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Case Number

ITA No. 976/JP/2019 Assessment Year:2014-15

Attorney(S)

Ms. Chanchal Meena (Addl. CIT), for the Revenue;
Sh. P.C. Parwal (CA), for the Assessee.

Judges

Vijay Pal Rao, J.M.
Vikram Singh Yadav, A.M.

Acts

section 68 , section 69, section 69A , section 69B , section 69C or section 69D,
referred u/s 68, 69, 69A, 69B, 69C and 69D of the IT Act,

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Smart Summary

Concise Analytical Summary of the Tribunal Opinion (ITA No. 976/JP/2019)

Factual and Procedural Background

A survey under section 133A was conducted on 29.08.2013 at the business premises of the assessee. During the survey the assessee surrendered Rs. 21,00,000 as "undisclosed investment in stock" (the stock being physically verified and valued at Rs. 46,07,640). The assessee offered the surrendered amount in the return of income for the year under consideration as business income; the return showing total income of Rs. 22,80,070 was accepted and assessment completed under section 143(3) by order dated 01.09.2016.

Subsequently the Assessing Officer issued a notice under section 154 contending that tax on the surrendered amount should have been charged at 30% under section 115BBE read with section 69 (instead of taxing it at slab rates applicable to the individual), and proposing rectification on that basis.

The assessee contested that the surrendered amount was part of business income, was offered and assessed as such, and that there was no invocation of section 69 in the assessment order. The Assessing Officer maintained that section 69 applied and that section 115BBE should therefore govern taxation. The assessee succeeded before the Commissioner of Income Tax (Appeals) (CIT(A)), and the Revenue appealed to the Tribunal.

Legal Issues Presented

Whether the learned CIT(A) was justified in quashing the Assessing Officer's action under section 154 of the Income-tax Act in applying the provisions of section 115BBE to the surrendered undisclosed investment of Rs. 21,00,000 which had been offered and accepted as business income in the return and assessment under section 143(3).

Arguments of the Parties

Assessing Officer / Revenue (Appellant) — Core Contentions

During the survey the assessee surrendered Rs. 21,00,000 as undisclosed investment in stock from undisclosed income; therefore the provisions of section 69 are attracted.
Because section 69 applies, section 115BBE requires that tax on that amount be charged at 30%; the tax charged at slab rates in the assessment was therefore incorrect and constitutes a mistake apparent from record rectifiable under section 154.
There is no dispute that the amount was surrendered as undisclosed investment; hence the Assessing Officer was justified in invoking section 154 to correct the tax computation to apply section 115BBE.

Assessee (Respondent) — Core Contentions

The surrendered amount was offered to tax as business income in the return and was accepted by the Assessing Officer when completing assessment under section 143(3); the AO did not record any invocation of section 69 in the assessment order.
The excess stock arose in the course of normal business and was valued on estimate; there was no corroborative evidence to treat it as an unexplained investment requiring treatment under section 69.
Where an asset is integral to declared business stock (i.e., not an identifiable separate investment), the difference should be treated as business income rather than income under section 69; reliance placed on the Co-ordinate Bench decision in DCIT vs. Ram Narayan Birla.
Because section 69 was not invoked in assessment proceedings, section 115BBE (which is contingent on income referred to in section 69) cannot be applied by way of rectification under section 154.

CIT(A) — Observations relied upon by the Respondent

The CIT(A) held that the AO was not justified in taxing the surrendered stock under section 115BBE where it had already been accepted as business income under section 143(3).
The CIT(A) relied on coordinate-bench precedents (Chokshi Hiralal Maganlal vs. DCIT and DCIT vs. Ram Narayan Birla) and on the Supreme Court decision in T. S. Balram ITO vs. Volkart Brothers to conclude that the AO's action under section 154 was not justified.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court (as stated in the opinion)
DCIT vs. Ram Narayan Birla (482/JP/2015 dated 30.09.2016)	Used by the assessee (and relied upon by CIT(A)) to support the proposition that when an undisclosed addition relates to business stock integral to declared business assets, the difference should be treated as business income rather than an unexplained investment under section 69.	The decision was relied upon by the CIT(A); the Tribunal noted this reliance when upholding the CIT(A)'s order in favour of the assessee and dismissing the Revenue's appeal.
Chokshi Hiralal Maganlal vs. DCIT, 141 TTJ (Ahd) 1	Relied upon by the CIT(A) (coordinate-bench decision) to support the view that the surrendered amount should not be taxed under section 115BBE where assessed as business income.	The CIT(A) relied on this coordinate-bench authority; the Tribunal recorded the reliance and agreed with the CIT(A)'s outcome, thereby dismissing the Revenue appeal.
T. S. Balram ITO vs. Volkart Brothers, 82 ITR 50 (Supreme Court)	Cited by the CIT(A) for the proposition that the Assessing Officer's action under section 154 (rectification) was not justified in the circumstances (as interpreted by the CIT(A)).	The CIT(A) relied on this Supreme Court decision to support quashing the AO's action under section 154; the Tribunal noted the reliance and agreed with the CIT(A) in dismissing the Revenue's appeal.

