SHANTI KUMAR SETHI AND SONS,JAIPUR vs. ACIT CIRCLE-1, JAIPUR, JAIPUR

3.1 The ld. AO noted that since the assessee had claimed source of search cash deposits as interest on market lending, whereas the list of the parties from which such interest received has not been furnished by the assessee and due to which it cannot be ascertained the genuineness of the source of such cash deposits. Thus, the notice under section 142(1) of the act annexing specific questionnaire has been issued to the assessee on 21.11.

2019 fixing the date for furnishing submission by 25.11.2019. The assessee submitted the reply contending that the interest income offered for tax is extension of the amount offered for tax under Income Declaration Scheme, 2016 by way of market lending. As the scheme read with the amount was lent. Once the immunity is applicable to the advances the subsequent interest received on that amount till that amount is received back by the assessee should be considered as income from that source.

Mere non-disclosure of person from whom the interest is received cannot be considered as undisclosed income within the meaning of section 68 of the Act. The ld. AO noted that the contention of the assessee is nothing but trying to distract from the facts of the case. The ld. AO noted that no inquiries made from the assessee regarding the income declared by the assessee under IDS, Scheme 2016 but inquiries were made to explain the source of interest income claimed to have been earned on such declaration to justify the cash deposit over and above the amount declared in the IDS.

The assessee contended that once immunity is accepted by the Department, the natural corollary was that the names of the persons would not be asked from whom the interest is received till the amount is recovered from those persons. The assessee contended that question number 8 of CBDT Circular number 25 of 30th June, 2016 covers its case because the relevant answer by the CBDT confirms the grant of immunity in respect of the transaction of that nature and it would not be justified to exclude its transaction from the ambit of that clarification. He thus noted persons from whom the interest was claimed to have been earned post the IDS disclosure the ld. AO did not accept the reply to the show cause.

Further the AO held that the case was not covered by question number 8 of CBDT Circular which applied to purchase of property and that question number 9 of CBDT Circular went against the assessee. Thus, he noted that the false claim cannot sustain before the test of “Human Probabilities”. He further hold that no prudent person will hold cash in hand in large number and deposit the cash over a period for more than 90 days. Thus, the AO held that the amount of Rs. 55,65,000/- was liable to be treated as unexplained cash deposit u/s 68 and was to be taxed as per the rate specified u/s 115BBE of the Act. For this the ld. AO placed reliance on the "Human Probability Test" as laid down in the case of CIT vs. Durga Prasad More (1971) 82 ITR 540 (SC) and followed in the case of Sumati Dayal vs. CIT (1995) 214 ITR 801 (SC). No separate addition was made as the sum of Rs. 55,65,000/- was already declared in the return of income as part of returned income of Rs. 69,49,800/- but the same was held taxable u/s 68 r.w.s. 115BBE of the Act.

4. The said finding of the ld. AO challenged by the assessee before the ld. CIT(A). Apropos to the grounds so raised before ld. CIT(A), the relevant finding of the ld. CIT(A)/NFAC is reiterated here in below:

“6.0 Decision: 6.1 I have carefully considered the facts of the case, the grounds of appeal, the submissions made and the details mentioned in the assessment order. Grounds no. 1 and 2 are against the sum of Rs. 55,65,000/- being interest income from money lending being considered as income falling u/s 68, liable to be taxed u/s 115BBE. 6.2 The appellant in its justification for not offering the delayed interest under IDS has submitted "that if the Assessee would not have declared interest income of Rs. 55,65,000/- on the delayed recoveries of market lending, the Department would have raised the question for earning interest for the delayed period and would have definitely added the sum on human probability test as no one can believe that further interest would not have been earned by the Assessee till the amount is recovered". This is a peculiar argument as if the delayed interest income pertains to AY 2017-18 then the same could not have been covered under immunity given by IDS. The relevant section 183 of the of the Finance Act, 2016 is reproduced below for ready reference: 183. (1) Subject to the provisions of this Scheme, any person may make, on or after the date of commencement of this Scheme but before a date to be notified by the Central Government in the Official Gazette, a declaration in respect of any income chargeable to tax under the Income-tax Act for any assessment year prior to the assessment year beginning on the 1st day of April, 2017- (a) for which he has failed to furnish a return under section 139 of the Income-tax Act; (b) which he has failed to disclose in a return of income furnished by him under the Income-tax Act before the date of commencement of this Scheme; (c) which has escaped assessment by reason of the omission or failure on the part of such person to furnish a return under the Income-tax Act or to disclose fully and truly all material facts necessary for the assessment or otherwise Even if the delayed interest income pertained to years before AY 2017-18 also, no immunity can be granted as immunity under IDS is subject to disclosure and payment of taxes. Section 184 is reproduced hereunder: 184. (1) Notwithstanding anything contained in the Income-tax Act or in any Finance Act, the undisclosed income declared under section 183 within the time specified therein shall be chargeable to tax at the rate of thirty per cent. of such undisclosed income.

