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Facts
During survey proceedings, undisclosed income was accepted by the assessees from unaccounted debtors, excess cash, and excess stock. This income was offered for taxation and reflected in their books of account, but declared under the head 'Income from Other Sources' in their IT Returns, leading to the Assessing Officer charging tax under Section 115BBE of the Income Tax Act.
Held
The Tribunal held that the CIT(A) was not justified in observing that tax must be charged under Section 115BBE when additions are made under Sections 68 and 69. The Tribunal found that the Revenue was not justified in invoking Section 115BBE instead of the normal rate of tax, as the income was already disclosed and tax deposited on the basis of that disclosure.
Key Issues
Whether the income disclosed during survey and offered for taxation under 'Income from Other Sources' is liable to be taxed under Section 115BBE or at the normal rate of tax, and whether the Revenue was justified in invoking Section 115BBE.
Sections Cited
143(2), 115BBE, 69, 69A, 69B, 271AAC, 133A, 139
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Income Tax Appellate Tribunal, JAIPUR BENCHES,”SMC” JAIPUR
Before: SHRI GAGAN GOYAL, AM & SHRI NARINDER KUMAR, JM
vkns'k@ORDER This common order is to dispose of the above captioned 2 appeals, as same issue is involved in both the matters, and both the appeals have been argued together, on behalf of the parties.
By way of present appeal, the assessee- appellant, has challenged order dated 21-10-2024 passed by Ld. CIT(A), u/s 250 of the Income Tax Act, (in short ‘’ the Act’’). The assessee is feeling aggrieved as vide impugned order, ld. CIT(A) has partly allowed the appeal.
In the appeal before the ld. CIT(A), assessment order dated 2-06- 2021 was under challenge. Vide said assessment order, the AO computed total income of the assessee at 52,96,850/- by observing in the manner as:- ‘’Considering the facts of the case, the unaccounted/unexplained debtors of Rs. 6,90,000/-, excess cash of Rs. 18,34,020/- and excess stock of Rs. 9,76,480/- offered during the survey proceedings are considered as unexplained investment, unexplained money as per provision of section 69 and 69A of the I.T. Act respectively. Therefore, tax is charged on these offered income as per provision of section 115BBE of the I.T. Act, 1961. Since, the assessed income includes income chargeable to tax as per &1445/JPR/2024 Smt. Sheela Dhakar & Ors vs. DCIT provision of section 115BBE of the I.T. Act, 1961. Therefore, I am satisfied to initiate penalty proceeding u/s 271AAC of the I.T. Act, 1961.
Arguments heard. File perused.
5. In this second captioned appeal, as regards the same Assessment Year i.e. 2019-20, total income of the assessee was assessed at Rs. 54,82,980/-finding that the unaccounted/unexplained debtors of Rs. 6,35,000/-, investment made in house to the tune of Rs.13,75,000/-, unexplained excess cash of Rs. 7,52,000/- and excess stock of Rs. 7,38,670/- offered during the survey proceedings, were unexplained investment, investments, and unexplained money as per provision of section 69, 69A and 69B of the I.T. Act respectively The assessee challenged the assessment order by way of appeal before CIT(A). Since, the appeal filed by the assessee against said assessment order was partly allowed, the assessee is before this Appellate Tribunal.
Arguments heard. File perused.
As is available from the assessment orders on 06-02-2019 a survey was conducted by the Department. The assessees filed respective return of income u/s 139 of the Act, relating to assessment year 2019-20.
&1445/JPR/2024 Smt. Sheela Dhakar & Ors vs. DCIT The case of each assessee was selected for compulsory scrutiny as per guidelines dated 17-09-2020 issued by CBDT. Notices u/s 143(2) of the Act were issued to the assesses.
It is the case of the Department that during survey proceedings, in case of Sheela Dhakar, a ‘ Red Laxmi Diary’ was found and impounded. During survey proceedings, Sheela Dhakar, assessee accepted discrepancies pointed out and offered undisclosed income on account of unaccounted/unexplained debtors of Rs. 6,90,000/-, excess cash of Rs. 18,34,020/- and excess stock of Rs. 9,76,480/- In the ITR filed for the relevant year, the assessee is stated to have included the abovesaid offered income in its total income under the head "Income from other sources”, and paid tax at normal rate thereon.
As regards the other assessee Smt. Ranu Malav, during survey proceedings, a note book was found and impounded. During survey proceedings, she too is stated to have accepted discrepancies pointed out and offered undisclosed income the unaccounted/unexplained debtors of Rs. 6,35,000/-, investment made in house to the tune of Rs.13,75,000/-, unexplained excess cash of Rs. 7,52,000/- and excess stock of Rs. 7,38,670/- &1445/JPR/2024 Smt. Sheela Dhakar & Ors vs. DCIT In the ITR filed for the relevant year, the assessee is stated to have included the abovesaid offered income in its total income under the head "Income from other sources”, and paid tax at normal rate thereon.
