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Facts
During a survey action, the assessee, a government civil contractor, declared additional income due to URD purchases, asphalt transportation, repair & maintenance, and labour charges. The Assessing Officer treated these as deemed income under sections 69B and 69C of the Income Tax Act and applied section 115BBE. The CIT(A) held that these amounts could not be taxed as deemed income and section 115BBE was not applicable.
Held
The Tribunal held that the additional income declared was related to business activities and should be taxed as business income at the normal rate, not as deemed income under sections 69B and 69C at the special rate under section 115BBE. The Revenue's appeal was dismissed.
Key Issues
Whether undisclosed income declared during survey is to be treated as deemed income taxable at special rates under Section 115BBE or as business income taxable at normal rates, especially when similar declarations for previous years were accepted as business income.
Sections Cited
133A, 143(2), 142(1), 131, 69B, 115BBE, 69C, 69A, 68, 4, 5, 69, 14, 40(b), 143(1), 147, 263
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Income Tax Appellate Tribunal, PUNE “A” BENCH : PUNE
Before: SHRI RAMA KANTA PANDA & MS. ASTHA CHANDRA
This appeal filed by the Revenue is directed against the order dated 11.01.2024 of the learned CIT(A), Pune-12, for assessment year 2018-2019.
Facts of the case, in brief, are that the assessee is an individual engaged in the business of Government Civil Contractor in the name and style of M/s B.R. Ande Engineer & Contractor. He filed his return of income on 14.11.2018 declaring total income at Rs.4,83,69,190/-. A survey action u/sec.133A of the Income Tax Act, 1961 (in short "the Act") was conducted in the case of the assessee on 09.08.2017 in 2 ITA.No.625/PUN./2024 his business premises and books of account and other documents were impounded during such survey action. The case of the assessee was selected for scrutiny and statutory notices u/sec.143(2) and 142(1) of the Act were issued and served on the assessee, in response to which, the Authorised Representative of the Assessee appeared before the Assessing Officer from time to time and filed the requisite details.
2.1. The Assessing Officer during the course of assessment proceedings, noted that at the time of survey statement of the assessee was recorded u/sec.131 in which the assessee has declared additional income of Rs.3,52,40,780/- for the assessment year 2018-2019 which is over and above the regular income. Out of the total declaration, an amount of Rs.1,56,95,093/- was declared on account of URD [“Un-Registered Dealer”] purchase. The Assessing Officer asked the assessee to explain as to why the URD purchase found should not be treated as deemed income u/sec.69B of the Act. Rejecting the various explanations given by the assessee, the Assessing Officer invoked the provisions of sec.69B r.w.s.115BBE of the I.T. Act to the above income.
2.2 Similarly, the Assessing Officer noted that the additional income of Rs.3,52,40,780/- includes an amount of Rs.63,85,608/- which is on account of Asphalt Transportation, an amount of Rs.4,56,950/- on account of repair and maintenance, an amount of Rs.1,27,03,129/- on account of 3 ITA.No.625/PUN./2024 labour payments, all totaling to Rs.1,95,45,687/- as unexplained expenditure. He, therefore, asked the assessee to explain as to why the unexplained expenditure of Rs.1,95,45,687/- should not be treated as deemed income u/sec.69C of the Act. Rejecting the various explanations given by the assessee, the Assessing Officer invoked the provisions of sec.69C r.w.s.115BBE to the above income.
2.3. He also invoked provisions of sec.69A r.w.s.115BBE being excess cash of Rs.4,50,540/- on the ground that assessee could not explain the source of said cash. The Assessing Officer accordingly determined the total income of the assessee at Rs.4,88,19,730/- as against the returned income of Rs.4,83,69,190/- by making addition of Rs.4,50,540/- being the excess cash found and invoked provisions of Sec.69B and 69C r.w.s.115BBE of the Act on account of additional income declared under URD purchase and various expenses.
