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Facts
During a survey, the assessee surrendered Rs. 55,00,200/-. The AO made an addition of Rs. 95,706/- and treated the surrendered income under Section 115BBE. The CIT(A) upheld the AO's order. The assessee appealed against this, arguing that the investments were explained and the rate of tax should be 30%, not 60%, as the transactions predated the amendment to Section 115BBE.
Held
The Tribunal held that the amendment to Section 115BBE, increasing the tax rate to 60%, is applicable from 01.04.2017 onwards. For transactions prior to this date, the rate of 30% is applicable. The Tribunal also directed the deletion of disallowances made on account of petrol, diesel, and refreshment expenses.
Key Issues
Whether the enhanced tax rate under Section 115BBE is applicable to transactions that occurred before its amendment, and whether expenses disallowed for lack of bills or personal use were justified.
Sections Cited
115BBE, 69, 69A, 133A, 143(2), 142(1), 44AD, 270A, 271AAB, 271AAC
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Order PER VIKRAM SINGH YADAV, A.M. : This is an appeal filed by the Assessee against the order of the Ld CIT(A)/NFAC, Delhi dt. 14/06/2024 pertaining to Assessment Year 2017-18. 2. In the present appeal, the Assessee has raised the following grounds of appeal:
The Ld. CIT(A) has erred in confirming order of Ld. AO in invoking the provisions of Section 115BBE and issuing Show Cause Notice with the intent to subject the additional income of Rs.55,00,200/- to tax at the tax rates of 60 percent plus surcharge and cess.
The Learned CIT(A) has erred in confirming the order of AO in which the provisions of section 115BBE of the I.T. Act, 1961 have been misconstrued and misapplied in the case of Appellant so much so that the investments made by the appellant in furniture, interior Decoration, air-conditioners etc. has been held as un-explained investments. 3. The Learned C1T(A) has erred in confirming the order of AO in which The provisions of section 115BBE of the I.T. Act, 1961 have again been misconstrued and misapplied in the case of Appellant and recoverable advances given by the appellant have been held as un explained investments.
4. The Learned C1T(A) has erred in confirming the action of the Ld. AO wherein he has erred in applying the provisions of Section 69A in relation to additional income of Rs. 1,50,200/- towards cash offered for taxation during survey from total business income and taxing the same under section 115BBE of the Act.
5. The Learned C1T(A) has erred in confirming the action of the Ld. AO "illegally disallowing the business expenses totaling Rs. 95,706/- out of business expenses admittedly incurred during the year. The addition of equal amount made to the returned income deserves to be deleted.” 3. Briefly the facts of the case are that survey operations under section 133A were carried out at the business premises of the assessee on 23/08/2016 and during the course of survey, the assessee surrendered a sum of Rs. 55,00,200/- and thereafter, the return of income was filed declaring income of Rs. 62,33,770/- which was selected for compulsory scrutiny and after issuing of notice under section 143(2) and 142(1) calling for necessary information and documentation, the assessment was completed at a figure of Rs. 63,29,476/- wherein the AO made an addition of Rs. 95,706/- and in respect of income surrendered by the assessee during the course of survey and offered to tax in the return of income amounting to Rs. 55,00,200/-, the same was held taxable under section 69/ 69A r.w.s 115BBE of the Act which, on appeal, has been sustained by the Ld. CIT(A) and against the said findings, the assessee is in appeal before us.
3.1 During the course of hearing, the Ld. AR submitted that the AO has erred in invoking the deeming provisions of Section 69 and 69A r.w.s 115BBE of the Act for income which has been surrendered by the assessee during the course of survey and which has been duly offered in the return of income filed by the assessee.
