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Income Tax Appellate Tribunal, AHMEDABAD “D” BENCH
Before: Smt. Annapurna Gupta & Shri T.R. Senthil Kumar
ORDER
PER : T.R. SENTHIL KUMAR, JUDICIAL MEMBER:
- These two appeals are filed by two different Assessees as against separate revision orders both dated 25.03.2022 passed by the Principal Commissioner of Income Tax-1, Vadodara arising out of the assessment orders passed under section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) relating & 208/Ahd/2022 A.Y. 2017-18 Page No 2 Park Plaza and ors. vs. Pr.CIT to the Assessment Year 2017-18. Since common issue of direction given by Ld. PCIT to the AO to assess the undisclosed income as per the provisions of Section 69C r.w.s. 115BBE of the Act, for the sake of convenience, the above appeals are disposed of by this common order. is taken as the lead case. Brief facts of the case are that the assessee is a firm engaged in the business of real estate development. For the Asst. Year 2017-18, assessee filed its Return of Income on 02-11-2017 declaring total income of Rs.62,02,130/-. There was a survey action u/s. 133A of the Act carried out in the premises of the assessee on 29-09-2016 wherein physical stock to the tune of Rs.30,11,941/- was found. The assessee admitted the above as undisclosed income in the statement recorded during the course of survey proceedings, however the assessee offered Rs.30,00,000/- only in the Return of Income. Therefore the Assessing Officer made addition of Rs.11,941/- as the undisclosed income of the assessee and completed the assessment.
2.1. On verification of the above assessment order Ld. PCIT found that the unaccounted income disclosed during the survey was calculated at the normal rate of 30% instead of undisclosed income chargeable to higher rate as provided u/s.115BBE of the Act, therefore the assessment order is found to be erroneous order and also prejudicial to the interest of the Revenue. Hence Ld PCIT issued a show cause notice dated 25-02-2022 to the assessee as to & 208/Ahd/2022 A.Y. 2017-18 Page No 3 Park Plaza and ors. vs. Pr.CIT why not to assess the undisclosed income as per the provisions of Section 69C r.w.s. 115BBE of the Act.
In response, the assessee filed detailed reply vide letter dated 14- 03-2022 stating that during Asst. Year 2017-18, whatever construction materials bought were straightaway shown as consumed upon receipt, instead of showing them as stock in hand or inventory of construction materials. During the course of survey, the stock of unconsumed construction materials to the tune of Rs.30,11,941/- was found physically on site. However in the provisional balance sheet, the said stocks had not been shown since they had been considered as consumed. Thus, the Partner of the assessee Firm wrongly admitted the stock as unaccounted and agreed to show as undisclosed income during survey proceedings. However, during assessment proceedings, the physical stocks found were proved to be out of purchases which were also booked in the accounts. Thus there is no ‘undisclosed investment in stocks’ or ‘investment in stock not recorded in books’ or ‘purchases outside books’ which is pre-requisites for applicability of Section 69C of the Act. Since the stocks are clearly acquired out of the explained sources and invocation of Section 69C of the Act does not arise and therefore requested to drop the addition.
3.1. The assessee filed detailed reply to Ld. CIT as follows:
“… Non Applicability of S. 69C and consequentially S 115BBE or S 271AAC. First and foremost, we would like to state actual nature of disclosure made by us during survey has been wrongly construed leading to the proposition in the aforesaid notice.