In appeal, the Ld. CIT(A) held that the amount of Rs.3,52,40,780/- declared by the assessee cannot be taxed as deemed income u/sec.69B and 69C of the Act as done by the Assessing Officer and provisions of sec.115BBE cannot be applied by observing as under :
4 ITA.No.625/PUN./2024 “Finding:
5.2. I have considered the facts of the case and the submissions made by the appellant. The issue involved in this appeal is that when there is a survey action wherein certain undisclosed income is found, under which head can it be brought to tax and at what rate the tax should be charged. This issue has been discussed by various Hon'ble High Courts and Tribunals from time to time and depending on the facts of the case, it was decided as to whether such income was taxable as "business income' or 'deemed income assessable u/s 68, 69 or 69A to 69D of the Act. Some of these decisions are discussed hereunder.
Decisions where it was held that the surrendered income is taxable under the provisions of section 68, 69, 69A to 69D of the Act:
5.3.1. The Hon'ble Gujrat High Court in case of Fakir Mohmed Haji Hasan vs CIT 120 TAXMAN 11 (Gujarat) had to decide question whether value of gold found during search is to be included in income where no explanation about source of investment made is provided. The Hon'ble High Court was also concerned with the question whether any deduction in relation to confiscated gold is to be given.
The relevant assessment year was AY 1984-85 (i.e. prior to introduction of section 115BBE in the Act). The facts disclosed in customs proceedings, which were relied on in 5 ITA.No.625/PUN./2024 the income tax proceedings were that specific information was received by the Customs Department indicating that the taxpayer would bring imported gold in his car and would make delivery thereof. The car was seized and at that time during search gold bars of foreign markings were recovered. A bag containing currency notes was also recovered. The statements which were recorded under section 108 of the Customs Act were considered in the adjudication proceedings. The Hon'ble High Court upheld the decision of Tribunal that the value of 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. The relevant portion of the judgment is as under.
6. Under section 4 of the Act, income-tax is to be charged in accordance with the provisions of the Act in respect of the total income of the previous year
of every person. As provided by section 5 of the Act, total income of any previous year of a person would, inter alia, include all income from whatever source derived which is received or is deemed to be received by such person, subject to the provisions of the Act. It will be seen from section 69A that where the bullion,
6 ITA.No.625/PUN./2024 jewellery or other valuable article is not recorded in the books of account and there is no explanation about the nature and source of its acquisition, or the explanation is not satisfactory, the value thereof may be deemed to be the income of the assessee of the financial year immediately preceding the assessment year in which the assessee is found to be the owner of such bullion, etc.
6.1. The scheme of sections 69, 69A, 698 and 69C of the Act would show that in cases where the nature and source of investments made by the assessee or the nature and source of acquisition of money, bullion, etc., owned by the assessee or the source of expenditure incurred by the assessee are not explained at all, or not satisfactorily explained, then the value of such investments and money, or value of articles not recorded in the books of account or the unexplained expenditure may be deemed to be the income of such assessee. It follows that the moment a satisfactory explanation is given about such nature and source by the assessee, then the source would stand disclosed and will, therefore, be known and the income would be treated under the appropriate head of income for assessment as per the provisions of the Act. However, when these
7 ITA.No.625/PUN./2024 provisions apply because no source is disclosed at all on the basis of which the income can be classified under one of the heads of income under section 14 of the Act, it would not be possible to classify such deemed income under any of these heads including
"Income from other sources" which have to be sources known or explained. When the income cannot be so classified under any one of the heads of income under section 14, it follows that the question of giving any deductions under the provisions which correspond to such heads of income will not arise. If it is possible to peg the income under any one of those heads by virtue of a satisfactory explanation being given, then these provisions of sections 69,
69A, 698 and 69C will not apply, in which event the provisions regarding deductions, etc., applicable to the relevant head of income under which such income falls will automatically be attracted.
