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Facts
The assessee, engaged in real estate, surrendered Rs. 4.11 Crore during a survey as undisclosed income from business. The AO treated this as unexplained cash credit under Section 68 and taxed it under Section 115BBE, disallowing set-off of business loss. The CIT(A) dismissed the assessee's appeal.
Held
The Tribunal restored the matter to the CIT(A) for fresh adjudication, noting that the assessee was not given a proper opportunity to explain discrepancies, especially regarding the inadvertent uploading of financials of another entity.
Key Issues
Whether the CIT(A) erred in dismissing the appeal without proper consideration of facts and whether the surrendered income was correctly treated as unexplained cash credit instead of business income, and if business loss could be set off against it.
Sections Cited
143(3), 68, 115BBE, 271(1)(c), 274, 127, 142(1), 143(2), 69, 69A, 71, 72
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Income Tax Appellate Tribunal, JAIPUR BENCHES,”B” JAIPUR
Before: DR. S. SEETHALAKSHMI, JM & SHRI RATHOD KAMLESH JAYANTBHAI, AM vk;dj vihy la-@ITA. No. 1167/JPR/2024
fu/kZkj.k o"kZ@Assessment Year : 2015-16 Ridhiraj Builders cuke The DCIT, B-131, Vijay Path, Tilak Nagar, Vs. Circle-6, Jaipur. Jaipur. LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AAKFR7966E vihykFkhZ@Appellant izR;FkhZ@Respondent fu/kZkfjrh dh vksj ls@ Assessee by : Shri Surendra Sha, C.A. jktLo dh vksj ls@ Revenue by : Shri Dinesh Badgujar, Addl.CIT a lquokbZ dh rkjh[k@ Date of Hearing : 04/02/2025 mn?kks"k.kk dh rkjh[k@Date of Pronouncement : 18/03/2025 vkns'k@ ORDER PER: DR. S. SEETHALAKSHMI, J.M.
This appeal was filed by the assessee against the order of the Ld. CIT(A), Jaipur-4 dated 19.07.2024 for the assessment year 2015-16, which in turn arise from the order dated 11.12.2017 passed under section 143(3) of the Income Tax Act, [hereinafter referred to as “Act” ] by the DCIT, Circle-6, Jaipur.
The assessee has raised following grounds:- “1. The Learned CIT(A) erred in dismissing the additional ground of appeal without properly considering the factual details and legal precedents Ridhiraj Builders vs. DCIT provided. The additional ground raised by the appellant was not considered fairly and its rejection was based on an incorrect evaluation of the appellant's submissions and documents.
2. The Learned CIT(A) erred in rejecting the appellant's claim for set-off of business loss amounting to Rs. 11,85,300 against the surrendered income taxed under section 68, despite the fact that such set-off was permissible under the provisions of section 115BBE for the relevant assessment year. The Learned CIT(A) ignored the CBDT Circular No. 11/2019, which clarifies that set-off of losses against income determined under section 115BBE was allowed till the assessment year 2016-17.
3 Without prejudice to Ground no 2, The Learned CIT(A) erred in law and on facts in upholding the action of the AO in treating the receipts of Rs. 4,11,00,000, declared as business income, as unexplained cash credits under section 68 of the Income Tax Act, 1961, and consequently taxing the same under section 115BBE. The Learned CIT(A) failed to appreciate that the surrendered income was earned from trading in real estate, as evidenced by the statement recorded during survey proceedings, and thus should be treated as business income.
4. That the appellant craves the right to add, delete, amend or abandon the ground of this appeal at the time or before the actual hearing of the case.”
The brief facts of the case are that the assessee was engaged in the business of real-estate. The assessee e-filed its return of income for the Assessment Year 2015-16 on 30.09.2015 declaring total income of Rs. 3,99,17,790/-. The case was selected for scrutiny through manual selection and accordingly, notice u/s 143(2) of the IT. Act, 1961 was issued on 23.08.2016 by ITO, Ward-6(1), Jaipur, which was duly served. Subsequent notices were issued. The case was transferred from ITO, Ward-6(1), Jaipur to circle vide order u/s 127. Due to change of incumbent, notice u/s 142(1) alongwith questionnaire seeking details was Ridhiraj Builders vs. DCIT issued on 03.11.2017. Subsequent notices were issued. In compliance to the notices so issued, Shri Surendra Shah, CA/AR appeared from time to time furnished relevant details and the case was discussed with him.
