SHRI.P.V. RAVEENDRAN,KANNUR vs. THE ITO, KANNUR

IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN BEFORE SHRI. CHANDRA POOJARI, ACCOUNTANT MEMBER AND SMT. BEENA PILLAI, JUDICIAL MEMBER ITA Nos. 302 & 303/Coch/2020 Assessment Year : 2014-15 & 2015-16 Shri P.V. Raveendran, Sajani Nivas, The Income Tax Kannapuram Officer, Cherukunnu, Ward 1 & TPS, Kannapuram, Kannur. Kannur – 670 301. Vs. PAN: AEAPR4436H APPELLANT RESPONDENT Assessee by : Shri T.M. Sreedharan, Adv Revenue by : Shri Shantam Bose, CIT DR Date of Hearing : 14-09-2022 Date of Pronouncement : 14-09-2022 ORDER PER BEENA PILLAI, JUDICIAL MEMBER Present appeals arises out of separate orders both dated 05/05/2020 passed by the Ld.Pr.CIT for A.Ys. 2014-15 and 2015-16 on following grounds of appeal: A.Y. 2014-15 (ITA No. 302/Coch/2020): “1. The order of the learned Principal Commissioner of Income Tax, Calicut U/s. 263 of the I.T. Act. 1961, dated 05-05-2020 directing the Assessing Officer to invoke Sec. 115BBE of the IT Act, 1961 on the entire income assessed by the Assessing Officer for assessment year 2014-15 vide order dated 27-09-2017 is infirm in law and contrary to facts and circumstances of the case.

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Page 3 ITA Nos. 302 & 303/Coch/2020 pleased to cancel the order under section 263 passed by the Principal Commissioner of Income Tax and render justice to the appellant and allow this appeal.” 2. The Ld.AR submitted that the appeal for A.Y. 2014-15 was filed with a delay of 6 days. 2.1 It is submitted that, the last date of filing the appeal falls during the period covered by the provision of section 3(1)(b) of the Taxation and Other Laws (Relaxation and Amendment to certain provisions) Act, 2020, read with the order of Hon’ble Supreme Court dated 23/03/2020 was effective. The Ld.SR.DR, could not controvert the submissions and prayer by the Ld.AR. 2.2 It is submitted that the impugned order was passed during the period of covid, when Hon’ble Supreme Court had suspended the applicability of limitation act and therefore though the present appeal is filed with a delay of 6 days, the same may not be considered to be filed belatedly pursuant to the orders passed by the . 2.3 We note that the last date of filing the present appeal falls during the Covid -19 Pandemic. During the relevant period, the limitation stood automatically extended by virtue of order passed by Hon’ble Supreme Court (supra). Therefore, the delay in filing the present appeal stands condoned. 2.4 Considering the above submissions, the appeal is not held to be time barred respectfully following the orders passed by Hon’ble Supreme Court (supra). Accordingly the present appeal is admitted to be adjudicated on the issues raised by assessee there.

Page 4 ITA Nos. 302 & 303/Coch/2020 3. Following additional grounds filed are identical for both the years under consideration. “The appellant herein is raising the following additional grounds of appeal in the above appeal, which were not specifically raised in the Memorandum of Appeal already filed:- (i) It is respectfully submitted that the Commissioner of Income Tax(Appeals) went wrong in failing to consider that the duly introduced provisions contained in Sec.115BBE did not apply to the appellant's case, which has caused great hardship, prejudice to the appellant. (ii) It is respectfully submitted that Sec.115BBE is specifically covered the categories of income referred therein, viz., income referred to Sec.68, 69, 69A, 69B, 69C and 69D alone. Moreover, such income should be reflected in the return of income furnished u/s 139 or the income determined by the Assessing Officer should include any income referred to in the aforementioned Sections of the Act. In such an event, the calculation of income tax is specifically governed by the provisions of Sec.115BBE. It is submitted that the above requirements are not specified in the appellant's case so as to invoke the higher rate of tax of 60% leviable u/s 115BBE of the Act. (iii) In the above circumstances, it is humbly prayed that apart from the illegality in the levy of income tax @ 60%, the levy is also illegal and unconstitutional and violating the statutory provisions and liable to be vacated. (iv) The additional demand is also illegal and expropriatory in character and hence ab-initio void and without jurisdiction. For these and other grounds that may be raised at the time of hearing, it is humbly prayed that the Hon'ble Income Tax Appellate Tribunal, Cochin Bench, Cochin, may kindly be pleased to admit the additional grounds of appeal raised herein above and consider the same in the above appeal and render justice.” 3.1 It has been submitted that no new facts needs to be considered in order to dispose of the additional ground raised by the assessee vide application dated 05/02/2021. It is submitted that the additional grounds is a legal issue that goes to the root cause of the proceedings. The Ld.AR, thus prayed for the admission of additional grounds so raised by assessee.

