INCOME TAX OFFICER, MORBI vs. MAHENDRAKUMAR BHAGVANDAS RANPURA, MORBI

Grounds of appeal

On the facts and circumstances of the case and in law, the Ld. CIT(A) ought to have considered that the total indirect expense after excluding interest expenses is Rs. 1,96,048/-( total expense of Rs. 7,27,693 less interest expenses of Rs. 5,31,645), which is too low for running a proprietary firm having turnover of Rs. 1,51,13,862/-. 5. Any other ground that the Revenue may rise before or during the proceedings before the Hon'ble ITAT. 6. It is, therefore, prayed that the order of the CIT(A) be set aside and that of the assessing officer be restored to the above extent.” 3.Grounds of appeal raised by the assessee in Cross Objection, are as follows:

Learned Counsel for the assessee, begins by pointing out that this Cross Objection was filed by the assessee, in pursuance of the arguments advanced by the Ld. D.R. for the Revenue, during the course of hearing before this Tribunal, when the Revenue`s appeal in Section 115BBE of the Act. As the assessee did not raise this special ground, pertaining to Section 115BBE of the Act, by filing, cross objection, in response to the appeal filed by the revenue. Therefore, during the course of hearing, before this Tribunal, the assessee requested the Bench to permit him to file the cross objection, wherein the assessee can raise the grounds pertaining to Section 115BBE of the Act vis-à-vis low tax effect. The revenue has filed the appeal against the order of learned CIT(A) in which comes within the ambit of low tax effect. Therefore, assessee argued before this Tribunal that appeal of the Revenue should be dismissed, on account of low tax effect. However, learned DR for the revenue argued that the assessee`s case pertain to cash deposit during demonetisation period, where section 115BBE of the Act, would be applicable, and consequently, the higher rate of income tax will be imposed on the assessee and as a result, the appeal of the revenue should not be dismissed on account of low tax effect, that is, by applying the provisions of section115BBE of the Act, the tax effect is more, therefore appeal of the revenue should be heard on merit, and it should not be dismissed on account of low tax effect. However, during the proceedings before this Tribunal, assessee has argued and cited some judicial precedent, wherein it was held that in order to compute the tax effect, the normal rate of income tax would be considered and not the rate prescribed in section 115BBE of the Act. However, at this juncture, learned DR for the revenue, pointed out that in order to argue on the provisions of section 115BBE of the Act, vis-à-vis low tax effect, the assessee should have filed cross objection before this Tribunal. Therefore, in order to argue, under section 115BBE of the Act, whether normal rate of income tax would be applied or higher rate of income tax, as prescribed under section 115BBE of the Act, would be applied to compute the tax effect, the present cross objection has been filed. Therefore this Cross Objection has been filed by the assessee just to support the arguments relating Section 115BBE of the Act, which is barred by limitation by 279 days, which may be condoned in the interest of the Justice.

We have heard both the parties on this preliminary issue. We have gone through the petition for condonation of delay, and the sufficient cause explained by the assessee, in the petition for condonation of delay. The learned Counsel adverted our attention to the reasons for condonation of delay, and urged for a benign view and sought condonation of delay of 279 days in filing the appeal before this Tribunal. A perusal of the reasons and sufficient cause explained by the ld. Counsel for the assessee, gives us an impression of existence of mitigating circumstances to enable us to exercise our discretion in favour of the assessee . Accordingly, the delay is condoned in filing the cross objection.

Succinctly, the factual panorama of the case is that assessee before us is an Individual. The assessee has filed his return of income for assessment year (A.Y.) 2017-18, on 31/01/2018, declaring therein total income of Rs. Nil/-. The return of income was processed u/s 143(1) of the Act. Later on, the case of the assessee was selected through CASS for "Scrutiny" for the year under consideration. The assessee is an individual and having proprietorship firm engaged in business of manufacturing and trading in gold, precious metals and ornaments. The assessee has deposited SBN of Rs.1,42,92,000/-in his Central Bank of India account no. 3246707428 during demonetization period. Hence, to verify the genuineness of transaction done by the assessee for the year under consideration and whether the same is shown by the assessee in his books of account or return of income for the year under consideration, statutory notice u/s 143(2) of the Act was issued on 28/08/2018 and duly served upon the assessee through electronically. During the assessment proceedings, the assessing officer issued show cause notice dated 25.12.2019, to the assessee, to explain the transaction, which is reproduced by the assessing officer, in the assessment order, vide page No.2 to 4.