3.1 In the present case, a survey was conducted and the assessee has surrendered undisclosed income of Rs. 4,11,00,000/-. The assessee has shown undisclosed income as income from business during survey proceedings. After discussion, assessed at Rs. 4,11,00,000/-. The said undisclosed income of Rs. 4.11 crores is treated as unexplained cash credits u/s 68 and taxed u/s 115BBE of the Income Tax Act, 1961. Issue necessary forms. Computation in ITNS 150 is enclosed which is part of this order. Penalty u/s 271(1)(c) r/w section 274 of the IT Act is initiated for concealment of income.
4. Being aggrieved, from the said order of assessment, the assessee has filed an appeal before the Ld. CIT(A). The ld. CIT(A) after hearing the contention of the assessee dismissed the appeal of the assessee by giving following findings on the issue:-
“The appellant has not been able to explain the source of funds for making investment / for giving cash loans. In case it is claimed that it is from business income the appellant is required to show how the same is from business sources and not from any other sources. The Revenue is not to find out the source and the assessee is required to explain the source with supportings. Making book entries does not result into such investment to be treated as explained. The assessee is required to show and explain the source of the investment.
Ridhiraj Builders vs. DCIT Unexplained cash investment cannot be presumed to be business income. If the assessee claims so, the assessee is required to prove the same. The onus is on the assesse to explain and substantiate the source. [Roshan Di Hatti v. Commissioner of Income-tax [1977] 107 ITR 938 (SC)[08-03-1977], Kale Khan Mohammad Hanif v. Commissioner of Income-tax [1963] 50 ITR 1 (SC)[08-02-1963]] Further unaccounted investment cannot be presumed to be from business income of the year as the sources can be numerous. It has also not been shown with sources details that it is only the earlier earned (during the same year) business income (manner of earning and source of earning of such income) which has been invested in the excess stock. Respectfully following the judgements of Hon'ble Supreme Court in the cases of Commissioner of Income-tax v. Devi Prasad Vishwanath [1969] 72 ITR 194 (SC)[01-08-1968), Suraj Bhan Oil (P.) Ltd. v. Deputy Commissioner of Income-tax [2022] 141 taxmann.com 477 (SC)/[2022] 288 Taxman 635 (SC)[25-07-2022] and Principal Commissioner of Income-tax v. Deccan Tobacco Company [2022] 137 taxmann.com 470 (SC)/[2022] 286 Taxman 558 (SC) [11-03-2022), and also in the cases of Roshan Di Hatti v. Commissioner of Income- tax [1977] 107 ITR 938 (SC)[08-03-1977), Kale Khan Mohammad Hanif v. Commissioner of Income-tax [1963] 50 ITR 1 (SC)[08-02- 1963), CIT v. M.Ganapathi Mudaliar [1964] 53 ITR 623 (SC), A. Govindarajulu Mudaliar v. CIT [1958] 34 ITR 807 (SC), there can be no dispute in the facts of the present case regarding the applicability of sections 69 and 69A and section 115BBE of the Act. The unexplained cash loans are hereby held as taxable as per section 69 of the Act. Alternatively, the unexplained money which was given/used in giving unexplained cash loans is held as taxable u/s 69A of the Act. Accordingly, this ground of appeal is hereby dismissed in above terms
6. Ground of Appeal No. 2 is as under: Ground No. 2: That the appellant craves permission to add or amend to any ground of appeal or to withdraw any of them.
Ridhiraj Builders vs. DCIT 6.1 The appellant has added an additional ground of appeal which has been discussed by me in the above paras. Accordingly such mention by the appellant in its ground is treated as disposed off.
7. In the result, the appeal of the appellant is dismissed.”
Aggrieved from the order of the ld. CIT(A) the assessee has preferred the appeal before us on the grounds as reiterated in para 2 above. In support of the grounds of appeal the ld. AR of the assessee has relied upon the following written submission:- “The appellant firm is engaged in Real estate activities. On 15.02.2015, a survey u/s 133(6) was carried out on the business premises of the appellant firm. During survey proceedings, the appellant firm surrendered an income of Rs 4.11 Crore.
In the statement recorded during survey proceedings, it was stated that the Income has been earned out from trading of real estate and was not recorded in books of accounts. The appellant firm credited the said surrendered amount of Rs 411.00 lacs in its profit and loss account and declared a net profit of Rs 3,99,14,700.00 under the head "Profits and Gains from Business & Profession" and paid tax at the normal rate of income tax. The difference between the returned income and income surrendered during survey amounting to Rs 11,85,300.00 was on account of loss in business activities of the firm during the year under consideration.