6.2. The opening words of section 14 'Save as otherwise provided by this Act clearly leave scope for 'deemed income' of the nature covered under the scheme of sections 69, 69A, 698 and 69C being treated separately, because such deemed income is not income from salary, house property, profits and gains of business or profession, or capital gains, nor
8 ITA.No.625/PUN./2024 is it income from other sources' because the provisions of sections 69, 69A, 698, and 69C treat unexplained investments, unexplained money, bullion, etc., and unexplained expenditure as deemed income where the nature and source of investment, acquisition or expenditure, as the case may be, have not been explained or satisfactorily explained.
Therefore, in these cases, the source not being known, such deemed income will not fall even under the head, 'Income from other sources. Therefore, the corresponding deductions, which are applicable to the incomes under any of these various heads, will not be attracted in case of deemed incomes which are covered under the provisions of sections 69, 69A,
69B and 69C in view of the scheme of those provisions.
7. It is, therefore, clear that, when the investment in or acquisition of gold, which was recovered from the assessee was not recorded in the books of account and the assessee offered no explanation about the nature and source of such investment or acquisition and the value of such gold
was not recorded in the books of account, nor the nature and source of its acquisition explained, there could arise no question of treating the value of such 9 ITA.No.625/PUN./2024 gold, which was deemed to be the income of the assessee, as a deductible trading loss on its confiscation, because such deemed income did not fall under the head of income 'Profits and gains of business or profession.
8. 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.
5.3.2. 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 is 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.
5.3.3. 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
10 ITA.No.625/PUN./2024 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 :
5.4. On the other hand, in the following decisions, it was held that if the 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.
5.4.1. 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.
11 ITA.No.625/PUN./2024 5.4.2. 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.
5.4.3. In case of Oberoi Motors vs ACIT [ITA No. 3512/Del/2018 AY 2012-13 dated 16 July 2021], the taxpayer had declared surrendered income after set-off of business loss. The lower authorities did not accept the above treatment and held that the surrendered amount is deemed income and does not fall under any of the head of income and therefore no set off of business losses could be allowed. The Hon'ble Tribunal held that as the assessee had already introduced the transactions in books of accounts, it would not be reasonable to say that such income does not fall under any of the head of income or that such deemed income does not allow any set off of business losses. Accordingly, the Tribunal accepted that the surrendered income amounts to business income.
12 ITA.No.625/PUN./2024 5.4.4. In case of DCIT vs Ram Narayan Birla (ITA No.
482/JPR/2015 for AY 2011-12 dated 30 September 2019), also on the surrendered stock during search or survey action, it was held that the Revenue had not pointed out that the excess stock had any nexus with any other receipts found. Hence, the surrendered excess stock considered at par with the other business stock.
5.5. It can be seen from the above judicial precedents that whether the undisclosed income found during the search or survey action is taxable under any of the five heads of income as specified in section 14 of the Act or it is to be taxed as 'deemed income taxable under section 68 to 69D of the Act', is essentially a question of fact and it entirely depends on whether the assessee has been able to satisfactorily explain the source of such undisclosed income or not. If, a satisfactory explanation is provided about the nature and the source, in that case the source would stand explained and therefore, the income would be computed under the appropriate head of income as per the provisions of the Act. However, when no source is explained based on which the income can be classified under any of the heads of income specified under section 14, then it would be classified as deemed income and shall be taxed as per the rates provided under section 115BBE of the Act.
13 ITA.No.625/PUN./2024 5.6. 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.
5.7. 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.
14 ITA.No.625/PUN./2024 • Whether supporting evidences for the above are available because the onus to satisfactorily explain the nature and source is on the assessee.
5.8. The facts of the present case are that a survey action u/s 133A of the IT Act, 1961 was carried out at the business premises of the appellant on 09.08.2017. During the survey action, the appellant has claimed that his books of accounts were completed up to 31.03.2017 and were under finalization with the auditor. The following points were raised from the tentative trading & Profit & Loss account prepared for the period of 01.04.2017 to 10.08.2017 during the survey and declaration was obtained for the same.
(a) URD Purchases found recorded at Rs.1,64,92,785/-, whereas on Page 143 of diary
A-6, total payment found only at Rs.7,97,692/-.
Thus, declaration was insisted of difference amount at Rs.1,56,95,093/- and obtained.
