The DCIT Central-2, Indore V. M/s. Java Foods (P) Ltd., Indore

ITSSA 207/Ind/2019

AI Insights

The case revolves around the tax treatment of a surrendered income of Rs. 4,15,05,000 by M/s. Java Foods Pvt. Ltd., which was declared during a survey and offered as business income taxed at normal rates. The AO, however, treated this income as deemed income under section 69B and applied a higher tax rate under section 115BBE. The CIT(A) reversed the AO's decision, leading to the Revenue's appeal to the Tribunal. The Tribunal upheld the CIT(A)'s decision, emphasizing the lack of proper reasoning and opportunity given to the assessee by the AO.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 130449 (ITAT-INDORE)
• Duration Of Justice: 3 year(s) 10 month(s) 9 day(s)
• Appeal Type: Income Tax (Search & Seizure) Appeal
• Pronouncement Date: 27-07-2023
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 02-05-2023
• Assessment Year: 2017-2018
• Appeal Filed On: 17-09-2019
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Unexplained investment; Business income; Deemed to accrue or arise in india
• Section: 132; 143(3); 133A; 69B; 13; 22

Judgement Text

Page 1 of 13 आयकर अपीलȣय अͬधकरण, इंदौर Ûयायपीठ, इंदौर IN THE INCOME TAX APPELLATE TRIBUNAL INDORE BENCH, INDORE BEFORE SHRI VIJAY PAL RAO, JUDICIAL MEMBER AND SHRI B.M. BIYANI, ACCOUNTANT MEMBER IT(SS)A No. 207/Ind/2019 Assessment Year: 2017-18 DCIT(Central)-2, Indore. बनाम/ Vs. M/s. Java Foods Pvt.Ltd., 16, Khajrana Square, Ghanshyam Castle, Opp. Shubh Labh, Indore (Revenue / Appellant) (Assessee / Respondent) PAN: AACCJ5636L Assessee by Ms. Richa Parwal, C.A. & Ld. AR Revenue by Shri P.K.Mishra, CIT DR Date of Hearing 03.05.2023 Date of Pronouncement 28.07.2023 आदेश / O R D E R Per B.M. Biyani, A.M.: Feeling aggrieved by appeal-order dated 28.06.2019 passed by learned Commissioner of Income-Tax (Appeals)-3, Bhopal [“CIT(A)”], which in turn arises out of assessment-order dated 30.12.2018 passed by DCIT(Central)-2, Indore, for assessment year 2017-18 [“AO”] u/s 143(3) of Income-tax Act, 1961 [“the Act”], the Revenue has filed this appeal on following ground: “On the facts and in the circumstances of the case, the Ld. CIT(A) was not justified in law in allowing the assessee’s appeal on the chargeability of tax as per normal rates instead of the amended provisions of section 115BBE of the Act applicable w.e.f. 1.04.2017 relevant to assessment year 2017-18 which DCIT vs. M/s.Java Foods Pvt.Ltd. ITA No.207/Ind/2019 Assessment year 2017-18 Page 2 of 13 are clearly attracted in the case of the assessee, in respect of the surrendered income of Rs. 4,15,05,000/- determined u/s 69B of the Act which was offered for taxation in the return of income filed for the assessment year 2017-18.” 2. Heard the learned Representatives of both sides at length and case- records perused. 3. Brief facts culled out from orders of lower-authorities are such that the assessee is a company in which public is not substantially interested. During the previous year 2016-17 relevant to AY 2017-18 under consideration, a search u/s 132 was conducted by authorities on 25.03.2017 and a survey u/s 133A was also conducted on 19.09.2016. During survey-proceeding, based on some notings in a diary/note-book, the director of assessee-company Shri Jitendra Agrawal surrendered undisclosed income of Rs. 4,15,05,000/- on account of advances made to different parties. While filing return of income, the assessee offered the surrendered income as business income and paid tax at normal rate as applicable to assessee. But while completing assessment, the AO treated the surrendered income declared by the assessee differently i.e. as deemed income u/s 69B and charged tax at a higher rate u/s 115BBE. Thus, there arose a limited controversy between assessee and AO on the application of section 69B/115BBE although there is no dispute with regard to the quantum of income. To settle controversy, the assessee carried matter in first appeal whereupon the CIT(A) reversed the action of AO. Ld. CIT(A) held that the surrendered income offered by assessee as normal income had been DCIT vs. M/s.Java Foods Pvt.Ltd. ITA No.207/Ind/2019 Assessment year 2017-18 Page 3 of 13 wrongly treated by AO as deemed income u/s 69B/115BBE. Now, the Revenue has come in this appeal before us assailing the order of CIT(A). 4. The precise grievance of Revenue is such that the CIT(A) has erred in taxing the surrendered income at normal rate as normal income which was determined by AO u/s 69B read with section 115BBE. 5. Ld. CIT-DR for the Revenue started arguments before us. He supported the assessment-order and opposed the order of CIT(A). He argued that during the course of survey proceedings, a diary/note book was found which contained details of advances made by the assessee to different persons. When the statement of assessee’s director Shri Jitendra Agrawal were recorded, he admitted undisclosed income of Rs. 4,15,05,000/-. He submitted that the advances given by assessee were neither recorded in the books of assessee nor the assessee made any explanation before AO, then in such a situation the AO has rightly treated the same as deemed income u/s 69B and applied higher rate of tax u/s 115BBE. Ld. DR contended that the action of AO is very much correct and lawful yet the CIT(A) has reversed AO’s action. He submitted that the order of CIT(A) is wrong and unjustified. Finally, Ld. DR argued that the AO’s action was proper and must be upheld. 