& 208/Ahd/2022 A.Y. 2017-18 Page No 4 Park Plaza and ors. vs. Pr.CIT
As a real estate firm, we acquire construction materials in the ordinary course of business. Once construction materials are bought, they are gradually used in construction, ordinarily, we should show the unconsumed items under stock. However, during AY 17-18, whatever construction materials were bought were straightway shown as consumed upon receipt instead of showing them as Stock in Hand or Inventory of Construction Materials. During the course of survey, the stock of unconsumed construction materials to the turn of Rs.30,11,941 was found physically on site. However, in our provisional balance sheet the said stocks had not been shown i.e. they had been considered as consumed. Hence, our partner admitted this fact during survey. If the stocks were accounted in the balance sheet the profit would have increased by Rs30,11,941/- Hence, the stock being admitted as unaccounted, the aforesaid amount was admitted as undisclosed income and it was agreed the same will be offered to tax. Thus, it must be noted that the discrepancy was between physical stocks found as against no stocks shown in provisional balance sheet reducing the business profit as on that date which was admitted. However, the physical stock was all out of purchases booked in the accounts only. In fact, the valuation of stock was also done from purchase bills duly accounted in the books There is NO UNDISCLOSED INVESTMENT in STOCKS or INVESTMENT IN STOCK NOT RECORDED in books or PURCHASES OUTSIDE BOOKS which are pre-requisites for applicability of S. 69C. It is a case of normal business profit being suppressed by not recording stocks lying physically but which were acquired out "accounted" purchases only. Hence, there is no question of "examining the sources of undisclosed income invested in stocks". It is a case of suppression of stocks for which regular purchases are already booked in the accounts and not undisclosed income invested in stock or unexplained investment in stocks. Thus, it will lead to additional business income in our hands and not income falling under the ambit of S. 115BBE due to applicability of S. 69C. S. 69C talks about incurrence of expenditure for which source is not explained or is not explained to the satisfaction of the AO and deeming such expenditure as income. In the instant case there is no issue of any & 208/Ahd/2022 A.Y. 2017-18 Page No 5 Park Plaza and ors. vs. Pr.CIT unexplained expenditure at all. It is unnecessarily being made out to be one. The excess or unrecorded stocks found was out of purchases duly accounted for in the books only. As mentioned above, even the Valuation was done at time of survey based on purchase bills accounted in books Thus, there is no question of there being an expenditure or investment in stocks for which we are unable to offer an explanation. The source of acquisition of stocks was from regular purchases duly accounted in books. The same was clear at the time of survey itself. Even the survey team has not raised any issue as to source of investment in stocks. It was a straightforward case of suppression of stock out of duly "accounted" purchases and even the value of stocks itself was determined out of purchase bills duly accounted in our books. Thus, there is no question of applicability of S. 69C factually.” 3.2. The assessee further submitted that the provisions of Section 115BBE does not applicable to the facts of the present case by explaining as follows:
“Technical Grounds: Non-Applicability of Amended provisions of S. 115BBE to our Case: ………………….. Unfortunately, in our case the survey was conducted on 29.09.2016. As per law prevailing on that date, even if the amount was to be taxed u/s. 69C it would still have been tax@ 30% only. However, due to retrospective amendment covering the date of survey in our case, it is now being proposed to drag us under the amended provisions. As is a settled principle, "lexprospicit non respicit" i.e. law looks forwards not backward. It has been clearly held by numerous decisions including multiple pronouncements of the Hon. Supreme Court of India that any amendments in the Act which come into force after the first day of April of a financial year would not apply to the assessment of that year. The substantive law is always prospective in nature. Reliance is placed on the judgement of the Hon'ble Apex Court in the case of CIT Vs M/s Vatika Township Private Limited reported in 367 ITR page 466 wherein it has been held that it is a settled law that any amendment which increases the tax burden of the assessee has to be considered prospective and not retrospective. Also, the legislations which modify & 208/Ahd/2022 A.Y. 2017-18 Page No 6 Park Plaza and ors. vs. Pr.CIT accrued rights or which impose obligations or which impose new duties or attach a new disability have to be treated as prospective unless the legislative intent is clearly to give the enactment a retrospective effect The same is also supported by many other pronouncements of Hon. High Courts and also that of the Hon. Supreme Court like Kasimtharuvi Tea Estate Ltd. Vs. State of Kerala (1966) 60 ITR 262 and CIT Vs Scindia Steam Navigation Co. Ltd. (1961) 42 ITR 