee has raised the following grounds of appeal:-
1. The order of the learned Commissioner of Income Tax (Appeals)- 20, is wrong, illegal and is opposed to law.
2. The Ld. Commissioner of Income Tax (Appeals)-20 erred in upholding the order of assessment which is based only on suspicion and surmise and not based on any material evidence.
:-2-: ITA. No.:2731 /Chny/2024 3. The learned CIT(A)-20 ought to have seen that addition under the head unexplained money is warranted only if the twin condition that if the said sum is found not recorded in the books of accounts maintained by the appellant and that no satisfactory explanation is offered by the assessee. In the instant case the appellant has satisfactory explanation and therefore no addition is warranted under section 69A of the Act.
4. That the Ld. CIT (A)-20 erred in law in confirming the action of the Assessing Officer in changing the head of income from business to unexplained money under section 69A by invoking the provision of Section 11 SBBE of the Income Tax Act, in doing so, the learned CIT(A) erred in confirming the applicability of provision of Section 115BBE of the Income Tax Act, 1961.
5. The learned CIT(A) ought to have seen that the alleged amount was seized from the business premises of the appellant and that it is undisputed that the only business of the appellant is whole sale and retail sales of cosmetics and therefore impugned amount can only be treated as generated out of business of the appellant and therefore the provisions of section 115BBE of the Act will have no application as the source of excess physical stock is attributable business.
6. The learned CIT(A)-20 ought to have seen that the AO has not brought any contrary material on record to state that the appellant has any other source of income other than from business income and therefore treated the said amount as unexplained money debars the explanation offered by the appellant is only based on conjectures and surmises. The learned CIT(A) while discharging the quasi-judicial functions has to reach satisfaction on the basis of material available and not on conjectures and surmises.
7. That the Ld. CIT (A) erred in confirming the action of the Assessing Officer in changing the head of income from business to unexplained money consequently invoking the provision of Section 115BBE of the Income Tax Act, 1961 even though the appellant submitted that the unaccounted income was earned in regular course of business activity.
:-3-: ITA. No.:2731 /Chny/2024 For these and other grounds that may be rendered at the time of hearing it is most humbly prayed that the Hon'ble Tribunal may be pleased to allow the appellants appeal and thus render justice.
The brief facts of the case are that the assessee is an individual engaged in the business of wholesale and retail trade of cosmetics and perfumes under the name and style of M/s.Cash and Carry. A search and seizure operation u/s.132 of the Income-tax Act, 1961 ("the Act") was conducted at the assessee’s residential- cum-business premises on 16.03.2021, pursuant to which the assessee’s case was centralized.
For the Assessment Year (AY) 2021–22, the assessee did not furnish his return of income within the extended due date prescribed u/s.139(1) of the Act, i.e., on or before 15.02.2022, owing to disruptions caused by the COVID-19 pandemic as stated by the assessee.
Subsequently, the AO issued a notice u/s.142(1) of the Act, requiring the assessee to furnish his return of income within five days from the date of service of the said notice, calling upon him to file the return on or before 22.02.2022. However, the assessee failed to comply with the said notice within the stipulated time. Consequently, proceedings u/s.144 of the Act were initiated for best judgment assessment.
Thereafter, the assessee filed his return of income on 21.03.2022, declaring a total income of ₹25,39,150/-. However, as the return was filed after the initiation of proceedings u/s.144, the AO treated the return filed by the assessee merely as a response to the show cause notice issued under the said provision, and not as a valid return under the Act.
:-4-: ITA. No.:2731 /Chny/2024
7. Accordingly, the AO proceeded to complete the assessment u/s.144 r.w.s. 153B(1)(b) of the Act determining the total income of the assessee at Rs.45,39,150/- and in doing so the AO reversed the additional business income of Rs.20,00,000/- offered by the assessee and assessed the entire seized cash of Rs.20,00,000/- as unexplained money u/s. 69A of the Act.
8. Aggrieved by the order passed by the AO, the assessee preferred an appeal before the ld.Commissioner of Income Tax (Appeals)-18 (ld.CIT(A)). The ld.CIT(A) vide his orders dated 30.08.2024 upheld the assessment order by confirming the action of the AO. Aggrieved by the order of the learned first appellate authority the assessee has preferred the present appeal before us.
During the course of a search u/s.132 of the Act conducted at the assessee’s business premises on 16.03.2021, a sum of Rs.40,00,000/- in cash was found and seized. This cash was not recorded in the regular books of accounts maintained by the assessee. Consequently, the AO treated this cash as “unexplained money” u/s.69A of the Act and subjected it to tax under the provisions of Section 115BBE of the Act.
During the search proceedings, the assessee gave a voluntary sworn statement u/s.131(1A) of the Act on 18.06.2021, wherein he categorically admitted that the cash belonged to him and pertained to unaccounted business transactions. The relevant extract reads:
“...I hereby offer the same [Rs. 40,00,000/-] as my income for the FY 2020–21 and promise to pay the applicable taxes... this offer shall be in addition to the regular income from business...”