3.2 In this regard, our reference was drawn to the submissions made before the AO and the relevant contents thereof read as under:
“6. Assessee is an individual, was a Lecturer in Government School and after seeking retirement from that job w.e.f. 30-4-16, had started a coaching Institute under the name and style of M/s. Photon Competition. However, He had initiated steps for the establishment of this coaching institute during the years 2014 to 2016 while purchasing some assets and getting them fitted and had given some advances during that period before the coaching classes were started. As the assessee had started his business venture during the year 2016-17, no books of accounts were required to be maintained for preceding periods as no business was carried out during the period prior to 1-4-16. These investments were duly recorded in the books of accounts and reflected in Income tax return for the Asst. Year 2017-18, while maintaining the books of account/records during the year 2016-17 and by adding the value of those assets towards 'Fixed Assets' and crediting the Capital account as the investments were made by the Proprietor mainly before the commencement of business.
The Survey of these business premises was conducted on 24/8/2016. During the course of survey operation, statement of the assessee had been recorded. The assessee to buy peace of Mind offered besides normal business income, additional income of Rs 55,00,200/ (on account of Interior Decoration, Furniture, AC , Generator Sets etc amounting to Rs 25,50,000/-, on account of Advances recoverable amounting to Rs 28,00,000/- and on account of Cash in Hand amounting to Rs 1,50,200/-). The Authorities of the Department conducting survey/present during the course of survey, had accepted this offer of the assessee of additional income and accordingly, the survey operation was concluded after calculating the estimated income tax liability by applying the normal tax rates, as were applicable at the relevant point of time and accordingly accepted the cheques for advance payment of income taxes calculated at the normal rates of taxes for such additional business income so offered.
Now It is proposed to classify above additional amount surrendered on account of Furniture/other assets amounting to Rs. 25,50,000/ and Advances Recoverable amounting to Rs 28,00,000/ as unexplained investments under Section 69 of the Income Tax Act even though the said section is not applicable in the circumstances of the present case.
The Section 69 reads as follows:
Where in the financial year immediately preceding the assessment year the assessee has made investments which are not recorded in the books of account, if any, maintained by him for any source of income, and the assessee offers no explanation about the nature and source of the investments or the explanation offered by him is not, in the opinion of the [Assessing] Officer, satisfactory, the value of the investments may be deemed to be the income of the assessee of such financial year.
At the cost of repetition, it is stated that the Assessee was Lecturer in Government School and after retirement started this institute in 2016.The Assessee initiated the purchase of assets and fittings and given advances during the year 2014 to 2016 before the classes were started. The assessee started his business during the year 2016-17 and all investment including the above mentioned investments were duly recorded in the books of accounts and reflected in Income tax return on completion during the year 2016-17 by adding to assets and crediting the Capital account as the investments were made by the Proprietor mainly before the start of classes. It is of much importance to draw your kind attention to the fact that there was no requirement to maintain and produce books of accounts and records as the assessee had returned business income of Rs 2,20,853/ which is more than 8% of the total turnover and therefore was covered under section 44AD of the IT Act. Rather, the assessee has voluntarily maintained regular books of accounts and records. Further stated that during the Survey, the Assessee was under severe mental stress and offered to surrender the amount to buy peace of mind. This fact is also mentioned in the surrender letter given at the time of survey. It is nowhere mentioned that the assessee had stated or mentioned that these investments are without any source. On the other hand, the Assessee got support from his wife, Father and Father in law and other relatives to start his this business adventure and for making needful investments. It is again reiterated that there is complete sources of these investments which are given as follows:
