Loading judgment…
Facts
A survey on M/s. Orthopaedics and Trauma Center uncovered unaccounted debtors, excess cash, and excess stock totaling Rs. 30,00,390/-. The assessee's partner declared this income, which was subsequently included in the ITR under 'Income from other sources' and taxed at normal rates. The Assessing Officer, however, applied Section 115BBE, treating these as unexplained investments/money under Sections 69, 69A, and 69B, a stance upheld by the CIT(A).
Held
The Tribunal ruled that since the assessee, a hospital, had no other discernible income source and had duly incorporated the disclosed amounts into its books, the income should be treated as business income and taxed at normal rates. Citing a precedent (Surendra Kumar Patni), the Tribunal found the Revenue failed to justify the application of Section 115BBE.
Key Issues
Whether income declared during a survey and reported under 'Income from other sources' in the return should be taxed at special rates under Section 115BBE or at normal rates as business income, especially when the assessee has no other known source of income.
Sections Cited
250, 139, 69, 69A, 69B, 115BBE, 271AAC, 143(3), 234B, 234C, 234D, 244A, 156, 274, 143(2), 133A, 14, 68, 69C, 69D
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, JAIPUR BENCHES, “A-Bench” JAIPUR
Before: SHRI GAGAN GOYAL, AM & SHRI NARINDER KUMAR, JM vk;djvihy la-@ITA No. 1444/JP/2024
vkns'k@ORDER PER: NARINDER KUMAR, JUDICIAL MEMBER By way of present, the assessee- appellant, a firm, has challenged order dated 12-10-2024 passed by Ld. CIT(A), u/s 250 of the Income Tax Act, (in short ‘’ the Act’’).
ORTHOPAEDICS AND TRAUMA CENTRE VS DCIT,CENTRAL CIRCLE, KOTA 2. 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 1,02,55,230/- by observing in the manner as:- ‘’Considering the facts of the case, the unaccounted/unexplained debtors of Rs. 17,03,200/-, excess cash of Rs. 8,28,900/- and excess stock of Rs. 4,68,290/- offered during the survey proceedings are considered as unexplained investment, unexplained money and amount of investments, etc., not fully disclosed in books of account as per provision of section 69, 69A and 69B 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 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. Subject to the foregoing remarks, the total income of the assessee is computed as under:- Computation of total income Gross Income u/s 139 of the Act Rs. 1,02,55,225/- Deduction under Chapter VIA Rs.0/- Net Income Rs.1,02,55,225/- Assessed total income Rs.1,02,55,225/- R/o Rs.1,02,55,225/- Assessed u/s 143(3) of the Income Tax Act on total income of Rs.1,02,55,230/- (Income of Rs. 30,00,390/-is charged as per provision of section 115BBE of the IT Act). Interest is charged u/s 234B, 234C & 234D. Interest u/s 244A is also withdrawn, as per law. A copy of this order along with ITNS 150 which is part of this order is served upon assessee. A notice of demand u/s 156 of the Act and ORTHOPAEDICS AND TRAUMA CENTRE VS DCIT,CENTRAL CIRCLE, KOTA challan for payment of tax, if payable, is hereby issued. Penalty u/s 271AAC of the Income Tax Act is initiated as assessed income includes income chargeable u/s 115BBE by way of issue of notice u/s 274 r.w.s 271AAC of the Act. Penalty notice u/s 274 r.w.s 271AAC of the Act is issued accordingly.
Arguments heard. File perused.
As is available from the assessment order dated 2-06-2021, on 06-02-2019 a survey was conducted by the Department. The assessee – appellant firm filed return u/s 139 of the Act, relating to assessment year 2019-20, declaring total income of Rs.1,02,55,230/-. The case of the assessee was selected for compulsory scrutiny as per guidelines dated 17-09-2020 issued by CBDT. Notice u/s 143(2) of the Act was issued to the assessee on 23-09-2020.
It is the case of the Department that during the survey proceedings, a "Meyer Diary was found and impounded, which was annexed as Annexure A, Exhibit -9 (Page no. 1 to 3). On perusal of this Meyer Diary, it was noticed that assessee had given cash loans of Rs. 17,03,200/- to various debtors during the year, which were not recorded in the regular books of accounts of the relevant year. Further, the cash of Rs. 8,28,900/- and stock of Rs. 4,68,290/- were also found in excess during the survey proceedings. The partner of assessee firm Shri Rajesh Malav in his statement recorded during survey proceedings had accepted discrepancies pointed out and offered ORTHOPAEDICS AND TRAUMA CENTRE VS DCIT,CENTRAL CIRCLE, KOTA undisclosed income of Rs. 17,03,200/- on account of unaccounted/unexplained debtors; of Rs. 8,28,900/- on account of excess cash; and of Rs 4,68,290/- on account of excess stock.
In the ITR filed for the relevant year, the assessee is stated to have included this offered income of Rs. 30,00,390/-(17,03,200+8,28,900+4,68,290) in its total income under the head "Income from other sources”, and paid tax at normal rate thereon.
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, 69A and 69B of the I.T. Ac respectively, tax should be charged as per the provision of section 115BBE of I.T. Act 1961.
Ultimately on 01-02-2021, the Department issued notice to the assesse to show cause as to why the tax on the income offered for taxation during survey proceedings should not be charged as per provisions of Section 115BBE of the Act.