6. Per contra, Ld. AR for the assessee opposed the assessment-order and defended the order of CIT(A). In her pleadings, Ld. AR raised questions on the approach of AO as well as other aspects. We would like to narrate all contentions raised by Ld. AR: DCIT vs. M/s.Java Foods Pvt.Ltd. ITA No.207/Ind/2019 Assessment year 2017-18 Page 4 of 13 (i) The first and foremost contention raised by Ld. AR is that the assessee has honoured the surrender made by its director and accordingly declared income in the return of income as normal income and paid tax as applicable. During assessment-proceeding, the AO has not issued any show-cause notice to assessee and not given any opportunity to explain as to how and why the income declared in the return required a different treatment. Drawing our attention to Para No. 8 of assessment-order, Ld. AR submitted that the AO has dealt this issue in a very short para consisting of just 4-5 sentences and given his conclusion therein stating “Since, the surrendered income of Rs. 4,15,05,000/- for A.Y. 2017-18 is treated as unexplained investment u/s 69B which is liable to be taxed in view of the provision contained u/s 115BBE of the Act.” Ld. AR strongly contended that the AO has not mentioned a single line of reasoning as to why the assessee’s declaration was wrong or as to why the surrendered income was treated u/s 69B. Ld. AR submitted that the assessment proceeding is a sacred exercise and the AO is dutybound not only to give opportunity to assessee to explain the declarations made by assessee in the return of income but also give his own reasoning and basis for adopting a different treatment. But the AO has done none of these. Therefore, the baseless application of section 69B read with section 115BBE is totally wrong and unjustified on this very count itself. DCIT vs. M/s.Java Foods Pvt.Ltd. ITA No.207/Ind/2019 Assessment year 2017-18 Page 5 of 13 (ii) Next it is argued that the assessee is a company and not an individual. The assessee’s only source of income is business during survey-proceeding, no hidden or other source had been found by authorities despite extensive investigation. In absence of any other source of income brought on record, the source of impugned advances made by assessee was only and only the income earned by assessee from business. Therefore, the AO ought to have accepted the source of impugned advances from assessee’s business. The AO has wrongly invoked section 69B. (iii) That, the impugned advances made by assessee cannot be considered as “investment” attracting section 69B because under the provisions of Companies act, which is the parent law for assessee-company, “loans and advances” and “investments” have different set of statutory provisions as well as different kind of disclosure requirements in financial statements. According to Ld. AR, section 69B cannot apply to advances. (iv) The diary/note book found during survey should be taken as systematic record maintained by assessee and the transactions noted therein must be treated as recorded in regular books of account. 7. We have considered rival submissions of both the sides and also perused the orders of lower authorities. First of all, we would like to understand the findings at the first stage of proceeding i.e. findings made by DCIT vs. M/s.Java Foods Pvt.Ltd. ITA No.207/Ind/2019 Assessment year 2017-18 Page 6 of 13 AO at assessment stage. With the able assistance of learned Representatives, we find that AO has dealt this issue in an extremely short Para No. 8 of assessment-order which can be very easily re-produced here for an immediate reference: “8. In the case of the assessee survey u/s 133A was also conducted on 19/09/2016. During the survey proceeding, the Director of the company Shri Jitendra Agrawal surrendered the undisclosed income of Rs. 4,15,05,000/- for A.Y. 2017-18. After perusal of return of income u/s 139, it was found that the assessee has shown the said surrendered amount in Profit & Loss account and taxes paid at normal rate. Since the surrendered income of Rs. 4,15,05,000/- for A.Y. 2017- 18 is treated as unexplained investment u/s 69B which is liable to be taxed in view of the provision contained u/s 115BBE of I.T. Act. Therefore, taxed in the hands of assessee as per provisions u/s 115BBE applicable w.e.f. 01.04.2017 applied on surrendered income of Rs. 4,15,05,000/-.” 