7 Shanti Kumar Sethi and Sons vs. ACIT 6.3 It is trite law that even an income duly declared under IDS, if the taxes thereon were not paid within the time limit allowed under the IDS, had no immunity. Further, immunity to the appellant is only to the extent of the declaration made and not for anything that may, as per appellant's argument, logically flows from it. Reliance is placed on the decision of the Hon'ble SC in the case of DCIT vs M.R. Shah Logistics (P.) Ltd [2022] 136 taxmann.com 373 (SC) wherein the Hon'ble SC has held as under: "30. That brings the court to the scope and effect of the Income Declaration Scheme (IDS), introduced by Chapter IX of the Finance Act, 2016. The objective of its provisions was to enable an assessee to declare her (or his) suppressed undisclosed income or properties acquired through such income. It is based on voluntary disclosure of untaxed income and the assessee's acknowledging income tax liability. This disclosure is through a declaration (section 183) to the Principal Commissioner of Income-tax within a time period, and deposit the prescribed amount towards income tax and other stipulated amounts, including penalty. Section 192 grants limited immunity to declarants, and states as follows: "192. Notwithstanding anything contained in any other law for the time being in force, nothing contained in any declaration made under section 183 shall be admissible in evidence against the declarant for the purpose of any proceeding relating to imposition of penalty, other than the penalty leviable under section 185, or for the purposes of prosecution under the Income-tax Act or the Wealth-tax Act, 1957."

5. As the assessee did not find any favour from the order of the ld. CIT(A), the assessee has preferred the present appeal before this Tribunal on the ground as reproduced hereinabove. To support the various grounds so raised by the assessee the ld. AR of the assessee, has filed the written submissions and the same is reproduced herein below:

GIST OF SUBMISSIONS Ground No.1: Treating interest deposit of Rs.56,50,000 as unexplained u/s 68. Ground No.2: Invoking the provisions of Section 115BBE. BACKGROUND FACTS The Assessee HUF declared a sum of Rs.6,02,00,000 under Income Declaration Scheme “(IDS)”, 2016. The Assessee had filed Form No.1 under IDS with the following narration: Market Lending along with interest Rs.6,02,00,000. The Assessee had paid tax @45% on the above income declared under IDS. The declaration was accepted by the Department. The Assessee deposited the said cash in its bank account on the following dates, (the chart of which is appearing at AO page 2): S. No. Date of Deposit Amount Deposited Source 1 10.10.2016 20,00,000 2 10.10.2016 20,00,000 Interest on Market Lending 3 08.11.2016 3,00,000 4 23.11.2016 2,00,00,000 Interest on Market Lending of 5 24.11.2016 1,04,35,000 Rs.9,15,000/- and Market Lending of Rs.6,02,00,000/- declared in IDS, 6 25.11.2016 2,00,00,000 2016 and Rs.20,000/- out of Cash withdrawal from the same bank on 7 03.12.2016 1,07,00,000 30th July, 2016 8 26.12.2016 500 Out of Cash withdrawals from same 9 30.12.2016 1,000 bank. Interest on Market Lending of 10 18.03.2017 4,50,000 Rs.3,50,000/- and Rs.1,00,000/- out of Cash withdrawal from the same Since, it was a case of Market Lending, post declaration under IDS, Assessee started recovering the sum from the borrowers along with interest from the date of IDS till actual recovery of the money. The income declared under IDS amounting to Rs.6,02,00,000 and further interest earned thereon, during the intervening period, amounting to Rs.55,65,000 was deposited in the bank. The Assessee filed his Return of Income on 30/07/2017 declaring Total Income of Rs.69,49,800. The Returned Income was accepted vide order u/s 143(3) dated 07/12/2019. However, the interest income of Rs.55,65,000 which was offered for tax in Return of Income was taxed at a higher rate invoking the provisions of section 115BBE.

2. COMMISSIONER OF INCOME TAX (APPEALS) Ld. CIT(A) placed reliance on certain judicial pronouncements and dismissed the Appeal holding that Assessee had no immunity from disclosing the names in respect of subsequent interest earning amounting to Rs.55,65,000.

