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Facts
During a search operation, incriminating material was found related to the purchase of land and loan transactions. The assessee admitted additional income for AY 2013-14 and AY 2014-15 towards these unexplained investments. The Assessing Officer (AO) initially computed tax at normal rates but later rectified it under Section 154 to apply the special rate under Section 115BBE.
Held
The Tribunal held that the AO was justified in rectifying the order under Section 154 to apply the special rate of tax under Section 115BBE, as the assessee's explanation for the unexplained investment and loan transactions was vague and lacked credibility. The initial assessment at normal rates was considered a prima facie mistake.
Key Issues
Whether the AO was correct in rectifying the assessment order under Section 154 to apply the special rate of tax under Section 115BBE when the initial assessment was done at normal rates for unexplained investments.
Sections Cited
154, 153A, 115BBE, 69
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Income Tax Appellate Tribunal, Hyderabad ‘B’ Bench, Hyderabad
Before: SHRI MANJUNATHA G & SHRI RAVISH SOOD
आदेश/ORDER PER MANJUNATHA G, A.M. : These two appeals are filed by Shri Raja Reddy Nalla (“the assessee”), feeling aggrieved by the order passed by the Learned Commissioner of Income Tax (Appeals), Hyderabad-11(“Ld. CIT(A)”), both dated 07.01.2025 for the A.Ys. 2013-14 & 2014-15. Since these appeals relates to the same assessee and are on identical issues, they are heard together and one consolidated order is being passed for the sake of convenience and brevity. 2. The assessee has raised the grounds of appeal in are as under :
1. 1. 1. 3. The brief facts of the case are that the assessee is an individual and filed his Return of Income for the Assessment Year 2013- 14 on 27.5.2014 by declaring a total income of Rs.2,21,530/-. A search and seizure operation u/s.132 of the Income Tax Act, 1961 (the Act) was conducted at the office and premises of the company in which the assessee is one of the Executive Director. During the course of search and seizure operation, certain incriminating material was found and from which it was noticed that the assessee along with four other persons purchased land admeasuring 56 Acres 20 Guntas for a total cost of Rs.2,00,37,250/- . The assessee’s share of cost was Rs.43 lakhs, out of which the assessee stated that Rs.7,10,106/- was paid in the form of cheque and cash which was duly reflected in regular books of account. For the balance amount of Rs.35,89,894/-, the assessee admitted additional income ofRs.33,77,894/- for A.Y. 2013-14 and Rs.1,62,000/- for A.Y. 2014-15. Apart from the admission of Rs.1,62,000/- for the A.Y. 2014-15, the assessee also admitted further sum of Rs.5 lakhs during the post search proceedings towards unexplained loan.
4. Consequent to search, notice u/s.153A of the Act was issued to the assessee for which the assessee has furnished return of income for A.Y. 2013-14 and for A.Y. 2014-15 and disclosed addition income offered during the course of search towards unexplained transactions recorded in seized documents. The assessment has been completed u/s.153A of the Act on 21.04.2021 accepting income returned by the assessee including the additional income offered during the course of search where the Assessing Officer has computed tax liability at normal rates. Subsequently, the Assessing Officer issued notice u/s.154 of the Act on 13.04.2022 requesting the assessee to file his objections, if any for rectification of the assessment order dated 21.04.2021 on the ground that while computing tax liability, the tax was levied at normal rate instead of special rate as envisaged u/s.115BBE of the Act, resulting in short levy of tax. The assessee has not filed any reply. Therefore, the Assessing Officer by taking note of the fact, that although addition has been made by the Assessing Officer u/s.69 of the Act towards additional income offered during the course of search and disclosed in return, but tax has been levied at normal rate instead of special rate as per section115BBE of the Act. Therefore, the Assessing Officer has passed order u/s. 154 of the Act dated 09.05.2022 and computed tax liability on additional income of Rs.34,00,000/- admitted in the Return of Income filed u/s.153A of the Act at special rate as per section 115BBE of the Act and determined the total tax payable at Rs.4,65,797/-. The Assessing Officer had also passed similar order u/s.154 of the Act, for the Asst. Year 2014-15 on 09.05.2022 and levied taxes at special rate u/s.115BBE of the Act and determined the total tax payable at Rs.44,226/-.
