SOPAN BANDOBA CHAVAN,PUNE vs. INCOME TAX OFFICER WARD 6(1), PUNE

Facts of the case, in brief, are that the assessee is an individual and derives income from business through joint venture agreement for development of ancestral property and income from rent, agricultural activity and other sources. He filed his return of income on 31.03.2018 declaring total income of Rs.1,25,76,300/-. The case was selected for scrutiny under the parameters of manual scrutiny. Accordingly, statutory notices u/s 143(2) and 142(1) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) along with questionnaire were issued and served on the assessee, in response to which the AR of the assessee appeared before the Assessing Officer from time to time and filed the requisite details.

During the course of assessment proceedings the Assessing Officer noted that a survey action u/s 133A of the Act was conducted on 27.03.2017 in the business premises of the assessee at Dhayari. During the said survey proceedings, the statement of the assessee was recorded u/s 131 of the Act wherein the assessee has declared additional income of Rs.2 crore. The same has been offered in the return of income under the head ‘Income from other sources’. From the computation of income, the Assessing Officer noticed that the assessee has claimed current year loss of Rs.86,98,901/- and has adjusted the same against the rental income of Rs.72,170/- and the income of Rs.2 crore declared during the survey proceedings. The Assessing Officer further noted from the Profit and Loss Account that the expenses incurred on opening stock / WIP and for development of property has been debited to the account as revenue expenditure. He, therefore, issued a show cause notice asking the assessee to explain as to why the additional income of Rs.2 crore should not be treated as income from unexplained sources and added u/s 68 r.w.s. 115BBE of the Act as unexplained credit. He further asked the assessee to explain as to why the loss claimed of Rs.86,98,901/- should not be allowed to carry forward. Rejecting the various explanations given by the assessee, the Assessing Officer held that since the assessee has admitted the additional income of Rs.2 crore over and above the regular income on the basis of documents found and impounded for unexplained cash transactions and could not explain the source of additional income of Rs.2 crore, the same has to be treated as ‘income from unexplained sources’ and to be added u/s 68 r.w.s. 115BBE of the Act. He accordingly made addition of the same to the total income of the assessee. The Assessing Officer also made addition of Rs.19,55,011/- as capital gain which is not the subject matter of appeal before us and therefore, we are not concerned with the same. Thus, the Assessing Officer determined the total income of the assessee at Rs.2,19,55,011/- as against the ‘nil’ business loss wherein he added the amount of Rs.2 crore to be taxed u/s 68 r.w.s. 115BBE of the Act.

In appeal, the Ld. CIT(A) confirmed the action of the Assessing Officer by observing as under:

A perusal of the assessment order suggests that during the assessment proceedings, the appellant contended that the loose papers clearly mention the specific Survey no. of the land for which the said cash amounts were received. Therefore, there is a clear nexus between the land and cash received suggesting that the said cash amount was received from the customers. Thus, the source of said cash receipts stand established and therefore, the cash amount cannot be treated as unexplained cash credit.

A similar situation was dealt by the ITAT, Mumbai Bench in the case DCIT vs M/s Madhu Developers wherein the Hon'ble ITAT has held as under- 4. We have heard arguments of the Ld. Departmental Representative (DR) and perused the relevant material available on record including the paper book filed on behalf of the assessee. The issue in dispute in the case is whether the undisclosed income of Rs.2,26,00,000/- appearing in the loose papers impounded during the course of survey at the premises of the assessee, is in the nature of the business receipt or in the nature of the unexplained cash receipt liable to be assessed u/s 69A of the Act. In the case of the assessee, it is undisputed that assessee was engaged in the real estate project namely 'Platina’ situated in Mira Road, Mumbai, In the course of the survey action, the assessee admitted that amount of Rs.2,26,00,000/- recorded in the loose papers as cash receipts was undisclosed income of the assessee from sale of the flats which he omitted to record in the books of accounts due to mistake on the part of the accountant. The Ld. DR submitted that as per the mandate of section 69A of the Act, the assessee was required to explain nature and source of such cash receipt. He submitted that though the assessee has explained nature of the same as the business receipt but did not explain the source as from which particular sale of the flat said amount was received. He submitted that purpose of section 69A of the Act is to identify the other leg of the transaction and bring the other leg also to the tax but since assessee has not explained from which flat's sale, it has received the said receipt of cash and therefore, the said cash receipt is liable to be assessed u/s 69A of the Act, because that assessee has explained only nature and not source of the cash receipt. We agree with the argument of the Ld. DR. For the purpose of considering those cash receipts as the business receipt, the assessee is required mentioning the name of the person from whom such cash was received i.e. the source of the cash receipt, but the assessee has not demonstrated the name and address of those person and therefore, provisions of section 69A are attracted in the case of the assessee.