Court's Reasoning and Analysis

The Tribunal examined the sequence of events and the statutory scheme on which the dispute rests. The analysis proceeded along these lines (as stated in the opinion):

The factual starting point: during survey the assessee surrendered Rs. 21,00,000 and that amount was offered in the return under the head "business income". The Assessing Officer accepted the return without adjusting the quantum, nature or classification of the income and completed assessment under section 143(3).
The statutory provision relevant to the Revenue's case is section 115BBE (as enacted at the relevant time), which applies a special 30% rate to "income referred to in section 68, section 69, section 69A, section 69B, section 69C or section 69D" and then taxes the remainder of income at the rates applicable after excluding that amount.
Section 69 provides for deeming the value of certain unrecorded investments to be the income of the assessee where the assessee offers no satisfactory explanation regarding the nature and source of such investments, and such deeming is predicated upon the Assessing Officer forming an opinion (after calling for explanation, where appropriate) that the explanation is unsatisfactory.
The Tribunal observed that in the present case there is no material on record showing that the Assessing Officer called for any explanation regarding the nature and source of the surrendered investment during the assessment proceedings, nor is there any recording of opinion or satisfaction by the AO invoking section 69 in the assessment order passed under section 143(3). The assessment order is silent on invocation of section 69.
Because section 115BBE is expressly conditional upon the income including amounts referred to in section 69, the Tribunal concluded that section 115BBE cannot be invoked by the AO by way of rectification under section 154 where the prerequisite step (invocation of section 69 in assessment) was not undertaken at the time of assessment.
The Tribunal distinguished a situation where the AO had invoked section 69 in the assessment but erroneously applied the normal slab rates (in which case rectification under section 154 to apply section 115BBE could be appropriate) from the present situation where section 69 was never invoked in the assessment order; in the latter situation section 115BBE cannot be independently applied by employing section 154.
On that legal and factual basis, and having regard to the coordinate-bench and Supreme Court authorities relied upon by the CIT(A), the Tribunal upheld the CIT(A)'s conclusion that the AO's action under section 154 was not justified.

Holding and Implications

REVENUE'S APPEAL DISMISSED.

Holding (core ruling): The Tribunal upheld the order of the CIT(A) and dismissed the Revenue's appeal, holding that the Assessing Officer could not invoke section 115BBE by way of rectification under section 154 where the prerequisite deeming provisions of section 69 had not been invoked in the assessment order under section 143(3).

Immediate consequences for the parties:

The surrendered amount of Rs. 21,00,000, having been offered and accepted as business income in the return and assessment, remains taxed as per the rates applied in that assessment (i.e., at the individual slab rates as accepted by the AO), and the Assessing Officer's attempt to re-characterize and re-tax it at 30% under section 115BBE via section 154 is set aside.
The matter is decided in favour of the assessee and against the Revenue (as explicitly stated in the opinion).

Broader precedent: The opinion does not state that a new legal precedent was created; the Tribunal's decision rests on the facts and application of the statutory scheme and the authorities cited by the CIT(A). The outcome is limited to the facts and procedural posture described in the opinion.

Order pronounced in open Court on 09/06/2020; panel: Judicial Member and Accountant Member. Copy recipients and registry references are recorded in the published order.

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Assistant Commissioner Of Income Tax, Alwar 1 Circle-02, Alwar v. Sudesh Kumar Gupta .

PER: VIKRAM SINGH YADAV, A.M. This is an appeal filed by the Revenue against the order of ld. CIT(A), Alwar dated 23.05.2019 wherein the sole ground of appeal reads as under:-

1. Whether on the facts and circumstances of the case and in law, the ld. CIT(A) is justified in quashing the action of the AO u/s 154 of the Act in applying provision of section 115BBE of the IT Act on undisclosed investment of Rs. 21,00,000/- surrendered during the course of survey proceedings.

