Case Law Details
Harish Sharma Vs ITO (ITAT Chandigarh)
Admittedly, in the present case the notebook entries containing entry pertaining to the business of M/s Sharma Overseas Services was recovered from the possession of the assessee. The authorities below have not rejected the contention of the assessee that the entries in note book pertained to the business concern of the assessee.
As pointed out by the Ld. Counsel the Coordinate Bench in the case of Shri Bhuwan Goyal (supra), has held that the amount surrendered during the survey action cannot be treated as undisclosed income u/s 68 of the Act in the said case, the assessee had surrendered an amount of Rs.3.64 crores in the statement recorded u/s 132(4) of the Act, which was made on the basis of the entries in the pocket diary found and seized during the course of search. The authorities below computed the tax under the provisions of section 115BBE of the Act. The matter travelled to the ITAT. The ITAT set aside the orders of the authorities below and directed the AO to tax the entire surrendered income of Rs.3.64 crores at the normal rate of tax.
Further, section 68 of the Act, applies where any sum is found credited in the books of account maintained by the assessee for any previous year and the assessee fails offer any explanation about the nature and source thereof or the explanation by the assessee is not satisfactory in the opinion of the AO, the sum so credited may be treated as income of the assessee of that previous year. In the present case the assessee has explained the nature and source of the amount in question and to substantiate his contention submitted cash flow statement. We further note that the AO has not given his findings on this point. We, therefore, find merit in the contention of the assessee that in the absence of any adverse findings by the AO on the source of earning of the assessee, the authorities below have wrongly treated the amount in question as undisclosed income u/s 68 of the Act and computed the Tax liability under the provisions of section 115BBE of the Act.
In the light of the discussions made in the foregoing paras, we are of the considered view, the sole ground raised by the assessee is covered in favour of the assessee by the decision of the coordinate Bench in the case of Shri Bhuwan Goyal (supra) discussed above. Since the findings of the Ld. CIT(A) are not in consonance with the decision of the coordinate Bench, we hold that the Ld.CIT(A) has erred in upholding the action of the AO in treating the amount in question as undisclosed income u/s 68 of the Act. Hence, respectfully following the decision of the coordinate Bench in the case discussed above, we allow the appeal of the assessee and set aside the impugned order passed by the Ld. CIT(A). Accordingly, we direct the AO to compute the Tax on the said amount treating the same as business income of the assessee.
FULL TEXT OF THE ITAT JUDGEMENT
The instant appeal has been preferred by the assessee against the order of the Learned Commissioner of Income Tax (Appeals)[in short the ‘Ld.CIT(A)], Ludhiana dated 25.08.2020,passed u/s 250(6)) of the Income Tax Act, 1961 (hereinafter referred to as ‘Act’, for the assessment year 2017-18, whereby the Ld. CIT(A) has dismissed the appeal filed by the assessee against the assessment order passed u/s 143(3) of the Act.
2. The brief facts of the case are that a survey u/s 133A was carried out on 14.09.2016 at the business premises of the assessee and M/s Ambika Medicos. During the course of survey proceedings, a notebook pertaining to M/s Sharma Overseas Services was found, in which entries were recorded regarding cash collection of Rs.10 lacs during the period from April, 2016 to August 2016. The assessee contended that he was the proprietor of M/s Sharma Overseas Services, which carried out its business from 01.04.2016 to 31.08.2016. The assessee further admitted that the said notebook contains entries relating to his business concern and declared the additional income of Rs.10 lacs during the survey action. The assessee filed his return of income for the assessment year under consideration on 22.03.2018, declaring total income of Rs.10,55,640/-. The case was selected for scrutiny and the AO passed assessment order u/s 143(3) and accepted the return. However, the AO treated the declared amount of Rs.10 lacs as undisclosed income of the assessee u/s 68 of the Act and computed the tax
liability under the provisions of section 115BBE of the Act.
3. The assessee challenged the assessment order before the CIT(A). The Ld.CIT(A) after hearing the assessee dismissed the appeal and upheld the action of the AO. Against the said findings of the Ld.CIT(A) the assessee has preferred the present appeal.
