Ajay Kumar Vs ITO (ITAT Chandigarh)
Summary: Survey surrender relating to excess cash and stock found at the business premises, having been disclosed as business income, is taxable as business income where no independent undisclosed asset or source is established. Further, the enhanced rate of 60% under section 115BBE, effective from 01.04.2017, cannot be applied to FY 2016-17; in the absence of a jurisdictional High Court decision, the interpretation favourable to the assessee is to be adopted.
Core Citation. Ajay Kumar v. ITO, Ward Rajpura, Patiala, Punjab, ITA No. 354/CHANDI/2024, AY 2017-18, ITAT Chandigarh, order dated 10.09.2026, Hon’ble Shri Manoj Kumar Aggarwal, Accountant Member and Shri Rajesh Damodarlal Sharma, Judicial Member.
Facts. The assessee’s business premises were subjected to survey under section 133A on 21.09.2016. During the survey, discrepancies relating to cash, stock, investment, advances etc. were found and the assessee surrendered Rs. 75 lakh in his recorded statement. The assessee disclosed the surrendered amount in the return of income by crediting it to the Profit & Loss Account as business income and paid tax at the normal rate of 30%.
AO / CIT(A) Finding. The Assessing Officer took the view that the surrendered income was liable to tax under section 115BBE and consequently applied the enhanced rate of 60%, resulting in additional tax liability. The CIT(A) confirmed the action of the AO. The assessee challenged the application of the higher rate before the Tribunal.
ITAT Finding — Nature of Surrendered Income
The Tribunal noted that the surrender was made in respect of excess stock and excess cash found at the assessee’s business premises and that the assessee had disclosed the amount as “business income” in the computation.
Following its earlier decision in M/s Haploos Plyboards Pvt. Ltd., the Tribunal held that the statement recorded during survey had to be considered as a whole. Where the excess stock or cash is connected with the business regularly carried on by the assessee and the Revenue does not establish any independent undisclosed asset or a nexus with any other source of income, the surrendered amount is properly assessable as business income.
The Tribunal also relied upon M/s AP Knit Fab v. DCIT, holding that where excess stock has a clear nexus with the stock in which the assessee regularly deals, the resulting income represents business income and cannot merely be assessed under the deeming provisions by treating it as income from another source.
Applicability of Section 115BBE
The Tribunal considered the second aspect, namely whether the enhanced rate of tax under section 115BBE could apply to the assessee’s surrender for FY 2016-17 relevant to AY 2017-18.
It followed the recent judgment of the Rajasthan High Court in Deepak Maratha v. Union of India, wherein it was held that the amendment to section 115BBE enhancing the rate to 60% came into force from 01.04.2017 and was therefore applicable from FY 2017-18 onwards, i.e. AY 2018-19. Since there was no express retrospective provision making the amendment applicable to FY 2016-17, the law prevailing on 01.04.2016 governed the assessee’s liability.
Beneficial Construction of Taxing Provision
The Revenue relied upon the decision of the Kerala High Court in Maruthi Babu Rao Jadav to contend that the enhanced rate should apply to the year under consideration. However, the Tribunal noted that there was no decision of the jurisdictional High Court on the issue.
Accordingly, relying upon the Supreme Court decision in CIT v. Vegetable Products Ltd., 88 ITR 192 (SC), the Tribunal applied the settled principle that where two reasonable interpretations of a taxing provision are possible, the interpretation favourable to the taxpayer should be adopted.
Outcome. The Tribunal directed the AO to apply the normal rate of tax instead of the enhanced rate under section 115BBE to the surrendered income. The appeal was accordingly partly allowed.
Ratio. Where survey surrender represents excess cash or stock having a direct nexus with the assessee’s existing business and no independent undisclosed source is established, the surrender is assessable as business income. For FY 2016-17, the enhanced 60% rate under section 115BBE, effective from 01.04.2017, cannot be applied retrospectively; where two reasonable views are possible, the view favourable to the assessee is to be adopted.
Cases Discussed
- Deepak Maratha v. Union of India & Ors., 2026 (6) TMI 371 – Rajasthan High Court
- CIT v. Vegetable Products Ltd., 88 ITR 192 (SC)
- Maruthi Babu Rao Jadav v. ACIT, 2021 (1) TMI 481 – Kerala High Court
- Haploos Plyboards Pvt. Ltd. v. DCIT, ITA No. 1649/Chandi/2025
- M/s AP Knit Fab v. DCIT, ITA No. 732/Chd/2022, dated 15.02.2024
FULL TEXT OF THE JUDGMENT/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)-5, Ludhiana [CIT(A)] dated 10.02.2024 in the matter of an assessment framed by Ld. Assessing Officer [AO] on best judgment basis u/s 144 of the Act on 05.11.2019. The only issue that fall for our consideration is to determine applicable rate of tax on survey surrender income. Having heard rival submissions, the appeal is disposed-off as under.
2. The assessee’s business premise was subjected to survey u/s 133A on 21.09.2016. To make up for the discrepancies of cash, stock, investment, advances etc., the assessee made surrender of Rs.75 Lacs in recorded statement, The said surrender was made in the return of income by way of credit to Profit & Loss Account. The assessee offered the additional income and paid taxes @30%. However, Ld. AO, considering the provisions of Sec.115BBE, opined that higher rate of 60% would be applicable on this surrender. Accordingly, a demand was raised for additional tax. The Ld. CIT(A) confirmed the same against which the assessee is in further appeal before us.
3. We find that this issue has been adjudicated by us in the recent case of M/s Haploos Plyboards Pvt. Ltd. (ITA No.1649/Chandi/2025) as under: –
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.
The bench, considering the decision of Hon’ble Rajasthan High Court in Deepak Maratha (187 Taxmann.com 27) 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. In the absence of express retrospective language, law in force as on 01.04.2016 would apply. We find that similar facts exist in the present appeal before us. The Ld. Sr. DR, in its written submissions, has quoted the decision of Hon’ble High Court of Kerala in the case of Maruthi Babu Rao Jadav (WA No.984 of 2019 dated 23.09.2020) to contend that higher rate of tax would apply in this year itself. However, admittedly, there is no decision by the jurisdictional High Court on this issue. This being so, applying the analogy of decision of Hon’ble Supreme Court in the case of Vegetable Products Ltd. (88 ITR 192) holding that if two reasonable interpretations of a taxing provision are possible, the construction that favors the taxpayer must be adopted, we follow the view which is favorable to the assessee. Accordingly, Ld. AO is directed to apply normal rate of tax on the surrendered income. We order so. No other ground has been urged in the appeal.
4. The appeal stand partly allowed.
Order pronounced on 10th September, 2026
