SHARAD SHAMRAO SAWANT ,SANGLI vs. ASSESTANT COMISSIONER OF INCOME TAX CENTRAL CIRCLE KOLHAPUR, KOLHAPUR

Facts of the case in brief, are that the assessee is an individual. He is running a hospital in the name of “Aaditya Hospital” in Sangli. A survey operation u/s 133A of the Income Tax Act, 1961 (the “Act”) was conducted at the business premises of the assessee on 06.03.2019. During the course of survey, a diary was impounded wherein certain unaccounted receipts amounting to Rs. 14,85,300/- were found which the assessee declared as an additional income on account of professional/consultation charges, remained to be recorded in the books of account. Thereafter, the assessee filed his return of income on 12.12.2019 declaring total income at Rs.1,77,36,950/-. The case of was selected for scrutiny under CASS. Accordingly, statutory notice(s) under section 143(2) and 142(1) along with questionnaire were issued and served upon the assessee from time to time. In response thereto, the assessee‟s authorized representative appeared and furnished the relevant details/ documents as required/ called upon such as details regarding the nature of business, ITR & computation, P&L, Balance Sheet, bank accounts held during FY 2018-19 etc. The Ld. AO noted that the diary named „Sutures INDIA Dairy 2018‟ impounded during the survey action had the details of consultancy charges received by cash from 2nd April 2018 to 5th March 2019. As per the diary those receipts were consultancy charges and was not containing any details of patients, date of checking, date of rechecking etc. The Ld. AO also noted that the main source of the assessee‟s income is from the consultancy fees given to various companies i.e. National Insurance, Bajaj Allianz, CMRF, ESIC receipts, ICICI insurance, Police department, United India Insurance etc. and from OPD and IPD receipts of the above companies. These receipts were accounted for in the books of account but the receipts in cash to the tune of Rs.14,85,300/- from consultancy to other than the above company‟s patients were not recorded in the regular books of account by the assessee. The Ld. AO completed the assessment on 30.09.2021 u/s 143(3) of the Act treating such additional income which was in the form of unaccounted cash sales of Rs. 14,85,300/- declared by the assessee as deemed income of the assessee, taxable under the provisions of section 69A with the applicability of section 115BBE of the Act.

Aggrieved, the assessee filed an appeal before the Ld. CIT(A). However, there was no compliance to various notice(s) issued by the Ld. CIT(A). He, therefore, proceeded to adjudicate the appeal on the basis of documents submitted by the assessee as part of the appeal memo i.e. grounds of appeal

In our opinion, therefore, the Tribunal was perfectly right in holding that the value of the gold was liable to be included in the income of the assessee as the source of investment in the gold or of its acquisition was not explained and that the assessee was not entitled to claim that the value of the gold should be allowed as a deduction from his income. 9.2 The Hon‟ble Punjab and Haryana High Court in case of Kim Pharma Pvt Ltd vs. CIT [2013] 216 Taxman 153 (P&H), has held that where amount surrendered during survey was not reflected in books of account and no source of income from where it was derived declared by the taxpayer then it was assessable as deemed income of the assessee u/s 69A of the Act and not as business income. 9.3 The Hon‟ble Madras HC in case of M/s. SVS Oils Mills vs. ACIT [2020] 113 taxmann.com 388 (Madras), has held that where there was a clear admission by assessee firm that excess stock found during survey was added in its stock register but no corresponding entry was passed in books of account, it could be considered that investment in such stock was made out of undisclosed source. Thus, addition was to be made under section 69B in respect of such excess stock. Decisions where it was held that sections 68, 69, 69A to 69D are not applicable 10. On the other hand, in following decisions, it was held that sources of surrendered/ undisclosed income are explained, deemed income provisions under sections 68, 69, 69A to 69D are not applicable and consequently, tax rate u/s 115BBE is also not applicable. 10.1 The Hon‟ble Rajasthan High Court in case of CIT vs Bajargan Traders [2017] 86 taxmann.com 295 (Rajasthan)has held that when the assessee is dealing in sale of food grains, rice and oil seeds and the excess stock which is found during survey is stock of rice then, it can be said that investment in procurement of such stock of rice is clearly identifiable and related to the regular business stock of the assessee. Therefore, the investment in the excess stock is to be brought to tax under head “business income” and not under the head income from other sources. 10.2 In case of Shri Lovish Singhal vs ITO (ITA No 142 to 146/Jodh/2018 for AY 2014-15 dated 25 May 2018), the Jodhpur Tribunal applying the proposition of law laid down by the Hon‟ble Rajasthan High Court in the Bajargan Traders (supra), held that the lower authorities were not justified in taxing the surrender made on account of excess stock and excess cash found U/s 69 of the Act and accordingly held that there is no justification for taxing such income U/s 115BBE of the Act.