8. Now, we would like to extract the order of first appeal passed by CIT(A) as under: “4.1 Ground No.1 & 2: Through these grounds of appeal, the appellant had challenged the taxation of business income u/s 69B r.w.s. 115BBE of the Income Tax Act. Search u/s 132(1) of the Income-tax Act, 1961 was conducted on the appellant group on 25.03.2017.A survey action u/s 133A has been carried out at the business premises of the appellant on 19.09.2016. During the course of survey the appellant has surrendered an amount of Rs. 4,15,05,000/- in the form of unaccounted loans and advances give to different parties. It was also accepted that entries are not reflecting in the DCIT vs. M/s.Java Foods Pvt.Ltd. ITA No.207/Ind/2019 Assessment year 2017-18 Page 7 of 13 DCIT vs. M/s.Java Foods Pvt.Ltd. ITA No.207/Ind/2019 Assessment year 2017-18 Page 8 of 13 DCIT vs. M/s.Java Foods Pvt.Ltd. ITA No.207/Ind/2019 Assessment year 2017-18 Page 9 of 13 DCIT vs. M/s.Java Foods Pvt.Ltd. ITA No.207/Ind/2019 Assessment year 2017-18 Page 10 of 13 DCIT vs. M/s.Java Foods Pvt.Ltd. ITA No.207/Ind/2019 Assessment year 2017-18 Page 11 of 13 9. We have given our careful and anxious consideration to both orders of lower-authorities extracted above. At the outset, we find that the assessee has declared surrendered income in the return of income and thereby honoured the commitment made by assessee’s director in statement. Going next to the assessment-order, we find that the AO has nowhere confronted/show-caused the assessee to explain as to why the declaration of surrendered income made by assessee in the return of income as normal income taxable at normal rate of tax was not acceptable. When the AO wants to take a different view from what is declared in statutory return of income filed by assessee, it is very much incumbent upon AO to confront the assessee and seek explanation from assessee. That apart, it is also unfortunate that the AO has devoted just a few lines to the issue wherein no finding, reasoning, basis or rationale has been mentioned. The AO has simply recorded his conclusion that the surrendered income is treated as unexplained investment u/s 69B. This approach of AO giving no opportunity to assessee; seeking no explanation from assessee; and giving no basis or reason to treat the surrendered income as falling u/s 69B, in our considered view, is not legal and sustainable. Ld. CIT(A) has also noted this very fallacy of AO in his order on Page No. 22 and 24 re-produced above; we would like to extract the relevant lines for a quick and immediate reference: On Page No. 22: “No finding/reasons has been given for treating the amount of advances during the course of regular business activity as unexplained advances of the assessee company.” DCIT vs. M/s.Java Foods Pvt.Ltd. ITA No.207/Ind/2019 Assessment year 2017-18 Page 12 of 13 On Page No. 24: “4.1.2 Without prejudice to the above, if the provisions of section 69B are to be applied it can be done if and only if the explanation given by the assessee is not found to be satisfactory. It is imperative for AO to provide an opportunity to the assessee u/s 69B to offer an explanation, which if found unsatisfactory then only he can proceed to make addition u/s 69B. But under the facts and circumstances of the appellant’s case, such an application of section 69B r.w.s. 115BBE is bad in law also on the basis that no opportunity was given whatsoever. Thus, again condition precedent to apply the provision of section 69B do not meet out also on such basis.” 10. Clearly, therefore, the AO has treated the income declared by assessee in return of income differently without seeking any explanation from assessee and more interestingly without citing his own basis/reason/ rationale. During hearing before us, the Revenue is not able to show as to how such approach of AO can be accepted or sustained in the eyes of law? 11. Then, one of the contentions raised by Ld. AR that the impugned advances were sourced from undisclosed business income of assessee is also dealt by Ld. CIT(A) on Page No. 23 of his order wherein he has referred to Q.No. 38 & 39 of director’s statement and finally stated “Thus, it is conclusive that such income earned was wholly and exclusively related to the business of the appellant and provisions of section 69B cannot be applied.” Thus the CIT(A), having taken into account the specific questions of statements, has taken a clear-cut conclusion that the surrendered income in the form of advances was business income of assessee and section 69B cannot be applied. Notably, the AO has not given any reason for his conclusion but the CIT(A) has not only given a basis but also made a concrete and conclusive finding. During hearing before us, the Revenue has DCIT vs. M/s.Java Foods Pvt.Ltd. ITA No.207/Ind/2019 Assessment year 2017-18 Page 13 of 13 not shown anything to rebut or contradict the conclusive finding made by Ld. CIT(A). 12. For the reasons stated in above discussions, we are of the considered view that the order passed by CIT(A) is very correct and it does not warrant any interference from us there being no infirmity, adversity or perversity demonstrated by Revenue. Therefore, without delving further into other pleadings made by Ld. AR, we approve the action of CIT(A) in reversing the action of AO. The assessee succeeds in this appeal. 13. Resultantly, this appeal of revenue is dismissed. Order pronounced in the open court on 28/07/2023. Sd/- sd/- (VIJAY PAL RAO) (B.M. BIYANI) JUDICIAL MEMBER ACCOUNTANT MEMBER Indore Ǒदनांक /Dated : 28.07.2023 CPU/Sr. PS Copies to: (1) The appellant (2) The respondent (3) CIT (4) CIT(A) (5) Departmental Representative (6) Guard File By order U Assistant Registrar Income Tax Appellate Tribunal Indore Bench, Indore