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Income Tax Appellate Tribunal, INDORE BENCH, INDORE
Before: SHRI VIJAY PAL RAO & SHRI B.M. BIYANI
These three appeals by assessee are directed against the composite order of the Commissioner of Income Tax (Appeal)-3, Bhopal dated 25.10.2023 for A.Y.2020-21, 2017-18 & 2016-17 respectively. The assessee has raised common ground in these three appeals. The grounds raised for A.Y.2020-21 are reproduced as under:
“1) That the Ld. Commissioner of Income tax (A) erred in law in holding that a sum of Rs.35.00 lacs remained unexplained which was received in cash against booking of premises ITANo.533 to 535/Ind/2023 Nakoda Realities converted into temporary loan on cancellation of booking. He erred in not appreciating the fact that receipt of advance against booking of office/show-room premises is normal business activity and in case such booking is cancelled due to various reasons, it requires to be refunded to the prospective buyer. The appellant requested to convert the same into temporary loan and offered such receipt under the head "Business income". The fact that initially "On money" was received against booking of the premises was business receipt only and in the absence of confirmation from the prospective buyers at Rs. 35 lacs hence the amount was surrendered during search and offered for tax. Confirmation of treatment of such receipts as unexplained u/s 69A of the Act is wholly unjustified, improper and bad in law. 2) That the Ld. Commissioner of Income tax (A) erred in law in not appreciating the fact that the appellant had given loans, whenever idle funds are available with it being routine business activity. The appellant offered interest income earned on loans given in cash out of idle funds whereas interest was paid on aforesaid loans in cash though not claimed as expenditure. There being no other source of income to the firm, the amount of such acceptance of temporary loans by conversion of "On money receipt" against booking of premises was offered as income from business only. Treatment of such additional income offered having details of names, date of receipt, amount received and its repayment with interest thereon as unexplained income from undisclosed sources u / s 69A of the Act w.r.s. 115BBE of the Act is wholly unjustified, improper, bad in law and deserves to be quashed. 3) Without prejudice to above, learned CIT(A) ought to have considered that the assessing authority assessed the amount of unsecured loans u/s. 69A of the Act whereas the same should have been assessed u / s 68 of the Act as unexplained cash credit. u/s. 68 of the Act. Therefore, confirmation of applicability of section 69A of the Act by Ld. CIT(A) and directions to levy tax at higher rate under section 115BBE of the Act are wholly unjustified, improper bad in law & deserves to be quashed.”
ITANo.533 to 535/Ind/2023 Nakoda Realities 2. The solitary common issued involved in these three appeals is whether the CIT(A) has erred in confirming order of the AO treating conversion of booking amount into loan as unexplained receipt u/s 69A of the Act and consequently taxed at higher rate u/s 115BBE.
The brief facts emerged from the record relating to this issue are that the assessee is a partnership firm engaged in the business of builder and developer. There was a search and seizure action u/s 132 of the Act on 12.01.2021 at the business and residential premises of the partners of the assessee firm. During the course of search and seizure proceedings several incriminating documents were found which were inventoried to BS-1 to BS-4 as well as LPS- 1. Based on the entries in the seized material the assessee surrendered inter alia the income on account of these booking amounts converted into unsecured loans and the details of the surrendered amount on this account are as under:
Assessment year Amount of loan accepted 2016-17 Rs.3,50,000/- 2017-18 Rs.39,20,000/- 2020-21 Rs.35,00,000/- Total Rs.77,70,000/- ITANo.533 to 535/Ind/2023 Nakoda Realities 3.1 The AO in the assessment order has held that the above said loan of Rs.77,70,000/- as found recorded in the seized documents has been accepted in cash from different parties and not recorded in the regular books of account. Therefore, the same is treated as unexplained money u/s 69A r.w. section 115BBE. The assessee challenged the action of the AO treating the unsecured loan as unexplained money u/s 69A r.w section 115BBE before the CIT(A) but could not succeed.
