Haploos Plyboards Private Limited Vs DCIT (ITAT Chandigarh)
Excess stock and cash surrendered during a survey, when arising from the assessee’s regular business and disclosed as business income, cannot be taxed under the enhanced rate of Section 115BBE; moreover, the 60% rate under the amended provision applies only from AY 2018-19.
Summary: ITAT Chandigarh partly allowed the appeal of Haploos Plyboards Private Limited for AY 2017-18, holding that the ₹100 lakh surrendered during a survey, comprising ₹90.40 lakh for excess stock and ₹9.60 lakh for excess cash, was required to be assessed as business income and could not be subjected to the higher rate under Section 115BBE. The assessee, engaged in manufacturing ply and ply board, had surrendered the amount during a survey conducted at its business premises on 21 September 2016 and had offered the surrender as “business income” in its computation. The Assessing Officer nevertheless applied the higher rate under Section 115BBE. The Tribunal noted that the assessee had no other source of income and that its statement recorded under Section 133A accepted the discrepancy and offered the additional amount as “misc. business income”. Relying on A.P. Knit Fab v. DCIT, the Tribunal held that where excess stock had a clear nexus with the assessee’s regular business and no independent undisclosed asset existed, the surrendered amount constituted business income and was subject to the normal rate of tax. The Tribunal further relied on the Rajasthan High Court decision in Deepak Maratha, which held that the amendment enhancing the Section 115BBE rate to 60% applied prospectively from 1 April 2017, corresponding to FY 2017-18 and AY 2018-19 onwards. Accordingly, the higher rate could not apply to the assessee’s AY 2017-18 case. The Tribunal did not interfere with the ₹76,712 disallowance under Section 14A or the ₹5 lakh ad hoc disallowance of expenses and ultimately partly allowed the appeal.
Core Issue: The principal issue before the Tribunal was whether the income of ₹1 crore surrendered during a survey on account of excess stock and excess cash was taxable as normal business income or under the enhanced rate prescribed by Section 115BBE for AY 2017-18. The Tribunal also considered the validity of disallowance under Section 14A and an ad hoc disallowance of certain business expenditure.
Facts: The assessee, a company engaged in the manufacturing of ply and plyboards, was subjected to a survey under Section 133A on 21 September 2016. During the survey, discrepancies relating to excess stock and excess cash were found, and the assessee surrendered ₹1 crore, comprising ₹90.40 lakh towards excess stock and ₹9.60 lakh towards excess cash. The surrender was consistently disclosed by the assessee as miscellaneous business income in its computation of income. The assessee had no source of income other than its business. The Assessing Officer, however, sought to subject the surrendered amount to the higher rate under Section 115BBE. The AO also made a disallowance of ₹76,712 under Section 14A and an ad hoc disallowance of ₹5 lakh from expenditure relating to salaries and wages, power and fuel, and repairs to machinery.
AO/CIT(A) Finding: The Assessing Officer rejected the assessee’s contention that the surrendered income constituted business income and applied the higher rate of tax under Section 115BBE. The AO further computed disallowance under Section 14A at 1% of the monthly average investments and made an ad hoc disallowance of ₹5 lakh on the ground that only ledger extracts were produced and certain expenditure payments had been made in cash. The CIT(A) confirmed the assessment and sustained all the additions and disallowances.
ITAT Finding: The Tribunal held that the surrender was clearly made as miscellaneous business income and that the statement recorded during the survey had to be accepted as a whole and not selectively. Since the excess stock was directly connected with the stock in which the assessee regularly dealt and there was no independent undisclosed asset or any other source of income, the surrendered amount was held to be business income taxable at normal rates. The Tribunal further held that the enhanced rate of 60% under the amended Section 115BBE could not apply to AY 2017-18, as the amendment became applicable only from FY 2017-18, corresponding to AY 2018-19. However, the Tribunal sustained the disallowance under Section 14A, holding that it had been computed according to the statutory mandate, and also upheld the ad hoc disallowance of ₹5 lakh as reasonable.
Cases Relied Upon: The Tribunal relied upon M/s A.P. Knit Fab v. DCIT, reported at 2024 (5) TMI 637 – ITAT Chandigarh, wherein it was held that excess stock found during survey, having a clear nexus with the assessee’s regular business, was assessable as business income and could not be brought to tax under the deeming provisions. Reliance was also placed upon the recent judgment of the Rajasthan High Court in Deepak Maratha S/o Ramchandra Maratha v. Union of India & Others, reported at 2026 (6) TMI 371 – Rajasthan High Court, holding that the enhanced 60% rate under Section 115BBE was prospective and applicable only from FY 2017-18 onwards.
Outcome: The assessee’s appeal was partly allowed. The Tribunal directed that the surrendered income of ₹1 crore be assessed as business income at the normal rate of tax and held that the enhanced rate under Section 115BBE could not be applied for AY 2017-18. However, the disallowance of ₹76,712 under Section 14A and the ad hoc disallowance of ₹5 lakh towards business expenditure were sustained.
FULL TEXT OF THE ORDER OF ITAT CHANDIGARH
1. Aforesaid appeal by assessee for Assessment Year (AY) 2017-18 arises out of an order of learned Commissioner of Income Tax (Appeals)-3, Gurgaon [CIT(A)] dated 30.10.2025 in the matter of an assessment framed by Ld. Assessing Officer [AO] u/s 143(3) of the Act on 20.12.2019. Having heard rival submissions, the appeal is disposed-off as under.