Page 5 ITA Nos. 302 & 303/Coch/2020 3.2 On the contrary, the Ld.CIT.DR though opposed admission of the additional grounds, could not bring anything on record which would challenge such a right available to assessee under the Act. We have perused the submissions advanced by both sides in light of records placed before us. The Ld.DR did not object for the additional grounds being admitted. 3.3 We note that one of the additional grounds is directly connected with the main issue of disallowance and no new facts needs to be investigated for adjudicating the same. Another issues alleged by the assessee is a legal issue that does not require investigation of any facts. 3.4 Considering the submissions and respectfully following the decisions of Hon’ble Supreme Court in case of National Thermal Power Co. Ltd. Vs. CIT reported in (1998) 229 ITR 383 and Jute Corporation of India Ltd. Vs. CIT reported in 187 ITR 688, we are admitting the additional ground raised by the assessee. Accordingly, the additional grounds raised by assessee stands admitted. Identical issue has been raised by the assessee in both the years under consideration on identical facts. For sake of convenience, we refer to the appeal filed for A.Y. 2014-15 as under: 4. Brief facts of the case are as under: 4.1 A survey u/s 133A of the Income Tax Act 1961 was conducted on 28/03/2017 at the business premises of the assessee. During the course of the survey it was observed that, the assessee was not maintaining any proper books of accounts in respect of his business. The assessee was issued a notice

Page 6 ITA Nos. 302 & 303/Coch/2020 u/s.148 of the I.t.Act,1961 on 30/03/2017 after recording reasons wherein it was noted by the Assessing Officer that assessee had concealed income particular to the tune of Rs.6,00,000/-. 4.2 The due date for filing return u/s. 139(1) for the asst.year 2014-15 had already had expired at the time of survey u/s. 133A. Subsequently, the assessee filed the return of income for A.Y 2014-15 on 31-03-2017 by declaring an income of Rs. 6.00,000/- lakhs. Subsequently, notice u/s. 143(2) of the I.T. Act were issued on 12/09/2017. The Assessing Officer completed the assessment with Nil addition to the returned income. 4.3 Subsequently, the Ld.Pr.CIT on perusal of the records noted that the Ld.AO accepted the undisclosed income of Rs. 6 Lakhs that was subsequently disclosed by the assessee being deducted during the survey. The Ld.Pr.CIT thus was of the opinion that the said income was not voluntarily disclosed, but was disclosed pursuant to survey and therefore the rate of tax applicable must be as per section 115BBE r.w.s. 69 of the Act by treating the said sum as undisclosed income. 4.4 The Ld.Pr.CIT accordingly issued notice to the assessee on 29/01/2020 proposing to revise the assessment order dated 27/09/2017. The scanned copy of the notice is reproduced as under:

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Page 10 ITA Nos. 302 & 303/Coch/2020 4.5 The assessee in response to the notice, filed its reply vide letter dated 10/03/2020 submitting as under:

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4.6 After verifying the relevant submissions filed by the assessee, the Ld.Pr.CIT observed and held as under: “The submission made by the A.R during the course of Revision proceedings are perused and the same are not acceptable for the following reasons. A survey u/ 133A was conducted in the business premises of the assessee on 2803-2017. The assessee has not filed return of income till the date of survey. During the course of survey the assessee had agreed to file return of income. As agreed upon the assessee filed the return of income for the assessment year 2014-15 on 31-03-2017 declaring total income of Rs. 6,00,000/- The case was selected for scrutiny and the assessment was completed u/s 143(3) on 27.09.2017 accepting the income returned. The assessee had filed the return of income for A.Y 2014- 15 by declaring a total income at Rs. 6,00,000/- after the survey u/s 133A. Accordingly the assessment was completed accepting the income declared by the assessee. It is to be seen that the assessee offered said income of Rs. 6,00,000 which is comprised of income from House Property of Rs. 72,000/- and income from toddy trading activity of Rs.5,28,000. Since the assessee has made certain investments which is a fact in order to cover up the

