Case Law Details

Case Name : Shri Bhuwan Goyal Vs DCIT (ITAT Chandigarh)
Appeal Number : ITA No. 1385/Chd/2019
Date of Judgement/Order : 28/09/2020
Related Assessment Year : 2017-18
Courts : All ITAT (7779) ITAT Chandigarh (170)

Shri Bhuwan Goyal Vs DCIT (ITAT Chandigarh)

Landmark Chandigarh ITAT order on Section 115BBE on  investment made out of undisclosed business income held not to fall in Section 69 & 115BBE (AY 17-18).

In the present case it is not in dispute that the assessee surrenderd 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 115BBE of the Act.

From the provisions of Section 115BBE it would be clear that the provisions of Section 115BBE (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 153A 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).

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.

CIT(A) has no power to restore the matter to the A.O. under section 251(1)(a) of Income Tax Act, 1961

As regards to this issue Ld. Counsel for the assessee submitted that the Ld. CIT(A) has no power to restore the matter to the A.O. under section 251(1)(a) of the Act and if he was satisfied then he should have brought the aforesaid amount to tax under section 115BBE of the Act himself. It was further submitted that the assessee declared the income from Real Estate business which was recorded in the pocket diary found & seized during the course of search and it was not the investment recorded in the books of account, therefore the provisions of section 115BBE of the Act were not applicable on the said income of Rs. 2.64 Crores.

In the present case the assessee on the basis of the Real Estate transactions recorded in the pocket diary found & seized during the course of search surrendered the income amounting to Rs. 3.64 Crore earned from Real Estate transaction i.e. profit amounting to Rs. 2.34 Crore, commission amounting to Rs. 30 Lacs and investment of Rs. 1.00 Crore, therefore the source of the said, income under consideration i.e; Rs. 2.64 Crore (Rs. 2.34 Crore + Rs. 30 Lacs) was Real Estate business. The A.O. rightly accepted the income as declared by the assessee and the Ld. CIT(A) was not justified in directing the A.O. to treat the said income declared in the statement under section 132(4) of the Act, as the income chargeable to tax separately under section 11566E of the Act. Moreover, the Ld. CIT(A) directed the A.O. to adjudicate this issue again which is not in the powers of the Ld. CIT(A) provided as per the provisions of Section 251(1)(a) of the Act which read as under:

251 (1) In disposing of an appeal, the Commissioner (Appeals) shall have the following powers-

(a) in an appeal against an order of assessment, he may confirm, reduce, enhance or annul the assessment.

From the aforesaid provisions it is clear that the Ld. CIT(A) has the powers to confirm, reduce, enhance or annul the assessment, however the powers to remand the case back to the file of the A.O. is not provided. In that view of the matter, we are of the view that the Ld. CIT(A) was not justified in restoring the issue under consideration back to the file of the A.O.

FULL TEXT OF THE ITAT JUDGEMENT

This is an appeal by the Assessee against the order dt. 03/09/2019 of Ld. CIT(A)-5, Ludhiana.

2. Following grounds have been raised in this appeal:

1. That order passed under section 250(6) of the Income Tax Act, 1961 by the Ld. Commissioner of Income Tax(Appeals)-5, Ludhiana is against law and facts on the file in as much as he was not justified to arbitrarily uphold the action of the Ld. Assessing Officer in treating the sum of Rs. 1.00 crore out of total surrender made at Rs. 3.64 crores during the course of search while making a statement u/s 132(4) which was duly declared in the return of income as income u/s 69 of the Income Tax Act, 1961.

2. That he was further not justified to uphold the action of the Ld. Assessing Officer in imposing a tax u/s 11588[email protected] 60% on the sum of Rs. 1.00 crore.

3. That he was further not justified to arbitrarily give directions to the Ld. Assessing Officer to bring to tax the amount of Rs 2.64 crores u/s 11588

3. Vide Ground No. 1 and 2 the grievance of the assessee relates to the confirmation of action of the A.O. in imposing the tax under section 115BBE @ 60% on the sum of Rs. 1.00 Crore.