(b) Asphalt transportation charged found recorded at Rs.12,35,000/-, whereas on Page 144 of dairy A-
6, total payment found only at Rs.7,78,050/-.
Thus, declaration was insisted of difference amount at Rs.4,56,950/- and obtained.
15 ITA.No.625/PUN./2024
(c) Repair and maintenance charges found recorded at Rs.88,68,900/-, whereas on Page 145 of dairy
A-6, total payment found only at Rs.24,83,292/-.
Thus, declaration was insisted of difference amount at Rs.63,85,608/-and obtained.
(d) Labour charges found recorded at Rs.2,16,14,000/-, whereas on Page 147-149 of dairy A-6, total payment found only at Rs.89,10,871/-. Thus, declaration was insisted of difference amount at Rs.1,27,03,129/- and obtained.
(e) Cash found recorded at Rs.1,15,450/-, whereas it was found as per inventory at Rs.5,65,990 Thus, declaration was insisted of difference amount at Rs.4,50,540/- and obtained.
In short, during the survey party total declaration of Rs.3,56,91,320/- was made as per details given hereunder.
Sr.No. Q.No. Declaration under head Declaration Rs. 1 10 URD Purchases 1,56,95,093/- 2 11 Asphalt transportation 4,56,950/- 3 12 Repair and maintenance 63,85,608/- 4 13 Labour charges 1,27,03,129/- 5 14 Excess cash found 4,50,540/- Total declaration 3,56,91,320/-
16 ITA.No.625/PUN./2024 The appellant has claimed that all the aforesaid declaration pertains to the business income and hence it was duly recorded in accounts and paid the taxes thereon, except on cash.
5.9. During the appellant proceedings, the appellant has submitted that a copy of tentative trading & Profit & Loss account for the period from 01.04.2017 to 10.08.2017, a copy of ITR-V along with computation of income, a copy of Form 3CB along with balance sheet, Trading and profit & loss A/c, a copy of statement of survey along with its inventory of books of accounts & documents. The appellant has submitted that aforesaid expenses viz. URD Purchase, Asphalt transportation; Repairs and maintenance & Labour charges; as debited in the Tentative trading accounts are certainly claimed as business expenses, but the Ld A.O had insisted for disallowance of said expenses and obtained declaration.
Further, receipt shown in the Tentative Trading account as on 10/08/2017 is not disputed by the Ld A.O, as such sources were definitely available with the appellant.
However, in the aforesaid tentative trading accounts as contract receipt was shown at Rs. 8,90,00,000/- up to 10.08.2017 and as per audited books total gross receipt was shown at Rs.46,00,11,020/- for the entire year under 17 ITA.No.625/PUN./2024 consideration up to 31.03.2018. Thus, the appellant has argued that there were sufficient sources available with the appellant as per said tentative trading accounts and under the circumstances, the aforesaid income declared during the survey action in respect of the aforesaid expenditure being related to business is certainly outside the purview of provisions of section 115BBE of the IT Act.
5.10. The appellant has also pleaded that there is no law that income declared in survey action would be ipso facto liable to tax u/s.115 BBE of the IT Act. For this proposition appellant has relied upon the following decisions.
"The Jurisdictional ITAT Pune has observed in the case of Construction Portal Pvt. Ltd vs ITO (ITA No.
1608/PUN/2014:A.Y. 2006-07) dt.06/06/2018 that:
Para 11...... Therefore, the decision of the AO in treating the same as chargeable to tax under the head 'income from other sources' is not valid as the source for such additional income is clearly determinable as chargeable u/s.28 of the Act.
Further, there is no law to automatically tax each and every 'unaccounted income disclosed during search/survey actions as 'income from other sources.
In our view, such income needs to be treated as the 'business income of the assessee and consequently,
18 ITA.No.625/PUN./2024 the benefit of set off/carry forward should be granted to the assessee against such additional business income of the assessee in both assessment years".