2. The assessee being resident corporate assessee is stated to be engaged in manufacturing of ply and ply board. The business premises of the assessee was subjected to survey on 21.09.2016 wherein the assessee surrendered an amount of Rs.100 Lacs i.e., Rs.90.40 Lacs for excess stock & Rs.9.60 Lacs for excess cash. The said surrender was made in the computation of income. The Ld. AO proposed taxing the same as per higher rates provided u/s 115BBE. The assessee stated that this surrender was made as ‘Business Income’ and higher rate as per Sec.115BBE was not to be applied for this surrender. However, Ld.AO rejected the argument of the assessee and applied higher rate of tax to this surrender.
3. The Ld. AO also computed disallowance u/s 14A @1% of monthly average of investments and made disallowance of Rs.76,712/-. Another adhoc disallowance of Rs.5 Lacs was made on account of expenditure claimed under the head salaries and wages, power & fuel and repairs to machinery since the assessee only furnished ledger extracts and few of the payments were made in cash. The Ld. CIT(A) confirmed the assessment against which the assessee is in further appeal before us. Our findings and Adjudication
4. Upon perusal of assessee’s computation of income as placed on record, it could be seen that the surrender of Rs.100 Lacs has been made as ‘business income’ only. The said surrender has been made for excess stock and excess cash as found during survey at assessee’s business premises. From perusal of assessee’s computation of income, it could be seen that the assessee do not have any other source of income except business income. We also find that during survey, statement of Shri Sham Sunder Aggarwal was recorded u/s 133A on 21.09.2016 which is kept on record. In this statement, the assessee was confronted with issue of excess cash and stock vide question nos. 14 & 15. Upon perusal of the same, it could be seen that the assessee has accepted the discrepancy and offered additional income as ‘misc. business income’ only. The surrender has accordingly been honored by the assessee in the computation of income. In our considered opinion, the statement is to be accepted as a whole and not in a piecemeal manner. The assessee has surrendered this amount in the statement as ‘misc. business income’ only and offered the surrender in the computation of income accordingly. Therefore, the assessee’s version that it was nothing but business income is to be accepted. Our view find supports from the decision of this Tribunal in the case of A.P. Knit Fab vs. DCIT (ITA No.732/Chd/2022 dated 15.02.2024). The bench, after due consideration of various other decisions, held that when the revenue has not pointed out that the excess stock had any nexus with any other receipts other than the business being carried on by the assessee, the same could not be considered as income from other sources. Where there is a clear nexus of physical stock with the stock in which the assessee regularly deals in and recorded in the books of accounts, the discrepancy would clearly be in the nature of business income. No independent undisclosed asset existed. It was finally held that the income so surrendered on account of investment in excess stock during the course of survey could not be brought to tax under the deeming provisions of Sec. 69B but the same was to be assessed as “business income” which would be subjected to normal rate of tax. We find that this case law duly supports the case of the assessee and following the same, we would hold that the impugned surrender has to be accepted as ‘business income’ only.
5. Another angle to the issue is that Hon’ble Rajasthan High Court, in its recent decision titled as Deepak Maratha (CWP No.3625/2020 dated 27.05.2026) held that the amendment to Sec.115BBE prescribing higher rate of tax of 60% would apply only from 01.04.2017 i.e., Financial Year 2017-18 onwards. The Hon’ble Court’s conclusion was as under: –
17. SUMMARY/CONCLUSION
As an upshot of the discussion and analysis, as above, in our opinion, the Correct Legal Position which emerges is summarized as below:-
(i) The law applicable to an assessment year is the law in force on the first day of that year — i.e., 01st April. A provision coming into force after that date, without express retrospective language, cannot be applied to assessments for that year.
(ii) Changes in law occurring after the commencement of a financial year cannot govern the tax liability for that year unless the amendment is expressly made retrospective.
(iii) The amendment to Section 115BBE came into force on 01.04.2017 i.e. the first day of financial year 2017-18. For FY 2016-17, the law in force on 01.04.2016, prescribing a rate of 30%, must govern. The enhanced rate of tax @60% came into force on 01.04.2017 and can apply only from that date, i.e. for financial year 2017-18 onwards.
(iv) The Taxation Laws (Second Amendment) Act, 2016 contains no express language for it’s retrospective effect of section 115BBE.
18. We thus hold that the Taxation Laws (Second Amendment) Act, 2016 is prospective in effect as specified therein (from 15.12.2016 except the amendment of Section 115BBE, which is effective from 01.04.2017). The question framed in para 8.1, in the preceding part, is answered accordingly.
19. The appellate authority shall therefore proceed further to adjudicate the assessment order impugned before it keeping in mind what has been enunciated hereinabove, in accordance with law.
20. The petition stands disposed of in the aforesaid terms
The Hon’ble Court held that higher rate of tax as prescribed u/s 115BBE would apply from FY 2017-18 onwards i.e. from AY 2018-19 only. This case law further supports the case of the assessee that the impugned surrender could not be subject to higher rate of tax for this year.
6. So far as the disallowance u/s 14A is concerned, the same has been computed as per statutory mandate only. The adhoc expenses disallowance of Rs.5 Lacs is quite reasonable. The same do not warrant any interference on our part. No other ground has been urged in the appeal.
7. The appeal stand partly allowed.
Order pronounced on 01st September, 2026