4. Facts of the case in brief are that the assessee belongs to M/s AP Group of Companies where search and seizure operation had been conducted on 31/08/2016 and certain documents were seized including the valuables like jewellery, cash etc. During the course of search proceedings gold jewellery worth Rs. 77,08,316/- was found out of which jewellery wroth Rs. 31,63,785/- had been seized alongwith cash of Rs. 1,51,600/-, a pocket diary was also found & seized which contained the details of certain real estate transactions and profit earned thereon including commission thereof by the Directors of the company i.e; the assessee and his father Shri Ravi Nandan Goyal, the said diary was duly confronted to the assessee. In his statement the assessee surrendered profit earned on real estate transactions amounting to Rs. 3.64 Crore. The assessee furnished the return of income on 05/08/2017 declaring an income of Rs. 4,35,71,070/- which included additional income surrendered under section 132(4) of the Act amounting to Rs. 3.64 Crore.

4.1  During the course of assessment proceedings the A.O. confronted the assessee with the details of certain balance sheets of other concerns and details of purchase of jewellery. In response the assessee brought on record that he had already surrendered additional income of Rs. 3.64 Crore. It was also stated that the family members had made proper withdrawals from their bank accounts for the foreign visits.

4.2 The A.O. noticed that the assessee had declared additional income of Rs. 3.64 Crores representing the income allegedly earned from real estate transactions and commission thereon, however, the assessee could not furnish the relevant details with complete particulars thereof as to what actually constituted the transactions in the real estate from where the said profit was earned. The A.O. was of the view that in the absence of complete details of the parties, the respective amount received and the nature of transactions, the income arising there from and so declared under section 132(4) of the Act was liable to be assessed under section 69 of the Act r.w.s 155BE amended with effect from A.Y. 2017-18 where it was chargeable to tax @ 60%.

4.3 He accordingly issued a show cause notice to the assessee which read as under:

Sub:- Issue of show cause notice for the A.Y. 2017-18 – Reg-

*******

Please refer to the proceedings pending in the case u/s 153A and details tiled from time to time which have been examined at this end and duly discussed with Sh. Ishant Goyal (your cousin) and Sh. Kulbhushan Goyal. AR during the course of proceedings. It has been observed that a search and seizure operation has been conducted u/s 132 on 31.08.2016 at your residential premises when certain loose papers/ documents were found and seized alongwith certain jewellery and cash as per the records / Panchnama in the case. During the course of search proceedings, a pocket diary has been found and seized which contained certain transactions delineating the real estate transactions, profits earned thereon as well as commission earned on these real estate transactions which were during confronted during those proceedings.

4.4  In response the assessee submitted as under:

Q. 8. You are again requested la Rive reply to the Q.no. 7 regarding nature and contents of entries mentioned in the pocket diary-oddy?

Ans. I have consulted my counsel Sh. Kul Bhushan Goyal. CA It is stated that these entries are related to sale/purchase of immovable properties made by me and my family members.

Q. 9 Please explain source of Investment made In immovable properties by you and your family members along-with documentary evidence and also state about the manner of earnings.

Ans. The source of investments is out of commission income earned from real estate transactions in past. There is no documentary evidence available with me as real estate transactions were entered into by me and family members on the basis of agreements (Biana) which were destroyed after completion of transactions. But the details of the transactions are mentioned in the diary. However, to buy peace of mind and to avoid litigation with the department, I hereby voluntarily offer commission income as well as profit earned on real estate transactions as an additional income of Rs. 2.64 Cr. (Rs. 30 lacs as commission Income and 2.34 Cr. as profit earned from real estate transactions) over and above my normal income for the F.Y. 2016-17 relevant to A.Y. 20I7-18 subject to no penal action. It is further emphasized that these transactions were entered by me in my individual capacity and nothing to do with the company I.e. M/s A.P. Refinery Pvt. Ltd.

Q. 10. I would like to reiterate again the fact that this statement is recorded on oath and any false or wrong statement willfully or Intentionally can lead to launch of prosecution or criminal proceedings against you as per relevant section of law’?

Ans. Yes, 1 know it.

Q. 11 Do you want to say anything else.

Ans. Yes. one agreement dated 05/04/2016 found from residence at the time of search on 31.08.2016 which was executed by Mr. Suniit Thapar on my behalf and Sh. Harnek Singh s/o Sh Daulat Singh Tor an amount of Rs. 1,10,00,000/. Out of this amount Rs. 10 Lacs was transferred from my bank account to Mr. Sumit Thapar 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 transactions in past. However no documentary evidence Is available with me.