In response, the assessee submitted its reply before the assessing officer, which is reproduced by the assessing officer in the assessment order vide page No.4 to 5 of the assessment order. In his reply, the assessee stated that due to Diwali festival, there was more sale as compared to other months. The assessee also submitted the sales figure for previous years and subsequent years to corroborate his arguments. However, assessing officer rejected the above contention of the assessee and held that the cash deposit made during demonetization is assessee's own unaccounted money, which he is trying to pass it off as sale proceeds. The assessing officer after recording his findings eventually held that the assessee has failed to discharge the onus cast upon him to establish the genuineness of sale transaction and failed to provide full details and confirmation from persons to whom he has sold gold bars. Therefore Rs. 1,11,00,047/-(Rs.1,42,92,000 cash deposited- Rs.23,23,503/- opening cash balance-Rs.8,68,450 already declared in PMGKY) was added back as unexplained Cash Credit u/s 68 r.w.s. 115BBE of the Act. 10.Feeling aggrieved by the order of the Assessing Officer, the assessee carried the matter in the appeal before the Ld. CIT(A), who has deleted the addition made by the assessing officer. The ld.CIT(A) observed that the assessee has duly substantiated its claim from the documentary evidences and also with the facts which duly supported with his own previous history and trend. Further, the books of accounts have not been rejected as no discrepancy was found therein. The amount of cash sales is being reflected in its trading and profit and loss account. The impugned sales had been taxed twice, firstly the same was treated as sales and secondly the same was treated as unexplained cash credit u/s 68 of the Act. This would tantamount to double taxation of income, which is impermissible in law. Accordingly, the ld. CIT(A) held that action of the assessing officer in holding that the assessee could not substantiate the cash deposits with documentary evidences is not based on correct appreciation of the facts. Therefore, ld. CIT(A) deleted the addition of Rs. 1,11,00,047/-.

Aggrieved by the order of the Ld. CIT(A), the revenue is in appeal before us and assessee also filed Cross Objection before us.

Learned Counsel of the assessee submitted that in order to arrive at tax effect, the special rate laid down in section 115BBE of the Act should not be adopted but slab rate should be applied as amendment in section115BBE of the Act, came in force from 15/12/2016, whereas demonization period commenced from 08/11/2016 and hence in any case, tax rate as per 115 BBE could not have been applied, for that learned Counsel for the assessee, relied on the judgement of the Co-ordinate Bench of ITAT Surat in the case of Samir Shantilal Mehta, vide ITA42/SRT/2022 order dated 08/05/2023.

On the other hand, Ld. D.R. for the Revenue, submitted before us written submission and argued also stating that Sections 68 to 69D read with Section 115BBE are self-contained provisions that operate as a distinct code within the Income Tax Act, 1961. These provisions prescribe a higher tax rate to address unexplained income and deter evasion. The judicial principle of special law prevailing over general law underscores that CBDT Circular No. 09/2024 does not affect the application of these sections. The Revenue must calculate tax under these sections at the higher rate specified in Section 115BBE, ensuring compliance with legislative intent and judicial principles. The Section 68 of the Income Tax Act, 1961, serves as a robust and self-contained provision designed to address unexplained credits, ensuring the integrity of the tax system and preventing the evasion of taxes. Its special status as a "code within the Income Tax Act" is reinforced when read alongside sections 69 to 69D and Section 115BBE of the Act. The introduction of Section 115BBE, prescribing a higher tax rate for income assessed under these provisions, highlights the legislature's intent to treat such credits with stringent scrutiny and as a separate class of taxable income. Therefore, higher tax rate is applicable to the assessee.

We have heard both sides in detail and also perused the records of the case including the paper book filed by the assessee. The necessary facts of the case have already been discussed in paragraphs above. On examination of the facts and circumstances of the case, we find merit in the submission of learned Counsel for the assessee. The Ld. Counsel for the assessee submitted that the appeal filed by the Revenue comes within the ambit of low tax effect. The Ld. Counsel fairly stated that if the rate of tax, as mentioned in Section 115BBE of the Act, is applicable then the revenue’s appeal would not come under the low tax effect. However, Ld. Counsel argued that in some of the decisions of the Tribunal, on identical facts and similar facts, it has been held that provisions of Section 115BBE of the Act are not applicable retrospectively. The ld. Counsel pointed out that the amendment in section 115BBE of the Act, came into force from 15.12.2016, whereas demonetization period commenced from 08.11.2016, hence tax rate as per Section 115BBE of the Act is not applicable retrospectively to compute the low tax effect. For that ld. Counsel for the assessee relied on the following decisions of the Co-ordinate Benches, viz: (i) Sureshbhai Bhiukhabhai Patel Vs. ITO in vide order dated 14.11.2024, (ii) ITO Vs. Chirag Hasmukhlal Soni in IT(SS)A No. 137 of 2021 vide order dated 29.10.2024 and (iii) Samir Shantilal Mehta Vs. ACIT in vide order dated 08.05.2023. Therefore, based on the above decisions, learned Counsel for the assessee contended that in order to compute the low tax effect, normal rate of income tax would be applied and therefore, the present appeal of the revenue falls within the low tax effect hence, appeal of the revenue should be dismissed on account of low tax effect, as the income tax rate prescribed under section 115BBE of the Act is not applicable retrospectively.

