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The case involves an appeal by the partnership firm Vidya Sagar Narinder Kumar against the assessment order which taxed a surrendered income of Rs. 30 lakh at 60% under Section 115BBE of the Income Tax Act, 1961. The surrender was made during a survey conducted on 16.06.2016, where discrepancies in the firm's accounts were noted. The firm contended that the surrendered amount was business income and should be taxed at the normal rate, not under the provisions applicable to unexplained investments. The Tribunal agreed with the assessee, referencing several precedents and the specific circumstances of the case, including the date of the survey and the nature of the surrendered income.
Appeal Details
Counselvise Citation
[2025] 140 COUNSELVISE.COM (IT) 469830 (ITAT-CHANDIGARH)
Assessee PAN
Bench
Appeal Number
CRN Number
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
11-02-2025
Appeal Filed By
Assessee
Order Result
Allowed
Bench Allotted
A
Assessment Year
2017-2018
Judgement Text
"आयकर अपील य अ\u000bधकरण,च\u0010डीगढ़ \u0014यायपीठ,च\u0010डीगढ़ IN THE INCOME TAX APPELLATE TRIBUNAL, CHANDIGARH BENCH‘A’ CHANDIGARH BEFORE: SHRI VIKRAM SINGH YADAV, ACCOUNTANT MEMBER AND SHRI PARESH M. JOSHI, JUDICIAL MEMBER, आयकर अपील सं./ITA No. 836/CHD/2024 \u0001नधा\u0005रण वष\u0005 /Assessment Year : 2017-18 Vidya Sagar Narinder Kumar, C/o Shri Tej Mohan Singh, Advocate, # 527, Sector 10-D, Chandigarh. Vs The ITO, Ward-1, Patiala. \fथायीलेखासं./PAN /TAN No:AAAFV8964G अपीलाथ\u0017/Appellant \u0018\u0019यथ\u0017/Respondent \u0001नधा\u0005\u001aरती क\u001d ओर से/Assessee by : ShriTej Mohan Singh, Advocate राज\fव क\u001d ओर से/Revenue by : Dr. Ranjeet Kaur,Sr.DR तार ख/Date of Hearing : 12.12.2024 उदघोषणा क\u001d तार ख/Date of Pronouncement : 11.02.2025 HYBRID HEARING आदेश/ORDER PER PARESH M. JOSHI, JM This is an appeal filed by the assessee under Section 253 of the Income Tax Act, 1961 (hereinafter referred to as the Act] before this Tribunal. The assessee is aggrieved by the order bearing No. ITBA/NFAC/S/250/2024-25/1066373976(1) dated 03.07.2024 of CIT(A) passed under Section 250 of the Act. The relevant assessment year is 2017-18 and the ITA 836/CHD/2024 A.Y. 2017-18 2 corresponding previous year period is from 01.04.2016 to 31.03.2017. 2. Factual Matrix 2.1 That assessee is a partnership firm and was doing sale business of timber and plywood with the name and style of M/s Vidya Sagar Narinder Kumar. 2.2 Return of income declaring income at Rs.31,22,390/- was filed by the assessee dated 28.10.2017. 2.3 Survey under Section 133A of the Act was carried out at the business premises of the assessee on 16.06.2016 and during the course of survey operation, certain discrepancies were noticed. In view of such discrepancies, the assessee came forward with a surrender of Rs.30 lakhs for relevant assessment year 2017-18. 2.4 That vide notice under Section 142(1) alongwith annexure dated 06.12.2019 the assessee was proposed to ITA 836/CHD/2024 A.Y. 2017-18 3 be taxed under Section 115BBE of the Act on surrendered income of Rs.30 lakh, contents of notice are as under : “Survey u/s 133A of Income Tax Act, 1961 (hereinafter 'the Act') was carried out at the business premises of the assessee i.e. M/s Vidya Sagar Narinder Kumar, Nabha Gate, Patiala on 16.06.2016. Several discrepancies in the books of account were noticed by the survey team. In lieu of such discrepancies, the assessee surrendered an additional income of Rs. 30,00,000/-. Vide notice u/s 142(1) along with annexure dated 06-12-2019, the assessee has been proposed to be taxed 115BBE of the IT. Act on the surrendered income of Rs. 30,00,000/- which is as under:- \"Survey u/s 133A of the I.J. Act 1961 has been conducted on 16-06-2016. After that you have surrendered the additional income of Rs. 30,00,000/- as per details given in your surrendered letter i.e. in respect of stock and loose papers. Further, it is matter of record that while filing your income tax return for the relevant period i.e. A.Y. 2017-18, you have declared the income surrender during the survey in the \"Any other income\" under profit and loss account amounting to Rs. 30,00,000/-. Consequently the tax has been paid on surrendered income in survey @ 30%. However, considering the nature of surrendered income the same is required to be tax u/s 115BBE of the IT. Act, 1961. Therefore, I proposed to charge the income of Rs. 30,00,000/-(Surrendered income) u/s 115BBE of the I.T Act, 1961. You are again requested to file the balance reply on or before 10-12- 2019 as per questionnaire already issued on 15-11-2019.