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Income Tax Appellate Tribunal, INDORE BENCH, INDORE
Before: SHRI VIJAY PAL RAO & SHRI B.M. BIYANI
आदेश / O R D E R
Per B.M. Biyani, A.M.:
Feeling aggrieved by appeal-order dated 16.11.2023 passed by learned Commissioner of Income-Tax (Appeals)-NFAC, Delhi [“CIT(A)”], which in turn arises out of rectification-order dated 13.10.2022 passed by learned ITO- 2(1), Bhopal [“AO”] u/s 154 of Income-tax Act, 1961 [“the Act”] for Assessment-Year [“AY”] 2017-18, the assessee has filed this appeal on following grounds:-
1. That on the facts and circumstances and in law, the Ld. CIT(A) erred in upholding the action of the AO in invoking provisions of section 115BBE of the Income-tax Act, 1961, in rectification order passed u/s 154 of the Act even when the said issue was debatable in nature and was outside the purview of section 154 of the Act. Page 1 of 13
Shri Ram Babu Singh, Bihar AY 2017-18
That on the facts and circumstances and in law, the Ld. CIT(A) erred in upholding the action of the AO in invoking provisions of section 115BBE of the Income-tax Act, 1961, in rectification order passed u/s 154 of the Act even when the AO during the course of assessment proceedings after verification of facts and due application of mind has not invoked provisions of section 69A r.w.s. 115BBE of the Act for making addition to the total income of the appellant.
3. That on the facts and circumstances and in law, the Ld. CIT(A) erred in upholding the action of the AO in invoking provisions of section 115BBE of the Income-tax Act, 1961, in rectification order passed u/s 154 of the Act even when the AO during the course of assessment proceedings has specifically initiated penalty proceedings u/s 270A of the Act and has not initiated penalty proceedings u/s 271AAC of the Act, which itself proves that the AO was of opinion that provisions of section 69A r.w.s. 115BBE of the Act were not applicable .
4. That on the facts and circumstances and in law, the Ld. CIT(A) erred in upholding the action of the AO in computing the amount of tax liability by invoking the amended provisions of section 115BBE of the Income-tax Act, 1961, even when even in respect of cash deposited in the bank accounts prior to 15.12.2016 i.e. prior to the date of obtaining assent from the President of India and henceforth, applicability of the amended provisions of section 115BBE of the Income-tax Act, 1961, in respect of this addition was grossly unjustifiable and wholly unwarranted. ” 2. Brief facts of case are such that the assessee filed return of AY 2017- 18 on 28.10.2017 declaring an income of Rs. 1,16,660/-. The case of assessee was subjected to scrutiny-assessment and the AO issued notices u/s 143(2)/142(1). Finally, the AO passed assessment-order after making an addition of Rs. 20,50,000/- deposited by assessee in bank accounts during demonetization period. The AO’s order is extracted below for an immediate reference:
“6. Further assessee on confronting, has submitted that “I have keeping cash as I wanted to buy a property in India and most of land owners and contractors were not accepting cheques and direct bank transfer at that time. That was the only reason on keeping cash at hand.” In his reply, the contention which cannot be accepted, as there is no proof which can substantiate his statement on deposits during demonetization period which are the sole deposit in cash in the bank accounts. So also there is no Shri Ram Babu Singh, Bihar AY 2017-18 withdrawals from bank immediately preceding the cash deposits. Alongwith that the assessee has throughout his statement never explained the actual source of the deposits.
The reason stated by the assessee for cash deposit of Rs. 20,50,000/- during demonetization period is neither acceptable nor justifiable and is not supported by any true and accurate documents. Thus, I am satisfied that in view of material on record, and the rational conclusions, the assessee’s income to the extent of Rs. 20,50,000/- (Rs. 11.50 lakhs + Rs.9.00 lakhs) for A.Y. 2017-18 must be treated as his unexplained income and added back to his returned income. Penalty proceedings u/s 270A of the Income-tax Act, 1961, on misreporting of income is being initiated separately.”
Subsequently, the AO passed a rectification-order dated 13.10.2022 u/s 154, the same is also re-produced below:
Shri Ram Babu Singh, Bihar AY 2017-18 Shri Ram Babu Singh, Bihar AY 2017-18 Shri Ram Babu Singh, Bihar AY 2017-18 Shri Ram Babu Singh, Bihar AY 2017-18
Thus, in the original assessment-order, the AO subjected the addition of Rs. 20,50,000/- to normal taxation but subsequently, the AO passed rectification-order charging tax at a higher rate u/s 115BBE.
Aggrieved by rectification-order, the assessee carried matter in first- appeal but did not succeed. Now, the assessee has come in next appeal before us.
