MR. MALLIKARJUN APPANNA ITI,GOKAK vs. INCOME TAX OFFICER, WARD - 1, GOKAK

ORDER Per Anikesh Banerjee,JM:

The instant appeal was filed by the assessee against the order passed by the Ld. Commissioner of Income Tax (Appeals), Belagavi [in brevity the CIT(A)], bearing dated 17.09.2018 passed u/s 250(6)of the Income Tax Act, 1961 (in brevity the Act),for Assessment Year 2013- 14. The said impugned order was originated from the order of the Ld. Income Tax

Mallikarjun Appanna ITI v.ITO Officer, Ward -1, Gokak (in brevity the AO) passed u/s 143(3) r.w.s 263 of the Income Tax Act, 1961 dated 31.05.2017

GROUNDS OF APPEAL 1] That the Order of the Learned Commissioner (Appeals) is against Law and facts of the case.

2] [Al Learned Commissioner [Appeals] has erred in treating Rs.11790287 excess Stock & Cash found in Survey as Deemed Income u/ s 69-69A instead of treating the same as Business Income. Hence: findings of the Commissioner [Appeals] is against Law and facts of the case.

[B] Since Income of Rs.1,17,90,287/- treated as Deemed Income U/ S 69- 69A is opposed to Law and there is no justification for taxing the Income @ 30% as per the Provisions of Section 115BBE instead oftaxing the same at normal rate of tax.

3] Learned Commissioner [Appeals] did not consider the Grounds of Appeal No.4. Learned Income-Tax Officer in Computing Income ought to have taken income returned ie., Rs. 12096368 instead of Rs. 12196870 income originally assessed which Order was cancelled by the Commissioner of Income-Tax U/ S 263. Hence: excess Income of Rs.94878/- assessed requires to be deleted.

4] For these and other grounds that may be urged at the time of hearing of appeal the appellant prays that the appeal be allowed.

Mallikarjun Appanna ITI v.ITO 3. Brief fact of the case is that a survey was conducted in the assessee’s premises, the assessee declared the following in survey:

“1. Excess stock of gold Rs.88,86,000/- 2. Excess stock of silver Rs.28,22,138/- Total Rs.1,17,08,138/-.”

The said amount was declared in its return filed u/s 139(1) and paid the tax accordingly. The assessment was completed u/s 143(3) of the Act. During the assessment, the addition of excess stock was accepted and computed tax under normal rate. After, the order of the Ld. AO, passed u/s 143(3), The Ld. Commissioner of Income Tax, Belagavi {in brevity CIT} passed an order u/s 263 and directed to tax on the declared amount (undisclosed stock u/s 68 and 69) for tax u/s 115BBE @ of 30%. In the order u/s 263, the Ld. CIT set aside the order of the Ld. AO and directed to calculate the tax u/s 115BBE of the Act on the income declared of Rs.1,17,08,138/-. Further the assessee has grievance that the return income taken by the Ld. AO amount to Rs.1,21,96.870/- whereas the assessee declared income u/s 139(1) Rs.1,20,96,368/-. The excess amount was Rs.94,878/- was calculated excess by the CIT in the order of 263. Aggrieved, the assessee filed an appeal before the Ld. CIT(A). The Ld. CIT(A) upheld the order of the Ld. AO.

Being aggrieved, the assessee filed an appeal before us.

Mallikarjun Appanna ITI v.ITO 4. The Ld. counsel of the assessee Mr. Patil vehemently argued and mentioned that the assessee declared the amount for buying peace of mind. The excess stock found during the survey u/s 133A was declared in the return of income u/s 139 and the tax was offered in normal rate. In the first assessment, the Ld. AO accepted the calculation of tax. The Revenue cannot tax on declared business income u/s 115BBE @ of 30%. The undisclosed stock was identified & linked with Business Income of assessee.

“3. Applicability of the provisions of section 69 and 115BBE in respect of undisclosed investment in gold and silver:

In this case survey u/s 133A was claimed out in the business premises on 18.06.2012. During the course of survey, excess stock of gold and silver was found. The assessee had declared undisclosed income as under: i. Excess stock of gold Rs.88,86,000/- ii. Excess stock of silver Rs.28,22,138/- Total undisclosed income Rs.1,17,08,138/-

The return of income was filed declaring total income of Rs.l,21,01,992 before claim of deductions under chapter VIA. The income declared is inclusive of the undisclosed income declared during the course of survey. The undisclosed investment in the form of excess stock gold and silver should have been assessed u/s.69 of the Income Tax Act, 1961 and the tax should have been levied ah the rate of 30% without allowing any deduction in respect of expenditure or allowance as per the provisions of section 115BBE of the Income Tax Act, 1961. However, the Assessing Officer completed the assessment

Mallikarjun Appanna ITI v.ITO on 30.03.2015 and has not made any enquiry or verification regarding applicability of the provisions of section 69 or 115BBE and has levied tax under the normal provisions of the Income Tax Act, 1961. In view of these facts, the Commissioner of Income Tax, Belagavi, found that the assessment order passed u/s.143(3) on 31.3.2015 as erroneous and prejudicial to the interest of the Revenue. After hearing the assessee, vide his order u/s.263 mentioned above, he has set aside the assessment order with a direction pass order afresh after affording opportunity of being heard to the assessee.”

