BHAGWATI PRASAD KHANDELWAL ,KOTA V. ASSISTANT COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE, KOTA, KOTA

ITA 1494/JPR/2024

AI Insights

The case involves Shri Bhagwati Prasad Khandelwal, an individual engaged in the business of trading grains, oilseeds, and pulses, who appealed against the order of the CIT(A) Udaipur-2. The dispute arose from a survey conducted under section 133A of the Income Tax Act, 1961, which uncovered unrecorded loans and excess cash. The Assessing Officer (AO) treated these as unexplained investments and money under sections 69 and 69A, respectively, and taxed them at a higher rate under section 115BBE. The Tribunal, referencing various case laws, concluded that the income should be treated as business income and taxed at normal rates.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 298501 (ITAT-JAIPUR)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-04-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2018-2019
• Other Referred Cases: Mahesh Kumar, Prop. Bhagwansahai and Sons, Station Road, Rajgarh, Alwar vs. I.T.A. No. 502/JPR/2024 A.Y. 2018-19, Dharamchand Jain, Ratnagiri Shopping Centre, Subhash Bazar, Tonk vs. I.T.A. No. 84/JPR/2024 A.Y. 2017-18, CIT vs. Mhaskar General Hospital ITA No. 1474/2009, Lakhmichand Baijnath vs CIT (1959) 35 ITR 416, Daulat Ram Rawatmal vs. CIT 64 ITR 593, Jadhav Kangralkar Builders vs. ACIT, Satara (ITA No. 12106/PUN/2017), Ram Swaroop Singhal vs. ACIT, Sriganganagar (ITA No. 145/Jodh/2018), Pr. CIT Alwar vs. Bajargan Traders (ITA No. 258/2017), Amitabh B. Parekh Navsari vs. Department of Income Tax (ITA No. 3138/Ahd/2008)
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SWAPNIL PARIHAR
• Assessee Lawyers: HARSH PODDAR
• Keywords: Business income; Unexplained investment; Income from undisclosed sources; Bogus loan
• Section: 143(3); 142(1); 143(2); 250; 64; 48; 69; 69C; 13; 69A; 133A

Judgement Text

"vk;dj vihyh; vf/kdj.k] t;iqj U;k;ihB] t;iqj IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES,”B” JAIPUR Mk0 ,l- lhrky{eh] U;kf;d lnL; ,oa Jh jkBkSM+ deys'k t;UrHkkbZ] ys[kk lnL; ds le{k BEFORE: DR. S. SEETHALAKSHMI, JM & SHRI RATHOD KAMLESH JAYANTBHAI, AM vk;dj vihy la-@ITA. No. 1494/JPR/2024 fu/kZkj.k o\"kZ@Assessment Year : 2018-19. Shri Bhagwati Prasad Khandelwal, B-37, M/s. Devki Nandan Bhagwati Prasad, Bhamashah Mandi, Kota. cuke Vs. The Assistant Commissioner of Income Tax, Central Circle, Kota. LFkk;hys[kk la-@thvkbZvkj la-@PAN/GIR No.: ABDPB8176C vihykFkhZ@Appellant izR;FkhZ@Respondent fu/kZkfjrh dh vksjls@Assessee by : Shri Harsh Poddar, Advocate. jktLo dh vksjls@Revenue by : Mrs. Swapnil Parihar, JCIT-DR lquokbZ dh rkjh[k@Date of Hearing : 19/02/2025 mn?kks\"k.kk dh rkjh[k@Date of Pronouncement : 22/04/2025 vkns'k@ORDER PER: DR. S. SEETHALAKSHMI, J.M. This is an appeal filed by the assessee against the order of ld. CIT(A) Udaipur-2, dated 26.10.2024 passed under section 250 of the I.T. Act, 1961, for the assessment year 2018-19. The assessee has raised the following grounds of appeal :- “1. In the facts and circumstances of the case the learned CIT (A) has erred in confirming the action of the learned AO in making the addition of Rs. 71,25,000/- u/s 69/69A of the Income Tax Act, 1961 and thereby applying the provisions of section 115BBE of the Income Tax Act, 1961 for levy of tax @ 60% and surcharge thereon @ 25% on offered income under the head of business income for which explanation 2 ITA No. 1494/JPR/2024 Shri Bhagwati Prasad Khandelwal, Kota. was furnished before the learned AO and treating the same as income from other sources. 2. The assessee craves your indulgence to add, amend or alter all or any grounds of appeal before or at the time of hearing.” 