Before the Tribunal the Ld. AR of the assesse has submitted that during the course of search and seizure action the assessee in the statement recorded u/s 132(4) has explained the nature of transactions as recorded in the seized material as it was received by the assessee as advance booking from the buyers. However, in certain cases the booking was cancelled and the amount received from the buyers was converted into loan to be paid subsequently. Ld. AR has submitted that the said amount was repaid by the assessee in the subsequent year however, to buy the piece the assesse surrendered the said income. Ld. AR has submitted that the seized documents itself explained the nature and source of these loans including the details of the person in whose names these entries are recorded in the seized material. He has pointed out that the entries are recorded in BS-1 & BS-3 and the name of the persons, details of the transactions in chronological order are given in these entries comprising of amount received in Cheque as well as in cash. Even the entries also manifest the purpose for Page 4 of 14 ITANo.533 to 535/Ind/2023 Nakoda Realities which the amounts were received by the assessee from these persons. The seized documents contains loans accepted by the assesse as well as loan given by the assessee apart from the payment received on account of property, on account of registration and on account of other goods. Therefore, when all the details of the transactions are recorded in the seized material itself explaining nature and source of these loan transactions then the question of unexplained nature and source of these loan transactions does not arise. Since these transactions were not recorded in the books of account therefore, the assessee surrendered the said amount despite the facts that the assessee has repaid these amount in the subsequent year. Thus, Ld. AR has emphasized that the name of the persons from whom loans were accepted, the amount of loan, date of loan received and interest paid thereupon are duly recorded in the seized material itself then these transactions cannot be treated as unexplained money u/s 69A r.w. section 115BBE of the Act. Even otherwise when the amounts were initially received as booking advance then the transactions are very much related to the ordinary business activity of the assessee and only when some of the buyers cancelled the booking the said amount was converted into loan to be paid later on along with interest. He has thus submitted that this is common practice prevailing in the business that on cancellation of booking the advance is refund to the buyers along with interest and therefore, the assessee has converted booking advance amount into unsecured loan which is a business receipt as receiving the booking advance is normal business activity ITANo.533 to 535/Ind/2023 Nakoda Realities and on cancellation by the prospective buyers the assessee requested the buyers to convert the same into temporary loan to be repaid along with interest. Thus, the Ld. AR has submitted that the provisions of section 69A are not attracted in the case of the assessee when the entries of unsecured loan in the seized material was not in the form of any money, bullion, jwellery or other valuable article. Further it was only liability which was subsequently discharged by repayment of the loans. Therefore, these unsecured loans taken by the assessee outside the book cannot be treated as unexplained money as per the provisions of section 69A of the Act.In support of his contention he has relied upon the decision of Delhi Benches of the Tribunal dated 27.10.2023 in case of DCIT vs. Tapesh Tyagi in ITANo.1344/Del/2021.
On the other hand Ld. DR has relied upon the order of the authorities below and submitted that the AO as well as the CIT(A) has given specific finding that the assessee has failed to explain the nature and source of the said loan amount and therefore, the assessee failed to prove that the income was earned from the regular business activity of the assessee.
We have considered rival submissions as well as relevant material on record. The AO has discussed the details of the entries in the seized material marked as BS-1 & BS-3 in para 12.1 to 12.4 as under:
“12.1 BS-01 (Page-59 Back Side & Page-60): Page 6 of 14 ITANo.533 to 535/Ind/2023 Nakoda Realities On perusal of noting on the said page, it was noted that the word 'cash' has repeatedly been mentioned and name of Shri Vijay Jain with 1.00%, cash appears on the top of the page. Additionally, the name of Shri Daulat Kaka and Shri Pramod are also mentioned. Scanned copy of Page No. 59 back side of BS-01 is reproduced as under:
12.1.2 Cash Loan from Shri Vijay Jain through Hundi:
A hundi amounting to Rs.20.00.000/- was also found affixed on bottom of page 60 of BS-01. Scanned copy of bottom of Page No. 60 of BS-01 is reproduced as under:
ITANo.533 to 535/Ind/2023 Nakoda Realities
12.1.3 Cash Loan from Shri Daulat Kaka: The second noting on page 59 back side of BS-01 related to cash loan received from Shri Daulat Kaka of Rs.15,00,000/- which has remain Unexplained. 12.2 BS-03 (Page-10 Front & Back Side): On perusal of Page-10 Front & Back Side of BS-03, it is seen that the assessee had accepted unexplained cash loan from Shri Kamal Jain and Shri Sunil Dhakad on various dates as mentioned on the page which is reproduced as under:
ITANo.533 to 535/Ind/2023 Nakoda Realities ITANo.533 to 535/Ind/2023 Nakoda Realities
12.4 As per the seized documents, assessee had accepted unsecured loans in cash from different parties as mentioned in above table. However, it is seen thal assessee has offered amount of Rs.75.20 lacs only as unexplained unsecured loans accepted during different years as above. Out of this accepted amount of Rs.75.20 lacs, it is seen that amount of cash loan of Rs.3,50,000/- pertain to AY 2016-17 but in the return filed by the assessee same has not been offered as additional income. Since amount of Rs.3,50,000/- received in cash remain unexplained, the same is added to the total income of assessee for AY 2016-17 as unexplained money u/s 69A r.w.s. 115BBE. Penalty proceedings u/s 271(1)(c) is also initiated for concealment of particulars of income for AY 2016-17.”