5.11. During the appellate proceedings, the appellant has also submitted that while computing the income, tax council has inadvertently shown the aforesaid declared income under the head income from other source in ROI, even though it actually pertained to the business income as can be noted and seen from the aforesaid facts. The appellant has further submitted that the Ld A.O must not take advantage of the mistake or ignorance of the appellant, as per instructions issued in the CBDT's Circular No. 14(XL-35) of 1955, dated 11.4.1955, wherein it was clearly directed that "Officers of the department must not take advantage of ignorance of an assessee as to his rights.... A reading of the circular shows that a duty is cast upon the assessing officer to assist and aid the assessee in the matter of taxation. They are obliged to advise the assessee and guide them and not to take advantage of any error or mistake committed by the assessee or of their ignorance. The function of the Assessing Officer is to administer the statute with solicitude for public exchequer with an inbuilt idea of fairness to taxpayers."
19 ITA.No.625/PUN./2024 The appellant has further relied upon the decision of Hon'ble Delhi High court in the case of CIT vs Nalwa Investment Ltd & Ors (ITA 822/2005, 853/2005, 935/2005, 961/2005-dt.7/08/2020, reported in (2020)
108 CCH 0062 Del HC wherein it is held that: "Taxable event is not just a matter of entries made in the account books of the assessee but is essentially one e of substance and of the real nature of what transpired in the transaction."
In view of the aforesaid decisions relied upon by the appellant and the copy of tentative trading account as on date of survey as on 10.08.2017, it can be observed that aforesaid expenses viz. URD Purchase; Asphalt transportation; Repairs and maintenance& Labour charges; as debited in the Tentative trading accounts are certainly claimed as business expenses, but only for the reasons that was not fully supported it was offered for taxation. Thus, real nature of the aforesaid declared income is certainly business income and cannot be treated as income from other sources, merely because it was inadvertently/incorrectly shown it in the computation of income under the head Income from other sources.
5.12. Further, the appellant has also stated that the Ld. AO has relied upon the decision of Hon'ble High Court of Madras in the case of SVS Oils Mills vs. Asstt. CIT
20 ITA.No.625/PUN./2024 (supra). However, the facts of the case are not squarely applicable to the case of appellant. In this case, although excess stock was found during the course of survey u/s 133A of the Act, which the assessee did not account in his books of accounts and also not brought to tax in the relevant assessment years. Whereas, in the case of appellant said income was declared merely because of no sufficient documentary evidences were available in respect of the aforesaid expenses at the time of survey though sufficient sources were available with the appellant, as can be seen from the records and books of accounts and hence said income is declared out of the income from business and not derived from income from other sources.
Further, the Jurisdictional ITAT Pune has held in the case of Vasantrao Jayavantrao Mugale vs DCIT, Circle-1, Aurangabad (ITA.No.95/PUN/2023:A.Y: 2019-20) dt.12/07/2023 as under :
"4. We heard the rival submissions and perused the material on record. The undisputed position is that the appellant had shown the income offered during the course of survey operation in the return of income. In answer to question no.10, the appellant clearly stated that he is willing to offer a sum of Rs.57,45,500/- on account of unrecorded professional receipts and the same was offered to 21 ITA.No.625/PUN./2024 tax. Even the excess cash found of Rs.7,73.885/- can be telescoped against the unrecorded receipts of Rs.57,45,500/-. Therefore, it cannot be said that the source for the excess cash was not explained, as the source is clearly explained to be regular business professional receipts. Therefore, the income can be brought to tax under the head "business income" not under the head "other sources. The ratio of Hon'ble
Rajasthan High Court in the case of CIT vs. Bajargan
Traders, 86 taxmann.com 295 (Rajasthan) is clearly applicable to the facts of the present case. The decision of the Hon'ble Madras High Court in the case of M/s. SVS Oils Mills vs. ACIT, 113 taxmann.com
388 (Madras) and the decision of the Hon'ble Punjab
& Haryana High Court in the case of Kim Pharma
Pvt. Ltd. vs. CIT, 216 Taxman 153 (P&H) have no application to the facts of the present case. Therefore, we direct the Assessing Officer not to tax the excess cash found under the provisions of section 115BBE of the Act. Thus, the grounds of appeal filed by the assessee stand allowed.
5. In the result, the appeal filed by the assessee stands allowed. Order pronounced on this 12th day of July, 2023"
The Jurisdictional ITAT Pune has held in the case of Rajasthan Stone Industries Jalgaon Vs The Income Tax
22 ITA.No.625/PUN./2024 Officer, Ward-1(3), Jalgaon (I.T.A. No. 811/PUN/2023 A.Y:
2010-2011) dt. 22/08/2023 as under :
“3. Being aggrieved by the above addition, the assessee-appellant filed an appeal before the Ld.
CIT(A) contending, inter alia, that the excess income declared during the course of survey proceedings represent business income and there is no evidence on record to show that the additional income is not derived from business activity. However, the Ld. placing reliance on the decision of Punjab & Haryana High Court in the case of Kim Pharma Pvt. Ltd. vs. CIT [2013] 216 Taxman 153 (P&H) and Madras High Court in the case of M/s. SVS Oils Mills vs. ACIT [2020] 113 taxmann.com 388 (Mad.), confirmed the action of the Assessing Officer.
Being aggrieved, the assessee- appellant filed the present appeal before the Tribunal. The appeal was called earlier on two occasions. However, none appeared for the assessee despite service of notice of hearing. I, therefore, proceed to decide the appeal on merits, after hearing the Learned DR.
The issue in the present appeal relates to the quantum of deduction allowable u/sec.40(b) in respect of the remuneration paid to the partners. There is no disparity between the return of income and assessed income. The bone
23 ITA.No.625/PUN./2024 contention between the assessee and the department is with regard to 'Head of income' under which the income declared during the course of survey proceedings to be assessed. It is the contention of the assessee-appellant that the excess income declared during the course of survey proceedings is credited to the P & L A/c as it is derived from business carried on by the assessee-appellant firm. Whereas the Assessing Officer was of the opinion that the excess income declared should be assessed under the head
"Income from other sources" which does not qualify for book profits as defined under the provisions of Sec.40(b) of the Act for the purpose of computing the quantum of allowable remuneration to the partners.
The Assessing Officer failed to note that once the income is credited to the P & L A/c, the presumption is that income is derived from business only and there is no evidence on record by the Assessing
Officer to show that the assessee appellant firm had derived this excess income under the head other than the business carried on by the assessee-appellant.
Further once the income is credited to P & L A/c, it cannot be said that the source of the excess income is unexplained. The decisions relied on by the learned
CIT(A) viz., Hon'ble Punjab & Haryana High Court in 24 ITA.No.625/PUN./2024 the case of Kim Pharma Pvt. Ltd. vs CIT [2013] 216
Taxman 153 (P&H) and Hon'ble Madras High Court in the case of M/s. SVS Oils Mills vs. ACIT [2020] 113 taxmann.com 388 (Mad.) have no application to the facts of the present case, inasmuch as, those cases are relates to where no explanation as to the source of the excess stock was found and not shown in the P
& L A/C. Whereas in the present case the excess income was credited to the P & L A/c and, therefore, it cannot be said that excess income is derived from income from other sources. For this proposition, I derive strength from the ratio of decision of Hon'ble
Rajasthan High Court in the case of CIT vs. Bajargan Traders [2017] 86 taxmann.com 295 (Raj) is squarely applicable to the facts of the present case and, therefore, I am of the opinion that the excess income declared during the course of survey proceedings cannot be treated as unexplained income of the assessee-appellant since credited to P & L A/c and cannot be assessed as income from other sources, but, under income from business. 1, therefore, set aside the order of the Ld. CIT(A) and allow the appeal of the assessee.
