Unreported income declared during survey procedures is subject to Section 269ST
Fact and issue of the case
This is an appeal filed by the assessee against the order of the ld. Principal Commissioner of Income Tax, PCIT Vadodara- 1, in proceeding u/s. 263 vide order dated 26/03/2022 passed for the assessment year 2017- 18.
The assessee has raised the following grounds of appeal:-
The Ld. CIT erred in law and on facts in invoking provisions of Section 263 of the Act seeking to revise scrutiny assessment U/s 143(3) of the Act holding it as erroneous and prejudicial to interest of revenue. The order of A.O. is neither erroneous nor prejudicial to the interest of revenue and as such order of Ld. CIT is unjust, untenable and against principles of Natural Justice that deserve to be quashed.
The Ld. CIT erred in law and on facts in holding that appellant has not furnished any details of nature and sources of undisclosed income of Rs. 1,01,00,000/- admitted during the survey and as such it is required to be tax U/s 69A r.w.s 115BBE of the Act. The Ld. CIT has failed to appreciate that A.O has passed the order after proper verification of documents submitted in response to notice U/s 142(1) of the Act. The erroneous Order of Id. CIT deserves to be quashed.
Ld. CIT ought to have appreciated that non discussion of issues verified and accepted by A.O after proper scrutiny need not mean order as erroneous or prejudicial to the interest of revenue.
The Ld. CIT has erred in law and on facts for not providing opportunity being heard in person in spite of being specifically The Ld. CIT ought to granted said opportunity. The denial of personal hearing is against principle of Natural Justice that deserve to be quashed.
The Ld. CIT erred in law and on facts in holding that the provisions of Section 269ST applies to the undisclosed income declared during the survey. The Ld. CIT failed to appreciate that A. O passed the order after proper verification of documents submitted in response to notice U/s 142(1) of the Act. The erroneous Order of Id. CIT deserve to be quashed.
The appellant craves leave to add, amend, alter, edit, delete, modify or change all or any of the grounds of appeal at the time of or before the hearing of the appeal.”
The brief facts of the case are that a survey action under section 133A of the Act was carried out at the business premises of the assessee firm. During the course of survey, the assessee admitted an undisclosed income of ~ 1,01,00,000/-and Shri Ghanshyambhai Patel, working partner of the assessee firm in a statement recorded during the course of survey admitted that the above sum of ~ 1,01,00,000/-is the net undisclosed income of the assessee firm. While filing the return of income for assessment year 2017- 18, the assessee firm had shown the above undisclosed income of ~ 1,01,00,000/-under the head “any other income” in the return of income filed by the assessee firm for the impugned assessment year. The assessment of the assessee was completed by the AO by making of a disallowance of a sum of ~ 4,072/- on account of disallowance out of claim of partner’s remuneration. The Principal CIT initiated proceedings under section 263 of the Act on the ground that the AO computed the tax liability in respect of the aforesaid undisclosed income accepted / acknowledged by the assessee during the course of survey proceedings amounting to ~ 1,01,00,000/- at normal rate of tax of 30% as against the higher rate as provided under section 1 15BBE of the Act of 60%. According the Principal Ld. CIT(Appeals) took the view that the aforesaid income should have been brought to tax under section 69A r.w.s. 115 BBE of the Act. Further, the Principal CIT also observed that during the course of assessment proceedings, the assessing officer made no efforts to ascertain whether the aforesaid amount of~ 1,01,00,000/- , which was received in cash by the assessee firm, was received in violation of the provisions of section 269ST of the Act. Therefore, since the aforesaid amount was received by the assessee in cash and the identity and confirmation of the person from whom such cash receipts received has not been furnished by the assessee or verified or enquired by the AO, the applicability of provisions of section 269ST and section 271DA of the Act were required to be examined during the course of assessment proceedings. Accordingly, the assessment order was held to be erroneous and prejudicial to the interests of the Revenue.