2. Briefly stated, the facts of the case are that a survey u/s 133A was conducted on 29.08.2013 at the business premises of the assessee. During ITA No. 976-JP-2019 ACIT, Alwar vs. Shri Sudesh Kumar Gupta the course of survey proceedings, stock was physically verified and valued at Rs. 46,07,640/- and the assessee surrendered an amount of Rs. 21,00,000/- as undisclosed investment in stock from undisclosed income. The surrendered income of Rs 21,00,000/- was thereafter offered and reflected in return of income filed by the assessee for the year under consideration. Subsequently, the matter was taken up for scrutiny and the returned income of Rs. 22,80,070/- filed by the assessee was accepted and assessment was completed u/s 143(3) of the Act vide order dated 01.09.2016. Subsequently, a notice u/s 154 was issued to the assessee and the contents thereof read as under:- the assessee has surrendered of Rs. 21,00,000/- as undisclosed investment in stock from undisclosed income during the survey conducted u/s 133A of the Act on 06.09.2013 on which the tax was to charged @ 30% while passing the order u/s 143(3) of the Act on 24.05.2016 but the tax was charged as per slab rate by Rs. 5,13,374/- instead of 6,48,900/-. As per section 115BBE of the Act where the any income included in total income referred u/s 68, 69, 69A, 69B, 69C and 69D of the IT Act, the tax has to be charged @ 30%.

3. The assessee, in response to the aforesaid notice, submitted that in the survey statement, he has admitted excess stock of Rs. 21,00,000/- on estimated basis and the same was offered to tax in the return of income which was accepted by the AO while completing the assessment proceedings. It was submitted that the excess stock offered in survey is part of the business income and without any corroborative evidence, the excess stock was determined by valuing the business stock at current price instead of purchase price and nothing was brought to suggest that this was not a regular item of stock dealt with by the assessee. It was further submitted that where asset in which undeclared investment is sought to be taxed is not clearly ITA No. 976-JP-2019 ACIT, Alwar vs. Shri Sudesh Kumar Gupta identifiable or does not have independent identity but is integral and inseparable part of declared asset, falling under a particular head, then the difference should be treated as undeclared business income explaining the investment. Further, reliance was placed on the Co-ordinate Bench decision in case of DCIT vs. Ram Narayan Birla (482/JP/2015 dated 30.09.2016).

4. The submission so filed by the assessee was considered but not found acceptable to the Assessing Officer. As per the Assessing officer, during the course of survey proceedings, the assessee has surrendered an amount of Rs. 21,00,000/- as undisclosed investment in stock from undisclosed income and the issue has been elaborately discussed in the assessment order passed u/s 143(3) of the Act. It was accordingly held that section 69 is clearly attracted in the case and tax is to be charged in accordance with section 115BBE of the Act. Accordingly, tax @ 30% on surrendered income of Rs. 21,00,000/- was charged instead of tax charged as per the slab rate while passing the assessment order u/s 143(3) of the Act.

5. Being aggrieved, the assessee carried the matter in appeal before the ld. CIT(A). As per ld. CIT(A), the Assessing Officer is not justified in taxing surrendered stock u/s 115BBE where he has already accepted it under the head business income while passing the assessment order u/s 143(3) of the Act and in support, relied upon the Co-ordinate Bench decisions in case of Chokshi Hiralal Maganlal vs. DCIT 141 TTJ (Ahd) 1 and DCIT vs. Ram Narayan Birla (supra). Further, the ld CIT(A), relying on the decision of Honble Supreme Court in case of T. S. Balram ITO vs. Volkart Brothers reported in 82 ITR 50, held that action of the Assessing officer u/s 154 is not justified. Against the said findings, the Revenue is in appeal before us.

6. During the course of hearing, the ld. DR relied on the findings of the AO and submitted that the provisions of section 69 are clearly attracted in the ITA No. 976-JP-2019 ACIT, Alwar vs. Shri Sudesh Kumar Gupta instant case and therefore, AO was justified in invoking the provisions of section 154 of the Act as there is no dispute that the amount has been surrendered by way of undisclosed investment in stock from undisclosed income and the provisions of section 69 and section 115BBE are clearly attracted and there cannot be two views about it.

7. Per contra, the ld. AR relied on the findings of the ld. CIT(A) and submitted that the amount surrendered during the course of survey has been duly offered by the assessee as business income while filing his return of income and the said return of income has been accepted by the Assessing Officer. It was submitted that there is no finding recorded by the Assessing officer while passing the assessment order that the provisions of section 69 are attracted in the instant case and in absence thereof, the provisions of section 115BBE cannot be applied. Further, reliance was placed on the Co- ordinate Bench decision in case of DCIT vs. Ram Narayan Birla (supra).

8. We have heard the rival submissions and perused the material available on record. During the course of survey, the assessee has surrendered an amount of Rs 21,00,000/- as undisclosed investment in stock from undisclosed income during the course of survey. In the return of income, the same has been offered to tax under the head business income and the return of income so filed has been accepted by the Assessing officer without making any adjustment/variation either in the quantum, nature or classification of income so offered by the assessee. The assessee, being an individual, has offered the same to tax applying the slab rate of taxation as applicable to an individual. The case of the Revenue is that the same is taxable @ 30% as per provisions of section 115BBE r/w section 69 of the Act and is thus a mistake apparent from record rectifiable u/s 154 of the Act. ITA No. 976-JP-2019 ACIT, Alwar vs. Shri Sudesh Kumar Gupta

9. In order to appreciate the rival contentions, it would be appropriate to refer to the provision of section 115BBE at the relevant point in time which reads as under: 115BBE. (1) Where the total income of an assessee, (1) includes any income referred to in section 68 , section 69, section 69A , section 69B , section 69C or section 69D, the income-tax payable shall be the aggregate of (a) the amount of income-tax calculated on the income referred to section

68 , section 69, section 69A , section 69B , section 69C or section 69D, at the rate of thirty per cent; and (b) 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 (a).