3. SUBMISSIONS

1. The submissions before ld. CIT(A) have been reproduced by ld. CIT(A) in his order on pages 3 to 9 of his order. Ld. CIT(A) has failed to appreciate the submissions in correct perspective. 1.1 Before ld. CIT(A) it was explained that the declaration under IDS was not cash-in-hand, but Market Lending. Modus Operandi of Market Lending was also explained. It was also explained that the interest income was not the past income, but was current income earned after 01-04-2016 i.e. post IDS. [Para 2 page 5 of CIT(A)] 1.2 It was explained that this interest income was earned post IDS from the same parties to whom money was lent on interest. It was further explained that Q. No 8 of FAQs issued by CBDT granted immunity from disclosing the names of counter parties. It was explained that seeking details of such persons would render the said immunity granted vide Q. No 8 as meaningless and would

12 Shanti Kumar Sethi and Sons vs. ACIT frustrate the very objective of IDS. In the peculiar facts of the present case, the interest income earned, till money is finally recovered, after a short period from the said borrowers, is not a new immunity but extension of IDS immunity. [Para 6 page 5 of CIT(A)] 1.3 The human probability test was in favor of the Assessee as nobody would believe that post IDS, the Assessee waived interest. [Para 9 and 10 page 6] 1.4 It was also submitted that the explanation offered deserves acceptance and reliance was placed on the judgment of Hon’ble Supreme Court in the case of Sreelekha Banerjee v. CIT [1963] 49 ITR 112. [Paras 11 to 14] 1.5 It was also explained that Assessee having disclosed and paid taxes on Rs.60200000 would not attempt to save differential tax of 15% on a comparatively meager sum of Rs.56,50,000. [Paras 15 & 16] 1.6 It was also explained that Section 68 converts non-income to income and since income had already been offered for tax in Return of Income filed by the Assessee, section 68 had no application. [Para 17] 1.7 It was also explained that Section 115 BBE was not applicable prior to 28/11/2016. [Para 18] It is prayed that the said submissions may please be appreciated in correct perspective at this stage.

3. Ld. CIT(A) at para 6.3 page 10 of his order as referred to the judgement of DCIT vs M.R. Shah Logistics (P.) Ltd [2022] 136 taxmann.com 373(SC) wherein following further three judgements have also been referred: - � State CBI v. Sashi Balarubramanian [2006] 157 taxmann 261/[2007] 289 ITR 8. � Tanna & Modi v. CIT [2007] 161 Taxmann 329/292 ITR 209. � Tekchand v. Competent Authority [1993] 2 SCR 864.

Ld. CIT(A) has misplaced his reliance on the above four judgements which are distinguished from the present case on the basis of facts and legal issues involved therein. All the four judgements are distinguished below: - 3.1 DCIT vs M.R. Shah Logistics (P.) Ltd [2022] 136 taxmann.com 373(SC): -

The said judgement relates to reopening of the case of a non -declarent under IDS. The relevant facts are available from para 7 of the order which para has reproduced the reasons recorded by ld. AO for reopening the case, the same, for ready reference, are reproduced below: - “2.2 It is also noticed that assessee company had received credit amount in its books but has failed to establish that the cash declared by Garg logistics Pvt. Ltd under Income Declaration scheme was not actually the cash of the assessee- company. Assessee had only submitted Income Declaration Form no. 2 of Garg Logistics Pvt. Ltd and failed to provide documentary evidence of investment of cash declared by Garg Logistics Pvt.. Ltd in the assessee company. Even the list submitted by assessee had discrepancies with data submitted to registrar of companies as discussed in above para. In other words, the assessee has not been able to establish that the income admitted under IDS 2016 by Garg Logistics Pvt.. Ltd. went in the books of investor companies. It is worth to highlight that Investor companies are independent paper companies and they have provided entries independently and not through Garg Logistics Pvt. Ltd. 2.3 Thus the claim of the assessee company that Cash declared by Garg Logistics was utilized to make investment in assessee company through paper companies remains unexplained……..” The Hon'ble Supreme Court at para 34 of the order has held as under: -

“This court is, therefore, of the opinion that the High Court fell into error, in holding the sequitur to a declaration under the Income Declaration Scheme can lead to immunity (from taxation) in the hands of a non-declarant.”