5. Aggrieved by the assessment order, the assessee preferred appeal before the Ld. CIT(A) and challenged application of special rate of tax as per the provisions of section 115BBE of the Act. The assessee contended that the Assessing Officer accepted the explanation of the assessee with regard to additional income offered during the course of search and disclosed in the Return of Income filed u/s. 153A of the Act which is evident from the assessment order passed by the A.O. u/s. 153A of the Act dated 21.04.2021. However, the A.O. without there being any change in facts, passed order u/s. 154 of the Act and applied special rate of tax as
per the provisions of section 115BBE of the Act. The Ld. CIT(A) after considering relevant submissions of the assessee and also taking note of the fact that the A.O. ;has made additions towards unexplained transactions recorded in seized material u/s. 69 of the Act, held that although the assessee claims that he had acted as a facilitator to help his friends and relatives to deploy their cash and in the process, the interest earned was passed on to them, but the assessee has not precisely indicated the source of income from which the income admitted was emanated. The explanation of the assessee is general, vague and does not inspire confidence to consider that the admitted income had emanated from the said source. Therefore, the Ld. CIT(A) observed that although the A.O. had assessed income of the assessee u/s.69 of the Act as unexplained investment, but failed to compute tax by applying special rate of tax as per section 115BBE of the Act. Therefore, the present order passed by the A.O. in rectifying the mistake in applying special rate of tax is in accordance with law. Thus, rejected the explanation of the assessee and upheld the tax computed by the A.O. 6. Aggrieved by the Ld. CIT(A) order, the assessee is now in appeal before the Tribunal. 7. The learned counsel for the assessee, Shri Poorna Chander Rao, C.A. submitted that the Ld. CIT(A) erred in sustaining the tax computed by the A.O. by applying special rate of tax as per the provisions of section 115BBE of the Act without appreciating the fact that it is a case of change of opinion but not a case of mistake apparent on record which can be considered u/s. 154 of the Act. The learned counsel for the assessee further submitted that, the assessee has explained the transactions recorded in seized material with reference to notice issued u/s. 142(1) of the Act and claimed that the additional income offered during the course of search for both the assessment years is in fact not an income accrued to the assessee but the assessee has offered additional income only to settle the issue. The A.O. after considering the relevant explanation has rightly concluded the assessment by accepting the income returned by the assessee and tax paid under normal rate of taxes. Therefore, without there being any change in fact passing an order u/s.154 of the Act for applying special rate of tax is incorrect. Therefore, he submitted that the order of the Ld. CIT(A) should be set aside and the tax computed by the A.O. should be deleted.
The learned Department Representative Dr. Sachin Kumar, on the other hand, supporting the orders of Ld. CIT(A) and submitted that the A.O. has rightly assessed the income offered by the assessee from unexplained source for purchase of land u/s.69 of the Act as unexplained investment, however, failed to compute the tax by applying special rate of tax as per section 115BBE of the Act. Therefore, the A.O. has rightly passed order u/s. 154 of the Act to rectify the prima facie mistake apparent from the order. The Ld. CIT(A) after considering relevant facts has rightly sustained the order of the A.O. Therefore, he submitted that the order of the Ld. CIT(A) should be upheld and appeal of the assessee should be dismissed.