We note that in this appeal, the total tax effect, as per normal rate of income tax comes at Rs.38,96,937/- and tax effect as per special rate under section 115BBE of the Act, the income tax comes at Rs.85,74,786/-. We find that higher rate of tax was brought on the Statute Book by introducing Taxation Laws (Second Amendment) Bill, 2016 in Parliament on 28th November, 2016 and which got ascent of the President on 15th December, 2016 and therefore, Parliament had no intention to tax transactions undertaken prior to 28th November, 2016 at higher rate and said amendment could be pressed into service only with effect from (w.e.f.) 15th December, 2016 and not prior to that. Had it been an intention of legislature, such amendment would have been made by Finance Act, 2016 by which set of loss was withdrawn against incomes assessed u/s 69, 69, 69A 69B, 69C or 69D of the Act. Law on the issue is well settled, no one can be fasten with liability which was not existing on the date of execution of transaction undertaken by him as held by Hon'ble Supreme Court in Karimtharuvi Tea Estate Ltd vs State of Kerala (1966) 60 ITR 262 (SC) and Commissioner of Income-tax v. Scindia Steam Navigation Co. Ltd. [1962] 42 ITR 589 (SC). Law explained in these case laws has been subsequently reaffirmed by Hon'ble Supreme Court in most recent judgement in the case of CIT vs Vatika Township (P) Ltd 367 ITR 466 (SC).

As observed the Hon`ble Supreme Court in C.A. Abraham v. ITO AIR 1961 SC 609 at p. 612, in interpreting a fiscal statute, the Court cannot proceed to make good the deficiencies, if there be any. The Court must interpret the statute as it stands and in case of doubt, in a manner favourable to the taxpayer. Therefore, considering these facts, we find that issue under consideration, is squirely covered by the judgment of the Co-ordinate Bench of ITAT-Surat in the case of Samir Shantilal Mehta, in decision dated 08.05.2023, where in it was held as follows: “6. After giving our thoughtful consideration to the submission of the parties and perusing the judicial decisions relied upon by the Ld. Counsel, we find that the issue involved in the present appeal is no longer res integra. The question as to whether provisions of section 115BBE would be applicable to tax the unexplained money being undisclosed gold, Jewellery found during the course of search, when the date of search is 16.08.2016, was considered by various judicial forums across India. The said issue is considered by Co-ordinate Bench of ITAT, Indore in wherein it was held as follows: “11. Allowing the appeal on the chargeability of tax as per normal rates instead of amended provision of Section 115BBE of the Act is the subject matter before us. The assessee has challenged the chargeability of tax @ 77.25% by invoking the amended provision of Section 115BBE of the Act on account of additional income declared at the time of search, survey and also the addition made by the assessing officer.

The case of the assessee is this that the amendment in Section 115BBE came into force only on 15.12.2016 whereas the search was conducted on 21.09.2016 and the assessee has paid tax @ 30%. The provision of Section 115BBE of the Act tax prior to the amendment reads as follows: “115BBE. (1) Where the total income of an respondent 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 69A, section 69B, section 69C or section 69D , at the rate of thirty per cent; and (b) the amount of income-tax with which the respondent assessee would have been chargeable had his total income been reduced by the amount of income referred to in clause (a).”