The Assessing Officer was of the view that as the unaccounted/unexplained debtors, excess cash, and excess stock were covered by the provisions of section 69, and 69A of the I.T. Act respectively, as regards Smt. Sheela Dhakar, tax should be charged as per the provision of section 115BBE of I.T. Act 1961. As regards Smt. Ranu Malav, the Assessing Officer was also of the view that as the unaccounted/unexplained debtors, excess cash, investment and excess stock were covered by the provisions of section 69, 69A and 69B of the I.T. Act respectively, , tax should be charged as per the provision of section 115BBE of I.T. Act 1961.
That is how, both the assessments orders were passed.
When the matters came up before the ld. CIT(A), the ld. CIT(A) observed in the impugned orders as under:- ‘’Charging of Tax u/s 115BBE The appellant has also raised the issue of charging tax u/s 115BBE of the Income Tax act. The section 115BBE is charging section. The argument of the appellant are considered. The Income Tax Act is a self contained code consists of both charging and machinery &1445/JPR/2024 Smt. Sheela Dhakar & Ors vs. DCIT sections, Charging sections are those sections by which liability is created or fixed. Machinery sections are those sections which ensure quantification, imposition and collection of tax created by the 'charging sections Thus 'Machinery Provisions' are basically subordinates to the charging section. On applying the above principles section 115BBE is categorized as 'machinery provision which is subordinate to the charging sections 68 and section 69 family. There is a very practical rule in the interpretation of taxing Statutes that 'charging provisions' are interpreted strictly while the 'machinery provisions are interpreted liberally. xxxxxxxxxxxxx In view of above discussion, when the addition is made in sections 68 and section 69 family. If the addition is made under these sections, the tax has to be charged as per provisions of section 115BBE. The charging of tax as per provisions of section 115BBE is automatic. Hence, no separate show cause notice is required for charging tax u/s 115BBE. Therefore, the argument of the appellant are not found to be acceptable.
The arguments of the appellant are against the expressed provisions of the Income Tax Act. Sub-section (2) of section 115BBE of the Income-tax Act, 1961 (Act) provides that where total income of an assessee includes any income referred to in section(s) 68/69/69A/698/69C/69D of the Act, no deduction in respect of any expenditure or allowance or set off of any loss shall be allowed to the assessee under any provisions of the Act in computing the income referred to in section 115BBE (1) of the Act.
The only contention raised by the ld. AR for the appellant before us is that while passing impugned order, Ld CIT(A) has not properly appreciated the facts and statements recorded during survey proceedings, and that when, in its books of account, the assessees clearly incorporated the amount offered for tax by debiting respective Account, the AO was not correct in observing in the assessment orders that the assessee had not submitted any evidence in support of their respective claim that source of income was earning from business activities. Ld. AR has further contended that department has not relied on any material to the contrary, as regards source of income of the assesses, and as such, the entries in the books account recorded by the assessees could not be ignored. Ld. AR has not disputed that in the returns of income the assessee had shown respective income declared by them, under the head ‘’Income from other Sources’’, but submitted that instead of offering the same under correct head ‘’Income from Business or Profession’’, the income came to be so declared under the head of Income from other sources. The &1445/JPR/2024 Smt. Sheela Dhakar & Ors vs. DCIT contention is that only from this fact it cannot be said that the income so offered for taxation was covered under the provisions of Section 69, 69A and 69B of the Act or section 69 and 69A only. In support of the contentions, Ld AR relied upon decision by this Bench in the appeal titled as M/s Orthopaedics and Trauma Centre v. DCIT, relating to the same assessment year, delivered on 20.2.2025.