4.5 The A.O., however was not satisfied from the reply of the assessee and considered the amount of Rs. 1 Crore as liable to be charged to tax separately under section 115BBE @ 60% by observing at page no. 7 & 8 of the assessment order dt. 30/12/2018 as under:

As per the ITR assessee has declared additional income of Rs.3.64 Crore representing the income allegedly earned from real estate transactions (Rs.2.34 Crore) commission from the real estate business (Rs.30 Lacs) and R.s. 1 Crore on account of unaccounted investment in property as per the pocket diary seized and confronted as mentioned above. However it is seen that assessee could not furnish the relevant details with complete particulars thereof as to what actually constituted the transactions in the real estate from where the said profit was earned including the commission thereon. It is a fact that any transaction involves two parties without which it is unimaginable to earn any profit from any transaction and assessee is under legal obligation to furnish the details of profits so earned. Issue has been examined accordingly. Assessee has also pointed out that additional income has been surrendered after recording of statement u/s 132(4) and all the taxes arising thereon have been paid to the Government account. Accordingly, the income declared as per the return including the additional amount surrendered at Rs.3.64 Crore is being assessed as such. However, amount of Rs. 1 Crore is being added back separately u/s 69 as unaccounted investment as declared by the assessee and it is being charged to tax separately u/s 115BBE @ 60% as mentioned above.

Accordingly the A.O. assessed the sum of Rs. 1.00 Crore under section 115BBE @ 60% and the remaining income amounting to Rs. 3,35,71,070/- shown by the assessee was charged to tax separately.

5. Being aggrieved the assessee carried the matter to the Ld. CIT(A) and submitted as under:

Sub: – Written submission in the case of Sh. Bhuwan Goyal, Ludhiana for the A.Y. 2017-18.

This is with reference to an appeal filed in the case of Sh. Bhuwan Goyal (herein after referred to as “the appellant”) against intimation under Section 143(3) of the Income-Tax Act, 1961 for the captioned assessment year.

Brief Facts

The appellant is an individual and earned income from Salary, Interest from Banks and income from other sources. For the previous year relevant to assessment year 2017-18, the appellant filed his return of income on 05.08.2017 declaring income at Rs. 4,35,71,070/-. The same included a sum of Rs. 3.64 Crores declared as additional income while making statement u/s 132(4) of the Act, 1961 during the course of search on 31.08.2016. The said additional income was duly declared in the return of income and paid all due taxes before the filing of the return. The additional income was inclusive of a sum of Rs. 2.64 Crores on account of commission from real estate dealings and profit on transactions in real estate. The balance sum of Rs. 1.00 Crore was against an amount of Rs. 90 lacs paid for purchase of some immovable property and agreement of the same was also found during the course of search from the residence of the appellant. The assessment was framed u/ s 143(3) of the Act vide order dated 31.12.2018 at the returned income. While framing assessment the Ld. Assessing Officer treated the sum of Rs. 1.00 Crore as unexplained investment and taxed the same as per the provisions of section 115 BBE of the Act.

Aggrieved by this, the appellant filed an appeal before Your Honor.

The appellant seeks to place on record, its preliminary legal assertions, challenging the legitimacy of an addition effected in order passed u/s 143(3) of the Act:-

1. That assessment order passed under section 143(3) by the Learned Deputy Commissioner of Income Tax, Central Circle-I, Ludhiana is against law and facts on the file in as much he was not justified to arbitrarily treat the amount of Rs. 1.00 crore out of total surrendered made at Rs. 3.64 crores during the course of search while making statement under section 132(4) and duly declared in the return of income as income under section 69 of the Income Tax Act, 1961.

2. That he was further not justified to arbitrarily treat the income declared at Rs. 1.00 crore as chargeable to tax under section 115BBE @ 60 per cent.

The ground 1 and 2 are related to each other and are against the treatment of the income declared as income from other sources as “Unexplained Money” and charging of tax as per the provisions of section 115BBE. As such a common submission of both the grounds of appeals is being made.