Date Remarks Name of Account No Amt Drawn Bank Pnb 8493 27-5-15 325000 Father- Mr Charan Singh Pnb 8493 6-5-15 400000 Father- Mr Charan Singh Pnb 8493 7-4-15 80000 Father- Mr Charan Singh Pnb 8493 14-10-14 230000 Father- Mr Charan Singh Pnb 8493 11-12-15 500000 Father- Mr Charan Singh Pnb 8493 20-4-16 300000 Father- Mr Charan Singh Pnb 8493 15-7-16 200000 Father- Mr Charan Singh union bank 3098 23-2-16 100000 Gurcharan Singh-father in law union bank 3098 10-3-16 100000 Gurcharan Singh- father in law PSB 992 20-2-16 100000 Gurcharan Singh- father in law SBI 373537 3-3-16 100000 Jasvir Singh SBI 373537 5-3-16 100000 Jasvir Singh SBOP 71967 7-4-14 200000 Jasvir Singh & Amandeep Kaur SBOP 10-4-14 400000 Jasvir Singh & Amandeep Kaur 71967 OBC 3189 26-2-14 150000 REETMAN-son PNB 6125 10-5-14 300000 Jasvir Singh & Amandeep Kaur OBC 132 26-2-14 300000 DALJEET KAUR & AMANDEEP OBC 132 7-3-14 300000 DALJEET KAUR & AMANDEEP OBC 10903 10-3-15 120000 Jasvir Singh OBC 10903 14-3-15 90000 Jasvir Singh OBC 10903 27-3-14 125000 Jasvir Singh OBC 10903 26-2-14 250000 Jasvir Singh Pnb 8493 26-2-14 345000 Father- Mr Charan Singh Pnb 8493 22-4-14 230000 Father- Mr Charan Singh Total Rs 53,45,000 Thus it can be seen that the Assessee has used the funds by withdrawing from his own bank accounts or of his immediate family members and out of cash savings of self and wife. The copies of the Bank statements reflecting these withdrawals are attached herewith for your kind reference. In view of the above, it is stated that the amount invested is not unexplained and there is proper source of these payments and as such it does not attract section 69 of the IT act. Since the investment is fully explained and does not attract section 69 of the Act, accordingly section 115BE is also not applicable. Similarly, the Cash amount of Rs 150000/ surrendered is duly recorded in the books of accounts and the source as explained in the para above and as such section 69 A is not applicable and consequently Section 115BE. You are requested to not invoke section 115BE for the reason that the section 69 and Section 69 A is not applicable in the present circumstances for the reasons mentioned in above paragraphs.
3.3 It was submitted that both the lower authorities have failed to appreciate the explanation so submitted by the assessee explaining the source of the investments. It was submitted that it has been consistent stand of Chandigarh Benches that merely on account of survey action, the deeming provisions cannot be held applicable. There is difference between unaccounted and unexplained transactions and it is possible that at the relevant point in time, certain transactions are not accounted for, so what is relevant is that where such unaccounted transactions are found during the course of survey, the explanation of the assessee be sought and it is only where the explanation so offered is not found acceptable, the deeming provisions can be invoked. It has been contended by the ld AR that the deeming provisions are not applicable as the assessee has explained that this is the first year of start of coaching institute and the investments so made is out of assessee’s own past savings and that of his relatives and necessary details/documentations have been submitted and without rebutting the same, the AO has invoked the deeming provisions. It was accordingly submitted that there is no basis to invoke the deeming provisions. It was further submitted that even where it is held that the deeming provisions can be invoked in the instant case, given the fact that the survey was conducted at the business premises of the assessee on 23/08/2016, the rate of tax at the relevant point in time was 30% and as far as the amendment which has been brought about in Section 115BBE of the Act, the same is applicable in respect of transaction effective on or after 01/04/2017 and in support, reliance was placed on the decision of Hon’ble Madras High Court in case of S.M.I.L.E Microfinance Ltd. Vs. ACIT (in W.P. (MD) NO. 2078 of 2020h and W.M.P (MD) No. 1742 of 2020 dt. 19/11/2024) wherein the relevant findings read 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.
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.