To sum-up, the action of the assessing officer of taxing the income of Rs. 2,00,00,000/- at a higher rate as per the provisions of section 115BBE of the Act is upheld and the ground no. 2 raised by the appellant is DISMISSED.”

Aggrieved with such order of the CIT(A), the assessee is in appeal before the Tribunal by raising the following grounds:

The Ld. Counsel for the assessee referring to the copy of the assessment order drew the attention of the Bench to para 6 of the order which reads as under: “6. In response to the above show cause notice assessee filed reply on 27.12.2019 as under 1. "Statement dated 27/03/2017: Survey u/s 133A of the ITA, 1961 was carried out at business premises of assessee and statement was recorded on 27/03/2017. As per the said statement, some specific questions were put to assessee regarding some rough notings on some stray papers Impounded during the survey. Questions relating to the same are Q. No. 9 to Q. No. 11 of the statement, wherein, details of noting regarding land dealings were enquired. Assessee stated that, these papers reflect consideration for transfer of land w.r.t. land at S. No. 18, 34, etc. Entire consideration for transfer of land emanating from the said impounded rough papers was duly reflected in the Income Tax Return, and the tax liability @ 30% on the said consideration for transfer of land was discharged (after set-off of other business loss). For sake of easy referencing Q. No. 9 and 11 is reproduced below: "Q. No. 9 - Now I am showing you loose paper bundle number - 1 found and impounded during the course of survey action at the business premises at S. No. 48, Indraprasthanagar, Dhayari, Pune 411041. You are requested to go through the same and explain the content therein.

Section 292C Further, it is submitted, as per section 292C, whatever documents found in the course of survey are deemed as TRUE as regards the contents therein and as regards the entries therein, etc. Now, in the present case, the impounded documents indeed clarify that, the CASH consideration is for sale of land and as such, the same automatically results in INCOME per se. No any further mandates given in section 68 are necessary for coming to a conclusion, as to whether, the entries are INCOME entries or not. In other words, without visiting mandates in section 68, the answer is already reached conclusively, and also as such admitted by the assessee in the survey statement as regards INCOME nature of the same. Hence, visiting tests of section 68 are not required at all. In such a case, one ought not to trigger the section 68 tests in the present case. As a consequence, it reveals, the characterization as section 68 tested INCOME is not visited in the present case. Hence, tax rate of 30% is the only plausible and logical answer as against tax rate of 60% (when the tests of section 68 get triggered, etc.). Kindly consider this crucial issue and oblige.”

He submitted that the assessee has categorically explained that the amounts in question are nothing but income from land business which are received in cash and are over and above the regular income. Thus, the source of income has clearly been explained as out of business and not from any other activities. This was categorically stated before the Assessing Officer as well as the CIT(A). Referring to a series of decisions, he submitted that where the assessee surrendered undisclosed income during search action for the relevant year, it is not necessary that the tax rate has to be charged u/s 115BBE of the Act. Further, since the Assessing Officer has not pointed out any unexplained credits in the books of account, provisions of sections 68, 69, 69A, 69B, 69C and 69D are also not attracted on surrendered amount and accordingly the provisions of section 115BBE of the Act cannot be applied.

So far as the decision of the Mumbai Bench of the Tribunal in the case of DCIT vs. M/s. Madhu Developers vide for assessment year 2018-19, order dated 28.11.2023 relied on by the CIT(A) is concerned, he submitted that the said decision is not applicable to the facts of the present case especially when the assessee in the instant case in his statement recorded u/s 131 of the Act has categorically stated in reply to question No.9 that an amount of Rs.50 lakhs received in cash was on account of land dealing business in respect of land at survey Nos.18 and 34, similarly an amount of Rs.1 crore was received in cash on account of land dealing business in respect of land at survey Nos.25 and 18. Further, the balance amount of Rs.50 lakhs was also on account of cash received in land dealing during the current year. Thus, the assessee had categorically given the particulars of land on which such amount has been received, whereas in the case of DCIT vs. M/s. Madhu Developers, no such details of flats in respect of which such amount was received was given. He further submitted that the Tribunal in the ex- parte order has set aside the issue to the file of the Assessing Officer with a direction to give an opportunity to the assessee to file the names of the persons from whom such money was received. He accordingly submitted that the order of the CIT(A) being not in accordance with law should be set aside and the grounds raised by the assessee be allowed.