It is submitted that the Assessee himself is declarant under IDS, 2016 and he himself is seeking immunity from disclosing the names of those persons to whom, he had advanced his unaccounted money on interest. Thus, a declarant seeking immunity is different from non-declarant seeking immunity. 3.2 State CBI v. Sashi Balarubramanian [2006] 157 taxmann 261/ [2007] 289 ITR 8: - In the said case, the Hon’ble Supreme Court has held as under: -

Whether an immunity under Section 91 is granted only in respect of offences purported to have been committed under Direct Tax enactment or Indirect Tax enactment, but by no stretch of imaginations, same would be granted in respect of offences under Prevention of Corruption Act, 1988- held, yes

Thus, the above case has no relevance because Appellant is seeking immunity under the proceedings under Income Tax Act. 3.3 Tanna & Modi v. CIT [2007] 161 Taxmann 329/292 ITR 209: -

14 Shanti Kumar Sethi and Sons vs. ACIT In this case, relied upon ld. CIT(A), search was carried on against Partner of the Firm. The Partner surrendered certain on-money received by Firm on the basis of documents ceased during the course of search. The firm against whom no search warrant had been issued, later on, opted VDIS 1997 and offered the same on-money income under the said scheme. The said scheme had a clause that, if income was already detected by the department, the said income was not eligible for disclosure and immunity under VDIS 1997 The VDIS granted to the firm, later on, withdrawn on account of this ineligibility as the on-money income was detected by the Department during the course of search. Firm contended that there was no search against the firm. On a writ by the firm, the Hon'ble High Court of Bombay dismissed the petition of the Assessee Firm and later on Hon'ble Supreme Court also dismiss the Appeal for the reason of fraud practiced upon the Statutory Authorities.

The case before The Hon'ble ITAT, in the present Appeal of the Assessee, is altogether different and the Assessee himself is seeking extension of immunity to make the immunity granted under IDS workable.

In a way, the judgement of the Hon'ble Supreme Court supports the case of the Assessee, wherein, Hon'ble Supreme Court in para 21 of the order has held as under: ‘In our opinion, while construing a statute granting immunity, it should not be construed in such a manner so as to frustrate its object. Keeping in view the purport and object which the 1997 Scheme seeks to achieve, we are of the opinion that in the place of literal interpretation, the rule of purposive construction should be applied.’

3.4 Tekchand v. Competent Authority [1993] 2 SCR 864: - This judgement is also with reference to seeking immunity under Smugglers and Foreign Exchange Manipulators (Forfeiture of Property) Act, 1976 (SAFEMA).

The Hon’ble Court held that Voluntary Disclosure Act, 1976 provided for immunity under Income Tax and cannot be extended to any other law.

In respect of source also, the explanation given was that the source of interest was the borrowers to whom unaccounted money was lent on interest. The said explanation was also corroborated by the declaration so made under IDS.

The interest income, otherwise also, stands explained because, corresponding capital which earned the interest for the intervening period was offered for tax under IDS. It is not the case of Lower Authorities that, without capital having been offered for tax, interest income is claimed to have been earned.

Mere non-mentioning of the name and address would not render the income being unexplained. In this regard, parallel is drawn from a case of stock found short at the time of survey. The same is treated as an unaccounted sales and profit earned therefrom is treated as business income even without names of the persons to whom sales are made.

Similar position is in respect of excess stock found which is also treated as business income, in spite of the fact, that names of the suppliers of such excess stocks are not available.

Reliance is placed on the following judicial pronouncements: - � [2023] 152 taxmann.com 595 (Chennai- Trib.) Overseas Leathers. � [2021] 132 taxmann.com 73 (Andhra Pradesh) Deccan Jewellera (P.) Ltd.