589 Even the jurisdictional Hon. Gujarat High Court in case of AVANI EXPORTS & OTHERS VS COMMISSIONER OF INCOME TAX, RAJKOT & ORS GUJARAT (2012) 348 ITR 391 (GUJARAT) held that in case of substantive amendment, retrospective operation can be given only if it is for the benefit of the assessee but not in a case where it affects even a fewer section of the assesses. Similarly in (2015) Tax Corp (DT) 60727 (HC-GUJARAT) NIKO RESOURCES LIMITED Versus UNION OF INDIA the Hon. Gujarat HC held that substantive amendment can only be prospective in operation. In view of the above, it is prayed that the amendment to S. 115BBE should come into force wef AY 18-19 and should not apply to our case. Proposing to have a fresh assessment in our case based on such an amendment that happened after the event of survey in our case by considering it retrospectively applicable is in direct contravention of the decisions of the Hon. Supreme Court of India and therefore it is bad in law. Even the Hon. Tribunals in their recent judgements have upheld this view, Recently in case of Bhuvan Goyal Vs. DCIT the Hon Chandigarh Bench of the ITAT, has held that for a disclosure made in an action undertaken before the amendment to S. 115BBE came to force, the amended provisions of higher tax rate cannot be applied. Thus, it is humbly submitted, that without prejudice to the factual non- applicability of S. 69C to our case, even from a legal standpoint, the amended provisions of S. 115BBE w.e.f 15.12.2016 will not apply to our case and hence the proposition to make a fresh assessment just to examine taxability of our disclosure with regards to applicability of S. 115BBE becomes infructuous. Hence, it is humbly prayed that in terms of the above technicality also, the proposed action u/s 263 may please be dropped. ”
& 208/Ahd/2022 A.Y. 2017-18 Page No 7 Park Plaza and ors. vs. Pr.CIT
Ld. PCIT considered the above submissions of the assessee and rejected the same by observing that the amended provisions of Section 115BBE of the I.T. Act is applicable with effect from 01-04- 2017 i.e. from the Α.Υ. 2017-18 and directed to the AO to revise the assessment as follows:
“…6.1. In the reply furnished during the course of proceedings u/s 263 of the I.T. Act, the assessee contended that the amendment to Section 115BBE of the I.T. Act substituting a higher rate of 60% for the erstwhile 30% was made with effect from 15/12/2016 and accordingly the said amendment is not applicable in its case as the disclosure was made during the survey on 29/09/2016. This contention of the assessee is found to be not correct as the amended provisions of Section115BBE of the I.T. are applicable w.e.f. 01/04/2017 i.e. from the A.Y. 2017-18 and accordingly applicable from the F.Y. 2016-17 (ie. from 01/04/2016). The assessee has relied upon various decisions of the Hon'ble Courts in support of its contention that the amended provisions of Section 115BBE of the I.T. Act is prospective effect and not retrospective effect. Here it is pertinent to mention that the amended provisions of Section 115BBE of the I.T. Act is applicable with effect from 01/04/2017 i.e. from the Α.Υ. 2017-18. The undisclosed income of Rs.30,11,941/- in respect of unaccounted construction materials admitted during the course of survey is pertaining to the FY 2016-17 relevant to A.Y. 2017-18 and accordingly the amended provisions of Section 115BBE of the I.T. Act are clearly applicable in respect of the above undisclosed income of Rs.30,11,941/-. However, as stated in the foregoing paragraphs, while finalizing the assessment, the Assessing Officer has not made any verification or inquiry regarding the applicability of the provisions of Section 69C r.w.s. 115BBE of the I.T. Act as also Section 271AAC of the I.T. Act in respect of the above undisclosed income of Rs. 30,11,941/- disclosed by the assessee on account of unaccounted stock of construction materials found during the course of survey u/s 133A of the I.T. Act. In view of the above facts, it is found that the Assessing Officer has finalised the assessment without verification or inquiry on the above issues which should have been made during the course of assessment proceedings. Accordingly, the assessment order u/s 143(3) of the I.T. Act for the A.Y. 2017-18 passed by the Assessing Officer on 18/12/2019 is erroneous in so far as it is prejudicial to the interest of revenue within the meaning of Section 263 of the I.T. Act. ……………………..
& 208/Ahd/2022 A.Y. 2017-18 Page No 8 Park Plaza and ors. vs. Pr.CIT 8 In view of the above and in exercise of the powers conferred by the provisions of Section 263 of the Income-tax Act, 1961, the assessment order passed u/s 143(3) of the I.T. Act dated 18/12/2019 for the A.Y. 2017- 18 in the case of the above mentioned assessee is set aside with a direction to the Assessing Officer to pass fresh assessment order after taking into consideration the issues as may have been already considered together with the issues discussed hereinabove also. Needless to mention that while passing the fresh assessment order, consequent to this order under Section 263 of the I.T. Act, the Assessing Officer shall grant reasonable and sufficient opportunity of being heard to the assessee.”