It is also important to mention here that the Hon‟ble Supreme Court in case of Kale Khan Mohammad Hanif vs CIT [1963] 50 ITR 1 (SC) held that onus of proving the source of a sum of money found to have been received by the assessee is on him. However, if the taxpayer disputes the levy of tax on the same then it is up to him to show either the receipt is not income, or it is exempt from taxation under the provisions of the Act. In the absence of proof, the tax officer is entitled to treat the same as taxable income. Thus, the onus of explaining the source of undisclosed income found during search or survey is on the assessee and not the other way. In other way, the onus of proving that the income detected is not taxable under sections 68, 69, 69A to 69D read with section 115BBE is on the assessee.

To sum up, before assessing the surrendered income under sections 68, 69, 69A to 69D and levy of higher rate of tax u/s 115BBE, following factors are required to be considered–  Whether nature of income is clearly explained during the survey or during assessment proceedings.  Whether income can be classified under a particular head of income based on nature so as to demonstrate that it is flowing from one of the specific sources of income of the assessee.  Whether supporting evidences for the above are available because the onus to satisfactorily explain the nature and source is on the assessee.

In the present case, during the survey, the appellant made a declaration of additional income amounting to Rs. 14,85,300/- towards undisclosed receipts. The appellant is claiming that the said income was on account of professional receipts which remained to be accounted for in the books of accounts. However, during the appellate proceedings, the appellant has not filed any explanation supporting his claim. The appellant has also not filed any evidence to suggest that these receipts are from his regular business or profession.

As discussed earlier in this order, the onus of explaining the specific source from which such unexplained income is flowing, is on the assessee and not on the department. In the present case, the appellant has miserably failed to discharge the said onus. The contention of the appellant is that the undisclosed income discovered during the survey operation should be taxed as business income even without explaining the manner in which so-called business income was earned. Acceptance of the contention of the appellant may lead to a situation where a tax payer having undisclosed income from a source other than from business or profession, can claim that the same is taxable at normal rate, being his business income. This situation is clearly against the intentions of legislature wherein the legislature has mandated that such undisclosed income should be taxed at special rates provided u/s 115BBE of the Act. 16. In the present case, since, the nature of income is not clearly explained during the assessment proceedings. Even during the appellate proceedings, the appellant has not demonstrated that the said income is flowing from business, with the help of supporting evidences. In this manner, both nature and source of undisclosed income surrendered during the survey operation remained unexplained. In such situation, the additional income of Rs. 14,85,300/- is taxable u/s 69A of the Act. Therefore, the action of the assessing officer in taxing the undisclosed income as per the provisions of sec. 115BBE of the Act, is upheld. The ground nos. 1.1 to 1.3 raised by the appellant are DISMISSED.”

Dissatisfied, the assessee is in appeal before the Tribunal and all the grounds of appeal relate thereto.

The Ld. AR at the outset submitted that the impugned income of Rs. 14,85,300/- alleged to be taxed as deemed income under section 69A r.w. section 115B of the Act arises out of cash sales, the source of which is the earning of the assessee from his business/profession. He submitted that the impugned additional/deemed income is not an unaccounted receipt but a legitimate business income which was properly included in the audited books of account and financial statements for the relevant period. It is a part of the regular business operations of the assessee who is a doctor engaged in providing consultancy services which include medical consultancy services rendered under the Government schemes, insurance receipts and from private patients, and therefore the same should not be treated as unexplained money u/s 69A. The amounts in question were duly disclosed and accounted for in the audited financial statements filed with the income tax return for the AY 2019-20. Referring to the diary which was found during the survey proceedings, on the basis of which the impugned addition has been made by the Ld. AO, the Ld. AR submitted that the said diary contained entries about consultancy charges received in cash but the same was duly disclosed by the assessee as part of the business receipts. He therefore submitted that when the sources of income in relation to surrendered income are explained, then such income is to be taxed as regular business income and invoking deeming provisions under section 69, 69A etc. is not warranted and consequently, the higher rate of tax under section 115BBE is also not applicable. In support thereof, he relied on the decision of the Pune Tribunal in the case of Vasantrao Jayavantrao Mugale Vs. DCIT (Pune ITAT, 2023 ITL/2381) wherein under the similar set of facts where the Tribunal relying on the ratio laid down of the Hon‟ble Rajasthan High Court in the case of Pr. CIT Vs. Bajargan Traders in D.B. Income Tax Appeal No. 258/2017 held that where the excess cash found during survey was linked to unrecorded receipts from business income, the same is not taxable under the provisions of section 69A r.w.s. 115BBE of the Act.

