VIDYA SAGAR NARINDER KUMAR ,PATIALA vs. INCOME TAX OFFICER, WARD-1, PATIALA , PATIALA

2.5 The assessee in reply to the aforesaid notice interalia has contended as below :

"Reason No. 1 During the survey at the premises of the assessee of 16.6.2016, nothing has been found by the IT Department, which can prove that assessee was indulge in any other kind of activity except business activity. So, income surrendered cannot be considered as income from other sources instead of income from business & profession. Reason No. 2 For taxing the income U/s 115BBE, the IT Department has to applied the provisions of Section 69. In our case, the surrender was mainly on account of stock in trade. So, if you read the provisions of Section 69, it can be concluded

ITA 836/CHD/2024 A.Y. 2017-18 4 that this section deals with unexplained investments only, but during the survey, the assessee was found in possession of stockn, which was not an investment in-fact, it was the "stock in trade" and hence the provisions of Section 69 of the act are not applicable on assessee. Moreover, applicability of Section 115BBE on surrender made during survey is highly debatable. We relied upon the decision of Rajasthan High Court in the case of Pr. CIT Vs. Bajargan Traders C/o Kalani & Co. 2017 Tax Pub (DT) 4814, in this case the Hon'ble High Court has said that investment in unrecorded stock noticed during the course of survey was to be taxed as business income and not as income from other sources.

Reason No. 3 The amendment in Section 115BBE of Income Tax Act, 1961 regarding taxing the income at the rate of 60% comes into the existence on 15.12.2016. But, in our case the survey has been conducted on 16.6.2016. Although, as per the amendment made in the act on 15.12.2016, provisions of Section 115BBE has been amended w.e.f. 1.4.2016. In recent judgment of Hon'ble Delhi High Court in the case of Gautam Khaitan Vs. Union of India (2019) 105 taxmann.com 276 (Delhi), the Hon'ble High Court has said that Govt, cannot exercise its power to issue notification within meaning of provisions of Section 85 & 86, prior to enactment itself coming into effect as on 1.4.2016. So, in our case the law which has been enacted on 15.12.2016 cannot be applied. Furthermore, the assessee voluntarily disclosure decision was totally based on the law that exists on the date of survey i.e. 16.6.2016. The law has been amended on 15.12.2016 with retrospective effect.An ideal tax system should be predictable certain and sustainable. Hence, retrospective implementation of Section 115BBE by the IT Department amendment is a bad move. We relied upon the decision of Hon'ble Supreme Court in the case of Karimtharuvi Tea Estate Ltd. Vs. State of Kerala 1966 AIR 1385 & Scindia Steam Navigation Company Ltd. Vs. CIT 24 ITR 686. In both these judgments, the Hon'ble Supreme Court has said that it is well settled that Income Tax Act, as its stand amended on the 1st day of April of any financial year must apply to the assessment of that year. Any amendments in the act which comes in to the force after the 1st day of April of a financial year, would not apply to the assessment for that year, even if the assessment is actually made after the amendments come into the force. So, in the instant case amendment in the Section 115BBE was made on 15.12.2016. So, it should be applied from the A.Y. 2018-19 and onwards and not from A.Y. 2017-18. Moreover, as per assessee's surrender letter, assessee surrender Rs. 30 Lacs and the tax have been calculated on it at the rate of 30.90%. Assessee along with surrender letter gave two post-dated cheques of total amounting to Rs. 9,27,000, which the department has taken on record. These cheques have been given on the demand of the IT Department as a matter of security that we will pay the tax on time. So, in our case there was an implied understanding between the assessee and the IT Department about the tax rate of 30.90% and not 60%. We are hereby enclosing copy of surrender letter, please clearly read

ITA 836/CHD/2024 A.Y. 2017-18 5 the enclosure section of the letter. Generally, the assessee retrace from the commitment of surrender made during the survey, but in our case its look like that Hon'ble IT Department after "impliedly accepting" our surrender letter, now wants to retrace from their position of accepted tax rate of 30.90% applicable on us. So, keeping in view of the facts and law stated above "no" addition in tax amount should be made."

2.6 The ld. AO in his assessment order dated 19.12.2019 has computed the income surrendered during survey as Rs.30 lakh and has taxed the same under Section 115BBE @ 60%.

The salient features of the assessment order of ld.

AO dated 19.12.2019 can be summed as under :-

(1) The assessee has claimed that –‘assessee firm’ was running the business of sale of timber and plywood and that it is only and absolute source of its income. Eventually, the assessee has concluded that since the said business is the only and absolute source of income of assessee, the income surrendered during the survey pertains to business income. The stand of the assessee does not stand the rigor’s of onus under Section 69 of the Act. (2) Onus under Section 69A does not get discharged by simple assertion as aforesaid. Source of income must be proved conclusively.