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 ‘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. An overview of the amendments proposed in the Bill are placed below: PARTICULARS EXISTING PROVISIONS PROPOSED PROVISIONS General PENALTY (Section 270A) No changes proposed provision for Under-reporting - @50% of tax penalty Misreporting - @200% of tax (Under-reporting/ Misreporting income is normally difference between returned income and assessed income) Provisions for TAX (Section 115BBE) TAX (Section 115BBE) Flat rate of tax @ 30% + Flat rate of tax taxation & penalty of surcharge+cess (No expense, @60%+surgcharge @ 25% of deductions, set-off is allowed) tax (i.e. 15% of such income). unexplained credit, So total incidence of tax is 75% approx. (No expense, investment, cash deductions, set-off is and other assets allowed). PENALTY (Section 271AAC) If Assessing Officer determines income referred to in section 115BBE, penalty @10% of tax payable in addition to tax (including surcharge) of 75%. Penalty for search Penalty (271AAB) Penalty (271AAB) seizure cases i) 10% of income, if admitted (i) 30% of income, if admitted returned and taxes are paid returned and taxes are paid
(ii) 20% of income, if not (ii) 60% of income in any admitted but returned and other taxes case are paid (iii) 60% of income in any other case Taxation and New Taxation and Investment Undisclosed income in the Regime form of cash and bank Investment Regime for deposit can be declared: Pradhan Mantri (A) Tax. Surcharge. Penalty Garib Kalyan payable Yojana, 2016’ (PMGKY) Tax @ 30% of income declared Surcharge @ 33% of tax Penalty @ 10% of income declared Total @50% of income (aprox) (B) Deposit 25% of declared income to be deposited in interest free Deposit Scheme for four years.
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.” 3.4 It was submitted that the said decision of Hon’ble Madras High Court has since been followed by the Delhi Benches of the Tribunal in various cases and in this regard our reference was drawn to the decision of Delhi Bench in case of Nirvana Technologies Pvt Ltd vs ITO (ITA No. 1530/Chd/2024 dated 02/01/2025).
It was accordingly submitted that the necessary relief be allowed to the assessee.
4. Per contra, the Ld. DR has relied on the findings of the lower authorities.
We have heard the rival contentions and pursued the material available on record. It is an admitted fact that the income surrendered during the course of survey has been duly offered to tax by the assessee in the return of income wherein such income has been offered to tax by applying normal rate of tax. In the show-cause, the AO has stated that since income has been surrendered during the course of survey, the provisions of section 115BBE are applicable and the income so surrendered has to be brought to tax at the rate of 60% as per amended provisions as against rate of 30% as so offered by the assessee in the return of income. It has been contended by the ld AR that given the fact that the survey was conducted at the business premises of the assessee on 23/08/2016, the rate of tax at the relevant point in time was 30% only, the rate at which the income has been offered in the return of income and as far as the amendment which has been brought about in Section 115BBE of the Act is concerned, the same is applicable in respect of transaction effective on or after 01/04/2017 and in support, reliance was placed on the decision of Hon’ble Madras High Court in case of S.M.I.L.E Microfinance Ltd. Vs. ACIT (Supra). In the said decision where the alleged transactions were for the period 8/11/2016 to 30/12/2016, the Hon’ble Madras High Court, rejecting the contention raised on behalf of the Revenue that the amendment was with effect from 1/04/2017 and applicable for A.Y 2017-18, held 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 transactions, the Revenue is empowered to impose only 30% rate of tax. We find that in absence of any contrary or higher authority brought to our notice, we are clearly guided by the said decision of the Hon’ble Madras High Court and the said decision thus supports the case of the assessee and the contention raised on behalf of the assessee deserve to be accepted. The action of the AO in applying 60% tax rate is accordingly set-aside.
