Case Law Details
Sudarshan Status Corporation Vs DCIT (ITAT Ahmedabad)
Summary: The Ahmedabad Bench of the Income Tax Appellate Tribunal (ITAT) held that the Assessing Officer could not invoke Section 154 to reclassify income disclosed during a survey under Section 133A from business income to unexplained money under Section 69A taxable under Section 115BBE. The assessee, a real estate partnership firm, had disclosed ₹1.25 crore as additional income during a survey, explaining it as on-money receipts arising from its regular business activities. The amount was duly recorded in the books and accepted as business income during scrutiny assessment under Section 143(3). Subsequently, the Assessing Officer sought to rectify the assessment under Section 154 by treating the disclosure as unexplained income. The Tribunal observed that determining whether survey disclosure constitutes business income or deemed income under Section 69A is a debatable issue requiring examination of facts and legal interpretation. Since Section 154 applies only to apparent and obvious mistakes, the rectification order was held invalid and was consequently quashed.
Core Issue: Whether the Assessing Officer could invoke section 154 to recharacterize income disclosed during a survey and accepted in scrutiny assessment as business income into unexplained money under section 69A taxable under section 115BBE, on the ground that the original assessment contained a mistake apparent from the record.
Facts: During a survey under section 133A, the assessee disclosed additional income of ₹1,25,10,000 representing on-money receipts arising from its real estate business. The partner specifically stated that the amount related to business receipts from the project undertaken by the firm. The amount was subsequently credited in the regular books of account, offered to tax as business income in the return, and accepted by the AO in the assessment completed under section 143(3). Thereafter, the AO initiated rectification proceedings under section 154 and held that the amount should have been treated as unexplained money under section 69A and taxed under section 115BBE.
AO/CIT(A) Findings: The AO held that since the disclosed income was not recorded in the books at the time of survey, it constituted unexplained money under section 69A and was taxable under section 115BBE. The CIT(A) upheld the rectification order, observing that the income was unaccounted at the time of survey and that the assessee had not satisfactorily established the identity and genuineness of the persons from whom the on-money receipts were allegedly received.
ITAT Findings: The Tribunal held that the partner had clearly stated during survey that the surrendered amount represented on-money receipts generated from the assessee’s business activity. The income was thereafter recorded in the regular books and offered as business income, which was accepted in the scrutiny assessment under section 143(3). By invoking section 154, the AO sought to change the very character of the income from business receipts to unexplained money under section 69A. Such recharacterisation required fresh examination of facts, interpretation of law, and determination of competing views, making the issue clearly debatable. Since section 154 is confined to correcting obvious and patent mistakes apparent from the record, the AO exceeded his jurisdiction. Accordingly, the rectification order was quashed.
Case Laws Relied Upon:
1. M/s. 9th Street Architects vs. DCIT
2. T.S. Balaram, ITO vs. Volkart Brothers
3. ACIT vs. Saurashtra Kutch Stock Exchange Ltd.
Relevant Paras: 15 to 19.
Held: Income disclosed during survey and accepted in scrutiny assessment as business income cannot be recharacterised through rectification proceedings as unexplained income under section 69A taxable under section 115BBE. Since the issue is debatable and requires fresh examination of facts, it falls outside the scope of section 154. Accordingly, the rectification order was held to be unsustainable and the appeal was allowed.
FULL TEXT OF THE ORDER OF ITAT AHMEDABAD
This appeal has been filed by the Assessee against the order passed by the Ld. Commissioner of Income Tax (Appeals), (in short “Ld. CIT(A)”), ADDL/JCIT(A), Madurai vide order dated 12.09.2025 passed for A.Y. 2017- 18.
2. The assessee has raised the following grounds of appeal:
“1.1 The order passed by U/s.250 passed on 12.09.2025 for A.Y. 2017-18 by Addl./JCIT(A), Madurai (for short CIT(A)” upholding the validity of rectification u/s 154 and confirming the income of Rs. 1,25,10,000/- declared during the course of survey u/s 133A as unaccounted income u/s 69A instead of business income is wholly illegal, unlawful and against the principles of natural justice.
2.1 The ld. CIT(A), has grievously erred in law and or on facts in not considering fully and properly the submissions made and evidence produced/relied upon by the appellant with regard to the validity of order u/s 154 as well as nature of income declared during the course of survey.
2.2 The ld. CIT(A) has grievously erred in law and or on facts in passing a nonspeaking order and relying solely upon the rectification order passed by AO.
3.1 The ld. CIT(A) has grievously erred in law and or on facts in upholding the validity of proceedings of rectification u/s 154 though the condition precedent were not satisfied.
3.2 The ld. CIT(A) has grievously erred in law and or on facts in not appreciating that there was no mistake apparent on record u/s 154 so that the impugned order was wholly illegal and unlawful.
4.1 The ld. CIT(A) has grievously erred in law and or on facts in upholding that the income of Rs. 1,25,10,000/-declared during the course of survey u/s 133A as unaccounted income u/s 69A instead of business income.
3.2 That the in the facts and circumstances of the ld. CIT(A), ought not to have upheld the income of Rs. 1,25,10,000/- declared during the course of survey u/s 133A as unaccounted income u/s 69A instead of business Income.”
3. The brief facts of the case are that the assessee is a partnership firm engaged in the business of development and construction of properties and is regularly assessed to tax. For the year under consideration i.e. A.Y. 2017-18, the assessee filed its return of income on 06.10.2017 declaring total income of Rs. 1,51,89,070/-, which inter alia included additional business income of Rs. 1,25,10,000/- disclosed during the course of survey proceedings carried out under section 133A at the business premises of the assessee on 07.09.2016 and concluded on 08.09.2016. During the course of survey proceedings, statement of one of the partners, Shri Vishal Jagdishbhai Patel / Shri Prashant Shah, was recorded under section 131 read with section 133A of the Act and certain documents including Annexure-A/1 comprising diary pages were examined by the Department. Subsequently, the case was selected for compulsory scrutiny and during the course of regular assessment proceedings, the Assessing Officer also examined the statement recorded during the course of survey as well as the impounded diary containing details of transactions. After considering the material available on record and submissions furnished by the assessee, the Assessing Officer completed assessment under section 143(3) of the Act accepting the returned income including the additional income disclosed during the survey as business income.
4. Thereafter, the Assessing Officer initiated rectification proceedings under section 154 of the Act on the ground that there was a mistake apparent from record in the assessment order passed under section 143(3) of the Act. According to the Assessing Officer, the amount of Rs. 1,25,10,000/- disclosed during the course of survey ought to have been treated as unexplained income under section 69A of the Act and taxed at special rate under section 115BBE of the Act instead of being assessed as normal business income taxable at regular rates. In response to the notice issued under section 154, the assessee furnished objections contending that there was no mistake apparent from record which could be rectified under section 154 of the Act. The assessee submitted that the income disclosed during survey was the on-money receipts received in the course of regular business activity of the assessee firm from sale of units in the project and the same had already been credited in the regular books of account as business receipts. The assessee submitted that during the statement recorded in survey proceedings, the partner had categorically stated in reply to question nos. 19 to 24 that the disclosed amount represented receipts from business activities and was over and above the recorded receipts in books. The assessee therefore contended that once the income had been assessed under the head “business income”, the same could not subsequently be recharacterized as unexplained income under section 69A by invoking rectification jurisdiction under section 154 of the Act.
5. The assessee further argued before the Assessing Officer that the issue involved was highly debatable and required detailed examination of facts and interpretation of provisions of section 69A and section 115BBE and therefore such issue fell outside the limited scope of rectification proceedings contemplated under section 154.
6. The Assessing Officer, however, rejected the explanation of the assessee and passed order under section 154 of the Act holding that the additional income disclosed during survey was the unaccounted money falling within the scope of section 69A of the Act and therefore liable to tax under section 115BBE of the Act. The Assessing Officer observed that the disclosed income was not recorded in the regular books of account at the time of survey and merely offering the same subsequently in the return of income would not alter the character of such income. According to the Assessing Officer held that since the unaccounted money was not recorded in the books at the time of survey, the provisions of section 69A stood attracted and consequently the income was liable to be taxed at special rate under section 115BBE of the Act.
7. Aggrieved by the rectification order, the assessee preferred appeal before the Ld. CIT(A). The Ld. CIT(A) upheld the action of the Assessing Officer by observing that the amount disclosed during survey admittedly represented unaccounted income not recorded in the books of account at the time of survey and therefore the first condition of section 69A of the Act stood satisfied. The CIT(Appeals) further observed that the second condition regarding satisfactory explanation of source was also not fulfilled because according to the Assessing Officer, the assessee had failed to furnish names, identities and creditworthiness of persons from whom such on-money receipts were allegedly received and had also failed to establish genuineness of such transactions. The Ld. CIT(A) observed that the assessee had remained silent on this aspect and there was nothing on record to demonstrate that the assessee had fulfilled the requirements raised by the Assessing Officer during any stage of proceedings. The Ld. CIT(A) further observed that since the income was not recorded in the books at the time of survey, the subsequent disclosure in return of income would not take the case outside the purview of section 69A and section 115BBE. Accordingly, the Ld. CIT(A) held that the Assessing Officer was justified in invoking section 154 and treating the survey disclosure as unexplained income taxable under section 115BBE at special rates. The appeal of the assessee was therefore dismissed.
8. The assessee is in appeal before us against the order passed by CIT(Appeals) dismissing the appeal of the assessee.
9. We have heard the rival submissions and perused the material available on record. The short controversy involved in the present appeal is whether the Assessing Officer was justified in invoking rectification jurisdiction under section 154 of the Act for treating the income of Rs. 1,25,10,000/- disclosed during the course of survey proceedings as unexplained income under section 69A liable to tax under section 115BBE, despite the fact that the same income had already been accepted as business income in the original assessment completed under section 143(3) of the Act.
10. We find that during the course of survey proceedings, the partner of the assessee firm had categorically stated in response to question nos. 19 to 24 that the impugned amount represented on-money receipts received in the course of business activity relating to the project undertaken by the assessee firm and the same was over and above the recorded receipts in the books. We further find that such income was subsequently credited in the regular books of account as business receipts and offered to tax under the head “business income” in the return of income filed for the year under consideration. The Assessing Officer while framing assessment under section 143(3) of the Act after scrutiny proceedings accepted the returned income including the additional income disclosed during the course of survey as business income.
11. Subsequently, the Assessing Officer invoked powers under section 154 of the Act on the premise that there was a mistake apparent from record inasmuch as the surrendered income ought to have been treated as unexplained income under section 69A taxable under section 115BBE. In our considered view, the entire exercise undertaken by the Assessing Officer under section 154 is wholly beyond the limited jurisdiction contemplated under the said provision.
12. At this stage, it would be relevant to refer to the decision of the Coordinate Bench of Ahmedabad Tribunal in the case of M/s. 9th Street Architects v. DCIT in ITA No.1463/Ahd/2025 dated 17.10.2025, wherein under almost identical facts, the Tribunal held as under:-
“On careful consideration of the rival submissions, we find force in the contention of the assessee that the issue whether the disclosed income during the course of survey represents business income or unexplained money under section 69A is a debatable issue and, therefore, cannot fall within the limited scope of rectification under section 154 of the Act. The Assessing Officer’s action in changing the character of the income from business receipts to unexplained money amounts to review or reappraisal of facts, which is impermissible under section 154 of the Act.”
13. The Coordinate Bench further observed as under:-
“In the present case, it is undisputed that the assessee has duly accounted for the said receipts in its books of account and offered them as business income, which has been accepted in the regular assessment. The source of the receipts, being from the assessee’s professional activity, stood duly declared in the return and books. Therefore, the provisions of section 69A or section 115BBE could not have been invoked by way of rectification under section 154 of the Act, as such exercise requires fresh verification and determination of facts, which lies outside the scope of a ‘mistake apparent from record.’”
14. The Tribunal thereafter concluded as under:-
“Applying the settled law to the present case, it is clear that the rectification order passed by the Assessing Officer involves a debatable issue and, hence, is beyond the jurisdiction conferred by section 154 of the Act.”
15. The facts involved in the present appeal are materially identical to those before the Coordinate Bench in the case of 9th Street Architects wherein surrendered income disclosed during survey was subsequently treated by the Assessing Officer as unexplained income under section 69A through rectification proceedings under section 154. Respectfully following the aforesaid decision, we hold that the Assessing Officer was not justified in invoking section 154 for changing the character of income already accepted during scrutiny assessment.
16. We further find that the issue involved is highly debatable and therefore outside the purview of section 154 proceedings. The Hon’ble Supreme Court in the case of T.S. Balaram v. Volkart Brothers reported in 82 ITR 50 (SC) has held as under:-
“A mistake apparent on the record must be an obvious and patent mistake and not something which can be established by a long drawn process of reasoning on points on which there may conceivably be two opinions.”
17. Similarly, in ACIT v. Saurashtra Kutch Stock Exchange Ltd. reported in 305 ITR 227 (SC), the Hon’ble Supreme Court observed:-
“An error apparent on the face of the record means an error which strikes on mere looking and does not need long-drawn process of reasoning on points where there may conceivably be two opinions.”
18. In the present case, whether income disclosed during survey is assessable as business income or deemed income under section 69A of the Act is undoubtedly an issue on which two views are possible and requires detailed examination of facts, nature of business and surrounding circumstances. Therefore, such issue could never have been made subject matter of rectification under section 154.
19. Considering the totality of facts and respectfully following the decision of the Coordinate Bench in the case of M/s. 9th Street Architects v. DCIT and other judicial precedents discussed hereinabove, we hold that the rectification order passed under section 154 of the Act is unsustainable in law.
20. In the result, the appeal of the assessee is allowed.
This Order pronounced in Open Court on 26/05/2026
Author Bio