Before us, the counsel for the assessee submitted that in the instant facts, the provisions of section 1 15BBE are not attracted in the first instance for the reason that certain unaccounted money was admitted by the assessee during the course of survey proceedings, which was also reflected by the assessee in the return of income filed by the assessee for the impugned assessment year. However, with respect to the aforesaid unaccounted money received by the assessee outside the books of accounts, the provisions of section 69A of the Act are not attracted at all, as is evident from the bare reading of the statutory provisions. The second contention of the counsel for the assessee was that that vide notice dated 11-10-2019, the AO had made a specific enquiry with respect to details of income declared by the assessee of ~ 1,01,00,000/-. Accordingly, it is not a case where there was lack of enquiry or inadequate enquiry being made by the AO during the course of assessment proceedings. Further, Department has accepted the aforesaid amount as “business receipts” of the assessee during the impugned year under consideration. With respect to the invocation of provisions of section 269ST, it was submitted that once the Department has accepted the aforesaid income as “business income” of the assessee, then there is no question of invoking the provisions of section 269ST of the Act. In support, the counsel for the assessee placed reliance on the decision of Ahmedabad Tribunal in the case of Nilaykumar Bros v PCIT in ITA Number 146/Ahd/2022, wherein it was held that excess stock discovered during the course was survey, which was reflected in the profit and loss account as part of the closing stock of the business of the assessee cannot be subject matter of 263 proceedings since various judicial precedents have held that undisclosed excess stock qualifies as “business income” of the assessee, and therefore, the unaccounted business turnover and the same cannot be treated as income from undisclosed sources. In response, the Ld. DR placed reliance on the observations made by the Principal CIT in the 263 order.
Observation of the court
We have heard the rival contentions and perused the material on record. We are however unable to agree with the contentions put forth by the learned counsel for the assessee, for the following reasons. Firstly, the case law on which reliance has been placed by the counsel for the assessee is distinguishable on facts, since in the aforesaid case, excess stock was admitted and disclosed by the assessee, which was reflected in the profit and loss account as part of the closing stock of the business of the assessee. However, in the instant facts, one of the working partners of the assessee firm admitted during the course of survey proceedings that the assessee firm was receipt of cash amounting to ~ 1,01,00,000/-, which was subsequently reflected as “other income” in the return of income filed by the assessee. Therefore, in the instant facts, it was a case where the assessee firm admitted to having received certain amounts in cash, during the course of survey proceedings under section 133A of the Act.
Further, it was argued the Ld. Counsel for the assessee that to invoke the higher rate of tax@ 60% u/s 1 15BBE of the Act, the case of the assessee must come within the purview of section 69A, which in turn, requires actual discovery of money, bullion or valuable article etc. from the premises of the assessee . It may be useful to note that section 69A of the Act states “Where in any financial year the assessee is “found” to be the “owner” of any money, bullion, jewellery or other valuable article
Therefore, section 69A of the Act does not state /envisage actual cash having being found at the assessee’s premises during the course of search. All that is required for invoking provisions of section 69A of the Act is that the assessee is “found” to be the “owner” of money during the course of survey. There is a marked difference between “money/ cash” being “found” at the premises of the assessee and the assessee being “found” to be the “owner of money /cash”. Section 69A of the Act only contemplates of the latter situation. An assessee can be “found” to be the “owner” of money/cash on the basis of seized documents/ diary/ the statement of the assessee or working partner of an assessee firm made during the course of search. In the instant facts, admittedly certain diary noting was found and further the working partner of the assessee firm admitted to certain undisclosed income in cash outside the books of accounts. Therefore, there is no restriction in invoking the provisions of section 69A in the instant facts. In the case of B. Kishore Kumar 52 taxmann.com 449 (Madras), the High Court held that where assessee himself stated in sworn statement during search and seizure about his undisclosed income, same was to be levied tax on basis of admission without scrutinizing documents under section 69A of the Act. Notably, the Hon’ble Supreme Court dismissed the SLP filed by the assessee in the case of B. Kishore Kumar v. DCIT 62 taxmann.com 215 (SC). In the case of Arvind Janardhan Pandey 104 taxmann.com 127 (Bombay), a search was carried out in assessee’s premises and various documents were seized including diary of the assessee was seized. As per contents of the diary, assessee was engaged in activity of ensuring admissions of students in educational institutions by paying illegal capitation fees. The assessee did not dispute contents of seized diary. The High Court held that since assessee did not bring any material on record to enable revenue authorities to determine his earning from said dealings, ITAT was correct in confirming addition to taxable income on estimate basis u/s 69A of the Act. Accordingly, in view of the plain language of section 69A of the Act, read with the judicial precedents which have elaborated on the scope of section 69A of the Act, in our view, the case of the assessee comes within the purview of provisions of section 69A of the Act read with section 1 15BBE of the Act.