Page 13 ITA Nos. 302 & 303/Coch/2020 shortcomings in investments made in the earlier years and hence the income declared as a result of survey has to be taxed under section 115BBE r.w.s 69 of the act. Further after going through the facts of the case it is seen that the assessee has derived income from House Property of Rs. 72,000 , the provisions u/s 115BBE r.w.s 69 are applicable as the source for the such amount has not been explained with any cogent evidence even during the survey/assessment proceedings but also during the revision proceedings. Therefore this amount is required to be taxed. Further Rs. 5,28,000 said to be the income derived from toddy trading activity as stated by the assessee for which the assessee failed to explain the source with any cogent evidence neither during survey/assessment proceedings nor during the revision proceedings under section 263 of the Act. Therefore the said amount of Rs. 5,28,000/- is required to be taxed u/s 115BBE r.w.s 69 of the Act. It is also to be seen that the assssee has declared Rs. 6,00,000/- as his income as a result of survey u/s 133A of the act. The assessee has not preferred appeal against the Assessing officer's action in assessing the said amount of Rs. 6,00,000/- to tax (vide Assessment order dated 27.09.2017) In view of the above discussion, I am of the considered opinion that the action of the Assessing Officer in taxing the amount of Rs. 6,00,000/- at normal rate is erroneous and prejudicial to the interest of revenue. Therefore it is proper to tax the said amount of Rs. 6,00,000i- by invoking the provisions of sec 115 BBE r.w.s 69 of the Act. For the sake of clarity the same is reproduced as under “(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 or 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 or 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).

Page 14 ITA Nos. 302 & 303/Coch/2020 (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) gland clause (b)] of sub-section (1). In the light of the above the said amount of Rs. 6,00,000/- is taxed by applying provisions of the section 115BBE. The Assessing Officer is directed to collect the demand accordingly.” 4.7 Aggrieved by the above order, assessee has filed the present appeals before this Tribunal for both the years under consideration. 5. It is the submissions of the Ld.AR that the income of Rs. 6 Lakhs has been offered by assessee. In the return filed pursuant to the notice issued u/s. 148 of the Act, the said amount was offered as income of the assessee and the Ld.AO has not made any addition u/s. 69 of the Act. It is the submission of Ld.AR that section 115BBE stands invoked only in cases amount that is found to be not offered to tax u/s. 68 to 69D of the Act and income that has been declared by assessee in the return of income u/s. 139 will not be attracted with chargeability of high rate of tax u/s. 115BBE. The Ld.AR placed reliance on the decision of Hon’ble Supreme Court in case of Mak Data P. Ltd. vs. CIT reported in 358 ITR 0593 (SC). 6. He submitted that the said amount declared by assessee has not been deducted by the assessing officer survey team or the assessing officer during the reassessment proceedings and there was not incriminating documents / evidences relating to the income declared by the assessee in the return filed in lieu of notice issued u/s. 148 of the Act. 7. The Ld.AR submitted that assessing officer during the assessment proceedings accepted the income offered by the assessee in the return of income.

Page 15 ITA Nos. 302 & 303/Coch/2020 It is therefore argued that provisions of section 115BBE is not applicable to the present facts of the case. On the contrary, the Ld.DR relied on the orders passed by authorities below. We have perused the submissions advanced by both sides in the light of records placed before us. 8. We note that the Ld.PCIT has invoked the revisionary proceedings to tax the income declared by assessee in the return of income filed pursuant to notice issued u/s. 148 on a higher rate of 60% as per section 115BBE of the Act. For the sake of convenience, the same is reproduced 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. 59[(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 or 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 or 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 60[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) 61[and clause (b)] of sub-section (1).] 8.1 The present years under consideration being 2014-15 & 2015- 16, the above section cannot be made applicable to for the reason that the same has come into effect from AY 2017-18 onwards. As the above reproduced section has been introduced by Finance Act, 2016 w.e.f. 01/04/2017, for the sake of clarification, the provision