In the abovesaid decision by this Bench, we observed that in the case of Surendra Kumar Patni v. ACIT, decided by the Coordinate Bench of ITAT, Jaipur, on 21.11.2024, same issue was dealt with. That was a case of survey operation u/s133A of the Act conducted on 09-08-2016 which led to physical determination of the stock of the assessee at Rs.7,36,71,937/- as against the value of book stock arrived at Rs.5,6,65,758/- resulting into excess stock of Rs.1,76,06,179/-. Therein, the AO had treated the amount of excess stock surrendered during survey i.e. amounting to Rs.1,76,06,179/- under the head ‘’Income from other Sources and applied Section 69 B of the Act read with Section 115 BBE of the Act. Said assessment was confirmed by ld. CIT(A). While dealing with the issue regarding applicability of Section 69B of the Act read with section 115BBE of the Act, the Coordinate Bench &1445/JPR/2024 Smt. Sheela Dhakar & Ors vs. DCIT observed that surrendered amount of excess stock was found to have been duly routed through audited financial result of the assessee by debiting the cost of goods sold. Therein, during survey, brother of the assessee in his statement deposed that he was surrendering the amount from his undisclosed sources for regular taxation. The Coordinate Bench then referred to instructions by CBDT vide Circular No.4/2018 issued for selection of a case for manual scrutiny subject to the conditions specified therein. The Coordinate Bench observed that there was no material/ documentation on record which even remotely suggested that the assessee had expended any amount of excess stock found i.e. over and above the amount found to have been recorded in the books of account. The only source of income of the appellant therein was its income from trading in Designer Sarees etc. but the Revenue was not able to advance any evidence during assessment proceedings that the said income had no connection with the business of the assessee. Accordingly, the conclusion drawn by the Coordinate Bench was that the entire amount earned by the assessee related to business income only.
&1445/JPR/2024 Smt. Sheela Dhakar & Ors vs. DCIT Therein, the Coordinate Bench was also of the view that the statement recorded u/s 133A of the Act would not automatically bind the assessee. In this regard, reliance was placed on the decision in CIT vs Khader Khan Son [2008] 300 ITR 157 (Mad.).
The question involved here is as to whether the amounts offered during survey and disclosed as regular income, and subsequently disclosed in the books of accounts would be covered by the head “business income’ or covered by the head ‘income from other sources’ as subsequently shown by the assessees in their respective ITR for the purposes of rate of tax? 16. It is true that during survey, whatever source of income was disclosed by the during the survey i.e. that said income was part of the regular income, but contrary to it, in the ITR subsequently furnished, the appellants depicted the said amount of income under the head ‘ Income from Other sources’. It has not been disputed by the department that the assessees incorporated the abovesaid amounts of income in the books of accounts.
Case titled as Pr. CIT, Alwar v. Bajargan Traders, DB. Income Tax Appeal No.258/2017, decided by our own Hon’ble High Court has been relied on by Learned AR for the appellant.
&1445/JPR/2024 Smt. Sheela Dhakar & Ors vs. DCIT Therein, in the course of survey, the assessee had surrendered a particular sum towards investment in stock of rice, which had not been recorded in the books of accounts, but, subsequently, like the present matter, the assessee therein had shown the same in the books of accounts by way of transaction and debiting the purchase account and crediting the income from undisclosed sources. In the given situation, therein, Co-ordinate Bench of ITAT, observed that the net effect of said double entry accounting treatment was that firstly the unrecorded stock of rice had been brought on books and then same formed part of the recorded stock; that said unrecorded investment was offered to tax by crediting the said amount in the profit and loss account. In the given facts and circumstances, therein, it was held by the Co- ordinate Bench of ITAT that the investment in the excess stock had to be brought to tax under the head “business income” and not under the head “income from other sources”. Hon’ble High Court upheld the abovesaid decision rendered by the Co-ordinate Bench and dismissed the appeal filed by the Revenue.
Herein, the assesses are in medical profession. Revenue has not pointed out any other activity or source of income of the appellants. Had the Revenue relied on any reliable, cogent and convincing material in proof &1445/JPR/2024 Smt. Sheela Dhakar & Ors vs. DCIT of the fact that the assessees had any other source of income, then the Revenue would have been justified in covering the matter by the provisions of section 115BBE of the Act. But, in the given facts and circumstances, it cannot be said that the department was justified in invoking provisions of section 115BBE of the Act.
As a result, we are of the considered view that Learned CIT(A) was not justified in observing in the impugned orders that when an addition is made under section 68 and 69 of the Act, tax has to be charged as per provisions of section 115BBE of the Act.
Applying the ratio decidendi in abovesaid decision by Hon’ble High Court, decision by this Bench, and decision in Surendra Kumar Patni’s case, by the Co-ordinate Bench, we are also of the considered opinion that Revenue was not justified in invoking provisions of section 115BBE of the Act, in place of the normal rate of tax, stated to have already been deposited by the assessees on the basis of disclosure during the survey.
&1445/JPR/2024 Smt. Sheela Dhakar & Ors vs. DCIT Result 21. In view of the above discussion, reasons and findings, both these appeals deserve to be allowed. Same are hereby allowed and the impugned orders passed by Learned CIT(A) are hereby set aside. Copy of the common order be also placed in the file of connected appeal. File of appeal be consigned to the record room after the needful is done by the office. Order pronounced in the open court on 26/03/2025.