Secondly, in the case-law on which reliance has been placed by the learned counsel for the assessee, the issue of applicability of provisions of section 269ST read with 271DA was not present, since it was a case of “excess stock” discovered during the course of survey proceedings. However, in the present case, admittedly a sum of ~ 1,01,00,000/- was admitted by one of the working partners as having being received by the assessee firm in cash, which was declared as “other income” in the return of income filed by the assessee firm. It may be useful to refer to the Memorandum to the Finance Act 2012, to have a better understanding of the scope of provisions of section 269ST read with 27 1DA of the Act: Restriction on cash transactions In India, the quantum of domestic black money is huge which adversely affects the revenue of the Government creating are source crunch for its various welfare programmes. Black money is generally transacted in cash and large amount of unaccounted wealth is stored and used in form of cash. In order to achieve the mission of the Government to move towards a less cash economy to reduce generation and circulation of black money, it is proposed to insert section 269ST in the Act to provide that no person shall receive an amount of three lakh rupees or more,—
(a) in aggregate from a person in a day;
(b) in respect of a single transaction; or
(c) in respect of transactions relating to one event or occasion from a person, otherwise than by an account payee cheque or account payee bank draft or use of electronic clearing system through a bank account. It is further proposed to provide that the said restriction shall not apply to Government, any banking It is also proposed to insert new section 271DA in the Act to provide for levy of penalty on a person who receives a sum in contravention of the provisions of the proposed section 269ST. The penalty is proposed to be a sum equal to the amount of such receipt. The said penalty shall however not be levied if the person proves that there were good and sufficient reasons for such contravention. It is also proposed that any such penalty shall be levied by the Joint Commissioner.
A reading of the Memorandum to the Finance Act 2012, giving the basis of introduction of the provisions of section 269ST read with section 27 1DA clearly envisages that the intention of the Government while introducing the aforesaid provisions was to put a curb on the generation and circulation of black money. In the instant facts, admittedly, a sum of ~ 1,01,00,000/-was received by the assessee firm in cash, which was admittedly not reflected in the books of accounts. Therefore, in our considered view, the AO should have made requisite enquiries with regards to applicability of provisions of section 269ST read with section 27 1DA of the Act, while framing the assessment. In the instant case, evidently, no enquiries with regards to applicability of section 269ST read with section 27 1DA of the Act, were made by the AO during the course of assessment proceedings, when evidently it was within the knowledge of the AO that the aforesaid amount was received by the assessee firm in cash, outside the books of accounts. We are unable to accept the argument of the counsel for the assessee that simply if the assessee declared the undisclosed income discovered during the course of survey proceedings, as its “business income” (though in the instant facts, the aforesaid amount was declared as “other income” in the return of income), then, this itself would take the case outside the purview of section 269ST read with section 271DA of the Act.
Accordingly, in light of the instant facts, we are of the considered view that Principal CIT has not erred in facts and in law in holding that the order passed by the assessing officer was erroneous and prejudicial to the interests of the Revenue.
In the result, the appeal of the assessee is dismissed.
Order pronounced in the open court on 07-07-2023
In the result, appeal of the assessee is allowed and ruled in favour of the assessee