We have heard both the parties, perused the material available on record and have gone through the orders of authorities below. There is no dispute with regard to the fact that during the course of search incriminating material in the form of a diary which was seized which contains, various transactions in cash including payment for purchase of land. During the course of search, the documents found were confronted to the assessee and sought explanation for which the assessee admitted additional income of Rs.34 lakhs for the assessment year 2013-14 and Rs.6,62,000/- for the assessment year 2014-15 towards unexplained investment for purchase of land and also unexplained loan transaction. The assessee had admitted additional income for both the assessment years and had also filed Return of Income in response to the notice u/s. 153A of the Act and disclosed additional income offered during the course of search and paid taxes at normal rate of tax. The A.O. passed order u/s.153A of the Act for both the A.Ys and has made additions towards unexplained investment as loan transactions u/s. 69 of the Act, however, computed tax liability by applying normal rate of taxes instead of special rate of tax as per section 115BBE of the Act, even though once addition is made u/s.69 of the Act, then application of section 115BBE of the Act is mandatory. Further, the A.O. has passed order u/s. 154 of the Act for both the assessment years and computed tax liability by applying special rate of tax as per provisions of section 115BBE of the Act. The explanation of the assessee is that once the A.O. has accepted the income returned by the assessee in the Return of Income filed u/s. 153A of the Act and computed tax liability by applying normal rate of tax then, passing order u/s. 154 of the Act without there being any change in fact amounts to change of opinion but not a case of prima facie mistake apparent on record from the assessment order which can be rectified u/s. 154 of the Act. The assessee further contended that he had explained the transactions recorded in the seized documents to the satisfaction of the A.O. which is evident from the assessment order passed by the A.O. where the A.O. has accepted the income returned by the assessee and computed taxes at normal rate of tax.
We have given our thoughtful consideration to the reasons given by the A.O. to apply special rate of taxes as per section 115BBE of the Act in light of the arguments of the learned counsel for the assessee, relevant seized documents found during the course of search, admission of the assessee, explanation offered during the course of appellate proceedings and the order passed by the A.O. u/s. 153A of the Act dated 21.04.2021. We find that, there is no dispute with regard to the fact that the assessee could not explain the source for unexplained investment for purchase of land and also loan transaction either during the course of search or during the course of appellate proceedings. It is also an admitted fact that the explanation of the assessee that he had acted as a facilitator to help his friends and relatives to deploy their cash and in the process the interest earned was passed on to them, was rejected by the A.O. which is evident from the assessment order passed by the A.O. u/s. 153A of the Act dated 21.04.2021 where the A.O. made additions towards income declared by the assessee u/s.69 of the Act for both the assessment years. Therefore, in our considered opinion, the arguments of the learned counsel for the assessee that once the A.O. has accepted the explanation of the assessee with regard to contents of the seized material and after satisfying with the explanation, the A.O. has accepted the income and computed tax liability at normal rate of tax is devoid of merit going by the assessment order passed by the A.O. where the A.O. has specifically invoked provisions of section 69 of the Act for both the assessment years. Once the A.O. has invoked the provisions of section 69 of the Act and made the assessment towards additional income disclosed by the assessee in the Return of Income filed u/s.153A of the Act, in our considered opinion, the A.O. ought to have applied special rate of taxes as envisaged in section 115BBE of the Act. To this extent, there is a prima facie mistake apparent from the record in the order of the A.O. and thus, the A.O. has rightly passed order u/s. 154 of the Act and applied special rate of tax as per the section 115BBE of the Act for both the assessment years.
In so far as the arguments of the assessee that he had acted as a facilitator to deploy the cash belongs to his friends and relatives and in the process the interest earned was passed on to them is a vague and general explanation and does not inspire confidence to consider that the admitted income had emanated from the said source. Since, explanation of the assessee with regard to source of income for investment in purchase of land and loan transactions remains unexplained, in our considered view, the same has been rightly assessed u/s. 69 of the Act and applied special rate of tax as per section 115BBE of the Act for both the assessment years. Thus, we are inclined to uphold the findings of the Ld. CIT(A) and dismiss the appeals filed by the assessee for both assessment years.
In the result, the appeals filed by the assessee are dismissed for both the assessment years. Order pronounced in the open Court on 24th Dec., 2025.