Date Amount 10/10/2016 20,00,000 10/10/2016 20,00,000 08/11/2016 3,00,000 Total 43,00,000 Therefore, cash deposit is linked to IDS and has no link with demonetization. In view of the above, the appeal may please be allowed.” consideration is that based on the facts of the case the assessee is supposed to pay tax of @ 30 % or 60 % as the relevant income is already forms part of the Income Tax return filed by the assessee. The ld. AR of the assessee submitted that the assessee has paid tax @ 45 % in the IDS scheme and that declaration was accepted. Since, the asset declared by the assessee under IDS being the advances given on interest which the assessee started recovering the said sum from the borrowers along with the interest from the date of IDS till actual recovery of money. The income declared under IDS accepted to have been given for an amount of Rs. 6,02,00,000/- further interest earned thereon during that intervening period amounts to Rs. 55,65,000 cannot be considered as chargeable to tax @ 60%, when the assessee was required to disclose the asset for a particular date and the assets disclosed being interest bearing advances given against security of hundi, undated cheque and property documents as on 31.03.2016 the interest earned thereon till the recovery of the said amount cannot be considered as unexplained money. The case of the assessee is covered by the CBDT circular and the immunity granted in the scheme to the assessee for not disclosing that details of the persons to whom the advances were given. The ld. AO till those advances realised cannot and if it allowed then the purpose of the IDS will be frustrated and that cannot be intention of the legislature. Thus, ld. AR of the assessee submitted that test of human probability goes in favor of the assessee. The ld. AR of the assessee also submitted that there cannot be so intention of the assessee when there are paying tax @ 45 % why left that amount as on 31.03.2016 but since the advances disclosed were interest bearing the assessee fairly based on the set of facts also disclosed the income of the interest unearned by the assessee for which the disclosure is made. It is not disputed that the assessee has already paid tax @ 30 % why the assessee should do it for 15 % when they disclosed as on 31.03.2016 by paying it 45 % but it is the real fact that after the disclosure the interest is to be charged as income of the year under consideration and that interest has same immunity that is available to the principal amount and therefore, the same cannot attract provision of section 68 of the Act. Even otherwise the ld. AR of the assessee also submitted that the assessee has deposited a sum of Rs. 43,00,000/- before the demonetization and the same is not specified bank notes(SBN) and therefore even provision of section 115BBE cannot be applied based on that facts of the case. When the assessee has availed the Income Disclosure Scheme he had no idea of demonetization and the and offered for tax that interest cannot be termed as undisclosed income of the assessee. The ld. AR of the assessee submitted that the case law relied upon by the ld. CIT(A) has been distinguishable based on the facts of the case and the same is not repeated as written submission covers that aspects. Based on these arguments the ld. AR of the assessee submitted that the considering the nature of disclosure made the assessee does have the immunity for the interest income offered in the return of income.

Since the assessee has not submitted those details the interest income was considered as unexplained. The law is clear that the assessee has explained the source of income. The assessee has relied on question no. 8 of circular 25 of 2016 issued by board. That question deals with the property and not the advances. The ld. AO based on the question no. 9 [ of CBDT circular no.25/2016] stated that the assessee cannot be given benefit deposited huge amounts in cash in the bank account and the assessee was already given the benefit to the extent of income disclosed by him. Thus, considering the human probability as decided by the apex court in the case of Durga Prasad More the income is correctly taxed as unexplained. Even the ld. CIT(A) in detailed order confirmed the view of the ld. AO. He has also discussed various case laws as to why the benefit claimed by the assessee cannot be given under the IDS, 2016 as the assessee failed to give the source of the cash deposited into the bank account in addition to the amount disclosed in the IDS scheme, 2016. Based on these arguments the ld. DR supported the order of the lower authority.

It is not disputed that the assessee has made a declaration for advances given on interest and disclosure of assets in the form of money advanced.

The assets along with the interest amount was disclosed along with the modus operandi of doing that money lending activity. The assessee explained that the interest income offered was not the past income, but the income of interest earned on that advances post IDS till the date of realisation of the advances by the assessee. The assessee explained that deposited before the demonetization. Hence based on that set of fact, the logic as explained in reply to question no. 8 of circular no. 25 of 2016 is equally applicable to the facts of the present case, when there cannot be disclosure of advances then as to how the disclosure of interest on that is possible. When the assessee is given immunity not to disclose chicken then as to how he can disclose the ovum. Thus, the immunity given to the assessee cannot be take away merely on the fact that the assessee has offered the interest for the intervening without disclosing the names of the parties. The assessee cannot be expected to disclose the fact which otherwise given immunity for not disclosing. The case laws relied upon by the ld. CIT(A) are not applicable to the present set of facts and thus, since the assessee was given immunity the details of the parties to whom the advances given cannot be asked to the assessee at the back door of explaining the interest when the declaration itself says that the advances disclosed were attached with the interest thereon. In the light of the discussion record ground no. 1 raised by the assessee is allowed the immunity not to disclose the name of the parties for which the assessee has realised the advances. the Act. Since we have in ground no. 1 considered the income as arising out of the source disclosed the same cannot be subjected to tax u/s. 68 r.w.s. 115BBE of the Act. Based on this observation ground no. 2 raised by the assessee is allowed.

In terms of these observations, the appeal of the assessee is allowed.