2025 (3) TMI 1537 - AT - Income Tax

Assessee relieved as only Rs. 2,00,10,200 taxed under Section 69C; Section 115BBE charges not sustained

ITAT JAIPUR - AT held that the AO correctly taxed only Rs. 2,00,10,200 under section 69C while accepting the assessee's explanation and source for other ... Income surrendered during survey - Unexplained u/s 69C and invoking of Sec 115BBE - Addition made by the Ld. AO in imposing tax, surcharge, cess etc. - case of the assessee was manually selected for compulsory scrutiny as per guidelines issued by the CBDT and notices as required under law were issued to the assessee from time to time - Acceptability of oral evidence HELD THAT:- Assessee explained the source of expenditure and unexplained investment for which the ld. AO accepted the source of unexplained investment and did not considered it as amount chargeable to special rate but only Rs. 2,00,10,200/- were considered to be taxed as per provision of section 69C of the Act. Here we note that the assessee’s contention of having earned business income was considered by the ld. AO based on the statement for an amount of Rs. 2,09,00,200 [ for rounded disclosed income of Rs. 2,01,00,000/-] the said income when used for expenditure cannot be considered and added as unexplained expenditure. As regards the oral evidence submitted by the assessee in a statement cannot be ignored and in fact the same have been accepted by the revenue. On this aspect of the oral evidence we get support from Satyaveer Singh [2023 (8) TMI 964 - RAJASTHAN HIGH COURT] held all the authorities have appreciated the oral and documentary evidence and recorded their findings of fact on the issue as to what actually was the sale consideration in the matter of transaction of sale of agricultural land. Even though the submission of appellant would be that there was no proper appreciation of evidence, it is essentially a case of appreciation of evidence and not of substantial question of law. Considering the discussion so recorded and the facts which are not disputed that income from business already been taxed the subsequent expenditure from that income cannot be considered as unexplained expenditure and therefore we see no reason to sustain the charge of tax as per provision of section 115BBE of the Act. Based on this observation ground no. 2 raised by the assessee is allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether expenditures admitted during a survey and later included in the return can be treated as unexplained expenditure under section 69C of the Income-tax Act. 2. Whether income/expenditure treated as unexplained under section 69C attracts taxation at special rates under section 115BBE, notwithstanding that the same amount was declared and assessed as business income in the return. 3. Whether section 115BBE is a standalone charging provision requiring separate show-cause action or a machinery/ consequential provision triggered by additions under the sections 68/69 family. 4. Whether interest under sections 234A/234B/234C/234D and withdrawal of interest under section 244A are independently contestable where the primary addition/ tax characterisation is upheld or disallowed (i.e., consequentiality of interest issues). ISSUE-WISE DETAILED ANALYSIS Issue 1 - Applicability of section 69C to expenditures admitted during survey and subsequently accounted for Legal framework: Section 69C permits deeming of any expense incurred in a financial year as the assessee's income where the assessee offers no explanation as to the source of that expenditure or where the explanation is unsatisfactory. The relevant inquiry is whether the source of the expenditure has been satisfactorily explained. Precedent treatment: Tribunal and High Court authorities have held that where additional amounts discovered in survey are clearly identifiable as part of the taxpayer's regular business (e.g., excess stock, trade advances or expenditure on business inputs) and are accounted in books/return as business income, sections in the 69 family may not be invoked; conversely, where source remains unexplained, section 69C may be applied. Interpretation and reasoning: The Court examined the survey record (impounded notepad), statements recorded under section 133A and the return/audited accounts filed subsequently. The partner had admitted additional amounts and stated they related to purchases/ construction/land development in the running year; the assessee included the same amount in the return under business income and accounted for the purchases in the audited P&L and ledgers. The AO initially treated part of the amounts as having an explained source (accepted for a rounded figure) but treated Rs. 2,00,10,200 as unexplained and subject to section 69C. The Tribunal emphasized the statutory focus under section 69C on the source of expenditure and found that where the source is shown and subsequently accepted and reflected in books and return, the expenditure cannot be treated as unexplained. The Tribunal accepted oral admissions and subsequent accounting entries as material to establish that the amount related to business operations and was not a separate unexplained source. Ratio vs. Obiter: Ratio - where amounts disclosed during survey are traceable to and accounted as business receipts/expenditure in the same year, section 69C should not be invoked to deem such expenditure as unexplained income. Obiter - observations on the consequences if documentary proof were absent. Conclusion: The Court held that the amount in dispute was explained as business income/expenditure and hence section 69C could not be invoked for that amount; ground in this respect was allowed. Issue 2 - Invocation of section 115BBE where the amount is assessed as business income Legal framework: Sub-section (2) of section 115BBE provides that where total income includes income referred to in sections of the 68/69 family, certain deductions/ allowances are disallowed and tax at special rates is to be applied to such income. The