In view of the same, where there is no change in the rate of tax, the applicability of deeming provisions and the various contentions raised by the assessee have become academic in nature and we donot deem it necessary to examine the same and the same are thus left open. In the result,
7. Regarding the disallowance of Rs. 95,706/- on account of Petrol, Diesel Expenses and refreshment expenses, our reference was drawn to the submissions made before the lower authorities and the contents thereof read as under :
“2. It is stated that payment in various dates amounting to Rs 17170/- out of total payment of Rs 137702/ is proposed to be disallowed on account of unverifiable expenses. This is due to the reason that only payment vouchers are available but not the cash memo or bill. It is hereby submitted that it is a normal practice to get the bill memo for alt purchases as is evident from the records produced before you. In a very few cases, the receipts/memos are not traceable at the moment as these receipts are of very small size. These very small memos might have been torn or misplaced in the file. The total amount of such vouchers is Rs 17170/ is only about 12% of the total expenses. There are all genuine expenses incurred and duly recorded. Without Prejudice to the above, it is submitted that the assessee has returned business income of Rs 220853/ which is more than 8% of the total turnover and is covered under section 44AD of the IT Act wherein there is no requirement to maintain and produce books of accounts and records. The Assessee has voluntarily maintained regular books of accounts and records. In view of the above, it is prayed that the proposed addition be not made on non availability of very small number of cash memos amounting to Rs 17170/ and looking in to the fact that the assessee is covered u/s 44AD of the act.
It is proposed to disallow 1/5th of total Expenses on account of Petrol and Diesel expenses for Personal use. It is humbly submitted that the total expenses debited to Petrol and Diesel also includes diesel purchased during the year for Generator also and not entirely for vehicles. Further not all expenses are booked under the head. Personal Purchases are not recorded in the books.
Without Prejudice to the above, it is submitted that the assessee has returned business income of Rs 220853/ which is more than 8% of the total turnover and is covered under section 44AD of the IT Act wherein there is no requirement to maintain and produce books of accounts and records. The Assessee has voluntarily maintained regular books of accounts and records.
In view of the above it is requested not to disallow 1/5th of the expenses for personal use.
It is proposed to disallow Rs 59,230/ on account of Refreshment Expenses for the year wherein only payment vouchers are available. In this connection it is hereby submitted that the Institute serves tea regularly to students and staff. The Milk is purchased on a dally basis from the milk vendor who supplies and takes a monthly payment. These vendors do not carry or give any bill/ cash memo. It can be seen from the list that all these payments are made once a month for supply of milk for the entire month. There is no system for getting bills from the milk vendor who supplies door to door. This is normal practice being followed regularly by everyone. The total expenses are very reasonable genuine and incurred for giving refreshments to students and staff. Without Prejudice to the above, it is submitted that the assessee has returned business income of Rs 220853/ which is more than 8% of the total turnover and is covered under section 44AD of the IT Act wherein there is no requirement to maintain and produce books of accounts and records. The Assessee has voluntarily maintained regular books of accounts and records.”
8. Per contra the Ld. DR has relied on the findings of the lower authorities.
We have heard the rival contentions and pursued the material available on record. Out of petrol and diesel expenses totaling to Rs 137,702/-, expenses amounting to Rs 17,170/- has been disallowed for the reason that the assessee couldn’t produce the bills/receipts for necessary verification and Rs 19,306/- as personal usage cannot be ruled out. The explanation of the assessee that it is normal practice to collect bills/memo for all such purchases, however, given the small quantum of payment involved in respect of subject individual bills and where the factum of incurrence of expenditure for the purposes of business and the payment has not been disputed, is found reasonable and addition so made is hereby directed to be deleted. Regarding disallowance on account of personal usage, we find that the same has been done merely on presumption and no material has been brought on record to substantiate the said findings and the same is directed to be deleted. Further, regarding pantry expenses which admittedly relates to milk procurement from the milk vendor, the explanation of the assessee that the milk vendor doesn’t give any bill for supply of milk and there is no dispute that the expenses have been incurred for the purposes of business is found acceptable and the addition so made is hereby directed to be deleted.
In the result, the appeal of the assessee is allowed.
Order pronounced in the open Court on 19/02/2025. परेश म. जोशी िव"म िसंह यादव (PARESH M. JOSHI) ( VIKRAM SINGH YADAV) "ाियक सद" / JUDICIAL MEMBER लेखा सद"/ ACCOUNTANT MEMBER