10. The provisions of section 115BBE thus provides that where the income of the assessee includes any income referred to in section 69, the income tax payable shall be at the rate of 30% on income so referred in section 69 and on the remaining income, 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 in section 69. In other words, it provides for a special rate of taxation at the rate of 30% as against the normal rate of taxation which may be applicable to the assessee. The question is whether assessees income involves income referred to in section 69 and the provisions thereof reads as under:

69. Where in the financial year immediately preceding the assessment year the assessee has made investments which are not recorded in the books of 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 ITA No. 976-JP-2019 ACIT, Alwar vs. Shri Sudesh Kumar Gupta of the Assessing Officer, satisfactory, the value of the investments may be deemed to be the income of the assessee of such financial year.

11. In the instant case, as we have noted above, the return of income so filed has been accepted by the Assessing officer without making any adjustment/variation to the income so offered by the assessee and the assessment has been completed u/s 143(3) of the Act. Further, there is nothing on record which shows that the Assessing officer has called for any explanation of the assessee regarding the nature and source of such investment during the course of assessment proceedings and any formation of opinion and recording of satisfaction by the Assessing officer which is required before invoking the provisions of section 69 of the Act. Though the Assessing officer has issued a show-cause as to why penalty proceedings u/s 271(1)(c) may not be initiated in respect of such investment, however, he has not issued any show-cause for invoking provisions of section 69 of the Act or has called for any explanation of the assessee regarding the nature and source of such investment. In fact, the assessment order so passed by the Assessing officer is silent about invoking the provisions of section 69 of the Act. Where the provisions of section 69 have not been invoked by the Assessing officer while passing the assessment order u/s 143(3), going by the plain language of section 115BBE, the latter cannot be invoked in the instant case.

12. It is therefore not a case where provisions of section 69 have been invoked by the Assessing officer while passing the assessment order u/s 143(3) and at the same time, he has failed to apply the rate of tax as per section 115BBE of the Act. Had that been the case, it would clearly be a case of rectification and powers under section 154 can be invoked. However, in the instant case, the Assessing officer has not invoked the provisions of section 69 at first place while passing the assessment order u/s 143(3), therefore, the provisions of section 115BBE which are contingent on satisfaction of ITA No. 976-JP-2019 ACIT, Alwar vs. Shri Sudesh Kumar Gupta requirements of section 69 cannot be independently applied by invoking the provisions of section 154 of the Act. We therefore upheld the order of the ld CIT(A) and the matter is decided in favour of the assessee and against the Revenue. In the result, appeal of the Revenue is dismissed. Order pronounced in the open Court on 09/06/2020. Sd/- Sd/- fot; iky jko foe flag ;kno (Vijay Pal Rao) (Vikram Singh Yadav) U;kf;d lnL;@Judicial Member ys[kk lnL;@Accountant Member Tk;iqj@Jaipur fnukad@Dated:- 09/06/2020 *Ganesh Kr. vkns'k dh izfrfyfi vxzsfkr@Copy of the order forwarded to:

1. vihykFkhZ@The Appellant- The ACIT, Circle-02, Alwar

2. izR;FkhZ@ The Respondent- Sh. Sudesh Kumar Gupta, Alwar

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4. vk;dj vk;qDr@ CIT(A)

5. foHkkxh; izfrfuf/k] vk;dj vihyh; vf/kdj.k] t;iqj@DR, ITAT, Jaipur.

6. xkMZ QkbZy@ Guard File {ITA No. 976/JP/2019} vkns'kkuqlkj@ By order, lgk;d iathdkj@Asst. Registrar

Assistant Commissioner Of Income Tax, Alwar 1 Circle-02, Alwar v. Sudesh Kumar Gupta .

Concise Analytical Summary of the Tribunal Opinion (ITA No. 976/JP/2019)

Factual and Procedural Background

Legal Issues Presented

Arguments of the Parties

Assessing Officer / Revenue (Appellant) — Core Contentions

Assessee (Respondent) — Core Contentions

CIT(A) — Observations relied upon by the Respondent

Table of Precedents Cited

Court's Reasoning and Analysis

Holding and Implications

Assistant Commissioner Of Income Tax, Alwar 1 Circle-02, Alwar v. Sudesh Kumar Gupta .

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