4. The assessee has challenged the impugned order passed by the Ld. Counsel on the following ground:
“That the order passed u/s 250(6) of the Income Tax Act, 1961 by the Learned Commissioner of Income Tax (Appeals)-2, Ludhiana is against law and facts on the file in as much as he was not justified to arbitrarily uphold the action of the Learned Assessing Officer in treating the sum of Rs.10,00,000/- as income to be taxed u/s 11 5BBE of the Income Tax Act, 1961 whereas it was in fact business income of the appellant.”
5. Before us, the Ld. Counsel for the assessee submitted that the impugned order passed by the Ld.CIT(A) suffers from legal infirmity as the AO had wrongly treated the amount of Rs.1O lacs declared by the assessee during the survey proceedings as undisclosed income under section 68 of the Act. The Ld. Counsel further submitted that this issue is covered in favour of the assessee by the decision of the ITAT Chandigarh Bench in the case of Shri Bhuwan Goyal Vs. DCIT in ITA No.1385/Chd/2019 and since the findings of the Ld.CIT(A) are not in accordance with the decision of the Jurisdictional Tribunal, the same is liable to be set aside. The Ld. Counsel further pointed out that as per the decision of the Delhi Bench of the ITAT, in the case of M/s. Agson Global Private Ltd. ITA No. 3741-3746/Del/2019, income which is the part of the profit and loss account cannot be treated as unexplained cash credit u/s 68 of the Act.
6. On the other hand, the Learned Departmental Representative (DR) supporting the order passed by the Ld.CIT(A) submitted that section 68 of the Act, is a deeming provision, and any sum credited in the books of account of the assessee is treated as undisclosed income where the assessee fails to explain the nature and source thereof or in the opinion of the AO the explanation offered by the assessee is not satisfactory. In this case, since the explanation offered by the assessee regarding nature and source of the amount in question was not satisfactorily, the Ld.CIT(A) has rightly upheld the action of the AO.
7. We have heard the rival submissions of the parties and also perused the material available on record including the cases relied upon by authorities below and the cases relied upon by Ld. Counsel during the course of arguments of this case. Admittedly, in the present case the notebook entries containing entry pertaining to the business of M/s Sharma Overseas Services was recovered from the possession of the assessee. The authorities below have not rejected the contention of the assessee that the entries in note book pertained to the business concern of the assessee.
8. As pointed out by the Ld. Counsel the Coordinate Bench in the case of Shri Bhuwan Goyal (supra), has held that the amount surrendered during the survey action cannot be treated as undisclosed income u/s 68 of the Act in the said case, the assessee had surrendered an amount of Rs.3.64 crores in the statement recorded u/s 132(4) of the Act, which was made on the basis of the entries in the pocket diary found and seized during the course of search. The authorities below computed the tax under the provisions of section 115BBE of the Act. The matter travelled to the ITAT. The ITAT set aside the orders of the authorities below and directed the AO to tax the entire surrendered income of Rs.3.64 crores at the normal rate of tax. The findings of the coordinate Bench read as under:
10. We have considered the submissions of both the parties and perused the material available on the record. In the present case it is not in dispute that the assessee surrendered the income of Rs. 3.64 Crores in the statement recorded under section 132(4) of the Act the said surrender was made on the basis of the entries in the pocket diary found & seized during the course of search in which certain transactions relating to the Real Estate business were noted and profit as well as commission was earned thereon. The aforesaid facts had been mentioned by the A.O. at page no. 4 of the assessment order dt. 30/12/2018 wherein copy of the show cause notice dt. 26/12/2018 has been reproduced. However, the A.O. considered only an income of Rs. 2.64 Crore earned from the Real Estate Business but did not accept Rs. 1 Crore and added the same separately under section 69 of the Act. The A.O. charged the tax @ 60% under section 11 5BBE of the Act. The provisions contained in the said section i.e; 1 15BBE of the Act read as under:
11 5BBE. (1) Where the total income of an assessee, –
(a) Includes any income referred to in section 68, section 69, section 69A, section 69B, section 69C or section 69D and reflected in the return of income furnished under section 139; or
(b) Determined by the Assessing Officer includes any income referred to in section 68, section 69, section 69A, section 69B, section 69C or section 69D, if such income is not covered under clause(a), the income-tax payable shall be the aggregate of‑
(i) the amount of income-tax calculated on the income referred to in clause(a) and clause(b), at the rate of sixty per cent; and
(ii) the amount of income-tax with which the assessee would have been chargeable had his total income been reduced by the amount of income referred to in clause(i).