The Ld AO while completing the assessment, without bringing any cogent evidence or material on record taxed the surrendered income u/s 68 and applied the rate of 30% as provided under section1158BE. He also did not allow set off business loss of Rs 11,85,300/- against the income taxed u/s 68.
The assessee challenged the action of Ld AO before the Ld. CIT(A) in treating receipts of Rs 4,11,00,000.00 as declared under the head, income from business by the appellant as unexplained cash credits u/s 68 and consequently taxing the same u/s 115BBE of the Income Tax Act, 1961.
During appellate proceedings, it raised an additional ground that the Ld AO erred in not allowing the set off of the business loss of Rs 11,85,300/- against the surrendered income of Rs 411.00 lac taxed u/s 115BBE of the Act.
Ridhiraj Builders vs. DCIT During appellate proceedings, while filing written submission online on 29.10.2022, the financials of another assessee "M/s Ridhiraj Builders LLP" were inadvertently uploaded in place of Assessee's financials i.e of Ridhiraj Builders. However, Income tax return acknowledgement and computation of Income of the assessee firm was correctly uploaded.
Ld. CIT(A) relying on the financials of other Assessee Ridhiraj Builders LLP dismissed the appeal of the assessee by holding that figure of loss of Rs 11,85,300.00 des not match with the financials uploaded and it appears to be fictitious.
SUBMISSIONS
GROUND NO 1 “The Learned CITA) erred in dismissing the addition ground of appeal without properly considering the factual details and legal precedents provided the additional ground raised by the appellant was not considered fairly and its rejection was based on an incorrect evaluation of the appellant’s submissions and documents.”
During First Appellate proceedings, the Appellant had made an application before CIT(A) to raise and adjudicate the following Ground of appeal. The additional ground was legal in nature and went to the root of matter.
Additional Ground of Appeal "Without prejudice to the Ground no 1, in the facts and circumstances of the case and in law. the Id. AO has erred in not allowing the set off of the business loss of Rs 11,85,300/-against the surrendered income of Rs 411.00 lac which was taxed by the Ld AO u/s 68 and tax was computed by applying provisions of Section 115BBE of the Act"
The Ld CIT(A) rejected the additional ground of appeal by wrongly relying on the financials of the other assessee M/s Ridhiraj Builders LLP. The acknowledgement of Income tax return of the assessee firm was filed showing an income of Rs 3,99,17,790.00. The computation of Income of appellant firm clearly mentioned that profit as per Profit & Loss Account is Rs 3,99,14,700.00 whereas there was a loss of Rs 65,037.00 in the uploaded financials of other LLP. The Ld CIT(A) did not properly evaluate the uploaded financials. Had he done that, he would have easily come to conclusion that something is wrong with the uploaded financials and an explanation from the appellant is required for the discrepancy. The fact that when the Ld. Assessing Officer after going through the financials had given a finding in the Assessment Order that the appellant has shown the income of Rs 4,11,00,000.00 Ridhiraj Builders vs. DCIT declared under survey proceedings and if the Ld CIT(A) does not find that in the financials, it should have prompted the Ld CIT(A) to call for an explanation from the appellant. An LLP is altogether a distinct entity incorporated under the provisions of Limited Liability Act. An opportunity should have been provided to the appellant to explain the discrepancy.
Under the above facts and circumstances, it is prayed that the additional that the additional Ground be admitted and adjudicated on the basis of financials of the Appellant firm.
2. GROUND NO 2 "The Learned CIT(A) erred in rejecting the appellent's claim for set-off of business loss amounting to Rs. 11.85,300 against the surrendered income taxed under section 68 despite the fact that such set-off was permissible under the provisions of section 1158BE for the relevant assessment year. The Learned CIT(A) ignored the CHOT Circular No. 11/2015, which clarifies that set off of losses against income determined under section 115BBE was allowed till the assessment year 2016-17.”
The surrendered income of Rs 411.00 lac was taxed by the AO under section 68 and tax was computed on such surrendered income 30% by applying provisions of section 115BBE of the Act. The assessee firm incurred a business loss of Rs 11,85,300.00 during the year under consideration. The AO neither disputed the loss of Rs 11,85,300.00 during assessment proceedings nor disallowed the same while passing the Assessment order. Thus, such loss ought to have been set off against the surrendered income in accordance with the provisions of section 71 & 72 of the Act. The provisions of section 115BBE as they stood during the year under consideration also did not bar such set off.