During the course of assessment proceeding, a show cause notice was issued, in which the appellant was asked as to why the additional income disclosed in his return of income for AY 2017-18 be not taxed at the rate of 60% u/s 115BBE as this is liable to be assessed u/s 69 of the Income Tax Act, 1961. A detailed reply to the same was submitted which is being reproduced as under :-

1. The assessee, amongst other companies, is a Director in the company M/s A.P Refinery Private Limited, which is a pioneer in the field of Rice Bran Oil (RBO), with over a decade of experience in the industry. Starting operations as a solvent extraction plant for Rice Bran in 1998, the Company has developed capabilities across the edible oil refining value chain. The company set up a refinery in 2008 at Jagraon in the district of Ludhiana, India’s highest paddy yielding area. The company also generates employment to large number of workers from various background in Ludhiana/Jagraon.

2. Prior to entering into refinery business, the family was doing similar businesses. The family was always engaged in business activities and has, over the period of years have acquired acumen and expertise in various business including real estate. Due to having business acumen and the network, the family acquired immense knowledge of certain real estate transactions. Keeping this in mind and looking into the nature of business activities during the year under consideration, the family carried out some real estate business which was received as ‘commission’ and profit from byana’.

3. These activities were got done through the assessee who brought various offers and thereafter approached parties for the purchase/sale of real estate for and on behalf of our family members. For the said transactions, with respect to the commission earned or with respect to the profit earned on the transactions is clearly recorded in a diary/spiral notes maintained by them.

4. A search was undertaken at the premises of the assessee on 31/08/2016, wherein these diaries – spiral notes were found and seized vide Annexure A-2, pages 1-25 at the premises of the company A.P. Refinery Private Limited, Village Tapan Harnia, Nakodar, Jalandhar Road, Jagraon which is the office of the family business.

5.The perusal of the statement recorded under section 132(4) will reveal that the assessee explained that the profits earned, or losses suffered in the real estate business have been recorded in these document(s) for each of the family member and the net profit worked out therein was offered to tax as income from real estate business for the financial year 2016-17 relevant to A.Y. 2017-18. The usage of the term’s “transaction”, “profit” and “loss” in the statement recorded demonstrate that these activities conducted by the assessee were in the nature of business. It is a settled proposition of law that the statement under section 132(4) of the Income Tax Act, 1961 has evidentiary value and the same needs to be accepted.

6. The seized documents depict the income earned from real estate business and the statement under section 132(4) of the Income Tax Act, 1961 confirms the same, thus the correctness of these documents cannot be doubted. In other words, the Department cannot accept the income as correct and disbelieve the real estate business carried on by the family members.

7. The assessee never retracted his income offered during the course of search which stands disclosed in the return filed as income from business as the same falls under purview of Section 28 of the Income Tax Act, 1961.

8. The diary/spiral note found and seized constitutes books of account, transactions recorded therein constitutes real estate transactions and the same as a whole shall constitute real estate business carried out by the assessee.

9. In order to determine whether a transaction would fall within the purview of Section 69, it would be important to review the said provisions, which are reproduced herein:

Unexplained investments.

69. Where in the financial year immediately preceding the assessment year the assessee has made investments which are not recorded in the books o f account, if any, maintained by him for any source of income, and the assessee offers no explanation about the nature and source of the investments or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the value of the investments may be deemed to be the income of the assessee of such financial year.

(Emphasis Supplied)

10. From a perusal of the above provisions, it is noted that the said provision is applicable, when the assessee has made an investment, which is not recorded in the books of accounts maintained by him, the rigors of Section 69 may be attracted.

11. In the instant case,

a. There is no investment of the assessee arising out of the said transaction

b. A perusal of the documents in Annexure A-l, there is no mention of any investment, but only of receipt of money as profit or commission and accordingly income cannot be treated as ‘investment’.

c. The said amounts that were recorded in the books/diary maintained by the assessee have been offered to tax as business income.

d. In any case, these amounts are no longer unexplained considering the assessee has already offered them to tax

Therefore, it is submitted that section 69 of the Income Tax Act 1961 shall have no application whatsoever.