The second amendment came into force w.e.f. 15.12.2016 whereas the Income Tax Act Search and Survey was conducted prior to that date and, thus, at the time of declaring the additional income the second amendment was not available under the Income Tax Act. The said amendment took place with the following manner: “(1) Where the total income of an respondent assessee, — (a) includes any income referred to in section 68, section 69, section 69A, section 69B, section 69C or section 69D and reflected in the return of income furnished under section 139; or (b) determined by the Assessing Officer includes any income referred to in section 68, section 69, section 69A, section 69B, section 69C or section 69D, if such income is not covered under clause (a), the income-tax payable shall be the aggregate of— (i) the amount of income-tax, calculated on the income referred to in clause (a) and clause (b), at the rate of sixty per cent; and (ii) the amount of income-tax with which the respondent assessee would have been chargeable had his total income been reduced by the amount of income referred to in clause (i) (2) Notwithstanding anything contained in this Act, no deduction in respect of any expenditure or allowance [or set off of any loss] shall be allowed to the respondent assessee under any provision of this Act in computing his income referred to in clause (a) of sub-section (1).]” After the amendment total income includes additional income as voluntarily declared by the assessee in the return of total income whereas the amount of addition made by the assessing officer included both the amount, and the provision of section 115BBE of the Income Tax Act was applied. Therefore, the assessee made out the following case against the order passed by the Ld. assessing officer: “2.2.5] That provision of section 68, 69, 69A, 69B, 69C and 69D of the Income Tax Act is attracted when the additional income as offered or amount as added attract the provision of sections 68, 69, 69A, 69B, 69C and 69D of the Income Tax Act. The present case in hand, the assessing officer made addition to the total income of the respondent assessee by invoking the provision of section 69B of the Income Tax Act "69B. Where in any financial year the respondent assessee has made investments or is found to be the owner of any bullion, Jewellery or other valuable article, and the Assessing Officer finds that the amount expended on making such investments or in acquiring such bullion, Jewellery or other valuable article exceeds the amount recorded in this behalf in the books of account maintained by the respondent assessee for any source of income, and the respondent assessee offers no explanation about such excess amount or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the excess amount may be deemed to be the income of the respondent assessee for such financial year." 2.3] That provision of section 69B of the Act though invoked in the case of the above respondent assessee. However, the excess Jewellery as found was part of stock in trade of the respondent assessee company and not found as Investment as envisage in the provision of section 69B of the Income Tax Act. That provision of section 68 to 69D are residuary sections and the same is applied only where the amount was not taxed under any specific chapter. In the present case in hand, the respondent assessee company is engaged in the business of Jewellery. The difference in the quantity of stock was during the normal business activities of the respondent assessee company. The excess Jewellery as found was part of its stock in trade and found in the business, premises of the respondent assessee company. It was also explained by the respondent assessee that the same was out of its normal business income and therefore the same is taxable under the head of business income. That when income is taxable as business income of the respondent assessee. In that case, the assessing officer was not justified in adding the same by invoking the provision of section 69B of the Income Tax Act. Thus, the addition as made by invoking the provision of section 69B of the Act was not justified. That when the excess amount of stock was taxed as business income of the respondent assessee on account of closing stock valuation, in that case there was no justification for invoking of the provision of section 115BBE of the Act. 2.4] The respondent assessee company carrying manufacturing and trading business of Jewellery from last several years. During the course of Search and Survey Proceedings respondent assessee company had offered an amount of Rs. 10,14,95,122/-and Rs. 1,20,02,793/- on account of discrepancies in Stock. In addition to that the Ld. A.O. also added Rs. 14,07,74,248/- on account of excess valuation of closing stock in value terms only. 2.5.1] That while filing the return the respondent assessee company included the surrender amount of Rs. 11,34,97,915/- under the head "Business Income" and paid tax at applicable normal rate of 34.60%.

It is also a fact that the Ld. assessing officer has not brought on record any evidence or material to establish that the assessee was involved in any other activities or having any other source of income. While deleting the addition made by the Ld. assessing officer the Ld. CIT(A) observed as follows:

In the result, the appeal filed by the Revenue is dismissed.”

The said issue is also covered by another Co-ordinate Bench of ITAT, Jabalpur in the case of Sandesh Kumar Jain, in wherein it was held as follows:

We note that case of the assessee, under consideration is that the amendment in section 115BBE came into force only on 15.12.2016 whereas the search was conducted on 16.08.2016 and the assessee has paid tax @ 30%. Since the search in the case of the assessee was carried out before the amendment the addition ought to have been made in terms of the prevailing provision and therefore, the addition made by the assessing officer invoking section 115BBE, provision of which came into force only on 01.04.2017, is not sustainable. Therefore, we note that assessee’s issue is squarely covered by the aforesaid precedents, hence we allow the appeal of the assessee.

In the result, appeal filed by the assessee is allowed.”

Considering the above facts and findings, we find that tax effect at normal rate to the tune of Rs.38,96,937/- would be considered and which falls within the ambit of low tax effect. We note CBDT has issued Circular No. 09/2024 dated 17.09.2024, whereby the monetary limits for filing of appeals by the Department before Income Tax Appellate Tribunal and High Courts and SLP before Supreme Court have been increased as measure for reducing Litigation. The revised monetary limits laid down in para-2 of this Circular are as follows:

Before Appellate Tribunal Rs. 60,00,000/- 2. Before High Court Rs. 2,00,00,000/- 3. Before Supreme Court Rs. 5,00,00,000/- We find that in the present case, the tax effect by the revenue is less than Rs.60,00,000/-, therefore, we dismiss the appeal filed by the revenue.

Since we have dismissed the appeal of the Revenue, therefore, cross objection filed by the assessee becomes academic, hence does not require adjudication, and all other issues on merits of the additions, in the impugned assessment proceedings, are rendered academic and infructuous.

In the combined result, appeal filed by the revenue, in , is dismissed, whereas cross objection filed by the assessee becomes academic and infructuous. Order is pronounced on 08 /12/2025 in the open court. Sd/- Sd/- (DINESH MOHAN SINHA) (Dr. A.L. SAINI) JUDICIAL MEMBER ACCOUNTANT MEMBER Rajkot �दनांक/ Date: 08/12/2025 Copy of the Order forwarded to: