Raama Enterprises Vs ACIT (ITAT Ahmedabad Bench)
Survey Surrender Is Not Automatically “Black Income”: Ahmedabad ITAT Treats ₹1.99 Crore Disclosure as Business Receipts, Rejects Section 115BBE
Summary: The assessee, Raama Enterprises, was a partnership firm engaged in construction, real estate development & related contracting activities. A survey u/s 133A was conducted at its business premises on 16 September 2016. During the survey, the assessee disclosed ₹1,99,45,000 as additional income arising from its business receipts.
The assessee subsequently filed its return on 27 September 2017 declaring total income of ₹2,71,24,680, which included the entire survey disclosure. Thus, the amount surrendered during the survey was not omitted from the return. It was incorporated in the accounts & offered to tax as business income.
The AO accepted the total income returned by the assessee but changed the character of the disclosed amount. Instead of treating ₹1,99,45,000 as business receipts, the AO assessed it as unexplained cash credit u/s 68 & applied the special tax provisions of section 115BBE.
The CIT(A) confirmed the treatment adopted by the AO. The assessee therefore approached the Tribunal, disputing both invocation of section 68 & consequential taxation u/s 115BBE.
Issue before the Tribunal
The principal issue was whether income surrendered during a survey must automatically be treated as unexplained income u/s 68 merely because it had not been recorded in the books before the survey.
The connected issue was whether section 115BBE could be applied when the surrendered amount was demonstrably connected with the assessee’s existing construction business & had been returned as business income.
The assessee also challenged the retrospective application of the enhanced 60% rate u/s 115BBE because the survey was conducted before the Taxation Laws (Second Amendment) Act, 2016. However, once the Tribunal held that section 115BBE itself was inapplicable, separate adjudication of the rate controversy became unnecessary.
Assessee’s submissions
The assessee contended that the disclosure represented unaccounted construction receipts from its regular business. It was not income from any unidentified or independent source. The nature of the receipt was supported by impounded business papers, ledger extracts, audited financial statements, VAT returns & Service Tax returns.
The assessee had paid VAT & Service Tax on the disclosed receipts, thereby consistently treating them as arising from construction activity. The amount was also incorporated into the accounts & return as business income.
It was further submitted that during the survey, in response to Question No. 10, the assessee specifically admitted ₹1,99,45,000 as net taxable profit or income earned by the firm during FY 2016-17. The Department itself computed the related tax liability at approximately ₹69 lakh while recording the survey statement.
The assessee argued that sections 68 to 69D could not be invoked without first establishing the existence of an unexplained credit, investment, money or expenditure. Mere non-recording of a business receipt before survey did not destroy its business character.
Revenue’s contentions
The Revenue relied upon the orders of the AO & CIT(A). Since the amount was not recorded in the regular books before the survey, it was treated as unexplained cash credit falling u/s 68.
On that basis, the Revenue sought to justify application of section 115BBE, which provides a special rate for income assessed under sections 68, 69, 69A, 69B, 69C or 69D.
Tribunal’s findings & legal reasoning
The Tribunal held that the source of ₹1,99,45,000 had been demonstrated as sales or receipts arising from the assessee’s existing construction business. Income arising from such receipts ordinarily retains the character of business income.
Sections 68 to 69D cannot be automatically invoked merely because a receipt was not entered in the books before the survey. The AO must bring material on record showing that the amount represents an unexplained credit, investment, asset, money or expenditure falling within a specific deeming provision.
The survey statement supported the assessee’s case. The disclosure was described as net taxable profit or income earned by the firm during FY 2016-17. Nothing in the statement suggested that it arose from a separate, unknown or non-business source.
The impounded papers represented business transactions, while contemporaneous VAT & Service Tax returns corroborated the nature of the contracting receipts. The surrendered income was subsequently incorporated into the accounts & ITR as business receipts.
The Tribunal found that the AO had brought no evidence of any separate source. There was no unexplained investment, credit or expenditure discovered during the survey that could justify invocation of section 68 or any other deeming provision.
Section 115BBE operates only when income falls within sections 68 to 69D. Since the disclosed amount was business income & did not fall within those provisions, section 115BBE could not be applied.
The AO was accordingly directed to treat the entire disclosure of ₹1,99,45,000 as business receipts & tax it under the normal provisions. The assessee’s appeal was allowed.
Practical implications
The ruling establishes that every survey surrender is not automatically taxable u/s 115BBE. The decisive factor is the nature & source of the income, not merely the fact that it was detected during survey or remained unrecorded earlier.
Where impounded documents, indirect-tax returns, accounts & statements establish a direct nexus with an existing business, the income can retain its business character. Conversely, if unexplained cash, jewellery, investment or expenditure is discovered without a business nexus, sections 68 to 69D may apply.
Taxpayers should ensure that survey statements clearly identify the source & nature of surrendered income. The ruling’s central principle is that section 115BBE follows a valid deeming addition-it cannot be invoked merely because income was surrendered during survey.
FULL TEXT OF THE JUDGMENT/ORDER OF ITAT AHMEDABAD
1. The assessee has filed the appeal against the order dated 13-02-2026 passed by Commissioner of Income Tax (Appeals), National Faceless Appeal Centre NFAC (in short, referred to as the CIT(A)) u/s. 250 of the Income Tax Act, 1961 (herein referred to as “the Act”) relating to Assessment Year 2017-18.
2. The facts of the case are that the assessee firm is a builder and real estate developer. During the course of survey u/s. 133A of the Act on 16-09-2016, assessee offered a sum of Rs. 1,99,45,000/- as its business receipt for taxation. It filed e-return on 27-09-2017 admitting total income of Rs. 2,71,24,680/- which included the disclosure under survey.