6.1 The AO has also compiled the details of the transactions in the tabulated form giving of the page number of the seized material, the name of the lenders, date of the loan along with amount which was accepted and interest paid on the same. All these details are found recorded in the seized material itself and therefore, the entries in the seized material are self-explanatory to extent of nature and source of these unsecured loans. It is not the case of introduction of cash credit in the books of accounts and assessee failed to discharge the onus of proving identity, creditworthiness of ITANo.533 to 535/Ind/2023 Nakoda Realities the creditors and genuineness of the transactions. Once the transactions are recorded in the seized material giving all the details regarding nature and source of the transactions then question of further explaining the nature and source of these transactions does not arise. Since these transactions were not recorded in the books of account therefore, the assessee surrendered these amount to tax. The provisions of section 69A are attracted in the case where the assessee is found to be owner of any money, bullion, jewellery or other valuable articles and the same are not recorded in the books of account, and the assessee failed to offer any explanation about the nature and source of acquisition of money, bullion, jewellery or other valuable articles or the explanation offered by the assessee is not to the satisfaction of the AO. The loan entries found in the seized material are not in the nature of any money, bullion, jewellery or other valuable articles owned by the assessee. Thus it is not case of any cash bullion, jewellery or valuable articles found in the possession of the assessee or owned by the assessee. Further it is also manifest from the seized material itself that these transactions are loan transactions recorded in the name of five persons, the details of which are duly given by the AO in para 12.3 reproduced (supra) which contains all the relevant information including the nature and source. Therefore, the nature and source is explained by the seized material itself. The CIT(A) in para 3.2.4 has given reasons for upholding order of the AO that the assessee has failed to explain that the unsecured loan is the income generated from the ordinary ITANo.533 to 535/Ind/2023 Nakoda Realities and regular business activities of the assessee. There is no such condition in section 69A of the Act that the nature and source of acquisition of money bullion or other valuable articles shall be only income from regular business activity. The only requirement is to explain the nature and source of acquisition of money, bullion or articles which may be other than the regular business activity. Therefore, once the seized material itself reflect nature and source of these transactions by giving all the necessary details then the same cannot be treated as unexplained money u/s 69A of the Act. The Delhi Benches of the Tribunal in case of DCIT vs. Tapesh Tyagi (supra) has considered this fact in para 7 to 9 as under:
“7. As discussed earlier, in course of search and seizure operation carried out in case of the assessee, a loose paper/document was found from the possession of the assessee, wherein, amount of Rs.30,20,00,000 was mentioned with the description "Com Trade". In the statement recorded under Section 132(4) of the Act in course of search and seizure operation, when the assessee was confronted with the said loose paper/document, the assessee submitted that it indicates profit earned by him from "Commodity Trade". It is a fact that in the statement recorded under Section 132(4), assessee surrendered the amount as income. It is also a fact on record that in the return of income filed for the assessment year under dispute, assessee offered the amount of Rs.30.20 crores as income. Thus, the aforesaid facts clearly establish that at the time of search and seizure operation itself, assessee has explained the source of the amount offered as income to be the profit derived from "commodity trade", which is in the nature of business income. It also appears that the departmental authorities have no dispute with regard to the explanation of the assessee regarding the source of the surrendered income.
ITANo.533 to 535/Ind/2023 Nakoda Realities 8. As rightly observed by the learned First Appellate Authority, section 69A uses word "may", which implies that if explanation offered by the assessee regarding source of money, bullion, jewellery or other valuable articles is satisfactory, it cannot be treated as unexplained money under Section 69A of the Act. In the facts of the present appeal, there is nothing on record to suggest that assessee's explanation regarding the source of the income offered has either been doubted or disputed at the time of search and seizure operation or even during the assessment proceedings. Therefore, in our view, the income offered by the assessee cannot be treated as unexplained money under Section 69A of the Act. Therefore, as a natural corollary, section 115BBE of the Act would not be applicable.
Having held so, we may further add that a reading of section 115BBE of the Act makes it clear that the special rate of tax provided under the said provisions shall be applicable under two conditions. Firstly, where the total income includes any income referred to in sections 68, 69A, 69B, 69C or 69D and reflected in the return of income under Section 139 of the Act. Secondly, if the income determined by the Assessing Officer includes any income referred to, in sections 68, 69, 69A, 69B, 69C or 69D, if such income is not covered under the first condition. In the facts of the present appeal, admittedly, assessee has not offered the income under Section 69A of the Act. Even, the Assessing Officer has not made any separate addition under Section 69A of the Act. He has merely re- characterized the nature of income offered by the assessee. Thus, in our considered opinion, the provisions of sections 115BBE would not be applicable to the facts of the present appeal.” 6.2 In the case in hand when the seized material itself explain the nature and source of the transactions and further the assessee in the statement recorded u/s 132(4) has unambiguously explained the nature of transactions being initially received as booking advance and on cancellation of booking by prospective buyers the ITANo.533 to 535/Ind/2023 Nakoda Realities said booking advance was converted into unsecured loan to be paid along with interest which is also reflected in the seized material itself. Accordingly in the facts and circumstances of the case as discussed above as well as in view of the decision of Delhi Benches of the Tribunal in case of DCIT vs. Tapesh Tyagi (supra) we hold that the transitions of unsecured loan recorded in the seized material do not fall in the ambit of section 69A of the Act and consequently the provisions of section 115BBE would not be attracted. Since the issue is common for all the assessment years and based on the same seized material and nature of transactions therefore, this finding is applicable for all the assessment years.
In the result, all three appeals of the assessee are allowed. Order pronounced in the open court on 22 .04.2024.