In the result, appeal of the assessee is allowed. Order pronounced in the open
Court on 22.08.2023
25 ITA.No.625/PUN./2024 5.13. For this proposition the appellant has relied upon the following jurisdictional Hon'ble ITAT, Pune's decisions, wherein it is held that the value of excess stock in value generated in regular business carried out by the appellant and is nothing but a "business income", hence it is required to be taxed as business income at normal rate. a) Anil Prabahkar Korgaonkar (HUF), Vs ACIT. Central
Circle Kolhapur (No.395/PUN/2023 A.Y.2019-20) dt.30/08/2023. b) Manoj Vishwanath Patil, Prop. of Vishwanath R. Patil Jewellers, Jalgaon vs DCIT, Central Circle-1, Nashik (ITA No.938/PUN/2022 A.Y: 2019-20) dt. 06th July, 2023. c) Ashok K. Kriplani of Jalgaon vs Dy.CIT, Central Circle 1. Nashik (ITA No.252/PUN/2023 A.Y : 2018- 19) dt.: 03-07-2023. d) Abhijit Vivek Swami v/s. ACIT, Central Circle, Kolhapur (ITA No.319/PUN/2023 A.Y:2019-20) 21.04.2023.
5.14. The appellant has also relied on the following cases wherein income surrendered/detected during the course of survey was held to be taxable as business income. This proposition finds support from the following case laws.
26 ITA.No.625/PUN./2024 a) Construction Portal Pvt. Ltd. v. ITO [ITA Nos. 1607 &
1608/Pun/2014 dated 6.6.2018]; b) SAB Industries Limited v. DCIT [ITA No.
848/Chd./2017 dated 28.3.2018]; c) Gaurish Steels (P.) Ltd. v. ACIT [(2017) 82 taxmann.com 337 (Chandigarh-Trib.)]; d) Rajasthan high court in the case of Bajrang Traders in Income Tax Appeal No.258/2017 dated
12/09/2017 has held that excess stock found during the course of survey and surrender made thereof is taxable under the head 'business and profession.; e) Shri Lovish Singhal Vs. ITO, Ward-2, Sriganganagar
(ITA No.143/Jodh/2018 dated 25.05.2018); f) Bajrang Traders Vs. ACIT (Circle)-2, Alwar (ITA No.
137/Jp/17 dated 17.03.2017).
5.15. Now, on verification of statement of survey & submission of the appellant, it is observed that during the survey, the appellant had declared the additional income of Rs.1,47,59,220/- for the AY 2017-18 & Rs.3,56,91,320/- for the AY 2018-19. For both the years, declaration under the same head is offered by the appellant. The appellant had filed his return of income for AY 2017-18 on 13.11.2017 declaring total income of Rs.3,57,96,980/-, which is inclusive of aforesaid income declared in survey at Rs.1,47,59,220/- and had paid
27 ITA.No.625/PUN./2024 taxes at normal rate on the aforesaid business income.
However, the department has accepted u/s 143(1) vide intimation dated 23.04.2018 and accepted taxes paid thereon at normal rate and not selected case for scrutiny.
Thus, the department has accepted the appellant's contention that aforesaid declared income in survey is business income for AY 2017-18 and liable to tax at normal rate.
5.16. In view of the above discussion and the above judicial pronouncements, it is held that the impugned amount of Rs.3,52,40,780/- cannot be taxed as deemed income u/s.69B & 69C of the Act as done by the assessing officer as earlier year also accepted by the department as business income at normal rate of tax. The additional income declared by the appellant to be taxed as "Income from business income" instead of "Income from other sources". Accordingly, the provisions of section 155BBE cannot be made applicable to the income of Rs.3,52,40,780/-. Thus, the ground raised by the appellant is hereby allowed.”
4. Aggrieved with such order of the Ld. CIT(A), the Revenue is in appeal before the Tribunal by raising the following grounds :
28 ITA.No.625/PUN./2024
“Whether on the facts and in the circumstances of the case, the Ld. CIT(A) has erred in law and in facts by deleting the tax calculated on special rates as per
provisions of section 69B r.w.s.115BBE of the 1.T.
Act on declaration made of Rs.1,56,95,093/- on account of excess stock found and section 69C r.w.s.115BBE of the I.T. Act on declaration made of Rs.1,95,45,687/-on account of excess expenditure found.
2. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in law and in facts by not appreciating the facts that the assessee has failed to substantiate the source of excess stock & unrecorded expenditure along with supporting documentary evidences.
3. The appellant craves leave to add, alter, modify,
delete and amend any of the grounds, as per the circumstances of the case.”
5. The Learned DR strongly challenged the order of the Ld. CIT(A) in directing the Assessing Officer to tax the income declared during the course of survey on account of excess stock found and sec.69C on normal rate instead of special rate determined by the Assessing Officer. He submitted that merely because the assessee has paid taxes at normal rate which has 29 ITA.No.625/PUN./2024 been accepted by the Assessing Officer in the order passed u/sec.143(3) for the preceding year, the same cannot be followed for this year since the principle of res judicata does not apply to income tax proceedings. He accordingly submitted that the order of the Ld. CIT(A) be reversed and that of the Assessing Officer be restored.
6. Learned Counsel for the Assessee, on the other hand, strongly relied on the order of the Ld. CIT(A). He submitted that for assessment year 2017-2018, the assessee has filed the return of income declaring the amount surrendered during the course of survey and in the intimation passed u/sec.143(1) tax has been calculated at normal rate.
Neither there is any reopening of the assessment u/sec.147 nor any proceeding u/sec.263 of the Act has been initiated.
Therefore, once the Revenue has accepted the income declared by the assessee for the same survey in assessment year 2017- 2018, they cannot change their stand in the subsequent year and tax the income by applying the provisions of sec.115BBE of the Act. Referring to the reply of the assessee to various questions made during the course of survey, he submitted that assessee has admitted the various differences on the ground that he was not maintaining proper bills and vouchers, for which, he has surrendered the income and, therefore, in light of various decisions cited by the assessee before the Ld. CIT(A), such amount has to be taxed under normal provisions and not 30 ITA.No.625/PUN./2024 at the special rate by applying provisions of sec.115BBE of the Act. Referring to the order of the Ld. CIT(A) he submitted that Ld. CIT(A) after considering various judicial precedents has directed the Assessing Officer not to invoke provisions of sec.115BBE which is in consonance with law. He accordingly submitted that the order of Ld. CIT(A) be upheld and the appeal filed by the Revenue be dismissed.
We have heard the rival arguments made by both the sides and perused the material on available record. It is an admitted fact that the assessee during the course of survey has admitted additional income on account of payments made to URD purchases, transportation charges for Asphalt transport, payments made towards repairs and maintenance and labour charges etc., which the assessee declared in the return of income for the assessment year 2017-2018 as well as assessment year 2018-2019. We find the return of income for assessment year 2017-2018 was processed u/sec.143(1) and such additional income declared by the assessee on the basis of the same survey conducted on 09.08.2017 has been accepted and no proceedings u/sec.147 or 263 have been initiated. We, therefore, find merit in the submissions of the Learned Counsel for the Assessee that once the Revenue has accepted during assessment year 2017-2018 that such additional income declared by the assessee has to be taxed at normal rate and not u/sec.115BBE, the Revenue cannot
31 ITA.No.625/PUN./2024 change it’s stand and tax the additional amount surrendered during the course of survey by applying provisions of sec.115BBE of the Act. Although the principles of res judicata do not apply to the income tax proceedings, however, once the income is taxed in a particular manner, unless there is change in facts and circumstances of the case, the Revenue should not take a different view for the immediately next assessment year when the income for both the years are declared on the basis of the same survey action and in one year the Revenue has accepted such additional income declared on the basis of survey at normal rate treating the same as business income.
In view of the above discussion and in view of the detailed reasoning given by the Ld. CIT(A) on this issue, we do not find any infirmity in his order by deleting the tax calculated at special rate as per the provisions of sec.69B and 69C r.w.s.115BBE of the Income Tax Act on the declaration made for excess stock found and excess expenditure. The grounds raised by the Revenue are accordingly dismissed.
In the result, appeal of the Revenue dismissed.
Order pronounced in the open Court on 21.01.2025.