2. The brief facts of the case are that the assessee is an Individual, engaged in the business of trading of grains, oilseeds, pulses in the name and style M/s. Devkinandan Bhagwati Prasad, Kota. A survey action under section 133A was conducted on 08.03.2018 in the case of assessee Shri Bhagwati Prasad Khandelwal. During the course of survey, a Superfine Note Book was found and impounded. On perusal of the Note Book, the AO noticed that the assessee has given loans of Rs. 63,73,000/- to various debtors during the year and the assessee had accepted in his statement recorded during survey proceedings that these debtors were not recorded in regular books of accounts of the assessee. Further, cash of Rs. 7,52,000/- was also found in excess in his possession. During the survey proceedings, the assessee had surrendered undisclosed income of Rs. 63,73,000/- on account of unaccounted/unexplained debtors and Rs. 7,52,000/- on account of excess cash. Subsequently, before filing of the return of income, the assessee accounted for the above loan amount of Rs. 63,73,000/- and excess cash of Rs. 7,52,000/- in his regular books of accounts. The assessee furnished his return of income on 29.10.2018 declaring income of Rs. 1,01,66,570/- which included the aforesaid amounts of Rs. 63,73,000/- and Rs. 7,52,000/-. The assessee 3 ITA No. 1494/JPR/2024 Shri Bhagwati Prasad Khandelwal, Kota. offered the income of Rs. 71,25,000/- (Rs. 63,73,000 + Rs. 7,52,000) under the head “Income from Business and Profession” in his ITR and paid tax thereon at normal rate. 2.1 The case of the assessee was manually selected for compulsory scrutiny as per guidelines issued by CBDT. Notice under section 143(2) was issued to the assessee on 25.09.2019 and served duly through ITBA Portal. Further, notice under section 142(1) of the IT Act, 1961 along with questionnaire was issued on 05.01.2021 and served through ITBA Portal. In compliance to the notices, the assessee filed submissions which were examined along with the survey record of the assessee during the assessment proceedings. 2.2 During the assessment proceedings, the AO noted that the unaccounted/unexplained debtors and excess cash are covered under section 69 and 69A of the I.T. Act, 1961 respectively and he was of the view that tax should be charged as per the provisions of section 115BBE of the IT Act, 1961. Accordingly, a show cause notice was issued to the assessee on 06.02.2021 asking as to why the tax on the income offered for taxation during survey proceedings should not be charged as per provisions of section 115BBE of I.T. Act, 1961. In response to the show cause notice, the assessee submitted his reply on 08.02.2021 stating that these surrendered incomes have already been accounted for in the regular books of account and shown in the Capital Account and in Computation of 4 ITA No. 1494/JPR/2024 Shri Bhagwati Prasad Khandelwal, Kota. income separately under the head “Income from Business and Profession” and thus the surrendered incomes are not covered under section 69 & 69A of the IT Act, 1961 and hence provisions of section 115BBE of the IT Act are not applicable in his case. The assessee further vide letter dated 12.02.2021 submitted that these surrendered incomes have already been recorded in the books of account before filing of the income-tax return and the same has been shown as business income as the assessee has not involved in any other activities as there is no evidence or material to establish otherwise. The AO considered the submissions of the assessee but could not found it acceptable. The AO completed the assessment under section 143(3) at a total income of Rs. 1,01,66,570/- vide assessment order dated 29.04.2021. However, while completing the assessment under section 143(3) of the IT Act, 1961, the AO considered the income of Rs. 71,25,000/- (Rs. 63,73,000 + Rs. 7,52,000) under the head “Income from other sources” instead of “Income from business and profession” as per provisions of section 69 and 69A of the IT Act, 1961 respectively and charged tax as per provisions of section 115BBE of the IT Act, 1961 on the income of Rs. 71,25,000/- (Rs. 63,73,000 + Rs. 7,52,000).Aggrieved by the order of AO, the assessee preferred appeal before the ld. CIT (A). The ld. CIT (A) considered the submissions of the assessee but being not convinced with the submissions, dismissed the appeal of the assessee. 5 ITA No. 1494/JPR/2024 Shri Bhagwati Prasad Khandelwal, Kota. Now the assessee has filed the present appeal before the Tribunal on the grounds mentioned herein above. 