Page 16 ITA Nos. 302 & 303/Coch/2020 as it was applicable for A.Ys. under consideration being 2014-15 and 2015-16 u/s. 115BBE is reproduced 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 includes any income referred to in section 68, section 69, section 69A, section 69B, section 69C or section 69D, the income-tax payable shall be the aggregate of— (a) the amount of income-tax calculated on income referred to in section 68, section 69, section 69A, section 69B, section 69C or section 69D, at the rate of thirty per cent; and (b) 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 (a). (2) Notwithstanding anything contained in this Act, no deduction in respect of any expenditure or allowance 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)." The Ld.PCIT has not considered this aspect. The next issue that arises is whether the amended section 115BBE as reproduced in para 8 can be held to be retrospectively applicable for any of the preceding assessment years. We in our considered opinion, hold that the answer to the above is a simple NO. Hon’ble Supreme Court in plethora of cases, has held that levy of additional tax bears all the characters of penalty. In the present amended provision, the rate of tax has been increased to 60% as against 30% that was in the original provision of section 115BBE when it was introduced into the Finance Act w.e.f. 1st April, 2013. Further, the rule against retrospective operation is a fundamental rule of law that no statute shall be construed to have a retrospective operation unless such a construction appears very clearly in the terms of the Act or arises by necessary and distinct implication. Further Hon’ble Supreme Court in case of Hitendra Vishnu Thakur vs. State of Maharashtra reported in (1994) 4 SCC

Page 17 ITA Nos. 302 & 303/Coch/2020 602 has laid down the ambit and scope of the amending act and its retrospective operation as follows. (i) A statute which affects substantive rights is presumed to be prospective in operation unless made retrospective, either expressly or by necessary intendment, whereas a statute which merely affects procedure, unless such a construction is textually impossible, is presumed to be retrospective in its application, should not be given an extended meaning and should be strictly confined to its clearly defined limits. (ii) Law relating to forum and limitation is procedural in nature, whereas law relating to right of action and right of appeal even though remedial is substantive in nature. (iii) Every litigant has a vested right in substantive law but no such right exists in procedural law. (iv) A procedural statute should not generally speaking be applied retrospectively where the result would be to create new disabilities or obligations or to impose new duties in respect of transactions already accomplished: (v) A statute which not only changes the procedure but also creates new rights and liabilities shall be construed to be prospective in Operation unless otherwise provided, either expressly or by necessary implication." Now coming to the issue as to whether the assessing officer has erred in not treating the income that has been offered to tax as undisclosed income by assessee subsequent to a survey an issuance of notice u/s. 148 of the Act. It has been submitted by assessee that the said Rs. 6 Lakhs includes sum of Rs.72,000/- being income from house property and the balance amount of Rs.5,28,000/- was declared as income from toddy trading activity and therefore the provisions of section 68 would not apply. This explanation that was filed before the Ld.PCIT was not at all considered and verified eventhough it is a requirement u/s. 263 for the Ld.PCIT to carry out necessary verification. The amount offered to tax by assessee as business income stands accepted by the Ld.AO in the assessment order and no addition has

Page 18 ITA Nos. 302 & 303/Coch/2020 been made by the Ld.AO under any other provisions of the Act, applicability of section 115BBE is not possible. We note that the Ld.PCIT has stated that AO should have treated the said income as unexplained cash credit and addition should have been made u/s. 68 of the Act. This contention is not accepted as for invoking the provisions of section 68 there has to be entries in the books of account for which no explanation is offered by assessee. In the present facts of the case, the declaration by assessee is based on a seized material which is self-explanatory in terms of the parties to whom payments have been made in cash as well as cheque towards construction. 8.2 Therefore in the present facts of the case, the order passed by the Ld.AO may be prejudicial however, it cannot be held to be erroneous and the Ld.AO had adopted one of the possible view. Respectfully following the ratio laid down by Hon’ble Supreme Court we hold the revisionary proceedings initiated in the present facts to be bad in law and quash the consequential orders passed dated 05/05/2020 for both assessment years under consideration. Accordingly, the grounds raised by assessee stands allowed. In the result, both the appeals filed by the assessee stands allowed. Order pronounced in open court on 14th September, 2022.

Sd/- Sd/- (CHANDRA POOJARI) (BEENA PILLAI) Accountant Member Judicial Member Cochin, Dated, the 14th September, 2022. /MS /

Page 19 ITA Nos. 302 & 303/Coch/2020 Copy to: 1. Appellant 4. CIT(A) 2. Respondent 5. DR, ITAT, Cochin 3. CIT 6. Guard file By order

Assistant Registrar, ITAT, Cochin