2. Notwithstanding anything contained in this Act, no deduction in respect of any expenditure or allowance or set off of any loss shall be allowed to the assessee under any provision of this Act in computing his income referred to in clause(a) and clause (b) of sub-section (1).
From the aforesaid provisions it would be clear that the provisions of Section 11 5BBE (1)(a) of the Act are applicable to the income which is referred in section 68, 69, 69A, 69B, 69C or 69D reflected in the return of income furnished under section 139 of the Act. However, in the present case no such income was reflected in the return filed under section 139 of the Act rather the income was declared in the return filed under section 1 53A of the Act after the search. The assessee declared the income under section 132(4) of the Act and disclosed the same in the return of income filed under section 153A of the Act. The assessee explained the source of investment of Rs. 1.10 Crore in the reply to Question No. 11 which has been reproduced at page no. 8 of the impugned order by the Ld. CIT(A) and read as under:
“Q. 11. Do you want say anything else?
Ans: yes, one agreement dated 05/04/2016 was found from residence at the time of search on 31/08/2016 which was executed by Mr. Sumit Thaper on my behalf and Sh. Hernek Singh S/o Sh. Daulat Singh for an amount of Rs. 1,10,00,000/-. Out of this amount of Rs. 10 Lacs was transferred from my bank account to Mr. Sumit Thaper which is duly accounted for (proof of this will be submitted later on) and rest of the amount has been paid in cash. The source of Rs. 1 Cr. Paid in cash are out of commission income and profit earned from real estate transaction in past. However, no documentary evidence is available with me. Hence to BUY peace of mind and to avoid litigation. I hereby voluntarily offer Commission income as well as profit earned on real estate transactions as an additional income of Rs. 1 Cr. (One Crore) over and above my normal income for the F.Y. 2016-17 relevant to A.Y. 201 7-18 subject to no penal action. I hereby reiterated that these transactions were entered by me in Individual capacity and nothing to do with the company i.e. M/s A.P. Refinery Pvt. Ltd.”
The said explanation given by the assessee to the Ld. CIT(A) has not been rebutted, therefore the provisions of Section 69 of the Act were not applicable as the business transactions were recorded in the books of account and the assessee either earned commission or profit on all those Real Estate transactions. The income earned from the Real Estate transactions was claimed to be utilized for making the investment in the property. In the present case it is not brought on record to substantiate that the said income was utilized by the assessee elsewhere and not in the investment of the property. Therefore, we are of the view that the A.O. was not justified in taxing the aforesaid income of Rs. 1 Crore separately particularly when nothing is brought on record to substantiate that the assessee had made separate investment different from the income earned on real estate transactions recorded in the pocket diary found & seized during the course of search. Accordingly, the impugned order passed by the Ld. CIT(A) on this issue is set aside and the A.O. is directed to tax the entire surrendered income of Rs. 3.64 at the normal rate of tax.
9. Further, section 68 of the Act, applies where any sum is found credited in the books of account maintained by the assessee for any previous year and the assessee fails offer any explanation about the nature and source thereof or the explanation by the assessee is not satisfactory in the opinion of the AO, the sum so credited may be treated as income of the assessee of that previous year. In the present case the assessee has explained the nature and source of the amount in question and to substantiate his contention submitted cash flow statement. We further note that the AO has not given his findings on this point. We, therefore, find merit in the contention of the assessee that in the absence of any adverse findings by the AO on the source of earning of the assessee, the authorities below have wrongly treated the amount in question as undisclosed income u/s 68 of the Act and computed the Tax liability under the provisions of section 115BBE of the Act.
10. In the light of the discussions made in the foregoing paras, we are of the considered view, the sole ground raised by the assessee is covered in favour of the assessee by the decision of the coordinate Bench in the case of Shri Bhuwan Goyal (supra) discussed above. Since the findings of the Ld. CIT(A) are not in consonance with the decision of the coordinate Bench, we hold that the Ld.CIT(A) has erred in upholding the action of the AO in treating the amount in question as undisclosed income u/s 68 of the Act. Hence, respectfully following the decision of the coordinate Bench in the case discussed above, we allow the appeal of the assessee and set aside the impugned order passed by the Ld. CIT(A). Accordingly, we direct the AO to compute the Tax on the said amount treating the same as business income of the assessee.
In the result, the appeal of the assessee is allowed.
Order pronounced on 11.05.2021.
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