The Ld. DR on the other hand heavily relied on the order of the CIT(A) and submitted that since the assessee has not given the details of persons from whom cash was received, the provisions of section 115BBE of the Act are clearly attracted to such surrendered income. Therefore, the order of the CIT(A) should be upheld and the grounds raised by the assessee should be dismissed.

We have heard the rival arguments made by both the sides, perused the orders of the Assessing Officer and Ld. CIT(A) and the paper book filed on behalf of the assessee. We find the assessee during the course of survey operation had declared an amount of Rs.2 crore as additional income which was offered in the return of income under the head ‘Income from other sources’. Further, the assessee has claimed current year loss of Rs.86,98,901/- and adjusted the same against the rental income of Rs.72,170/- and the income declared of Rs.2 crore during the course of survey proceedings. We find the Assessing Officer in the order passed u/s 143(3) of the Act treated the additional income declared of Rs.2 crore as income u/s 68 to be read with section 115BBE of the Act. We find the CIT(A) upheld the action of the Assessing Officer, the reasons of which have already been reproduced in the preceding paragraphs. It is the submission of the Ld. Counsel for the assessee that since such income had arisen to the assessee on account of land dealings which are not recorded in the books of account, therefore, the same was declared as additional income of the assessee which partakes the character of the business income and therefore, the same cannot be treated as ‘Income from other sources’ to be taxed under the provisions of section 68 r.w.s. 115BBE of the Act.

We find the Jaipur Bench of the Tribunal in the case of Hari Narain Gattani vs. DCIT (2021) 186 ITD 434 (Jaipur – Trib.) has held that where the assessee surrenders undisclosed income during search action for relevant year, it is not necessary that tax rate has to be charged as per provision of section 115BBE.

We find the Chandigarh Bench of the Tribunal in the case of Bajaj Sons Ltd. vs. DCIT (2021) 190 ITD 128 (Chandigarh – Trib.) has held that where director of assessee-company surrendered a certain sum during search and the Assessing Officer treated said sum as income from unexplained sources and invoked provisions of section 115BBE and charged tax at a higher rate, since the Assessing Officer had not pointed out any unexplained credit in the books of account, provisions of sections 68, 69, 69A, 69B, 69C and 69D were not attracted on surrendered amount and aforesaid surrender not being covered under the provisions of sections 68, 69, 69A, 69B, 69C and 69D, provisions of section 115BBE were not attracted.

Similar view has been taken by the Pune Bench of the Tribunal in the case of DCIT vs. Vaishali Agro Soya Products vide order dated 11.09.2024 for assessment year 2019-20 where it has been held as under: “5…… 7. We heard the rival submissions and perused the material on record. The issue in the present appeal relates to the applicability of provisions of section 115BBE of the Act in respect of income declared during the course of survey proceedings and offered to tax in the return of income. There is no dispute about the amount of addition to be made nor was there any dispute regarding the head of income under which the same was assessed to tax. The dispute is only with regard to the applicability of provisions of section 115BBE of the Act. Admittedly, the income offered during the course of survey proceedings was credited to Profit & Loss Account and the additional income offered on account of deficit in the physical stock was credited to Trading Account. The income offered on account of alleged expenditure incurred on construction of the commercial building was offered to tax by crediting the same amount to the Profit & Loss Account. Thus, the income was offered to tax under the head “Income from business”, the Assessing Officer also assessed the same under the head “Income from business”. Therefore, the presumption is to be drawn that the additional income was derived from the business. Thus, it cannot be said that the source for the additional income remain unexplained and,

The various other decisions relied on by the Ld. Counsel for the assessee in the paper book also supports his case to the proposition that the income surrendered during the course of survey need not be taxed by invoking the provisions of section 115BBE of the Act i.e. to be taxed @ 30% only.

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