\" 2.5 The assessee in reply to the aforesaid notice interalia has contended as below : \"Reason No. 1 During the survey at the premises of the assessee of 16.6.2016, nothing has been found by the IT Department, which can prove that assessee was indulge in any other kind of activity except business activity. So, income surrendered cannot be considered as income from other sources instead of income from business & profession. Reason No. 2 For taxing the income U/s 115BBE, the IT Department has to applied the provisions of Section 69. In our case, the surrender was mainly on account of stock in trade. So, if you read the provisions of Section 69, it can be concluded ITA 836/CHD/2024 A.Y. 2017-18 4 that this section deals with unexplained investments only, but during the survey, the assessee was found in possession of stockn, which was not an investment in-fact, it was the \"stock in trade\" and hence the provisions of Section 69 of the act are not applicable on assessee. Moreover, applicability of Section 115BBE on surrender made during survey is highly debatable. We relied upon the decision of Rajasthan High Court in the case of Pr. CIT Vs. Bajargan Traders C/o Kalani & Co. 2017 Tax Pub (DT) 4814, in this case the Hon'ble High Court has said that investment in unrecorded stock noticed during the course of survey was to be taxed as business income and not as income from other sources. Reason No. 3 The amendment in Section 115BBE of Income Tax Act, 1961 regarding taxing the income at the rate of 60% comes into the existence on 15.12.2016. But, in our case the survey has been conducted on 16.6.2016. Although, as per the amendment made in the act on 15.12.2016, provisions of Section 115BBE has been amended w.e.f. 1.4.2016. In recent judgment of Hon'ble Delhi High Court in the case of Gautam Khaitan Vs. Union of India (2019) 105 taxmann.com 276 (Delhi), the Hon'ble High Court has said that Govt, cannot exercise its power to issue notification within meaning of provisions of Section 85 & 86, prior to enactment itself coming into effect as on 1.4.2016. So, in our case the law which has been enacted on 15.12.2016 cannot be applied. Furthermore, the assessee voluntarily disclosure decision was totally based on the law that exists on the date of survey i.e. 16.6.2016. The law has been amended on 15.12.2016 with retrospective effect.An ideal tax system should be predictable certain and sustainable. Hence, retrospective implementation of Section 115BBE by the IT Department amendment is a bad move. We relied upon the decision of Hon'ble Supreme Court in the case of Karimtharuvi Tea Estate Ltd. Vs. State of Kerala 1966 AIR 1385 & Scindia Steam Navigation Company Ltd. Vs. CIT 24 ITR 686. In both these judgments, the Hon'ble Supreme Court has said that it is well settled that Income Tax Act, as its stand amended on the 1st day of April of any financial year must apply to the assessment of that year. Any amendments in the act which comes in to the force after the 1st day of April of a financial year, would not apply to the assessment for that year, even if the assessment is actually made after the amendments come into the force. So, in the instant case amendment in the Section 115BBE was made on 15.12.2016. So, it should be applied from the A.Y. 2018-19 and onwards and not from A.Y. 2017-18. Moreover, as per assessee's surrender letter, assessee surrender Rs. 30 Lacs and the tax have been calculated on it at the rate of 30.90%. Assessee along with surrender letter gave two post-dated cheques of total amounting to Rs. 9,27,000, which the department has taken on record. These cheques have been given on the demand of the IT Department as a matter of security that we will pay the tax on time. So, in our case there was an implied understanding between the assessee and the IT Department about the tax rate of 30.90% and not 60%. We are hereby enclosing copy of surrender letter, please clearly read ITA 836/CHD/2024 A.Y. 2017-18 5 the enclosure section of the letter. Generally, the assessee retrace from the commitment of surrender made during the survey, but in our case its look like that Hon'ble IT Department after \"impliedly accepting\" our surrender letter, now wants to retrace from their position of accepted tax rate of 30.90% applicable on us. So, keeping in view of the facts and law stated above \"no\" addition in tax amount should be made.