Further, vide the impugned notice, Your Honours have taken only the following ground to invoke Section 115BBE:

” 2. From the above, it is apparent that you did not maintain any details regarding the real estate transaction carried out and accordingly amount of Rs. 2.9 crore has been declared as additional income u/s 132(4) over and above the normal income for the AY 2017-18…”

13. In respect of the above, respectfully, it is submitted that the said ground is perhaps not based on facts for the following reasons:

a. The assessee in question No. 7 to the query regarding pages in Annexure A-2 has stated that ” But the details of the transactions are mentioned in the diary. However, to buy peace of mind and to avoid litigation with the department, I hereby voluntarily offer commission income as well as profit earned on real estate transactions as an additional income of ……………….. It is further emphasized that these transactions were entered by me in my individual capacity and nothing to do with the company, i.e. AP Refinery Private Limited’. In the said statement, the assessee has specifically stated that the details are maintained in the diary seized as Annexure A-2. Thus, the ground that the assessee did not maintain any details is factually incorrect.

b. Further, it was during the search only when the said diary was found, which only goes to prove the details on the basis of which income has been offered on real estate transaction.

c. There is no evidence in the said diaries, or any other information found during the course of search that can suggest that the assessee has made an investment which has not been explained to fasten any liability under section 69 of the Income Tax Act 1961.

d. During the course of search conducted by the Income Tax Authorities, no such investment was found which has not been explained by the assessee.

Thus, it is submitted that based on the above facts, the amounts offered are towards transactions of real estate and not towards any unexplained investments.

14. It is also submitted that with respect to the diary/book which is being used to fasten a liability on the assessee, if the amounts are to be believed then the description and nature is also to be believed and if the description/nature is to be disbelieved, the entire amount offered to tax deserves not to be treated as income and accordingly income to be recomputed.

15. It is respectfully further submitted that the provisions of section 69 of the Income Tax Act 1961 would not apply to the income offered under section 132(4) of the Act as the income from real estate business found recorded in the diary/spiral note for the period 01.04.2016 to prior to the date of search i.e. 31.08.2016 which is the current year’s business income and under no circumstances could be treated as deemed income.

16. If the proposed invocation of deeming provision(s) and consequently section 115BBE is accepted then, the income declared shall become non-est because-

(i) Unexplained income, investment or expenditure alone could be deemed income as a result of invocation of deeming provisions by the Assessing Officer, but could never be declared by an assessee.

(ii) Deeming income cannot represent real income and only real income could be declared by an assessee under section 132(4) of the Income Tax Act 1961.

(iii) Apparent is real’ has been explained in respect of seized diary/spiral note as per Annexure A-2, pages 1-25, in written replies filed earlier in the case of each o f the assessee.

17. Further, Your Honour’s kind attention is also invited to section 132(4A) and 292C of the Income Tax Act 1961 drawing the presumption that the contents of the books of accounts and other documents found during the course of search are presumed to be true and since income from real estate business was regularly recorded in the diary/note book found during the course of search at the premises of the assessee, on 31.08.2016 therefore the question of treating the same as deemed income or applying the provisions of section 115BBE as envisaged by your Honour as per the impugned notice, do not arise.

18. Section 115BBE of the Act is not a charging provision but is a machinery provision to levy tax on income and it does not enlarge the ambit of section 68, 69 to 69D of the Act to create a deeming fiction to tax any sum already credited / offered as income. Such recourse is unwarranted within the objectives to introduce this section 115BBE of the Act. The objects and reasons for amending the section 115BBE by the Taxation Laws (Second Amendment) Bill, 2016 was to prevent misuse by defaulting assessee as on the date of amendment for subjecting them to higher rate of tax. Whereas in the case of the assessee, the tax was already offered under section 132(4) much earlier i.e., on 31.08.2016 and the due taxes were also paid thereon.

19. The assessee has duly deposited the advance tax on his entire income including the additional income from real estate business offered under section 132(4) of the Income Tax Act 1961 and the tax liability on this additional income was worked, which has not been challenged till date.

20. It must be appreciated that the real estate business has been admitted as undisclosed income of the assessee for the impugned year during the course of search in the statement recorded under section 132(4) of the Income Tax Act 1961 and this section specifically authorize an officer to examine in person on oath. After these statements were recorded the search was concluded. The assessee has honoured the surrender made of the real estate business and paid the legitimate taxes on this income and now proposal for invoking the provisions of section 69 read with 115BBE of the Income Tax Act, 1961, by not accepting these statements made during the course of search seriously jeopardizes the present business activities of the family and heavy tax liability on account of no fault of the assessee(s) shall cause genuine hardship and irreparable damage.

In view of above facts and circumstances of the case it is respectfully prayed that section 69 of the Income Tax Act 1961 read with section 115BBE is not applicable to the facts of the case of the assessee and the impugned notice issued may kindly be filed/dropped.