Aggrieved against the Revision order, the assessee is in appeal before us raising the following Grounds of Appeal:
1. On the facts and in the circumstances of your appellant's case and in law, the Honorable PCIT has erred invoking provisions of the Section 263 of the Act and holding the Assessment Order u/s. 143(3) dated 18.12.2019 as erroneous insofar as it being prejudicial to the interest of the revenue and thereby setting aside the said assessment order with a direction to pass a fresh assessment order after taking into consideration the issues discussed in the order u/s. 263 as well as issued already considered earlier.
2. Without prejudice to the above ground, on the facts and in the circumstances of your appellant's case and in law, the Honorable PCIT has erred in invoking provision of the Section 263 and setting aside assessment order, by inter-alia considering that the income disclosed during the course of survey should be treated as "undisclosed expenditure" u/s 69C instead of normal business income as offered by your appellant.
3. Without prejudice to Ground No. 1 & 2, on the facts and in the circumstances of your appellant's case and in law, the Honorable PCIT has erred in invoking provision of the Section 263 and setting aside assessment order by inter-alia considering that since the income disclosed during survey should have been treated as "undisclosed expenditure" u/s 69C, the provisions of S. 115BBE as amended from 15.12.2016 will apply and not those prevailing on the date of survey on 29.09.2016, and hence the disclosed income should have been taxed at higher rate of 60% instead of normal rate of 30%.
& 208/Ahd/2022 A.Y. 2017-18 Page No 9 Park Plaza and ors. vs. Pr.CIT
Heard rival submissions and perused the materials available on record including the Paper Book filed by the assessee. It is seen from Page No. 24 of the Paper Book namely Profit and Loss Account as on 31-03-2017 in the case of Park Paradise, a sum of Rs.30,00,000/- is shown as unexplained income apart from closing stock of Rs.24,55,32,712/-. It was done so that the amount will be clearly reflected in the profit and loss account that the assessee is offering the additional income accepted during the course of survey. In the Income Tax Return also, it was shown separately for fair and transparent disclosure only. But in the computation of income, the same is forming part of normal business income under the profit and gains of business. Thus, the disclosure of sum in the Profit and Loss and ITR by no means can leave to a conclusion, that there is some unexplained or undisclosed income which has been invested in stocks. Therefore, the Ld AO accepted the above 30 lakhs as business income and made addition of Rs.11,944/- which was not offered to tax by the assessee in the regular assessment.
6.1. Further it is a fact that the stocks physically found in the premises were out of purchases duly accounted in books, identified with purchase bills and value was also determined based on the same which are already on record. Thus, there is no case of any investment in stocks out of undisclosed sources. But the contention of the Ld. CIT to treat the same undisclosed income u/s. 69C of the Act also not valid in law. Since section 69C deals with incurrence of expenditure for which source is not explained or the explanation offered is not to the satisfaction of the A.O. In the & 208/Ahd/2022 A.Y. 2017-18 Page No 10 Park Plaza and ors. vs. Pr.CIT instant case, there is no issue of unexplained expenditure because the excess stock found was out of purchases duly accounted for in the books. Thus the question of invocation of Section 69C does not arise in the facts of the present case.