3. Before us, the ld. A/R of the assessee reiterated the submissions as were made before the ld. CIT (A) and further submitted his written submissions, which are being reproduced hereunder :- “ It is submitted that the assessee is an Individual engaged in the business of trading of grains, oilseeds, pulses in the name and style of M/s. Devkinandan Bhagwati Prasad, Bhamashah Mandi, Kota. In the case of the assessee, survey under section 133A was carried out on 08/03/2018. During the course of survey, a superfine note book was found and it was noticed that assessee had advanced loans to various persons amounting to Rs. 63,73,000/-, which at that stage of time was not found recorded in the books of accounts. Similarly, cash was also found in excess by Rs. 7,52,000/-. The assessee offered the amount of Rs. 63,73,000/- and Rs. 7,52,000/- for tax during the course of survey. Subsequently, the assessee furnished return of income on 29.10.2018 declaring income of Rs. 1,01,66,570/-, which included the aforesaid amounts of Rs. 63,73,000/- and Rs. 7,52,000/-. Before filing the return of income, the assessee accounted for the loans given of Rs. 63,73,000/- in his regular books of account. Similarly, cash of Rs. 7,52,000/- was shown under the head “Income from business or profession” in the computation of income filed with the return of income on 29.10.2018. Therefore, the learned Assessing Officer has grossly erred in treating the debtors and excess cash amounting to Rs. 71,25,000/- (63,73,000 + 7,52,000) as unexplained investment and unexplained money u/s 69/69A of the IT Act and charging enhanced tax rate of 60% u/s 115BBE of the I.T. Act, 1961. The action of the learned Assessing Officer is assailed as under : 6 ITA No. 1494/JPR/2024 Shri Bhagwati Prasad Khandelwal, Kota. (a) No other source of income except business income found It is submitted that the main source of income of the assessee is trading of grains, oil seeds and pulses in the name of Devkinandan Bhagwati Prasad. Even during the course of survey, the learned Assessing Officer could not lay hand on any evidence showing income from any other source except income from trading in grains, oil seeds and pulses. No evidence was found that the assessee was indulging in earning income from sources not disclosed to theDepartment. It is only business income which was not fully recorded at the time of survey, but later on fully disclosed in the return of income. In any case, the source of income is one and the same, i.e. business income. While furnishing return of income, the assessee disclosed his income of Rs. 71,25,000/- (Rs. 63,73,000 + Rs. 7,52,000) under the head “business income”. In view of this position, which is supported by various case laws quoted below, the assessee submits that the source of Rs. 71,25,000/- advanced to various persons and the cash found in excess is business income, on which only regular rates of tax is applicable. The same is not required to be subjected to tax as per provisions of Sec. 115BBE. The following decisions of the Hon’ble ITAT, Jaipur Bench are cited, where the issues involved are identical and the ratio of the decision is fully applicable to the facts of the case of the assessee. (1) Mahesh Kumar, Prop. Bhagwansahai and Sons, Station Road, Rajgarh, Alwar. I.T.A. No. 502/JPR/2024 A.Y. 2018-19 dated 27.11.2024. (2) Dharamchand Jain, Ratnagiri Shopping Centre, Subhash Bazar, Tonk. I.T.A. No. 84/JPR/2024 A.Y. 2017-18 dated 10.04.2024. 7 ITA No. 1494/JPR/2024 Shri Bhagwati Prasad Khandelwal, Kota. The assessee further quotes decisions of other High Courts/Tribunals in support of the submissions :- (1) CIT vs. Mhaskar General Hospital ITA No. 1474/2009 order dated 9/8/2011 Gujarat High Court The Hon’ble Court held that when the assessee’s sole business was that of running a hospital and it had no other source of income, treating the undisclosed income from other sources was not justified. (2) Lakhmichand Baijnath Vs CIT (1959) 35 ITR 416 (Hon’ble Supreme Court): The Hon’ble Supreme Court observed that the credits were found in the business accounts of the assessee and the explanation as to how the amounts came to be received was rejected, such credits can be treated as business income. (3) Daulat Ram Rawatmal vs. CIT 64 ITR 593 (Hon’ble Supreme Court): When there is nothing on record that the assessee had any other source of income other than business income, it is reasonable to hold that any amount representing secret income arose out of the business of the assessee. (4) Jadhav Kangralkar Builders Vs. ACIT, Satara (ITA No. 12106/PUN/2017 (ITAT, B Bench, Pune) dt. 26.8/2020 – AY 2013-14. During the course of survey, additional income of Rs. 1,06,32,791/- was offered on the basis of incriminating documents. The Hon’ble ITAT held that the entire income disclosed was attributable to business activity. 