Though the returned income has been accepted, A.O. assessed Rs. 1,99,45,000/- u/s. 68 r.w.s. 115BBE of the Act instead of assessee’s claim of business receipt. CIT(A) dismissed the appeal of the assessee.
3. The assessee has raised following grounds of appeal:-
“1. On the facts and circumstances of the case as well as law on the subject, the Ld. CIT(A) has erred in confirming the addition of Rs. 1,99,45,000/- u/s 68 of the Act, despite the said amount having already been offered as business income in the return of income and subjected to both direct and indirect taxes.
2. On the facts and circumstances of the case as well as law on the subject, the Ld. CIT(A) has erred in holding that the surrendered income during survey constituted unexplained cash credits, without appreciating that the assessee had duly explained the source as contracting receipts from its construction business.
3. On the facts and circumstances of the case as well as law on the subject, the Ld. CIT(A) has erred in applying the provisions of section 115BBE retrospectively at the enhanced rate of 60%, though the survey was conducted on 16.09.2016, prior to the amendment brought in by the Taxation Laws (Second Amendment) Act, 2016.
4. On the facts and circumstances of the case as well as law on the subject, the Ld. CIT(A) has erred in disregarding the evidences placed on record, including VAT and Service Tax returns, ledger extracts, and audited financial statements, which corroborated that the surrendered amount was part of regular business turnover.
5. On the facts and circumstances of the case as well as law on the subject, the Ld. CIT(A) has erred in failing to appreciate that section 68 is not attracted where the source and nature of receipts are explained and already accounted for in the books of accounts, and where taxes have been duly discharged.
6. On the facts and circumstances of the case as well as law on the subject, the Ld. CIT(A) has erred in not considering that the surrendered income related to multiple years of the project and not exclusively to AY 2017-18, thereby resulting in unjust taxation in a single year.
7. On the facts and circumstances of the case as well as law on the subject, the Ld. CIT(A) has erred in upholding the addition solely on the basis of a statement recorded during survey u/s 133A, which has no evidentiary value in law as it is not recorded on oath, and ignoring judicial precedents that such statements cannot be the sole basis for addition.
8. On the facts and circumstances of the case as well as law on the subject, the Ld. CIT(A) has erred in failing to appreciate that the Assessing Officer issued a faulty show-cause notice dated 24.12.2019, proposing addition u/s 69B on alleged unaccounted expenditure, which was factually incorrect and later altered to section 68, thereby vitiating the assessment proceedings for lack of application of mind.
9. On the facts and circumstances of the case as well as law on the subject, the Ld. CIT(A) has erred in sustaining the addition without considering that the assessee had declared higher than presumptive profit margins prescribed u/s 44AD, thereby negating any allegation of suppression of income.
10. On the facts and circumstances of the case as well as law on the subject, the Ld. CIT(A) has erred in passing order without providing effective and reasonable opportunity of being heard.
11. On the facts and circumstances of the case as well as law on the subject, the Ld. CIT(A) has erred in sustaining initiation of penalty proceedings u/s 270A(1) of the act.
12. It is therefore prayed that the above addition/disallowance made by the assessing officer may please be deleted.
13. Appellant craves leave to add, alter or delete any ground(s) either before or in the course of hearing of the appeal.”
4. Ld. A.R. of the assessee submitted that assessee had offered income as construction receipts. It had paid Service Tax and VAT on the said declaration. It did not disclose any unaccounted expenses. AO had not controverted these facts.
5. On the other hand, Sr. D.R. relied on the order of the CIT(A).
6. We have heard both parties. The only issue for adjudication is whether AO was correct in taxing the undisclosed income offered under survey u/s. 133A of the Act.
6.1 Addition made by A.O. u/s. 68 of the Act in treating this amount (Rs. 1,99,45,000/-) as unexplained contracting receipts and subjecting the same to u/s. 115BBE cannot be accepted as the source is demonstrated to be sales/receipts from its existing business. It ordinarily retains the character of business income. Section 68 to 69D cannot be automatically invoked because the receipt was not recorded in the books before the survey. Consequently, section 115BBE cannot automatically follow.
6.2 The survey statement is critical in this regard. In a specific question posed to assessee during survey i.e. Ans to Question No. 10 assessee admitted that Rs. Rs. 1,99,45,000/- is the net taxable profit/income earned by the firm during the financial year 2016-17. Consequently, tax liability was computed at Rs. 69 Lakhs by the Department. (Question No. 13) This also confirmed the treatment of undisclosed income as assessee’s business receipt during survey.
6.3 No separate or unknown source of income was discovered during survey. The impounded papers represented business transaction. Contemporaneous VAT return/Service Tax Return corroborated the nature of contract receipts. Surrendered amount was subsequently incorporated in accounts/ITR as business receipts. AO has not brought on record anything to hold that the disclosed income during survey represented assessee’s unexplained credit/unexplained investment. Hence, we hold that surrendered amount as unaccounted receipts which arose from the existing business.
7. Assessee raised objection pertaining to invocation of provision of section 115BBE of the Act. Section 115BBE operates only when the income falls within one of the deeming provisions namely section 68/69/69A/69B/69C/69D. As the entire income offered during survey represented assessee’s business receipts, we are not in agreement with the tax computation in assessment made u/s. 115BBE of the Act. AO is directed to treat the disclosure made u/s. 133A as assessee’s business receipts and tax accordingly.
8. In the result, the appeal of the assessee is allowed.
Order pronounced in the open court on 25-08-2026