After considering above mentioned reply to the show cause notice, the Ld. Assessing Officer proceeded to treat the amount of Rs. 1.00 Crore as Unexplained Investment and taxed as per the provisions of Section 115BBE. The observation of the Ld. Assessing Officer in this regard was that the appellant could not be able to furnish the relevant details of what actually constituted the transactions in the real estate from where the appellant earned including commission. He further observed that every transaction involves two parties and it is obligatory on the appellant to give/furnish the details of profit so earned. However, it has been accepted by the Ld. Assessing Officer that the income declared was based on the documents found during the course of search, on which details of transactions of real estate entered into by the appellant are mentioned alongwith the amount of income arising therefrom. There was no dispute to the fact that whatever profit/income resulted from the transactions recorded on the pocket diary, the same was declared by the appellant and paid taxes thereon. There was no change in the quantum of income declared by the appellant and assessed by the Ld. Assessing Officer. Even the transactions of real estate and profit earned thereon have duly been accepted by the Ld. Authorised Officer who have recorded the statement of the appellant on Oath. Thus, once the nature of income has been accepted by the department at one point of time, then the same income cannot be treated/assessed by treating the same with different nature of income.

Further it is submitted that a declared / real income cannot partake a charter of deemed income as has been assessed by the Ld. Assessing Officer u/s 69 as unexplained investment. Otherwise also the income was declared by the appellant on 31.08.2016, the date of search, whereas the amended provisions of section 115BBE have been inserted by the Taxation Laws ( Second Amendment) Act, 2016, which came to Statute on 16.12.2016, i.e much after the date of declaration made by the appellant. The same should not be made applicable to the appellant in the given circumstances. Therefore, there is reason to treat the additional income declared by the appellant as Unexplained Investment u/s 69 and further considering the same for tax purposes as per the provisions of section 115BBE of the Act @ 60 %.

Reliance is also placed on the Judgement of the Hon’ble’ble Income Tax Appellate Tribunal, Jaipur Bench in the case of The Assistant Commissioner of Income Tax, Central Circle-2, Jaipur Vs M/s Sanjay Bairathi Gems Limited in ITA No. 157/JP/2017 wherein their Lordships have held that the excess stock found during the course of survey is a part of the business income and the case laws relied upon by the AO is not applicable and the additional income declared by the assessee is not liable to tax as per the provisions of section 155BBE of the Act.

Further the reliance is also placed on the judgement of the Hon’ble’ble Apex Court in the case of CIT Vs M/s Vatika Township Private Limited reported in 367 ITR page 466 wherein it has been held that it is a settled law that any amendment which increases the tax burden of the assessee has to be considered prospective and not retrospective. Also, the legislations which modify accrued rights or which impose obligations or which impose new duties or attach a new disability have to be treated as prospective unless the legislative intent is clearly to give the enactment a retrospective effect. It further held in para 39 (c) that “If the concerned provision of the taxing statute is ambiguous and vague and is susceptible to two interpretations, the interpretation which favours the subject as against there the revenue, has to be preferred.”

The appeal may kindly be decided in the light of the submissions made above.”

6. Ld. CIT(A) after considering the submissions of the assessee observed that as per the seized documents assessee had accepted that as per agreement found from his residence the income of Rs. 1.10 crore was made out of which Rs. 10.00 Lacs was stated to be transferred from bank account and the rest of the amount was paid in cash. He further observed that the assessee had accepted in his statement, however no documentary evidence was available and hence to avoid litigation a surrender of Rs. 1.00 crore was made on account of investment in property which was not recorded anywhere. Ld. CIT(A) reproduced the Answer to the Question No. 1 asked by the A.O. to the assessee during the course of recording the statement under section 132(4) of the Act which read as under:

“ Q. 11 . Do you want to say anything else?

Ans: Yes, one agreement dated 05.04.2016 was found from residence at the time o f 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 o f Rs. 1,10,00,000/-. Out o f this amount o f Rs. 10 Lacs was transferred from my bank account to Mr. Sumit Thaper which is duly accounted for (proof o f this will be submitted later on) and rest o f the amount has been paid in cash. The source o f Rs. 1 Cr. Paid in cash are out o f commission income and profit earned from real estate transaction in past. However no documentary evidence is available with me. Hence to BUY peace o f mind and to avoid litigation. I hereby voluntarily offer Commission income as well as profit earned on real estate transactions as an additional income o f Rs. 1 Cr. (One Crore) over and above – my normal income for the F Y . 2016-17 relevant to A.Y. 2017-18 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.”