Ld. AR for assessee has filed a detailed written-submission and also made oral arguments during hearing. The contemporary point raised by Ld. AR is such that the higher rate of tax u/s 115BBE is applicable only to the income u/s 68 to 69D. However, the AO’s noting in assessment-order is “the assessee’s income to the extent of Rs. 20,50,000/- (Rs. 11.50 lakhs + Rs. 9.00 lakhs) for AY 2017-18 must be treated as his unexplained income and added back to his returned income.” The AO has nowhere mentioned in assessment-order that he treated the impugned addition as something falling u/s 68 to 69D. In fact, the AO has also initiated penalty proceeding u/s 270A qua the impugned addition in assessment-order and subsequently imposed penalty u/s 270A vide order dated 04.01.2022, copy filed in Paper- Book at Page 3-4. Ld. AR submitted that the Income-tax Act, 1961 prescribes penalty u/s 271AAC for the incomes taxable u/s 68 to 69D whereas the penalty u/s 270A is for other cases. He submitted that by imposing penalty of section 270A and not of section 271AAC, the AO has made it unambiguously clear that he treated the impugned addition as not representing income u/s 68 to 69D. Therefore, there was no mistake
Shri Ram Babu Singh, Bihar AY 2017-18 whatsoever in the assessment-order and consequently the AO is wrong in taking recourse to rectification u/s 154. Alternatively, the AO has charged higher rate of tax u/s 115BBE in rectification proceeding u/s 154 but it is vehemently held by several benches of ITAT that such an action is beyond the scope and ambit of rectification. Ld. AR relied upon a few decisions of ITAT benches in this regard:
(a) ITAT, Jaipur in ACIT Vs. Sudesh Kumar Gupta (2020) 117 taxmann.com 178 (b) ITAT, Jaipur in Mukesh Goyal Vs. ITO, (c) ITAT, Jodhpur in Smt. Kanchan Rathi Vs. ACIT, Bikaner, ITA No.
196/Jodh/2023 (d) ITAT, Bengaluru in Shri Kasireddy Ranadheer Reddy Vs. DCIT, ITA
No. 264/Bang/2022 (e) ITAT, Jaipur in Hari Narain Gattani Vs. DCIT (2021) 123 taxmann.com 8
7. With these submissions, Ld. AR very strongly contended that the rectification-order passed by AO u/s 154 was invalid and must be quashed.
Per contra, Ld. DR for revenue submitted that every income has to be taxed under some provision of law. Therefore, when the AO has not mentioned any section in assessment-order, there arose an apparent mistake. Hence, the AO was necessarily required to rectify assessment-order by invoking provisions of section 154 which he did. Accordingly, there is Shri Ram Babu Singh, Bihar AY 2017-18 nothing wrong in passing of rectification-order and the same must be upheld. Ld. DR further relied upon CIT(A)’s order.
We have considered rival contentions of both sides and perused the orders of lower-authorities as well as the material held on record to which our attention has been drawn. After a careful consideration, we find that the rectification-order passed by AO is suffering from several infirmities as under:
(i) Firstly, the undisputed facts of present case are such that the AO made addition in assessment-order on account of ‘unexplained income’ without making any whisper of section 68 to 69D and charged tax at normal rate and simultaneously the AO initiated penalty u/s 270A of the act and thereafter passed penalty-order dated 04.01.2022 imposing penalty @ 200% of tax sought to be evaded. Subsequently, the AO passed rectification-order charging tax at a higher rate of 60% u/s 115BBE. On a careful consideration of the scheme of Income-tax
Act, 1961, we find that if an income is taxable u/s 68 to 69D, then the section 115BBE prescribes higher rate of tax @ 60% but a lower rate of penalty @ 10% of tax u/s 271AAC. Conversely, if an income is not taxable u/s 68 to 69D, the act prescribes normal tax of tax but higher amount of penalty @ 50%/200% of tax u/s 270A. But it cannot be so that the AO can impose higher rate of tax @ 60% u/s 115BBE and at the same time higher rate of penalty @ 50%/200% u/s 270A. Such a course of action is against the provisions of Income-tax Act, 1961
Shri Ram Babu Singh, Bihar AY 2017-18 itself. In the present case, admittedly the AO has passed assessment- order charging tax at normal rate and then passed penalty-order dated 04.01.2022 charging higher rate of penalty u/s 270A. This original approach applied by AO was very much in accordance with law. However, subsequently the AO has passed rectification-order on 13.10.2022 charging tax at higher rate of 60%. The AO cannot do so.
Therefore, the rectification-order is against the very scheme of act itself.