On 1-11-2021, the assessee submitted his reply to the said show cause notice.
The AO was not satisfied with the reply. In this regard, the observations made by the AO need to be extracted for ready reference, and the same read as under:-
ORTHOPAEDICS AND TRAUMA CENTRE VS DCIT,CENTRAL CIRCLE, KOTA ‘’The reply of the assessee is considered but not found satisfactory, because the assessee in its reply has submitted that the source of income was earning from the hospital activities. However, assessee has not submitted any documentary evidence to sustain its claim. The assessee itself had included these offered income in total income under the head "income from other sources" in its return filed for the relevant year. The partner of the assessee firm Shri Rajesh Malav himself admitted in his statement recorded during the survey proceedings that the cash loans given to the various debtors of Rs. 17,03,200/- was not recorded in regular books of accounts of the assessee firm. The source of the cash loans given to various debtors, excess cash and excess stock were also not explained by the assessee during the survey proceedings. Further, during the assessment proceedings, the assessee has also failed to provide any details and documentary evidences to sustain its claim that the source of income was earning from hospital activities. In absence of the any reliable documentary evidences, the reply of the assessee is not acceptable.’’ 12. When the matter came up before the ld. CIT(A), at page 12 of the impugned order, the ld. CIT(A) observed 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 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 ORTHOPAEDICS AND TRAUMA CENTRE VS DCIT,CENTRAL CIRCLE, KOTA 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 issue raised by the appellant is therefore not found to be acceptable and rejected.’’
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 statement of the representative of the assessee, recorded during survey proceedings, and that when, in its books of account, the assessee clearly incorporated the amount offered for tax by debiting respective Assets Account and creating the income as declared at the time of survey proceedings, the AO was not ORTHOPAEDICS AND TRAUMA CENTRE VS DCIT,CENTRAL CIRCLE, KOTA correct in observing in the assessment order that the assessee had not submitted any evidence in support of its claim that source of income was earning from hospital activities. Ld. AR has further contended that in the absence of any evidence to the contrary by the Department, the entries in the books account recorded by the assessee could not be ignored. Another submission put forth by the ld. AR is that even though in the return of income the assessee had, shown the income declared, under the head ‘’Income from other Sources’’ instead of offering the same under correct head ‘’Income from Business or Profession’’, it cannot be said that income so offered for taxation was covered under the provisions of Section 69, 69A and 69B of the Act. At the same time, the ld.AR submitted that under the head ‘’Income from other Sources’’ only such income can be considered which does not fall in any of this specific heads of the Income specified u/s 14 of the Act.s In support of the contentions, Ld AR relied upon two decisions.
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 ORTHOPAEDICS AND TRAUMA CENTRE VS DCIT,CENTRAL CIRCLE, KOTA 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 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.
ORTHOPAEDICS AND TRAUMA CENTRE VS DCIT,CENTRAL CIRCLE, KOTA 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.
Ultimately, the Coordinate Bench was 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 all the 3 amounts suffered by the partner of the firm during survey and disclosed as regular income, and subsequently disclosed in the books of accounts as covered by the head “business income’ or same were covered by the head ‘income from other sources’ as subsequently shown by the firm in the ITR and as also claimed by the department, for the purposes of rate of tax?
Survey was conducted on 6.2.2019. Statement of Dr. Rajesh Malav was recorded under section 133A on the same date i.e. 6.2.2019.
ORTHOPAEDICS AND TRAUMA CENTRE VS DCIT,CENTRAL CIRCLE, KOTA 18. On going through the statement of Dr. Rajesh Malav, a partner of the assesse firm, it is found that in reply to Q.No.9,10 and 11, he offered all the above referred to 3 amounts of income explaining that the same were part of regular income of the assessee firm. This fact has not been controverted by the department at any stage.
Learned AR for the Appellant admits that while filing return of income on 10.9.2019, the appellant firm declared the three amounts of income under the head ‘ Income from Other sources’, and further that tax was paid by the appellant on the basis of normal rate of tax.
It is true that during survey, whatever source of income was disclosed by the partner of the assessee firm during the survey i.e. that said income was part of the regular income, but contrary to it, in the ITR subsequently furnished the appellant depicted the said amount of income under the head ‘ Income from Other sources’. It has also not been disputed by the department that the assessee firm incorporated the said 3 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. 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 ORTHOPAEDICS AND TRAUMA CENTRE VS DCIT,CENTRAL CIRCLE, KOTA 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 assessee is running a hospital. Revenue has not pointed out any other activity or source of income of the appellant. Had the Revenue relied on any reliable, cogent and convincing material in proof of the fact that the assessee 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 ORTHOPAEDICS AND TRAUMA CENTRE VS DCIT,CENTRAL CIRCLE, KOTA given facts and circumstances, it cannot be said that the department was justified in invoking provisions of section 115BBE of the Act.
Having regard to all this, we are of the considered opinion that Learned CIT(A) was not justified in observing in the impugned order 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 and in Surendra Kumar Patni’s case, by the Co-ordinate Bench recently delivered on 21.11.2024, 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 assessee on the basis of disclosure during the survey. Result 25. In view of the above discussion, reasons and findings, this appeal deserves to be allowed. Same is hereby allowed and the impugned order passed by Learned CIT(A) is hereby set aside.