\" 2.6 The ld. AO in his assessment order dated 19.12.2019 has computed the income surrendered during survey as Rs.30 lakh and has taxed the same under Section 115BBE @ 60%. The salient features of the assessment order of ld. AO dated 19.12.2019 can be summed as under :- (1) The assessee has claimed that –‘assessee firm’ was running the business of sale of timber and plywood and that it is only and absolute source of its income. Eventually, the assessee has concluded that since the said business is the only and absolute source of income of assessee, the income surrendered during the survey pertains to business income. The stand of the assessee does not stand the rigor’s of onus under Section 69 of the Act. (2) Onus under Section 69A does not get discharged by simple assertion as aforesaid. Source of income must be proved conclusively. ITA 836/CHD/2024 A.Y. 2017-18 6 (3) Merely because survey team had not found any other source of income the assessee has sought to transfer his onus on the Revenue which cannot be allowed. Reliance was placed on judgement of Hon'ble Punjab & Haryana High Court in case of PCIT Vs Khushi Ram & Sons Food (P) Ltd. in ITA No. 126/2015 and in particular para 13 which is reproduced as below \"13. It is not necessary that the surrendered amount is from business income. It could be on account of any other transaction legal or otherwise. Merely because an assessee carries on certain business, it does not necessarily follow that the amounts surrendered by him are on account of its business transactions. There is no presumption that absent anything else an amount surrendered by an assessee is his business income. It is for the assessee to establish the source of such surrendered amount. \" (4) The ld. AO finally has placed reliance on very text of Section 115 BBE of the Act and has held that plain reading of Section 115 BBE makes it clear that income surrendered by the assessee as “stock in Trade” which are unexplained investments within the meaning of Section 69 of the Act is taxable at the rate of 60%. Further the provisions of Section 115 BBE are effective w.e.f. 01.04.2017. Thus, the contention of the assessee that the enhanced tax rate of 60% under Section 115BBE would not be applicable to the pre amended period is not tenable. ITA 836/CHD/2024 A.Y. 2017-18 7 2.7 The assessee being aggrieved by the assessment order dated 19.12.2019 prefers first appeal before CIT(A) under Section 246A of the Act who by the impugned order has dismissed the same. 2.8 The assessee being aggrieved by the impugned order has preferred the present second appeal and has raised following grounds of appeal against the impugned order : “1. That the Ld. Commissioner of Income Tax (Appeals) has erred in law as well as on facts inupholding the charging of tax @ 60% on the surrendered income disclosed by the assessee at Rs.30,00,000/- towards business stock and loose papers applying provisions of Section 115BBE of the Income Tax Act in utter disregard of the explanations rendered which is illegal, arbitrary and unjustified. 2. That the Ld. Commissioner of Income Tax j (Appeals) has failed to appreciate that the assessee had been carrying on the business of trading in \"Timber and Ply Wood\" and other related items and 'excess stock' of Rs. 30,00,000/- as found was of the same nature of stock and, thus, the same could not be charged to tax u/s 115BBE as the nature and source of such excess stock has clearly I been demonstrated at the time of survey and the assessee was not found to be carrying out any other business activity. 3. That the Ld. Commissioner of Income Tax (Appeals) has failed to consider the detailed submissions and the case law referred to which is arbitrary and unjustified. 4. That the appellant craves leave to add or amend the grounds of appeal before the appeal is finally heard or disposed off. 5. That the order of Ld. Commissioner of Income Tax(Appeals) Officer is arbitrary, opposed to the facts of the case and thus untenable.” ITA 836/CHD/2024 A.Y. 2017-18 8 3. Record of Hearing 3.1 The hearing in the matter took place before this Tribunal on 12.12.2024 when both ld. AR for and on behalf of the assessee and ld. DR for and on behalf of the Revenue were heard in support of their respective contentions. The ld. AR has placed on record a Paper Book containing pages 1 to 22 alongwith compilation of judgements of this Tribunal from pages 1 to 149 in support of the proposition that income so surrendered is business income and is liable to be taxed under normal rate. The ld. DR has supported the findings made in the impugned order. 