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Income Tax Appellate Tribunal, “A” BENCH : BANGALORE
Before: SHRI N.V. VASUDEVAN & SHRI VIKRAM SINGH YADAV, ACCOUNTANT MEMBE
Date of hearing : 17.09.2019 Date of Pronouncement : 20.09.2019 O R D E R Per N.V. Vasudevan, Vice President
These are appeals by two assessees against two separate orders dated 28.03.2019 and 27.03.2019 passed by the Pr.CIT, Hubballi u/s. 263 of the Income-Tax Act, 1961 [“the Act”] relating to assessment year
Page 2 of 6 2014-15. Since both these appeals involve common issues, we deem it fit to pass a common order.
The assessee in ITA 931/B/2019 is a partnership firm carrying on business as jewellers. For the AY 2014-15 the assessee filed a return of income declaring total income of Rs.30,01,010. A survey in the business premises of assessee had taken place on 11.12.2013. In the course of survey, the assessee offered a sum of RS.12,63,731 on account of excess stock of Rs.20,34,479 on account of unaccounted debtors for credit sales and Rs.32,35,521 on account of receivables. Thus, in all, the assessee offered to tax a sum of Rs.65,33,731. In the return filed, this sum was also included in the Profit & Loss account and the sum declared in the return of income was arrived at accordingly. The AO passed an order dated 30.12.2016 accepting the aforesaid declaration of income.
As far as ITA 932/B/2019 is concerned, the assessee is a partnership firm carrying on business as jewelers. For AY 2014-15, this assessee filed a return of income declaring total income of Rs.31,10,340. A survey was conducted in the business premises of assessee on 11.12.2013. In the course of survey, the assessee offered a sum of Rs.35,32,850 comprising of Rs.23,09,200 on account of unaccounted expenses and Rs.12,23,650 on account of receivables. The said amount was credited in the P&L account and income declared in the return of income was arrived at after such credit in the P&L account. The income declared by the assessee was accepted by the AO in his order dated 30.12.2016 passed u/s. 143(3) of the Act.
4. The Pr. CIT, Hubballi in exercise of the powers u/s. 263 of the Act was of the view that the aforesaid orders of assessment were erroneous insofar as it is prejudicial to the interests of revenue for two reasons. (1) The income declared in the survey was an income which is & 932/Bang/2019 Page 3 of 6 taxable u/s. 69 of the Act and in view of specific provisions of section 115BBE(2) of the act, the said sum should have been separately charged to tax @ 30% and ought not to have been credited in the P&L account, because by crediting in the P&L account, the assessee would be claiming expenses against the income offered at the time of survey which is specifically prohibited u/s. 115BBE(2) of the Act. (2) The GP ratio had drastically reduced and therefore the AO ought to have examined the correctness and completeness of books of account of assessee by invoking the provisions of section 145 of the Act.
3. The assessee in reply to the aforesaid showcause notice, took a stand that income declared at the time of survey was business income and it was shown as such in the books of account and therefore the question of applying the provisions of section 69 of the Act and consequently the provisions of section 115BBE(2) of the Act will not arise for consideration. The assessee also submitted that the correctness of books of account has been admitted by the AO and there were no reasons why the AO should be directed to examine the applicability of section 145 of the Act, resorting to estimation of income of assessee. The Pr.CIT, however, rejected the contention of the assessee and held that the income declared at the time of survey was liable to be added u/s. 69 of the Act and therefore ought to have been taxed separately @ 30%, without allowing any expenses against the said income as per the provisions of section 115BBE(3) of the Act. The final conclusion of the Pr.CIT was as follows:-
