2020 (6) TMI 463 - AT - Income Tax

Tax Tribunal Rejects Revenue's Appeal, Rules in Favor of Assessee Over Unjustified Taxation of Surrendered Income

The ACIT, Circle-02, Alwar Versus Shri Sudesh Kumar Gupta Prop. M/s Salasar Textiles,

The ITAT upheld the CIT(A)'s decision in favor of the assessee, dismissing the Revenue's appeal. The AO's application of section 115BBE on surrendered ... Rectification u/s 154 - Rate of tax u/s 115BBE on undisclosed investment - Applicability of provisions of section 69 - as per AO 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 - undisclosed investment in stock from undisclosed income during the course of survey and 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 - HELD THAT:- 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. 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 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 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. Issues:1. Justification of quashing the action of the AO u/s 154 in applying provision of section 115BBE on surrendered investment.2. Interpretation of sections 69 and 115BBE in relation to surrendered income during survey proceedings.Analysis:1. The appeal filed by the Revenue challenged the quashing of the AO's action under section 154 by the ld. CIT(A) regarding the application of section 115BBE on undisclosed investment surrendered during a survey. The assessee had surrendered an amount of Rs. 21,00,000 as undisclosed investment in stock during a survey u/s 133A. The AO later issued a notice u/s 154, invoking section 115BBE due to the surrendered income. The assessee contended that the excess stock was part of business income, offered it for taxation, and the AO accepted it under the head 'business income' in the assessment order u/s 143(3). The CIT(A) held that the AO was not justified in taxing the surrendered stock u/s 115BBE after accepting it as business income initially.2. The crux of the issue lay in the interpretation of sections 69 and 115BBE. Section 115BBE mandates a special tax rate of 30% on income referred to in section 69. Section 69 deems investments not recorded in books of account as the income of the assessee if no satisfactory explanation is provided. In this case, the AO accepted the income offered by the assessee without invoking section 69 during assessment proceedings. The absence of any formation of opinion by the AO regarding the nature and source of investment, as required by section 69, indicated that the provisions of section 69 were not invoked during the assessment. Therefore, the application of section 115BBE by the AO through a notice u/s 154 was deemed unjustified by the ITAT, as section 115BBE is contingent on the satisfaction of section 69 requirements. The ITAT upheld the CIT(A)'s order, deciding in favor of the assessee and dismissing the Revenue's appeal.