4. Observations,Findings& Conclusions 4.1 We observe that it is an admitted position that survey of the assessee’s premises took place on 16.06.2016 and nothing incriminating was found by the Revenue which could prove that assessee was indulging in any other kind of activity except business activity. Further on page 9 of the assessment order dated ITA 836/CHD/2024 A.Y. 2017-18 9 19.12.2019 income of Rs.30 lakhs is computed as stock in trade under Section 69. However, it has been taxed under Section 115BBE of the Act. In the impugned assessment order dated 19.12.2019 income is labeled as stock in trade, it cannot by any stretch of imagination be labeled as unexplained investment under Section 69 of the Act as surrender was mainly on account of stock in trade. Further, basis statement of Amit Bansal dated 16.06.2016 during survey, no other sources of income from other business has come on record. Further in the surrender letter on page 12 of Paper Book, it is clearly stated that in order to cover up discrepancy found during survey at business premises on 16.06.2016 with respect to stock and loose papers the firm is voluntarily surrendering Rs.30 lakhs subject to no penal action under the Act and to buy peace of mind. The two cheques were submitted and that the same were accepted by Department. In both the orders of lower authorities there is no concrete finding that amount of surrender of Rs.30 lakh is from other sources of business of the assessee’s firm. ITA 836/CHD/2024 A.Y. 2017-18 10 4.2 In the premises and in view of several citations of Chandigarh Benches in cases; Parmod Singla Vs ACIT – ITA No. 516/CHD/2022, M/s Jain Plywood Vs DCIT – ITA No. 588/CHD/2022, M/s Sardar Finance Co. Vs DCIT – ITA No. 157/CHD/2023 and Ram Narain Vs ACIT -ITA No. 302/CHD/2024 wherein it has been clearly held that value of stock cannot be brought under deeming provision of Section 69 of the Act and same partakes character of business income. In the absence of deeming provision application of 115 BBE does not arises for consideration. 4.3 In the present fact the assessee has laid emphasis on date of survey and surrender i.e. on 16.06.2016 and has interalia contended that this date precedes 15.12.2016 the day provisions of 115 BBE were amended w.e.f. 01.04.2016. Our attention was invited to the judgement of Hon'ble Madras High Court in case of SMILE Microfinance Ltd. Vs ACIT Madurai in WP(MD) No. 2078 of 2020 and WMP CHD No. 1742 of 2020 dated ITA 836/CHD/2024 A.Y. 2017-18 11 19.11.2024 wherein with regard to S. 115BBE following is held : “Therefore this Court is of the considered opinion that the revenue is empowered to impose 60% rate of tax for the transactions from 01.04.2017 onwards and not prior to the said cut-off date. And for prior transaction the revenue is empowered to impose only 30% rate of tax.” We concur with the aforesaid. 5. ORDER 5.1 In the premises, we set aside the impugned order andallow the appeal of the assessee and direct tax to be collected at 30% on Rs.30 lakh the surrendered amount. 5.2 In result, appeal of the assessee is allowed. Sd/- Sd/- (VIKRAM SINGH YADAV) ( PARESH M. JOSHI) ACCOUNTANT MEMBER JUDICIAL MEMBER “Poonam” आदेशक\u0006\u0007ितिलिपअ\rेिषत/ Copy of the order forwarded to : 1. अपीलाथ\u0012/ The Appellant 2. \u0007\u0013यथ\u0012/ The Respondent 3. आयकरआयु\u0017/ CIT 4. िवभागीय\u0007ितिनिध, आयकरअपीलीयआिधकरण, च\u001eडीगढ़/ DR, ITAT, CHANDIGARH 5. गाड!फाईल/ Guard File आदेशानुसार/ By order, सहायकपंजीकार/ Assistant Registrar "
Other Referred Cases
Pr. CIT Vs. Bajargan Traders C/o Kalani & Co., Gautam Khaitan Vs. Union of India, Karimtharuvi Tea Estate Ltd. Vs. State of Kerala, Scindia Steam Navigation Company Ltd. Vs. CIT, PCIT Vs Khushi Ram & Sons Food (P) Ltd., Parmod Singla Vs ACIT, M/s Jain Plywood Vs DCIT, M/s Sardar Finance Co. Vs DCIT, Ram Narain Vs ACIT, SMILE Microfinance Ltd. Vs ACIT Madurai
Laws Referred To
Income Tax Act, 1961
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