ITA 931/B/2019 “8. In view of the foregoing, I have no hesitation to come to the conclusion that the assessment order passed by the Assessing Officer u/s.143(3)on 30/12/2016 is erroneous in as much as it is prejudicial to the interest of revenue as such, under the powers vested in me u/s.263 of the Income Tax Act, 1961, the said & 932/Bang/2019 Page 4 of 6 assessment order is set aside with a direction to the Assessing Officer to pass a fresh assessment order accordingly. The Assessing Officer shall provide the necessary opportunity to the assessee to explain various issues discussed in this order viz., the reduction in Gross Profit and non-offering of income from Labour and Making charges. Appropriate additions shall be made to the returned income / loss in respect of these issues after due analysis of facts. Besides, the unexplained investment of Rs.65,33,731/- shall be brought to tax as per the provisions of section 115BBE, applying the special rate of tax of 30% mentioned therein, without allowing any deduction therefrom.” ITA 932/B/2019 “8. In view of the foregoing, I have no hesitation to come to the conclusion that the assessment order passed by the Assessing Officer u/s.143(3)on 30/12/2016 is erroneous in as much as it is prejudicial to the interest of revenue as such, under the powers vested in me u/s.263 of the Income Tax Act, 1961, the said assessment order is set aside with a direction to the Assessing Officer to pass a fresh assessment order accordingly. The Assessing Officer shall provide the necessary opportunity to the assessee to explain various issues discussed in this order viz., the reduction in Gross Profit and non-offering of income from Labour and Making charges and the difference / shortfall in quantity of closing stock of Gold & Silver. Appropriate additions shall be made to the returned income / loss in respect of these issues after due analysis of facts. Besides, the unexplained investment of Rs.35,32,850 shall be brought to tax as per the provisions of section 115BBE, applying the special rate of tax of 30% mentioned therein, without allowing any deduction therefrom.”
Aggrieved by the aforesaid orders of Pr. CIT, the assessees have preferred the present appeals before the Tribunal.
We have heard the rival submissions. The ld. counsel for the assessee reiterated the submissions as were made before the Pr.CIT and further placed reliance on Circular No.11/2019 dated 19.6.2019, wherein the Board has clarified that the amendment to section 115BBE(2) of the Act
Page 5 of 6 by the Finance Act, 2016 w.e.f. 1.4.2017 is only prospective and not applicable to assessment years prior to 2017-18. As far as this submission is concerned, we are of the view that the aforesaid amendment is only with regard to set off of any loss against income added u/s. 69 of the Act. As far as set off of expenses against income added u/s. 69 is concerned, the provisions of section 115BBE(2) introduced by the Finance Act, 2012 w.e.f. 1.4.2013 already contain a provision prohibiting deduction on account of expenditure against income added u/s. 69 of the Act. Hence, the plea of the assessee in this regard cannot be accepted. The decision cited by the ld. counsel for the assessee in respect of the aforesaid proposition is also not acceptable for the very same reason.
The ld. DR placed reliance on the order of Pr.CIT.
After considering the rival submissions, we are of the view that income offered at the time of survey by both the assessees was credited in P&L account and the routine expenses were claimed by the assessee. Since the declaration of income was made in the course of survey and the income so offered is normally taxed u/s. 69 of the Act, the AO ought to have made investigation as to whether the income declared at the time of survey is assessable u/s. 69 of the Act or under the head ‘income from business’ or ‘income from other sources’. For this, the assessee should be specifically confronted about the source of funds in respect of income declared at the time of survey and wherefrom and how such funds emanated. We are of the view that the order of Pr.CIT needs to be modified and the issue with regard to applicability of section 115BBE(2) of the Act should be left open to be examined by the AO in the proceedings pursuant to the order u/s. 263 of the Act. The Pr. CIT in the impugned order has directed the AO to make addition u/s. 115BBE(2) of the Act, which in our opinion, may not be proper without an enquiry into & 932/Bang/2019 Page 6 of 6 the source of funds. We therefore modify the orders of Pr.CIT to this extent. It is ordered accordingly.
As far as the rejection of books of account is concerned, we are of the view that there are no facts which are brought on record to show that the books of account need to be rejected or circumstances which justify that the AO ought to have made an enquiry on the correctness and completeness of books of account maintained by the assessee. Therefore, the direction in the impugned orders in this regard are held to be not proper and in accordance with law. To this extent, the orders of Pr.CIT is quashed.
In the result, both the appeals by assessees are treated as partly allowed.
Pronounced in the open court on this 20th day of September, 2019.