6.1  The Ld. CIT(A) was of the view that a sum of Rs. 1.00 Crore was to be treated as deemed income of the assessee under section 69 of the Act and that the A.O. was right in treating the same separately although the return of income had been accepted. Accordingly the action of the A.O. in treating Rs. 1.00 Crore separately under section 69 of the Act as an unaccounted investment under section 115BE of the Act and charging the tax @ 60% was upheld.

6.2. As regards to the submissions of the assessee that the amendment which increased the tax burden of the assessee was to be considered prospectively and not retrospectively, the Ld. CIT(A) observed that the A.O. had invoked the provisions of Section 115BBE of the Act as amended by the Taxation Laws (Second Amendment) Act, 2016 with effect from 01/04/2017. Therefore the amended provisions were applicable for the A.Y. 2017-18 and there was no infirmity in the action of the A.O. in applying the same to the case of the assessee.

6.3.  Ld. CIT(A) also directed the A.O. to take necessary action on paying the tax on the income amounting to Rs. 2.64 also, under section 115BBE of the Act by observing as under:

Before concluding it is relevant to mention that in the show-cause notice dated 26.12.2018, the AO mentioned that from the statement of the assessee, it was apparent that the assessee did not maintain any details regarding the real estate transactions carried on and accordingly amount of Rs. 3.64 crore has been declared as additional income u/s 132(4) over and above the normal income for A.Y. 2017-18. Thus as per AO the amount declared u/s 132(4) was liable to be assessed u/s 69 of the IT Act and chargeable to tax as per provision of Section 115BBE. It is however noted the AO has charged tax @ 60% as per provisions of section 115BBE only on the income of Rs. 1.00 crore surrendered as investment in property as per agreement dated 05.04.2016 found from the residence at the time of search on 31.08.2016 (instead of total surrender of Rs. 3.64 crore). The surrender of Rs. 3.64 crore was made u/s 132(4) on the basis of entries in the pocket diary and the relevant part of the statement was referred by the AO in the show cause notice and the same is reproduced below:-

Q.8: You are again requested to give reply to the Q. no. 7 regarding nature and contents o f entries mentioned in the pocket diary oddy?

Ans: I have consulted my counsel Sh. Kul Bhushan Goyal, CA it is stated that the entries are related to sale/purchase o f immovable properties made by me and my family members.

Q.9: Please explain source o f investments made in immovable properties by you and your family members along with documentary evidence and also state about the manner o f earnings.

Ans: The source o f investments is out o f commission income earned form real estate transactions in past. There is no documentary evidence available with me as real estate transactions were entered into by me and family members on the basis o f agreements (Biana) which were destroyed after completion o f transactions. But the details o f the transactions are mentioned in the diary. However, to buy peace o f mind and to avoid litigation with the department, I hereby voluntarily offer commission income as well as profit earned on real estate transactions as an additional income o f Rs. 2.64 Cr. (Rs. 30 lacs as commission income and 2.34 Cr. as profit earned form real estate transactions) over and above my normal income for the F.Y. 2016-17 relevant to A.Y. 2017-18 subject to no penal action. It is further emphasized that these transactions were entered by me in my individual capacity and nothing to do with the company i.e. M/s A.P. Refinery Pvt. Ltd.”

In view of the above statement of the assessee, the AO is therefore directed to take necessary action to bring to tax the amount of Rs. 2.64 crore also u/s 115BBE after providing an opportunity of being heard to the assessee on this issue by way of a show-cause notice before doing so.

7. Now the assessee is in appeal.

8. Ld. Counsel for the assessee reiterated the submissions made before the authorities below and further submitted that the assessee surrendered an income of Rs. 3.64 Crores during the course of search in his statement recorded under section 132(4) of the Act and disclosed the source of the transactions which was commission income and profit earned from Real Estate transactions recorded in the pocket diary found & seized during the course of search. It was emphasized that the Real Estate transactions from which the assessee earned undisclosed income were recorded in the seized pocket diary which has been accepted by the A.O. also who considered the sum of Rs. 2.64 Crores as income earned from commission and profit from Real Estate Business but did not accept the remaining amount of Rs. 1 Crores which was in the form of investment the source of which was the commission and profit earned from Real Estate business and the same was accepted by the Department, as such the provisions of section 115BBE of the Act were not applicable. It was further submitted that the assessee deposited the advance tax on the entire income offered for taxation under section 132(4) of the Act which had been accepted by the department therefore the A.O. was not justified in considering the income of Rs. 1 Crore under section 69 of the Act and charging the same under section 115BBE of the Act @ 60%.