The provisions of section 115BBE read as under:-
(1) "Where the total income of an assessee includes any income referred to in section 68, section 69, section 69A, section 69B, section 69C or section 69D, the income-tax payable shall be the aggregate of- (a) the amount of income-tax calculated on income referred to in section 68, section 69, section 694, section 69B, section 69C or section 69D, at the rate of thirty per cent; and (b)
Ridhiraj Builders vs. DCIT 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 (a).
(2) Notwithstanding anything contained in this Act, no deduction in respect of any expenditure or allowance shall be allowed to the assessee under any provision of this Act in computing his income referred to in clause (a) of sub-section (1)."
From a plain reading of above provisions, it can be noted that no deduction in respect of any expenditure or allowance shall be allowed. However, It nowhere says that set off of the loss with any other income will not be allowed.
CBDT issued a circular no 11/2019 dated 19th June 2019 wherein it has been clarified that an assessee is entitled to claim set-off losses against income determined u/s 115BBE of the Act till the assessment year 2016-17. Copy of Circular is attached herewith. Clause 4 of the circular is reproduced herewith for your kind perusal and ready reference.
Thus keeping the legislative intent behind amendment in Section 115BBE(2) vide the Finance Act 2016 to remove any ambiguity of interpretation, the Board is of the view that since the term "or set off of any loss" was specifically inserted only vide the Finance Act, 2016 w.e.f.01.04.2017, an assessee is entitled to claim set off of loss against income determines under section 115BBE of the Act till the assessment year 2016-17.
Since the income of Rs 411.00 Lac was taxed u/s 115BBE and there was loss of Rs 11,85,300/- under the 'Profits and gains from Business or Profession', the assessee is entitled for set off loss against the income taxed u/s 115BBE in view of the afore stated circular.
In view of express provisions of section 115BBE as applicable during the relevant assessment year and the CBDT Circular no 11/2019, it is prayed that necessary directions may kindly be given to the Ld. AO to allow set off of business loss of Rs 11,85,300/- against the surrendered income of Rs 411.00 lac.
3. GROUND NO 3 "Without prejudice to Ground no 2, The Learned CIT(A) erred in law and on facts in upholding the action of the AD in treating the receipts of Rs. 4,11,00,000, declared as business income, as unexplained cash credits under section 68 of the Income Tax Act, 1961, and consequently taxing the same under section 1158BE The Learned CIT(A) failed to appreciate that the surrendered income was earned from trading in real estate, The surrender amount was in relation to unrecorded business transactions and accordingly has been treated as business income. While recording statements during survey proceedings, in reply to question no 12, it has been categorically stated that the surrender income has been earned by the firm from land transactions. The firm was engaged in real estate activities and income earned from Land transactions can only be its business income.
The Ld. AO has treated the income surrendered during survey as unexplained cash credit u/s 68 of the Act. Provisions of Section 68 is attracted when any sum is found credited in the books of an assessee and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the Assessing officer, satisfactory, the sum so credited may be charged to income tax as the income of that assessee of that previous year.
Whereas the surrender was in respect of unsecured loans given to various persons recorded in a Diary found during survey proceedings. Loans given are debited and not credited, therefore, provisions of section 68 are not attracted in this case and the surrendered income has been wrongly taxed u/s 68 of the Act and is legally not sustainable.
Moreover, the Ld AO did not ask for any explanation with regard to the surrendered income. He relied only on the statement recorded during survey proceedings that too in a piecemeal manner. He failed to take into consideration the statement of the Assessee recorded during the course of survey holistically, and other documents and findings of the survey team which are very much part of the records. The mere fact that survey/search proceedings have been initiated at the business premises of the Assessee doesn't mandate the Assessing officer to automatically invoke the provisions of section 68 and tax the income u/s 115BBE.
The firm has no other activity or source of income. The Ld. AO has also not brought on record any material or evidence to establish that the assessee firm was involved in any other activities. Since the assessee firm has disclosed the surrendered income in its return of income, it was not covered by any deeming provisions viz section 68, 69, 69 A to 69D and therefore the provisions of section 115BBE could not be allowed in respect of the surrendered income. The surrendered income declared as business income by the appellant firm is in accordance with law.
It is submitted that the Ld. AO has erred in law as well as on facts in invoking the provisions of section 68 of the Act on the surrendered amount of Rs.4,11,00,000/-, as Ridhiraj Builders vs. DCIT against declared business income, which is arbitrary and unjustified. The provisions of Section 68 are not attracted in the instant case and he has further erred in applying the provisions section 115BBE which are not attracted in the instant case.