(ii) Secondly, there is a strong judicial view coming from various decisions quoted by Ld. AR that the rectification u/s 154 is not possible to invoke tax rate u/s 115BBE, when the AO has not invoked section 68 to 69D in assessment-order. We re-produce below the relevant paras of first two decisions quoted by Ld. AR:
ITAT, Jaipur in ACIT Vs. Sudesh Kumar Gupta (2020) 117 taxmann.com 178: “11. In the instant case, as we have noted above, the return of income so filed has been accepted by the AO without making any adjustment/variation to the income so offered by the assessee and the assessment has been completed u/s 143(3) of the Act. Further, there is nothing on record which shows that the AO has called for any Explanation of the assessee regarding the nature and source of such investment during the course of assessment proceedings and any formation of opinion and recording of satisfaction by the AO which is required before invoking the provisions of section 69 of the Act. Though the AO has issued a show-cause as to why penalty proceedings u/s 271(1)(c) may not be initiated in respect of such investment, however, he has not issued any show-cause for invoking provisions of section 69 of the Act or has called for any Explanation of the assessee regarding the nature and Shri Ram Babu Singh, Bihar AY 2017-18 source of such investment. In fact, the assessment order so passed by the AO is silent about invoking the provisions of section 69 of the Act. Where the provisions of section 69 have not been invoked by the AO while passing the assessment order u/s 143(3), going by the plain language of section 115BBE, the latter cannot be invoked in the instant case.
It is, therefore, not a case where provisions of section 69 have been invoked by the AO while passing the assessment order u/s 143(3) and at the same time, he has failed to apply the rate of tax as per section 115BBE of the Act. Had that been the case, it would clearly be a case of rectification and powers u/s 154 can be invoked. However, in the instant case the AO has not invoked the provisions of section 69 at first place while passing the assessment order u/s 143(3), therefore, the provisions of section 115BBE which are contingent on satisfaction of requirements of section 69 cannot be independently applied by invoking the provisions of section 154 of the Act. We therefore uphold the order of the Ld. CIT(A) and the matter is decided in favour of the assessee and against the Revenue.”
ITAT, Jaipur in Mukesh Goyal Vs. ITO, order dated 22.02.2023: “9. We have heard the rival contentions, perused the material on record, orders of the lower authorities and also gone through the judgment cited by the ld. AR of the assessee. The Bench noted that out total cash deposit of Rs. 15,40,000/- ld. AO has made an addition of Rs. 2 lac as income in addition to what has been returned by the assessee. The assessee has already accepted the addition and preferred an appeal considering the same as income of the assessee. On going through the order passed u/s. 143(3) r.w.s. 147 of the Act we are of the considered view that the ld. AO has not invoked any under which provision he has added a sum of Rs. 2 lac. In the absence of any specific finding the ld. AO cannot charge the said income within the provision of section 115BBE as specific rate of tax for this addition therefore, action of charging the specific tax u/s 115BBE in the proceeding u/s 154 of the Act is not correct considering the peculiar fact of the case on hand. Similar view has been taken by this bench in the case of ACIT vs. Shri Sudesh Kumar Gupta in Shri Ram Babu Singh, Bihar AY 2017-18 dated 09.06.2020 at para 12 of the order and the same is reiterated here in below:-
“12. It is therefore not a case where provisions of section 69 have been invoked by the Assessing officer while passing the assessment order u/s 143(3) and at the same time, he has failed to apply the rate of tax as per section 115BBE of the Act. Had that been the case, it would clearly be a case of rectification and powers under section 154 can be invoked. However, in the instant case, the Assessing officer has not invoked the provisions of section 69 at first place while passing the assessment order u/s 143(3), therefore, the provisions of section 115BBE which are contingent on satisfaction of requirements of section 69 cannot be independently applied by invoking the provisions of section 154 of the Act. We therefore upheld the order of the ld CIT(A) and the matter is decided in favour of the assessee and against the Revenue.”
9.1 Being consistent on the finding given by the coordinate bench we also held that as there is no finding in the assessment order that the income added is under which provision of the act and therefore, charging the specific tax rate u/s. 115BBE is not in accordance with the provision of law and the same is quashed. In terms of these observation the appeal of the assessee is allowed.”
(iii) Thirdly, in the rectification-order itself, the AO has noted “The assessment-order was made addition of Rs. 20,50,000/- on account of unexplained money in terms of the provisions of section 69A of the I.T.
Act …” Thus, the rectification-order made by AO itself is wrong because as discussed earlier, the AO has nowhere made any wishper in assessment-order about section 69A.
In view of above discussions and for the reasons stated therein, we are of the considered view that the rectification-order passed by AO u/s 154 is Shri Ram Babu Singh, Bihar AY 2017-18 not a valid order and cannot stand. We therefore quash the same and consequently the charging of tax by AO u/s 115BBE is also quashed. The assessee succeeds in its ground.
Resultantly, this appeal of assessee is allowed.
Order pronounced in open court on 09.05.2024.