Extraction of the order of the Ld. CIT(A) in page no. 4 para 6.5 to 7 is as under:

“6.5 It is clear from the facts, that unaccounted investment found by the Department during survey is to be assessed under section 69 of the Income tax Act. Once unaccounted/unexplained investment is assessed u/s 69 it is mandatory to tax @ 30% rate as per provision under section 115BBE w.e.f. 01.04.2013. The AO had correctly taxed it under section 115BBE.

6.6 Case laws relied by the assessee are not applicable to the facts of the given case. Hon'ble High Court in the case of Pr.CIT Vs. Bajargan Traders in (Rajasthan High Court) has not discussed anything about provisions of section 115BBE which has been brought on the statute by Finance Act, 2012 w.e.f. 01.04.2013 i.e. applicable from the A.Y. 2013-14 which is the year under consideration.

6.7 In view of the above, I do not find any infirmity in this regard. The AO's order is in accordance with law in applying the provisions of Section 115BBE. Hence appeal filed by the Assessee on this ground is dismissed.

7. In the Asst, order u/s 143(3) r.w.s. 263 against para 3.4 (vi) the AO has mentioned Rs. 1,17,08,138 as undisclosed income to be taxed at 30% as per provisions of Section 115BBE of the Income tax Act, 1961 whereas while computing the undisclosed income, the AO appears to have taken incorrect figure at Rs.l,17,90,287. This appears to be an arithmetical error crept in computation, which is apparent form records. The AO is directed to adopt the correct figure while giving effect to this order.”

Mallikarjun Appanna ITI v.ITO “3. Later on it came to be noticed that the following issues need action u/s 263 of the Income Tax Act, 1961.

(i) During the course of survey under section 133A of the Act, the assessee had declared undisclosed income as under.

SI. Undisclosed income Amount No. declared on account of Excess stock of Gold 01 88,86,000 Excess stock of Silver 28,22,138 02 Total 1,17,08,138

The return of income has been filed declaring income of Rs. 1,22,01,992 before claim of Chapter VIA deductions. The income declared is inclusive of the above undisclosed income declared during the course of survey under section 133A of the Act. As per the provisions of section 115BBE, where the total income of an assessee includes any income referred to under section 68 & 69 of the Act, such income shall be charged at the rate of 30% and as per the provisions of section 115BBE(2) and no deduction in respect of any expenditure or allowance shall be allowed to the assessee at the time of computing the income. From the above, the amount of undisclosed income falls under the category of 69B of the Act. The Assessing Officer has not made any enquiry or verification regarding applicability of the provisions of section 69B or 115BBE and has levied tax under the normal provisions of the Act. This has made the assessment order erroneous in so far as prejudicial to the interest of revenue.

Respectful observations of following judgments are as follows: - a. The Hon’ble Rajasthan High Court in case of CIT vs Bajargan Traders [ITA No. 258/2017 dated12/09/2017] has held that when the assessee is dealing in sale of food grains, rice and oil seeds and the excess stock which is found during survey is stock of rice then, it can be said that investment in procurement of such stock of rice is clearly identifiable and related to the regular business stock of the assessee. Therefore, the investment in the excess stock is to be brought to tax under head “business income” and not under the head income from other sources. b. In case of Shri Lovish Singhal vs ITO (ITA No 142 to 146/Jodh/2018 for AY 2014-15 dated 25May 2018), the Jodhpur Tribunal applying the proposition of law laid down by the Hon’ble Rajasthan High Court in the Bajargan Traders (supra), held that the lower authorities were not justified in taxing the surrender made on account of excess stock and excess cash found U/s 69 of the Act and accordingly held that there is no justification for taxing such income U/s 115BBE of the Act.

Mallikarjun Appanna ITI v.ITO c. The Hon’ble Chandigarh Tribunal in case of M/s Bajaj Sons Ltd vs DCIT [ITA No.1127/CHD/2019 AY 2017-18 dated 25 May 2021] was concerned with the question of invoking the provision of section 115BBE of the Act on the surrendered income to cover any discrepancy and thereby accessing such income at higher rate of tax as against the normal rate of tax applicable to the business income. Given that no discrepancy was pointed by the AO, it was held that the provisions of sections 68, 69, 69A, 69B, 69C or 69D are not attracted to levy tax under section 115BBE.

The assessee declared an amount in the return of income u/s 139. On the basis of the declared income which was found in survey the application of section 115BBE is unjustified. The concealment, which is found during the time of survey, the assessee suo motu declared in the return and accepted the fact and paid the tax accordingly. There is direct linkage about undisclosed stock & income from business. So, the Ground no-2 of appeal is allowed in assessee’s favour.

In ground no-3, we see that the total income declared by the assessee which was extracted in the order of the Ld. AO passed u/s 143(3) dated 30.03.2015 is Rs.1,21,96,870/-. In this particular issue, we have not found any material about the assessee’s claim of total income Rs 120,96,368/-. Accordingly, the ground no 3 is Mallikarjun Appanna ITI v.ITO against the assessee. Ground no-1 & 4 are general in nature. So, requirement for adjudication.

Order pronounced in the open court on 28.06.2022