8 ITA No. 1494/JPR/2024 Shri Bhagwati Prasad Khandelwal, Kota. (5) Ram Swaroop Singhal Vs. ACIT, Sriganganagar (ITA No. 145/Jodh/2018 dated 25/05/2018) AY 2014-15 (ITAT, Jodhpur) During the course of survey u/s 133A, assessee offered income of Rs. 10,90,000/- on account of incriminating documents, discrepancy in stock and excess cash found during survey. The assessee disclosed the surrendered income of Rs. 10,90,000/- in the return of income filed for AY 2014-15 as income from business. The Hon’ble ITAT accepted the version of the assessee and held that lower authorities were not justified in taxing the surrendered income u/s 69 of the IT Act. (6) Pr. CIT Alwar vs. Bajargan Traders (ITA No. 258/2017 order dated 22/9/2017 – Hon’ble Rajasthan High Court. In this case, unrecorded stock of 70,04,814/-, unrecorded debtors of Rs. 11,95,000/-, unrecorded investment in construction of godown Rs. 19,20,000/- and excess cash of Rs. 7,30,000/- was found during the course of survey. It was held by the Hon’ble High Court that once the income was offered during survey as business income, the same cannot be treated as income from other sources and provisions of Sec. 69 will not be applicable. (7) Amitabh B. Parekh Navsari Vs. Department of Income Tax (ITAT Ahmedabad (ITA No. 3138/Ahd/2008 dated 21/01/2011 AY 2005-06) In this case, the Hon’ble ITAT upheld the decision of CIT (A) holding as under :- “..The AO has not disputed the fact that the appellant firm had made proper entry in the books of accounts of Rs. 67,51,994/- 9 ITA No. 1494/JPR/2024 Shri Bhagwati Prasad Khandelwal, Kota. being additional income declaring showing the excess stock of Rs. 62,86,624/- and excess cash found Rs. 3,09,370/- and renovation expenses of Rs. 1,56,000/- during the course of survey asd income from business and part of the book profit as included under the business head accordingly and reflected in the audited Profit and Loss account also. If the AO was of the view that the explanation furnished by the assessee firm regarding excess stock found, excess cash found and renovation expenses which represented business income of the current yedar, was found to be not acceptable or untrue, the AO should have given reason to dispute the assessee’s version as to the source being other than business income. No material has been brought on record either by the survey party or by the AO to disprove the appellant’s contention regarding the only source of the firm being business income. It has not been brought out on record that the appellant firm is doing some other activities from which such income was earned and the excess stock, excess cash found and the expenditure on renovation of shop represented the income from such other source.” (8) Mansfield & Sons Vs. CIT (1963) 48 ITR 254 (Hon’ble Calcutta High Court) Where a credit entry is found in the business accounts of an assessee and the explanation as to how the amount came to be received is rejected by IT authorities and the amount is taken to be income from an undisclosed source, such income can be treated as business income if the assessee has no other source of income. (b) Provisions of Sec. 69/69C wrongly applied. It is submitted that the learned Assessing Officer completed the assessment u/s 143(3) on 23/12/2019 making addition of Rs. 71,25,000/- (6373000 + 752000) with the following observations :- 10 ITA No. 1494/JPR/2024 Shri Bhagwati Prasad Khandelwal, Kota. “ Considering the above facts of the case, the unaccounted/unexplained debtors of Rs. 63,73,000/- and unexplained excess cash of Rs. 7,52,000/- offered during the survey proceeding is considered as unexplained investment and unexplained