charge under chapter/section structure distinguishes between charging provisions (which create liability) and machinery provisions (which quantify/collect tax). Precedent treatment: Authorities (including apex court jurisprudence on construction of taxing statutes) distinguish charging provisions to be strictly construed and machinery provisions to be construed to effectuate legislative purpose. Tribunals and High Courts have on facts denied applicability of section 115BBE where the additional amount was plainly business income and not an unexplained item falling under the 68/69 family. Interpretation and reasoning: The Tribunal accepted the submission that section 115BBE operates when income 'includes' amounts deemed under sections 68/69 etc. It emphasized that the preliminary question is whether the return/assessment contains an addition under the 68/69 family. Where the AO has not made a fresh identifiable addition under those deeming sections but the amount has been assessed and accepted as business income (same figure carried into assessment computation without re-characterisation to 'income from other sources'), the statutory trigger for section 115BBE is absent. The Tribunal also addressed the revenue argument that section 115BBE is triggered automatically once an addition under the 69 family is made; however, because the core finding here was that no unexplained amount remained (source satisfactorily explained and accounted), section 115BBE could not be invoked. Ratio vs. Obiter: Ratio - section 115BBE cannot be applied where the impugned amount is explained as and assessed as business income and no addition is made under the 68/69 family; invocation of special rates requires the foundational finding of unexplained/ deemed income under the 68/69 provisions. Obiter - general remarks on interpretation of charging vs machinery provisions and necessity (or not) of separate showcause for 115BBE. Conclusion: On the facts, since the disputed amount was explained and assessed as business income, section 115BBE was not attractable; levy of tax at special rates under section 115BBE was set aside in respect of the disputed amount. Issue 3 - Characterisation of section 115BBE as charging or machinery provision and requirement of separate show-cause Legal framework: Distinction between charging sections (fix liability) and machinery provisions (operate to implement charging provisions). Canon of strict construction applies to charging provisions; machinery provisions are construed to effectuate legislative object. Precedent treatment: Authorities relied on by revenue and recorded by the lower authority emphasize that tax statutes separate charge and machinery and that machinery provisions should be liberally construed to achieve the legislative purpose. Tribunals have, however, also held that section 115BBE is consequential upon additions under the 68/69 family. Interpretation and reasoning: The Tribunal noted prior decisions holding section 115BBE to be consequential to additions under sections 68/69 family and observed that once an addition under those sections exists, limitation on deductions and special rate consequences follow. Nevertheless, if there is no addition under the 68/69 family (because source was explained), the machinery provision (115BBE) has no operative basis. The Tribunal further held that no separate show-cause notice for invoking 115BBE is required where the foundational addition has been made; but this principle is inapplicable if no foundational addition exists. Ratio vs. Obiter: Ratio - section 115BBE functions as a machinery provision contingent on income being held to arise from sections 68/69 family; no separate show-cause is needed where such foundational addition is validly made. Obiter - commentary on the general interpretive approach to charging versus machinery provisions. Conclusion: The Court affirmed that 115BBE is consequential upon valid additions under sections of the 68/69 family and cannot operate where such additions are absent because the amount was explained and taxed as business income. Issue 4 - Interest consequences (sections 234A/234B/234C/234D and section 244A withdrawal) Legal framework: Interest provisions under chapters addressing advance tax/shortfall/delay are consequential to final tax liability determined under assessment. Precedent treatment: Interest is generally consequential and varies with final assessment outcome; withdrawal or levy of interest follows re-computation of tax liability. Interpretation and reasoning: The Tribunal treated interest contentions as consequential to the decision on primary tax characterisation. Having held that section 115BBE did not apply to the disputed amount and that the amount was assessed as business income, interest adjustments made solely because of a 115BBE characterisation could not be sustained. The Tribunal did not undertake separate detailed adjudication of each interest head since their applicability depends on the resolved tax computation. Ratio vs. Obiter: Ratio - interest determinations are consequential on the primary tax outcome and must be redetermined in conformity with that outcome. Obiter - specifics of recalculation not expounded. Conclusion: Interest issues are consequential; because the levy under section 115BBE was disallowed for the disputed amount, interest consequences tied solely to that levy require appropriate recalculation consistent with the Tribunal's primary conclusion. Final Disposition (as to issues decided) The Tribunal concluded that the impugned addition under section 69C in respect of Rs. 2,00,10,200 was not sustainable because the amount was explained as business income, admitted during survey and accounted for in the audited books and return. Consequently, section 115BBE could not be invoked to tax that amount at special rates. Interest provisions were treated as consequential, and the appeals were allowed on the primary issue; the Tribunal applied the same reasoning mutatis mutandis to the companion appeal.