:-5-: ITA. No.:2731 /Chny/2024
This disclosure was unequivocal and consistent with the returns filed. There has been no retraction of the statement, and no contradictory evidence has been brought on record by the AO to negate the same.
Out of the total cash of Rs.40,00,000/- found during search, the assessee voluntarily offered and declared the entire amount as business income in returns filed u/s.153A of the Act, across three assessment years, as under:
AY 2019–20: Rs. 7,50,000/- AY 2020–21: Rs. 12,50,000/- AY 2021–22: Rs. 20,00,000/-
The corresponding returns were accepted by the department, and the assessments were completed without any adverse findings or further additions with respect to this income. Therefore, the income has been duly taxed in the hands of the assessee under the correct head of income.
The AO appears to have drawn adverse inference from the statement of the assessee’s employee, Shri Ramesh Kumar, who claimed ignorance of the persons involved in cash transactions. This reliance is misplaced and irrelevant, as:
The employee merely followed instructions and was not privy to the full scope of business operations. His lack of knowledge does not discredit the assessee’s categorical admission and disclosure. No independent investigation or corroborative evidence has been adduced by the department to establish that the cash originated from non-business or illegal sources.
:-6-: ITA. No.:2731 /Chny/2024
The ld.AR for the assessee submitted as follows:
1. 1. During the course of the search, a sum of Rs.40,00,000/- in cash was found and seized. This cash was not reflected in the regular books of account maintained by the assessee at the time of search.
2. In the course of post-search proceedings, the assessee, in a voluntary and sworn statement recorded u/s.131(1A) of the Act on 18.06.2021, candidly admitted that the cash pertained to unaccounted business income.
3. This disclosure was clear, voluntary, and without any coercion or inducement. The statement was never retracted by the assessee at any stage, and the Department has not brought on record any material to suggest that the disclosure was not genuine or was made under duress.
4. Consistent with the said statement, the assessee, in good faith and in compliance with the law, disclosed the entire sum of Rs.40,00,000/- in the returns of income filed under Section 153A of the Act. The assessee voluntarily offered and declared the entire amount as business income in returns filed u/s.153A of the Act, across three assessment years, as under: AY 2019–20: Rs. 7,50,000/- AY 2020–21: Rs. 12,50,000/- AY 2021–22: Rs. 20,00,000/- Part of the seized amount which was offered as business income for the AY: 2019-20 and 2020-21 was accepted by the department and the assessments were completed without any adverse findings or further additions with respect to this income.
5. The AO has proceeded to invoke the provisions of Section 69A of the Act and sought to assess the entire cash seized as “unexplained money” which is legally and factually untenable. The cash seized has been duly explained as arising from business transactions. The explanation is neither unreasonable nor inconsistent with the nature of the assessee’s trade and is corroborated by voluntary declaration and regularization through returns filed u/s.153A of the Act. The Department has not brought on record any material evidence to suggest that the seized cash was from undisclosed or unlawful sources or that it was not related to business activity.
:-7-: ITA. No.:2731 /Chny/2024 6. Further the AO has already assessed the substantial portion of the seized cash as business income for the assessment year 2019-20 and 2020-21 with the balance being offered for the AY 2021-22. The AO having accepted the plea of the assessee and having assessed the portion of seized amount as business income for the AY 2019-20 and 2020-21 erred in adding the entire seized amount of Rs.40,00,000/- u/s.69A r.w.s. 115BBE of the Act. The impugned addition u/s.69A of the Act effectively amounts to double taxation of the same income, which is impermissible under established legal principles. It is a settled law that once an income is subjected to tax under a particular head, the same cannot be brought to tax again under another head unless material evidence of concealment or misstatement is produced.
Moreover, where the assessee has offered the amount to tax as business income and paid taxes thereon, the same cannot be taxed again under the deeming provisions of Section 69A of the Act. The Courts have consistently held that Section 69A cannot be invoked when the source of income is explained and accepted as business income, and where there is no finding of the income being from unexplained or illegal sources.
The ld.AR submitted that in the instant case the assessee has offered voluntarily the seized cash as income during the AYs 2019-20, 2020-21 and 2021-22 and the department accepted the income in earlier years (AYs 2019– 20 and 2020–21). There has been no deviation from the stand taken by the assessee. Hence, the action of taxing the same sum of Rs.40,00,000/- again in AY 2021–22 is arbitrary, contrary to law, and liable to be quashed.
9. The ld.AR further submitted that application of the higher tax rate u/s.115BBE of the Act is erroneous and unjustified, as the said provision is applicable only in cases where the income is: Not disclosed or declared; or Treated as deemed income u/s.68, 69, 69A, 69B, 69C, or 69D.
In the present case, the assessee has already declared the income as business income and paid tax thereon. Thus, it cannot be taxed again u/s.69A of the Act, nor can the punitive rate u/s.115BBE be invoked.