The Income tax law does not expressly states that income surrendered during survey is to be expressly taxed u/s 68. There has been several judgments wherein it has been held that excess stock, cash, Debtors, loans etc found in the course of survey proceedings are business receipts and taxable under the head "Profits and Gains from Business & Profession. Few judgments are:
(i) Hon'ble Rajasthan High Court in the case of CIT V/s Bajrang Traders (DB IT no 258/2017) dated 12.09.2017.
(ii) Jaipur ITAT in the Case of ACIT V/s Sanjay Bairathi Gems Ltd (ITA no 157/JP/2017) dated 08.08.2017.
(iii) Jaipur ITAT in the Case of DCIT/Ram Narayan Birla (ITA no 48/JP/2015) dated 30.09.2016.
Reliance is also placed on following:
Lakhmichand Baijnath v. CIT [1959] 35 ITR 416, the Supreme Court has observed that when an amount is credited in the business books, it is not an unreasonable inference to draw that it is a receipt from business. It was also observed that as the credits were found in the business accounts of the assessee and the explanation as to how the amounts came to be received was rejected by the Income-tax authorities, the Income-tax authorities were entitled to treat the credits as business receipts chargeable to tax.
Nalinikant Ambalal Mody v S.A.L. Narayan Row, CIT [1966] 61 ITR 428, the Supreme Court has held that whether an income falls under one head or another has to be decided according to the common notions of practical man because the Act does not provide any guidance in the matter.
Daulatram Rawatmull v. CIT [1967] 64 ITR 593, it has been held by the Calcutta High Court that where a credit entry is found in the business accounts of an assessee and the explanation as to how the amount came to be received is rejected by the Income tax authorities and the amount is taken to be income from an undisclosed source, such income can be treated as business income, if the assessee has no other source of income.
Ridhiraj Builders vs. DCIT The same view has been taken by Calcutta High Court in case of Mansfield and Sons v. CIT [1963] 48 ITR 254. The surrender income disclosed by the assessee firm is part of the business activities and no other activities are carried out by the assessee firm and also no material or evidence brought on record by the Department and the provisions of section 68 applied by the Ld. AO and taxing the income under section 115 BBE is totally unjustifiable and also contrary to the decisions of Hon'ble Jurisdictional High Court/ITAT. It is prayed that necessary directions may kindly be given to the Assessing Officer to tax the surrendered income under the head "Income from Business and Profession.”
To support the various contention so raised by the ld. AR of the assessee in the written submission, he also relied upon the following evidences:-
S. No. Particulars Page No. 1. CBDT Circular no 11/2019 dated 19th June 2019 1-2 2. Income Tax return Acknowledgment and Computation for A 3-6 Y 2015-16 3. Financial Statements for the year ended 31st March 2015 7-11 4. Copy of statement recorded during survey proceedings 12-27 5. Written submission before CIT(A) dated 13.06.2024 28-32
Per contra, ld. DR supported the orders of the Ld. CIT(A) and no objection for remand to CIT(A).
We have heard both the parties and perused the materials available on record. We note the ld. CIT(A) has observed that the assessee has not explained the source of funds for making investment and giving cash loans with any supporting documents evidence and the assessee has also Ridhiraj Builders vs. DCIT not explained the source of investment. Before us, the ld. AR for the assessee has submitted that the written submission and the financial of the assessee has been uploaded on 29.10.2022 however, income tax return with that investment and computation of the income of the assessee was uploaded correctly but, the ld. CIT(A) has dismissed the appeal of the assessee that unexplained cash loans are taxable u/s 68 of the Act. Further before us, the Ld. AR for the assessee has requested to remand back to the file of the ld. CIT(A) as he can explain the source of investment and the financial with documentary evidence. However, the Bench feels that the assessee because of any reasons could not advance his arguments/submissions to contest the case before the lower authorities and the ld. AR for the assessee also prayed to give one more opportunity to submit the evidences concerning the issue in question, with grounds so raised by the assessee, to decide it afresh by providing one more opportunity of hearing, however, the assessee will not seek any adjournment on frivolous ground and remain cooperative during the course of proceedings before the ld. CIT(A).
Before parting, we may make it clear that our decision to restore the matter back to the file of the ld. CIT(A) shall in no way be construed as having any reflection or expression on the merits of the dispute, which In the result, the appeal of the assessee is allowed for statistical purposes.
Order pronounced in the open Court on 18/03/2025.