We have heard the Ld. Representatives of the parties and perused the material on records. We have also considered the judicial precedents relied upon by the Ld. AR. The facts of the case are not in dispute. Admittedly, the impugned receipts are arising out of the cash sales generated by the provision of consultancy services by the assessee during the relevant AY. These receipts were duly disclosed and accounted for in the audited financial statements filed with the income tax return for AY 2019-20. The Ld. AO considered these receipts being in the form of unaccounted cash sales as deemed income of the assessee taxable under the provisions of section 69A with the applicability of section 115BBE of the Act. The Ld. CIT(A) confirmed the action of the Ld. AO holding that the assessee failed to offer explanation as to the source of the cash receipts declared by him. Perusal of the Ld. CIT(A)‟s order reveals that the assessee failed to comply to various notice(s) issued by the Ld. CIT(A) which resulted in an ex-parte order passed by the Ld. CIT(A) on the basis of documents available on record i.e. grounds of appeal and statement of facts. It is the case of the Ld. Counsel for the assessee that the return of income for AY 2019-20 was not filed as the due date for filing return of income had still not expired as the alleged receipts mentioned in the diary impounded during the survey operation by the Ld. AO was pertaining to Financial Year 2018-19. The assessee reconciled all the details and filed correct income tax return for the AY 2019-20 within the prescribed due date and also paid necessary taxes thereon. The impugned income being professional fee was credited and duly reflected in the audited income & expenditure account of the assessee and the same was produced before the Ld. AO during the assessment proceedings, however, were not considered by him. We have also perused the judicial precedents cited above relied by the Ld. AR and find some force in the argument advanced by him. However, at the same time, it is an admitted fact that there was no appearance before the Ld. CIT(A). The Ld. CIT(A) has observed that the assessee‟s claim that the impugned income was on account of professional receipts which remained to be accounted for in the books of account of the assessee, has not been supported by any explanation/evidence to suggest that these receipts are from his regular business/profession. The Ld. CIT(A) has further observed that the onus of explaining the specific source from which such unexplained income is flowing is on the assessee which has not been discharged in the present case and therefore the same is taxable under the provisions of section 115BBE of the Act at special rates. He has therefore upheld the order of the Ld. AO concluding that the nature of income has not been clearly explained during the assessment as well as appellate proceedings before. As the assessee failed to demonstrate that the impugned receipts are flowing from business with the help of supporting evidences, he dismissed the appeal of the assessee.

Considering the totality of the facts and in the circumstances of the case enumerated above, we deem it fit and proper, in the interest of justice and fair play, to restore the matter to the file of the Ld. CIT(A) with a direction to decide the impugned issue afresh on merits by passing a speaking order on each of the grounds of appeal raised by the assessee before him as per facts and law, after affording reasonable opportunity of being heard to the parties. Needless to say, the assessee shall provide the requisite support in terms of filing the relevant submissions and supporting documents/evidence as may be required/called upon, without seeking adjournment under any pretext unless required for sufficient cause, failing with the Ld. CIT(A) shall be at liberty to pass an appropriate order as per law. The assessee is also directed to remain vigilant and provide the Department with his latest contact details/email id for receiving notice(s) of hearing through Departments‟ portal and making compliance thereof. We direct and order accordingly. The grounds of appeal raised by the assessee are therefore allowed for statistical purposes.

In the result, the appeal of the assessee is allowed for statistical purposes.