:-8-: ITA. No.:2731 /Chny/2024 14. In view of the above facts and legal position, the ld.AR prayed that:
1. Accept the sum of Rs.20,00,000/- offered by the assessee under the head business income AY 2021–22 of Rs. 20,00,000/- 2. To delete the addition of Rs.40,00,000/- made u/s.69A of the Act, and consequently to set aside the invocation of Section 115BBE of the Act, as the said addition is without legal basis and is contrary to the settled principles of law and judicial precedents.
We have heard the rival contentions perused the material available on record and gone through the orders of the authorities along with submissions and case laws relied upon by both the parties. Admittedly, the search u/s.132 of the Act conducted at the assessee’s business premises on 16.03.2021, a sum of Rs.40,00,000/- in cash was found and seized. This cash was not recorded in the regular books of accounts maintained by the assessee. Consequently, the AO treated this cash as “unexplained money” u/s.69A of the Act and subjected it to tax under the provisions of Section 115BBE of the Act. We note that during the search proceedings, the assessee gave a voluntary sworn statement u/s.131(1A) of the Act on 18.06.2021, wherein he admitted that the cash belonged to him and pertained to unaccounted business transactions. The relevant extract reads: “...I hereby offer the same [Rs. 40,00,000/-] as my income for the FY 2020–21 and promise to pay the applicable taxes... this offer shall be in addition to the regular income from business...”
This disclosure was unequivocal and consistent with the returns filed. There has been no retraction of the statement, and no contradictory evidence has been brought on record by the AO to negate the same. Out of the total cash of :-9-: ITA. No.:2731 /Chny/2024 Rs.40,00,000/- found during search, the assessee voluntarily offered and declared the entire amount as business income in returns filed u/s.153A of the Act, across three assessment years, as under:
AY 2019–20: Rs. 7,50,000/- AY 2020–21: Rs. 12,50,000/- AY 2021–22: Rs. 20,00,000/-
The amount which was offered as business income out of the seized amount during the search for the AY: 2019-20 and 2020-21 was accepted by the department and the assessments were completed without any adverse findings or further additions with respect to such income.
However, we find that the AO has proceeded to invoke the provisions of Section 69A of the Act and sought to assess the entire cash seized during the search of Rs.40.00 Lakhs as “unexplained money”. The AO has not disputed that the cash seized has been duly explained as arising from business transactions during the assessment for the A.Y.2019-20 & 2020-21. Therefore, the action of the AO is neither reasonable nor consistent with the nature of the assessee’s trade and is corroborated by voluntary declaration and regularization through returns filed u/s.153A of the Act. The Department has not brought on record any material evidence to suggest that the seized cash was from undisclosed or unlawful sources or that it was not related to business activity.
Since, the AO has already accepted and assessed the portion of the seized cash as business income for the assessment year 2019-20 and 2020-21 with the balance being offered for the AY 2021-22. Therefore, the AO having accepted the :-10-: ITA. No.:2731 /Chny/2024 plea of the assessee and having assessed the portion of seized amount as business income for the AY 2019-20 and 2020-21 erred in adding the entire seized amount of Rs.40,00,000/- u/s.69A r.w.s. 115BBE of the Act. The impugned addition u/s.69A of the Act effectively amounts to double taxation of the same income, which is impermissible in law. It is a settled law that once an income is subjected to tax under a particular head, the same cannot be brought to tax again under another head unless material evidence of concealment or misstatement is produced.
The Courts have consistently held that Section 69A cannot be invoked when the source of income is explained and accepted as business income, and where there is no finding of the income being from unexplained or illegal sources. We find that the assessee has offered voluntarily the seized cash as income during the AYs 2019-20, 2020-21 and 2021-22 and the department accepted the income in earlier years (AYs 2019–20 and 2020–21). There has been no deviation from the stand taken by the assessee. Hence, we are of the view that the action of taxing the same sum of Rs.40,00,000/- again in AY 2021–22 is arbitrary and without any evidence or reasons.
Further, we find that the application of the higher tax rate u/s.115BBE of the Act is erroneous and unjustified, as the said provision is applicable only in cases where the income is:
Not disclosed or declared; or Treated as deemed income u/s.68, 69, 69A, 69B, 69C, or 69D. The assessee has already declared the income as business income and paid tax thereon for the all the 3 assessment years from 2019-20, 2020-21 & 2021-22. Thus, only for the 2021-22, the AO cannot tax u/s.69A of the Act, nor can the :-11-: ITA. No.:2731 /Chny/2024 punitive rate u/s.115BBE be invoked, after accepting the returns of earlier two assessment years.
In the factual matrix, we are of the considered view that the AO has erred in taxing entire Rs.40.00 lakhs cash found seized in the impugned assessment year u/s.69A of the Act and hence we set aside the order of the ld.CIT(A) and direct the AO to delete the addition of Rs.40.00 Lakhs made u/s.69A r.w.s.115BBE of the Act and to accept the return of income filed by the assessee declaring a sum of Rs.20,00,000/- under the head business income AY 2021–22.
In the result the appeal of the assessee is allowed.
Order pronounced in the open court on 03rd June, 2025 at Chennai.