8.1 Ld. Counsel for the assessee also drew our attention towards para 3.1 of the order passed by the Ld. CIT(A) wherein it has been mentioned that as per the ITR the assessee had declared additional income of Rs. 3.64 Crore representing the income allegedly earned from Real Estate transaction and commission thereon.

9. In his rival submissions the Ld. Sr. DR reiterated the observations made by the authorities below in their respective orders and further submitted that the assessee himself declared the investment from undisclosed sources, therefore the provisions of Section 69 of the Act were applicable as the investment was unaccounted, on which tax was to be charged under section 115BBE of the Act.

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 surrenderd 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 115BBE of the Act. The provisions contained in the said section i.e; 115BBE of the Act read as under:

115BBE. (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).

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 115BBE (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 153A 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. 2017-18 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.

11. Vide Ground No. 3, the grievance of the assessee relates to the direction given by the Ld. CIT(A) to the A.O. to bring to tax the amount of Rs. 2.64 Crores under section 115BBE of the Act.

12. As regards to this issue Ld. Counsel for the assessee submitted that the Ld. CIT(A) has no power to restore the matter to the A.O. under section 251(1)(a) of the Act and if he was satisfied then he should have brought the aforesaid amount to tax under section 115BBE of the Act himself. It was further submitted that the assessee declared the income from Real Estate business which was recorded in the pocket diary found & seized during the course of search and it was not the investment recorded in the books of account, therefore the provisions of section 115BBE of the Act were not applicable on the said income of Rs. 2.64 Crores.

13. In his rival submissions the Ld. Sr. DR supported the impugned order passed by the Ld. CIT(A).

14. We have considered the submissions of both the parties and perused the material available on the record. In the present case the assessee on the basis of the Real Estate transactions recorded in the pocket diary found & seized during the course of search surrendered the income amounting to Rs. 3.64 Crore earned from Real Estate transaction i.e. profit amounting to Rs. 2.34 Crore, commission amounting to Rs. 30 Lacs and investment of Rs. 1.00 Crore, therefore the source of the said, income under consideration i.e; Rs. 2.64 Crore (Rs. 2.34 Crore + Rs. 30 Lacs) was Real Estate business. The A.O. rightly accepted the income as declared by the assessee and the Ld. CIT(A) was not justified in directing the A.O. to treat the said income declared in the statement under section 132(4) of the Act, as the income chargeable to tax separately under section 11566E of the Act. Moreover, the Ld. CIT(A) directed the A.O. to adjudicate this issue again which is not in the powers of the Ld. CIT(A) provided as per the provisions of Section 251(1)(a) of the Act which read as under:

    1. (1) In disposing of an appeal, the Commissioner (Appeals) shall have the following powers-

(a) in an appeal against an order of assessment, he may confirm, reduce, enhance or annul the assessment.

From the aforesaid provisions it is clear that the Ld. CIT(A) has the powers to confirm, reduce, enhance or annul the assessment, however the powers to remand the case back to the file of the A.O. is not provided. In that view of the matter, we are of the view that the Ld. CIT(A) was not justified in restoring the issue under consideration back to the file of the A.O.

15. In the result, appeal of the assessee is allowed.

(Order pronounced in the open Court on 28/09/2020 )

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Qualification: LL.B / Advocate
Company: KAPIL GOEL LEGAL
Location: NORTH DELHI, New Delhi, IN
Member Since: 23 Jun 2020 | Total Posts: 38
Mr.Kapil Goel B.Com(H) FCA LLB, Advocate Delhi High Court [email protected], 9910272804 Mr Goel is a bachelor of commerce from Delhi University (2003) and is a Law Graduate from Merrut University (2006) and Fellow member of ICAI (Nov 2004). At present, he is practicing as an Advocate View Full Profile

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