money under the head “income from other sources” instead of income from “business and profession” as per provision of Sec. 69 & 69C of the IT Act respectively. Therefore, tax is charged on these offered income as per provision of Sec. 115BBE of the I.T. Act, 1961 since the assessed income includes income chargeable to tax as per provision of Sec. 115BBE of the IT Act, 1961.” In this regard, it is submitted that the action of the learned Assessing Officer is not in accordance with law as under the scheme of Income Tax Act, the provisions are applicable with reference to income disclosed in the return of income. The income which stands disclosed cannot be treated as unexplained by any stretch of imagination and there are no provisions to penalize the assessee for income which has been disclosed by him in the return. The provisions of Sec. 68, 69 and 69A, 69B, 69C have no reference to the provisions of Sec. 133A or Income surrendered during survey u/s 133A.Therefore, to treat the income surrendered u/s 133A as unexplained u/s 68/69/69A, 69B, 69C is far-fetched. It is the submission of the assessee that the survey proceedings are purely proceedings for verification. If something is found during the course of survey u/s 133A mistakenly not accounted for in the regular books of accounts, the assessee is at freedom to account for the same before filing the return of income and this is what the assessee has done. Having included the surrendered income of Rs.71,25,000/- in his return of income, the assessee has come clean. 11 ITA No. 1494/JPR/2024 Shri Bhagwati Prasad Khandelwal, Kota. Therefore, the provisions of Sec. 115BBE are not attracted in the case of the assessee. The following case laws are quoted in support :- (1) DCIT vs.Dr. Satish B. Gupta 2011 49 DTR (Ahd) Trib. 262 (2) CIT Vs. SAS Pharmceuticals 335 ITR 259 (Delhi HC) In the aforesaid decisions, it has been held that penal provisions are applicable with reference to return of income. Penal provisions cannot be made applicable on the ground that if there had been no survey, the assessee would not have disclosed the income or would have succeeded in concealing the income. It has been held in these decisions that therfe cannot be any penal action on surmises, conjectures and possibilities. The ratio of these decisions is applicable to the facts of the case of the assessee. The income surrendered during the course of survey has been disclosed by the assessee in the return of income. After disclosure of the income in the return of income, there remains no unexplained income so as to attract the provisions of Sec. 68/69 etc. The Hon’ble Tribunal is requested to consider the submissions and case laws cited by the assessee and decide the appeal in favour of the assessee.” 4. On the other hand, the ld. DR supported the orders of revenue authorities. 5. We have heard the rival contentions, perused the material on record and gone through the orders of the lower authorities. As per the facets narrated above during survey proceedings on the appellant on 08/03/2018 the survey team found two items of investment which were not recorded int eh books of account i.e. 12 ITA No. 1494/JPR/2024 Shri Bhagwati Prasad Khandelwal, Kota. Excess Cash of Rs. 7,52,000/- and unaccounted loans to the debtors for Rs. 63,73,000/-. Both these items were admitted for disclosure by the appellant during survey itself. After survey proceedings the appellant accounted for both these items in his books of account and offered the same for taxation in the ITR filed for the AY 2018-19. There is no dispute about these facts. During assessment proceedings the ld. AO considered both these amounts for taxation in terms of section 69 and 69A read with section 115BBE of the Income tax Act, 1961 whereas the appellant had paid ass per normal rates of taxation. Hence the small controversy involved is whether such amounts are liable to be taxed as per section 115BBE or at normal rate. The ld. AR of the appellant has relied on various case laws in this regard. We have gone through the judgement of the Hon`ble jurisdictional High Court of Rajasthan in the case of PCIT v/s Bajargan Traders in ITA No. 258/2017 order dated 22.09.2017 (466 