Income Tax, Issue Update

Stock discovered during survey proceedings: Applicability of section 115BBE of Income-tax Act

Case: ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-2 vs SHRI SUDESH KUMAR GUPTA, JAIPUR ITAT

Outcome: In favour of Assessee

Facts

  • A survey under section 133A was conducted on 29.08.2013 at the business premises of the Assessee. During the course of survey proceedings, stock was physically verified and valued at Rs. 46.07 lakhs and the Assessee surrendered an amount of Rs. 21 lakhs as undisclosed investment in stock from undisclosed income. The surrendered income of Rs 21 lakhs was thereafter offered and reflected in return of income filed by the Assessee for the year under consideration. Subsequently, the matter was taken up for scrutiny and the returned income of Rs. 22.80 lakhs filed by the Assessee was accepted and assessment was completed under section 143(3) of the Act vide order dated 01.09.2016.
  • Subsequently, a notice under section 154 was issued to the Assessee wherein it was mentioned that the Assessee had surrendered of Rs. 21 lakhs as undisclosed investment in stock from undisclosed income during the survey conducted under section 133A of the Act on 06.09.2013 on which the tax was to charged at the rate of 30% while passing the order under section 143(3) of the Act on 24.05.2016 but the tax was charged as per slab rate of Rs. 5.13 lakhs instead of Rs. 6.48 lakhs.

Key Points

  • The return of income so filed by the Assessee was accepted by the Assessing officer without making any adjustment/ variation to the income so offered by the Assessee and the assessment was completed under section 143(3) of the Act. Further, there was nothing on record which showed that the Assessing Officer had called for any explanation of the Assessee regarding the nature and source of such investment during the course of assessment proceedings and any formation of opinion and recording of satisfaction by the Assessing Officer which was required before invoking the provisions of section 69 of the Act. Though the Assessing Officer had issued a show-cause notice as to why penalty proceedings under section 271(1)(c) should not be initiated in respect of such investment, however, he had not issued any show-cause notice for invoking provisions of section 69 of the Act or had 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 was silent about invoking the provisions of section 69 of the Act. Where the provisions of section 69 were not invoked by the Assessing Officer while passing the assessment order under section 143(3), going by the plain language of section 115BBE, the latter could not be invoked in the instant case. It was, therefore, not a case where provisions of section 69 were invoked by the Assessing Officer while passing the assessment order under section 143(3) and at the same time, the Assessing Officer had failed to apply the rate of tax as per section 115BBE of the Act.
  • Had that been the case, it would clearly be a case of rectification and powers under section 154 could be invoked. However, in the instant case, the Assessing officer had not invoked the provisions of section 69 at first place while passing the assessment order under section 143(3). Therefore, the provisions of section 115BBE which were contingent on satisfaction of requirements of section 69 could not be independently applied by invoking the provisions of section 154 of the Act.

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