SRI UMA MAHESHWARA RAO CHINNI,GUNTUR vs. ASST COMMISSIONER OF INCOME TAX,CENTRAL CIRCLE-1, KOZHIKODE

The background facts of the case are that the assessee/s, a resident of Andhra Pradesh, was, along with two others, apprehended at the Excise check post while travelling in a bus from Hyderabad to Kozhikode on 19.7.2016, and cash in the sum of Rs.2,39,57,500 found on them, seized. The three deposed before the Excise officials, giving mutually consistent statements, i.e., of Rs.162.475 lakhs belonging to Shri Sravan Neela Kumar, one of the three persons, and the balance Rs.77.10 lakhs to the assessee, who further claimed the sum as belonging to his employer, Shri D. Ramesh, a Hyderabad based trader in gold/gold jewellery; that they were travelling to Kozhikode to purchase gold. Requisition u/s. 132A of the Act was, on information in this respect being provided by the Excise Department to the Revenue, issued, and the cash seized. No evidence in this respect, i.e., the stated purpose of the visit, or of the cash belonging to Shri D. Ramesh, was however furnished. Sh. Ramesh also did not own the amount or issued any confirmatory statement. On the contrary, the assessee submitted a written statement to the Dy. Director, Investigation, on 26.7.2016 (placed on record at PB pgs. 104-106), stating that he is running a petrol pump in his hometown at Telangana for the past several years on a leased land. That he was travelling to Kozhikode for exploring petrol business prospects thereat. The amount of Rs.77 lakhs seized from him had been pooled by him from his friends and relatives , 899/Coch/2022 (AY : 2017-18) Uma Maheshwara Rao Chinni & Anr. v. Asst. CIT for the purpose. So, however, they were reluctant to come forward to admit the same and, therefore, he was surrendering the cash seized as income from other sources for AY 2017-18, further requesting for appropriating tax on this income, refunding the balance, and relieving the assessee of penal proceedings. This was followed by returning the said amount as his income on 12.10.2018, i.e., in response to notice u/s. 148 of the Act dated 19.9.2018. The income returned being as ‘other income’, under the head of income ‘income from other sources’, tax and interest thereon was worked out at Rs.30.58 lakhs, which was requested for being appropriated there-against, refunding the balance. The Assessing Officer (AO) accepting the returns of income for AYs 2011-12 to 2016-17, i.e., in the proceedings initiated by issue of notices u/s. 153A of the Act, assessed the income returned for the current year u/s. 69A of the Act at Rs. 77.10 lacs, i.e., the cash seized, as unexplained, levying tax u/s. 115BBE of the Act. The assessee disputes the same inasmuch as income brought to tax u/s. 69A is liable to be taxed u/s. 115BBE at a higher rate of 60%, i.e., as against the normal rate, which is at a maximum of 30%. The assessee’s argument before us was two-fold: (a) that he has now been able to secure evidence by way of affidavits from several persons who had advanced monies to Shri D. Ramesh. The same be admitted u/r. 29 of the Income Tax (Appellate Tribunal) Rules, 1963, and the matter remanded back for fresh examination; (b) the assessee having admitted income, even if by way of ‘other income’ u/s. 56, there is no scope for invocation of section 69A by the AO, which provision – reading out the same, is only where the cash under reference is not recorded in the assessee’s accounts and, further, fails to offer any explanation in this respect. Implicit therein, it is argued, is the notion that the assessee does not admit the same as his income. 3.1 We shall take up the legal ground first inasmuch as, where accepted, we may not be required to travel to the merits of the case, raised per the assessee’s first ground. The adjudication by the ld. CIT(A) is also qua the legal ground. His order in it’s operating part, essentially the same for both the appeals, as is the order/s of assessment, reads as under: , 899/Coch/2022 (AY : 2017-18) Uma Maheshwara Rao Chinni & Anr. v. Asst. CIT ‘4.7 The applicability of provisions of sections 69A and 115BBE is carefully considered. Section 69A read as under: Unexplained money, etc. 69A. Where in any financial year the assessee is found to be the owner of any money, bullion, jewellery or other valuable article and such money, bullion, jewellery or valuable article is not recorded in the books of account, if any, maintained by him for any source of income, and the assessee offers no explanation about the nature and source of acquisition of the money, bullion, jewellery or other valuable article, or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the money and the value of the bullion, jewellery