ITR 397)(Raj.) wherein the findings of this co-ordinate Bench of the Tribunal was confirmed. The Hon`ble Rajasthan High Court in this judgement reproduced the finding of this bench of ITAT as under :- “2.10. We have heard the rival contentions and perused the material available on record. During the course of survey, the assessee has surrendered an amount of Rs. 70,04,814/- towards investment in stock of rice which had not been recorded in the books of accounts. Subsequently, in the books of accounts, the assessee has incorporated this transaction by debiting the purchase account and crediting the income from undisclosed sources. In the annual accounts, the purchases of Rs. 13 ITA No. 1494/JPR/2024 Shri Bhagwati Prasad Khandelwal, Kota. 70,04,814/-were finally reflected as part of total purchases amounting to Rs. 33,47,19,658/- in the profit and loss account and the same also found included as part of the closing stock amount to Rs. 1,94,42,569/-in the profit/loss account since the said stock of rice was not sold out. In addition to the purchase and the closing stock, the amount of RS. 70,04,814/- also found credited in the profit and loss account as income from undisclosed sources. The net effect of this double entry accounting treatment is that firstly the unrecorded stock of rice has been brought on the books and now forms part of the recorded stock which can be subsequently sold out and the profit/loss therefrom would be subject to tax as any other normal business transaction. Secondly, the unrecorded investment which has gone in purchase of such unrecorded stock of rice has been recorded in the books of accounts and offered to tax by crediting the said amount in the profit and loss account. Had this investment been made out of known source, there was no necessity for assessee to credit the profit/loss account and offer the same to tax. Accordingly, we do not see any infirmity in assessee's bringing such transaction in its books of accounts and the accounting treatment thereof so as to regularise its books of accounts. In fact, the same provides a credible base for Revenue to bring to tax subsequent profit/loss on sale of such stock of rice in future. 2.11. Having said that, the next issue that arises for consideration is whether the amount surrendered byway of investment in the unrecorded stock of rice has to be brought to tax under the head \"business income\" or \"income from other sources\". In the present case, the assessee is dealing in sale of foodgrains, rice and oil seeds, and the excess stock which has been found during the course of survey is stock of rice. Therefore, the investment in procurement of such stock of rice is clearly identifiable and related to the regular business stock of the assessee. The decision of the Co-ordinate Bench in case of Shri Ramnarayan Birla (supra) supports the case of the assessee in this regard. Therefore, the investment in the excess stock has to be brought to tax under the head \"business income\" and not under the head income from other sources\". In the result, ground No. 1 of the assessee is allowed.” 14 ITA No. 1494/JPR/2024 Shri Bhagwati Prasad Khandelwal, Kota. In view of such order of the Hon`ble Rajasthan High Court we are inclined to accept the contentions of ld. AR and reverse the order of Ld. CIT (A) and hold that such additionally offered income during survey is liable to be taxed as Income from Business and can not be subject matter of taxation as per section 115BBE of the Income tax Act, 1961. The appeal of the appellant is allowed in above terms. 6. In the result, the appeal of the assessee is allowed. Order pronounced in the open court on 22/04/2025. Sd/- Sd/- ¼ jkBkSM+ deys'k t;UrHkkbZ ½ ¼,l-lhrky{eh½ (RATHOD KAMLESH JAYANTBHAI) (Dr. S. Seethalakshmi) ys[kk lnL; @Accountant Member U;kf;d lnL;@Judicial Member Tk;iqj@Jaipur fnukad@Dated:- 22/04/2025. vkns'k dh izfrfyfi vxzsf’kr@Copy of the order forwarded to: 1. vihykFkhZ@The Appellant- Bhagwati Prasad Khandelwal, Kota. 2. izR;FkhZ@The Respondent-The ACIT, Central Circle, Kota. 3. vk;dj vk;qDr@CIT 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. 1494/JPR/2024} vkns'kkuqlkj@By order, lgk;d iathdkj@Asst. Registrar "