ITA 836/CHD/2024 A.Y. 2017-18 6 (3) Merely because survey team had not found any other source of income the assessee has sought to transfer his onus on the Revenue which cannot be allowed. Reliance was placed on judgement of Hon'ble Punjab & Haryana High Court in case of PCIT Vs Khushi Ram & Sons Food (P) Ltd. in and in particular para 13 which is reproduced as below

"13. It is not necessary that the surrendered amount is from business income. It could be on account of any other transaction legal or otherwise. Merely because an assessee carries on certain business, it does not necessarily follow that the amounts surrendered by him are on account of its business transactions. There is no presumption that absent anything else an amount surrendered by an assessee is his business income. It is for the assessee to establish the source of such surrendered amount. "

(4) The ld. AO finally has placed reliance on very text of Section 115 BBE of the Act and has held that plain reading of Section 115 BBE makes it clear that income surrendered by the assessee as “stock in Trade” which are unexplained investments within the meaning of Section 69 of the Act is taxable at the rate of 60%. Further the provisions of Section 115 BBE are effective w.e.f. 01.04.2017. Thus, the contention of the assessee that the enhanced tax rate of 60% under Section 115BBE would not be applicable to the pre amended period is not tenable.

ITA 836/CHD/2024 A.Y. 2017-18 7 2.7 The assessee being aggrieved by the assessment order dated 19.12.2019 prefers first appeal before CIT(A) under Section 246A of the Act who by the impugned order has dismissed the same.

2.8 The assessee being aggrieved by the impugned order has preferred the present second appeal and has raised following grounds of appeal against the impugned order :

“1. That the Ld. Commissioner of Income Tax (Appeals) has erred in law as well as on facts inupholding the charging of tax @ 60% on the surrendered income disclosed by the assessee at Rs.30,00,000/- towards business stock and loose papers applying provisions of Section 115BBE of the Income Tax Act in utter disregard of the explanations rendered which is illegal, arbitrary and unjustified.

4. That the appellant craves leave to add or amend the grounds of appeal

before the appeal is finally heard or disposed off.

5. That the order of Ld. Commissioner of Income Tax(Appeals) Officer is arbitrary, opposed to the facts of the case and thus untenable.”

ITA 836/CHD/2024 A.Y. 2017-18 8 3. Record of Hearing 3.1 The hearing in the matter took place before this Tribunal on 12.12.2024 when both ld. AR for and on behalf of the assessee and ld. DR for and on behalf of the Revenue were heard in support of their respective contentions. The ld. AR has placed on record a Paper Book containing pages 1 to 22 alongwith compilation of judgements of this Tribunal from pages 1 to 149 in support of the proposition that income so surrendered is business income and is liable to be taxed under normal rate. The ld. DR has supported the findings made in the impugned order.

Further on page 9 of the assessment order dated

ITA 836/CHD/2024 A.Y. 2017-18 9 19.12.2019 income of Rs.30 lakhs is computed as stock in trade under Section 69. However, it has been taxed under Section 115BBE of the Act. In the impugned assessment order dated 19.12.2019 income is labeled as stock in trade, it cannot by any stretch of imagination be labeled as unexplained investment under Section 69 of the Act as surrender was mainly on account of stock in trade. Further, basis statement of Amit Bansal dated 16.06.2016 during survey, no other sources of income from other business has come on record. Further in the surrender letter on page 12 of Paper Book, it is clearly stated that in order to cover up discrepancy found during survey at business premises on 16.06.2016 with respect to stock and loose papers the firm is voluntarily surrendering Rs.30 lakhs subject to no penal action under the Act and to buy peace of mind. The two cheques were submitted and that the same were accepted by Department. In both the orders of lower authorities there is no concrete finding that amount of surrender of Rs.30 lakh is from other sources of business of the assessee’s firm.

ITA 836/CHD/2024 A.Y. 2017-18 10 4.2 In the premises and in view of several citations of Chandigarh Benches in cases; Parmod Singla Vs ACIT – , M/s Jain Plywood Vs DCIT – M/s Sardar Finance Co. Vs DCIT – and Ram Narain Vs ACIT -ITA No.

302/CHD/2024 wherein it has been clearly held that value of stock cannot be brought under deeming provision of Section 69 of the Act and same partakes character of business income. In the absence of deeming provision application of 115 BBE does not arises for consideration.

4.3 In the present fact the assessee has laid emphasis on date of survey and surrender i.e. on 16.06.2016 and has interalia contended that this date precedes 15.12.2016 the day provisions of 115 BBE were amended w.e.f. 01.04.2016. Our attention was invited to the judgement of Hon'ble Madras High Court in case of SMILE Microfinance Ltd. Vs ACIT Madurai in WP(MD) No. 2078 of 2020 and WMP CHD No. 1742 of 2020 dated

ITA 836/CHD/2024 A.Y. 2017-18 11 19.11.2024 wherein with regard to S. 115BBE following is held :

“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.”

We concur with the aforesaid.

5.2 In result, appeal of the assessee is allowed.