The next question that arise is applicability of provisions of Section 115BBE in the present case. Amendment to Section 115BBE of the Act substituting a higher rate of 60% for the erstwhile 30% was made with effect from 15-12-2016 and therefore the contention of the assessee is said that the amendment is not applicable in its case, as the disclosure was made during the survey on 29-09-2016. Per contra the contention of the Ld PCIT is the amended provisions of section 115BBE of the Act are applicable w.e.f. 01-04-2017 i.e. from the A.Y.2017-18 and accordingly applicable from 01-04-2016. The provision of section 115BBE of the Act reads as under:
“… (1) Where the total income of an assessee.- (a) includes any income referred to in section 68, section 69, section 69A, section 69B, section 69C or section 69D and reflected in the return of income furnished under section 139, or (b) determined by the Assessing Officer includes any income referred to in section 68 section 69, section 69A, section 69B, section 69C or section 69D, if such income is not covered under clause (a), the income tax payable shall be the aggregate of- (i) the amount of income-tax calculated on the income referred to in clause (a) and clause (b), at the rate of sixty per cent, and (ii) the amount of income-tax with which the assessee would have been chargeable had his total income been reduced by the amount of income referred to in clause (i)
& 208/Ahd/2022 A.Y. 2017-18 Page No 11 Park Plaza and ors. vs. Pr.CIT
(2) Notwithstanding anything contained in this Act, no deduction in respect of any expenditure or allowance or set off of any loss shall be allowed to the assessee under any provision of this Act in computing his income referred to in clause (a) and clause (6) of sub section (1)…”
7.1. We find that the issue of Amendment to Section 115BBE of the Act applicable from 01-04-2017 onwards is now settled by the judgement of the Hon’ble High Court of Madras in the case S.M.I.L.E Microfinance Limited Vs. ACIT reported in (2024) 121 CCH 0227 Chen HC. The relevant extract of the judgement is reproduced as under:
“…16. The next contention raised by the Learned Senior Counsel is that the under section 115BBE the rate of tax imposed is increased from 30% to 60% and the same is applicable with effect from 01.04.2017 onwards as per the amendment. Therefore, the same is applicable to any transaction from 01.04.2017 onwards and nor prior to any transactions prior to 01.04.2017. Since in the present case all alleged transactions are for the period from 08.11.2016 to 30.12.2016, hence the erstwhile rate of tax 30% only is applicable. But the contention of the revenue is that the amendment was with effect from 01.04.2017 and hence the same is applicable for the financial year 2016-2017 and the assessment year 2017-2018. Further the amendment to section 115BBE is directly related to demonetization which would be evident from objects and reasons for such amendment. In order to consider the same, the objects and reasons of Taxation Laws (Second Amendment) Bill 2016 is extracted hereunder: Press Information Bureau Government of India Ministry of Finance 28-November-2016 15:56 IST Taxation Laws (Second Amendment) Bill, 2016 introduced in Lok Sabha; A scheme namely, Taxation and Investment Regime for Pradhan Mantri Garib Kalyan Yojana, 2016' (PMGKY) proposed in the Bill.
& 208/Ahd/2022 A.Y. 2017-18 Page No 12 Park Plaza and ors. vs. Pr.CIT
Evasion of taxes deprives the nation of critical resources which could enable the Government to undertake anti-poverty and development programmes. It also puts a disproportionate burden on the honest taxpayers who have to bear the brunt of higher taxes to make up for the revenue leakage. As a step forward to curb black money, bank notes of existing series of denomination of the value of Rs.500 and Rs. 1000 [Specified Bank Notes (SBN)] have been recently withdrawn the Reserve Bank of India Concerns have been raised that some of the existing provisions of the Income- tax Act, 1961 (the Act) can possibly be used for concealing black money. The Taxation Laws (Second Amendment) Bill, 2016 (the Bill') has been introduced in the Parliament to amend the provisions of the Act to ensure that defaulting assessees are subjected to tax at a higher rate and stringent penalty provision. An overview of the amendments proposed in the Bill are placed below;
Overview of Amendments Proposed
PARTICULARS EXISTING PROVISIONS PROPOSED PROVISIONS General Provision PENALTY (Section 270A) No changes proposed for penalty Under-reporting - @50% of tax Misreporting-@200% of tax (Under- reporting/ Misreporting income is normally difference between returned income and assessed income) Provisions for & of TAX (Section 115BBE) TAX (Section 115BBE) taxation penalty unexplained credit, Flat rate of tax @30% surcharge + cess + Flat rate of tax @60% investment, cash surcharge @25% of tax (i.e and other assets (No expense, deductions, set-off is 15% of such income). So allowed) total incidence of tax is 75% approx. (No expense, deductions, set-off is allowed). PENALTY (Section 271AAC) If Assessing Officer determines income referred to in section 115BBE, & 208/Ahd/2022 A.Y. 2017-18 Page No 13 Park Plaza and ors. vs. Pr.CIT penalty @10% of tax payable in addition to tax (including surcharge) of 75%. Penalty for search Penalty (271AAB) Penalty (271AAB) seizure cases (i) 30% of income, if (i) 10% of income, if admitted. admitted, returned and returned and taxes are paid taxes are paid (ii)20% of income, if not admitted but Not returned and taxes are paid (ii) 60% of income in any (iii)60% of income in any other case other Taxation New Taxation and Investment Regime Undisclosed income in the Investment Regime form of cash & bank and for Pradhan deposit can be declared: Mantri Garib (A) Tax, Surcharge, Penalty Kalyan Yojana, payable 2016' (PMGKY) Tax @ 30% of Income declared Surcharge @33% of Penalty @10% of Income declared Total @ 50% of Income (approx.) (B) Deposit 25% of declared income to be deposited in interest. Free Deposit Scheme for four years.