or other valuable article may be deemed to be the income of the assessee for such financial year. Section 115 BBE as amended by the Finance Act. 2017 reads as under: Tax on income referred to in section 68 or section 69 or section 69A or section 69B or section 69C or section 69D. 115BBE. (1) Where the total income of an assessee, - (a) includes any income referred to in section 68, section 69, section 69A, section 69B, section 69C, 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, 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 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 assessee under any provision of this Act in computing his income referred to in clause (a) of sub-section (1). 4.8 The heads of income chargeable under the Act are classified u/s. 14. Section 14 starts with a saving clause "save as otherwise provided by this Act", which implies that there can be a class of income other than the classes of income specified u/s. 14, as provided under any other part of the Act. Sections 68 to 69D are grouped under the Chapter VI of the Act under the heading 'Aggregation of Income and Set-off or Carry Forward of loss'. Hence the deeming provisions from sections 68 to 69D are without any reference to incomes of any class, if the conditions therein are satisfied and, therefore, deemed income falling in these provisions will not be restricted or governed by any other provisions. The onus is on the assessee to establish the source of the income disclosed in the return of income to enable it to be classified under any head u/s. 14, failing which it Page | 4 , 899/Coch/2022 (AY : 2017-18) Uma Maheshwara Rao Chinni & Anr. v. Asst. CIT has to be necessarily categorized as deemed income under sections 68/ 69/69A/69B/69C/69D. The provisions of section 115BBE are only consequential in nature, which are applicable only when the income chargeable to tax is in the nature of income assessable u/s 68 to 69D. 4.9 The provisions of 115BBE taxing certain types of income @ 60% were brought on statute by Finance Act, 2017 after demonization, after introduction of prevention of Black Money (Undisclosed foreign income & assets) Act; Prohibition of Benami Property Transactions Act, etc., with a view to curb the mischief of subsequently disclosing the undisclosed cash/entries/assets of earlier years in return of income filed for current year in the garb of regular business income or income from other sources and paying much less taxes and that too without paying any penalty also. This was also intended to prevent such disclosures at normal rates as compared to the rate @ 45% applicable for disclosing such cash under Prime Minister's Garib Kalyan Yojana, which was also applicable during the same financial year. 4.10 In the present case, the appellant was found to be in possession of cash of Rs 77,10,000/- on 19.7.2016. He admitted the possession of the said cash. He claimed that the said cash belongs to Sri D. Ramesh. The appellant failed to show that the said cash belongs to Sri D. Ramesh and the said cash was recorded in the books of account maintained by him. The said D. Ramesh never claimed ownership of the seized cash, at any point of time. In the letter dated 27.7.2016 (*) filed before the Deputy Director of Income Tax (Investigation), the appellant stated that the seized cash represents the money pooled from friends and relatives. He failed to produce the evidence and admitted his inability to produce the evidence in support of nature and the sources of the seized cash. The appellant admitted to offer the seized cash as his income. In the return of Income filed in response to notice u/s 148, the appellant disclosed the above cash of Rs 77,10,000/- as other income. During the assessment proceedings, the appellant failed to file evidence in support of nature and source of the said cash. Hence the provisions of section 69A are applicable in this case. Consequentially, the provisions of 115BBE are also attracted. Hence it is held the Assessing Officer rightly invoked sections 69A and 115BBE. [(*) 26/7/2016; that dated 27/7/2016 is for copy of his deposition] 4.11 Reliance is also placed on the decision of Gujarat High Court in the case of Fakir Mohmed Haji Hasan [2002] 120 Taxman 11/247 ITR 290 and decision of Punjab and Haryana High Court in the case of Kim Pharma Pvt Ltd. [2013] 35 Taxmann.com 456/258 CTR 454.’ (emphasis and notation, ours) 3.2 We firstly observe absence of any factual basis for the assessee to raise this legal ground. This is as vide his letter/s dated 21/3/2019 in penalty proceedings (PB pgs. 120-123), the assessee admits to have surrendered his income u/s. 69A, removing the factual basis for assuming the legal stance he now pleads. His return for the relevant year, claiming it to be u/s. 56 is not on record. We shall, nevertheless, without prejudice, consider the same, even as was by the first appellate authority. No Page | 5 , 899/Coch/2022 (AY : 2017-18) Uma Maheshwara Rao Chinni & Anr. v. Asst. CIT infirmity in his order was brought to our notice, which stands decided by the ld. CIT(A) with reference to the clear provisions of law and, further, as explained by the higher courts of law. We may advert to the decision in Fakir Mohmed Haji Hasan [2002] 247 ITR 290 (Guj). In the facts of the case, gold was, similarly, apprehended by the Custom Authorities from the assessee. The same was neither recorded in his books of account nor otherwise explained as to its nature and source. The assessee disputed being assessed in its respect – which was as unexplained investment u/s. 69A, and, in any case, sought deduction for the loss on account of its confiscation. The Tribunal, distinguishing the decisions relied upon, i.e., CIT v. Kothari (SC) [1971] 82 ITR 794 (SC); CIT v. Piara Singh [1980] 124 ITR 40 (SC); CIT v. Shri Ram Chander [1986] 159 ITR 689 (P&H), upheld the Revenue’s case. The income, it opined, was on facts not the profits or gains of the assessee’s illegal business. It was, therefore, rightly assessed as deemed income u/s. 69A, and there was no question of allowance of deduction for the loss on its confiscation. This was upheld in further appeal; the Hon’ble Court holding as: ‘…on the facts, that it was clear that when the investment in or acquisition of gold, which was recovered from the assessee was not recorded in the books of account and the assessee offered no explanation about the nature and source of such investment or acquisition and the value of such gold was not recorded in the books of account, nor the nature and source of its acquisition explained, there could arise no question of treating the value of such gold, which was deemed to be the income of the assessee, as a deductible trading loss on its confiscation, because such deemed income did not fall under the head of income “profits and gains of business or profession”. The law in the matter was explained thus: ‘The scheme of sections 69 , 69A , 69B and 69C of the Income-tax Act, 1961, would show that in cases where the nature and source of investments made by the assessee or the nature and source of acquisition of money, bullion, etc., owned by the assessee or the source of expenditure incurred by the assessee are not explained at all, or not satisfactorily explained, then, the value of such investments and money or value of articles not recorded in the books of account or the unexplained expenditure may be deemed to be the income of such assessee. It follows that the moment a satisfactory explanation is given about such nature and source by the assessee, then the source would stand disclosed and will, therefore, be known and the income would be treated under the appropriate head of income for Page | 6 , 899/Coch/2022 (AY : 2017-18) Uma Maheshwara Rao Chinni & Anr. v. Asst. CIT assessment as per the provisions of the Act. When the income cannot be so classified under any one of the heads of income under section 14, it follows that the question of giving any deductions under the provisions which correspond to such heads of income will not arise. The provisions of sections 69, 69A, 69B and 69C, treat unexplained investments, unexplained money, bullion, etc., and unexplained expenditure as deemed income where the nature and source of investment, acquisition or expenditure, as the case may be, have not been explained or satisfactorily explained. Therefore, in these cases, the source not being known, such deemed income will not fall even under the head “Income from other sources”. Therefore, the corresponding deductions which are applicable to the incomes under any of these various heads, will not be attracted in the case of deemed incomes which are covered under the provisions of sections 69, 69A, 69B and 69C of the Act in view of the scheme of those provisions.’ The decision in Kim Pharma Pvt Ltd. (supra), the second decision relied upon by the ld. CIT(A), non-rebuttal of whose order stands noted by us hereinbefore, is to the same effect. In the facts of that case the action of the Revenue in segregating, from the income surrendered during survey as business income, income on account of unexplained cash, deeming it as income u/s. 69A, and disallowing the claim of set off of business loss there-against, which was restricted to, apart from regular business income, the income surrendered on account of sundry creditors, repairs to building and advances to staff, i.e., relatable to the assessee’s business, was upheld by the Tribunal and, on further appeal, by the Hon’ble High Court. The computational provisions applicable to different heads of income, it was explained, are not attracted qua income brought to tax under the deeming provisions, viz. ss. 69 thro’ 69C, which accordingly is not liable to be classified under those heads of income. More recently, the Apex Court in Prakash Chand Lunia (Decd.) v. CIT [2023] 454 ITR 61 (SC), repelled the assessee’s – a dealer in silver, claim of loss on account of confiscation by the Customs Deptt. apprehending it as of smuggled nature. While the Tribunal disallowed the assessee’s claim against income deemed as so u/s. 69A, the Hon’ble High Court, relying on CIT v. Piara Singh [1980] 124 ITR 40 (SC), held that loss on account of confiscation by the Customs Department was an allowable business loss. This did not find favour with the Apex Court, which held that the same could not be allowed either as a business loss or business expenditure; the former being subsumed Page | 7 , 899/Coch/2022 (AY : 2017-18) Uma Maheshwara Rao Chinni & Anr. v. Asst. CIT in the latter, in view of Explanation to s. 37(1). The decision in Piara Singh (supra) was distinguished and, in fact, doubted, and the decision in Dr. T. A. Quereshi v. CIT [2006] 287 ITR 547 (SC) held as not good law. Reference was also made to it’s earlier decisions, viz. Apex Laboratories (P.) Ltd. v. Dy. CIT [2022] 442 ITR 1 (SC); Chuharmal v. CIT [1988] 172 ITR 250 (SC); Haji Aziz & Abdul Shakoor Bros. v. CIT [1961] 41 ITR 350 (SC); Badridas Daga v. CIT [1958] 34 ITR 10 (SC). Further, the silver bars seized being not recorded in the assessee’s books, who could not furnish any explanation as to their source, income was held by the Hon’ble Court as rightly brought to tax u/s. 69A. The decision, it may be noted, accords with the settled law, explained in Haji Aziz & Abdul Shakoor Bros. (supra), a larger bench decision by the Apex Court, further endorsed by insertion of Explanation 1 to section 37(1) w.r.e.f. 01/4/1962. Chuharmal (supra) is, similarly, a decision qua penalty on undisclosed income assessed on account of unexplained stock seized. 3.3 What, we wonder, then, is the controversy about, with we having afore-noted non-rebuttal of their orders – based on well-settled law, by the Revenue authorities? The fallacy in the assessee’s argument, i.e., that the disclosure of income as ‘other income’ itself implies specification of its source, is apparent inasmuch as it presumes non-requirement for the specification of the source where an income is offered to tax u/s. 56. Or, by implication, that the head of income ‘income from other sources’ is itself a source of income, eschewing the need to specify the source. Part F of Chapter IV of the Act titled ‘Computation of Total Income’ – which furnishes the computational provisions qua incomes falling under different heads of income, i.e., ‘Income from other sources’, comprising sections 56 to 59, is the residuary head of income for incomes which do not fall under any of the other heads of income specified per the earlier parts of the Chapter, viz. salary, house property, business or profession, and capital gains. It does not mean, as being understood by the assessee, that the source need not be specified or, in any case, the same is itself a source! How , 899/Coch/2022 (AY : 2017-18) Uma Maheshwara Rao Chinni & Anr. v. Asst. CIT could that be? That would be putting the cart before the horse. Even as explained by the Hon’ble Courts, it is only where a source is specified; rather, shown, by the assessee, that the head of income under which it falls and, consequently, the computational provisions governing its determination, ascertained, leading to the income being computed under a particular head. The assessee, despite stating of being in the petrol business, did not adduce any material in support and, rather, even so, ascribed the source of the cash found on him as provided to him by friends and relatives for investing in his new petrol business venture in Kerala. That is, even going by the wholly unsubstantiated story, the sum is not part of his business, itself unevidenced, but sourced from others (for his new, to be established, business venture). That is, admittedly the source is not either his labor or an income yielding (or otherwise) asset per se, or even withdrawn from his existing business, but, admittedly, unspecified persons. That is, much less shown, the source is not even specified, resulting in it being regarded as unexplained, and the sum under reference, deemed as his income u/s. 69A. The income, returned and admitted, cannot, thus be regarded as arising from a particular source, and stands rightly assessed u/s. 69A.