Further, in the wake of declaring specified bank notes "as not legal tender", there have been suggestions from experts that instead of allowing people to find illegal ways of converting their black money into black again, the Government should give them an opportunity to pay taxes with heavy penalty and allow them to come clean so that not only the Government gets additional revenue for undertaking activities for the welfare of the poor but also the remaining part of the declared income legitimately comes into the formal economy. In this backdrop, an alternative Scheme namely, "Taxation and Investment Regime for Pradhan Mantri Garib Kalyan Yojana, 2016' (PMGKY) has been proposed in the Bill. The declarant under this regime shall be required to pay tax @ 30% of the undisclosed income, and penalty @10% of the undisclosed income. Further, a surcharge to be called 'Pradhan Mantri Garib Kalyan Cess' @33% of tax is also proposed to be levied. In addition to tax, surcharge and penalty (totaling to approximately 50%), the declarant shall have to deposit 25% of undisclosed income in a Deposit Scheme to be notified by the RBI under the & 208/Ahd/2022 A.Y. 2017-18 Page No 14 Park Plaza and ors. vs. Pr.CIT 'Pradhan Mantri Garib Kalyan Deposit Scheme, 2016. This amount is proposed to be utilised for the schemes of irrigation, housing, toilets, infrastructure, primary education, primary health, livelihood, etc., so that there is justice and equality.
In the aforesaid objects and reasons nowhere it is stated that due to "demonetization" the unaccounted money ought to be charged 60% rate of tax. It only states that step had been taken to curb black money by withdrawing Specified Bank Notes of denomination of Rs.500 and Rs.1000. And also states the people may find illegal ways of converting their black money into black again, hence as per experts advice heavy penalty ought to be levied. From the language of the object "that instead of allowing people to find illegal ways of converting their black money into black again", it is evident that the government is intended to impose the same for future transactions. Especially the use of word "again" in the object would clearly indicate it is for future transactions i.e. from 01.04.2017. Therefore this Court is of the considered opinion that the revenue is empowered to impose 60% rate of tax for the transactions from 01.04.2017 onwards and not prior to the said cut-off date. And for prior transaction the revenue is empowered to impose only 30% rate of tax…”
8.2. Undisputedly survey action taken place in the business premises of the assessee on 29-09-2016 and the alleged unaccounted stocks purchased from 01-04-2016 till the date of survey. Thus, respectfully following the above Judgement of the Madras High Court, there is no question of invoking provisions of section 115BBE of the Act. Thus the grounds of appeal of the assessee on the issue of Section 115BBE of the Act is hereby allowed and the revision order passed by Ld.PCIT is hereby quashed.
& 208/Ahd/2022 A.Y. 2017-18 Page No 15 Park Plaza and ors. vs. Pr.CIT
The facts in the present case is identical with that of Park Paradise in . In this case, during the course of survey, assessee admitted Rs. 1,00,75,968/- as undisclosed income but offered Rs.1 crore in the profit and loss account, therefore A.O. made the balance addition of Rs.75,968/- as undisclosed income. Whereas in the Revision proceedings Ld. PCIT directed to assess the entire Rs.1,00,75,968/- as undisclosed expenditure u/s. 69C and to tax the same u/s. 115BBE of the Act.
In the result, the appeal filed by the Assessee in is hereby allowed.
Order pronounced in the open court on 03-04-2025 Sd/- Sd/- (ANNAPURNA GUPTA) (T.R. SENTHIL KUMAR) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad : Dated 03/04/2025 आदेश क� ��त�ल�प अ�े�षत / Copy of Order Forwarded to:- 1. Assessee 2. Revenue 3. Concerned CIT 4. CIT (A) 5. DR, ITAT, Ahmedabad & 208/Ahd/2022 A.Y. 2017-18 Page No 16 Park Plaza and ors. vs. Pr.CIT