Implication of Sec. 115BBE with ref. to sec:68,69 & 69A to 69D Viz a Viz Related Penalty provisions

Paper by Kapil Goel (Advocate) 9910272806

advocatekapilgoel@gmail.com

1. Preface

Under Income Act Act,1961 (Act) taxation of income has remained at the centre stage. The legislative scheme and policy of the Act is to tax the income in the manner provided therein. Before embarking on chain and string of statutory provisions which deal with income under the Act, it may be profitable to make a survey of certain rudimentary principles of the Act . First important principle which has significant importance is the charge under the Act is created on income element only and gross receipts are not taxable under the Act. Recent Apex court decision in case of Maxopp order dated 12/02/2018 wherein it is held that “It is well known that tax is leviable on the net income. Net income is arrived at

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after deducting the expenditures incurred in earning that income. Therefore, from the gross income, expenditure incurred to earn that income is allowed as a deduction and thereafter tax is levied on the net income.” is apposite. Second important principle is all receipts are not income and all income are not taxable income which is are well settled by Supreme Court in the case of Parimisetti Seetharamamma v. CIT [1965] 57 ITR 532 and Delhi high court in case of Girish Bansal 289 CTR 514. Also it is held in before mentioned authorities that burden to establish that income is there and is taxable, lies on revenue shoulders. Then next important principle which is to be borne in mind is that income is taxable in hands of right person only and mere fact that right person could not be taxed or wrong person has already paid the tax is of little or no consequence vide Apex court decision in 218 ITR 239. Then next and fourth important principle to be borne in mind is that law basically does not distinguish in moral or immoral income and between legal or illegal income, and what is relevant is income is disclosed or undisclosed and explained or unexplained then said

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income shall be dealt in the manner provided under the Act. If income is disclosed and explained then same normally would be taxable in ordinary manner. But if the same is undisclosed and unexplained then only possibility to tax it at higher rate u/s 115BBE may arise depending on overall facts.

Then next and most important principle is to find and trace the “source” of income. To elaborate on this aspect which is like of soul of the Act, and to understand it minutely following jurisprudence may be traversed:

Allahabad High CourtSeth Shiv Prasad vs Commissioner Of Income-Tax on 23 March, 1971

Equivalent citations: 1972 84 ITR 15 All

What is a " source of income " ? The expression has been used in several places in the Act. In Section 2(11) the definition of " previous year" envisages a different previous year in respect of each separate source of income. Section 4, which is concerned with the application of the Act, declares that the total income of a person includes all profits and gains,

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from whatever source derived, which falls within the categories set out there. And so on. The first authoritative judicial pronouncement appears in Rhodesia Metals Ltd. (Liquidator) v. Commissioner of Taxes, [1941] 9 I.T.R. (Suppl.) 45, 52 (P.C.) where the Privy Council approved of the passage quoted by Mr. Justice de Villiers from Mr. Ingram's work on Income-tax :

" Source means not a legal concept but something which a practical man would regard as a real source of income ; the ascertaining of the actual source is a practical hard matter of fact."

7. This quotation was referred to by a Full Bench of our court in Rani Amrit Kunwar v. Commissioner of Income-tax, [1946] 14 I.T.R. 561 (All.) [F.B.]. In that case the learned Judges considered that an agreement or an order of the court requiring the payment of a periodical sum could be regarded as a source of income. In the case of income from business, which is a separate head under Section 6, each business has been treated as a distinct source of income. The decision of the Madras High Court

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in Commissioner of Income-tax v. E.K.R. Savimiamurthy, (3) [1946] 14 I.T.R. 185 (Mad.) proceeds on that basis. In Commissioner of Income-tax v. Lady Kanchanbai, [1962] 44 I.T.R. 242 (M.P.) the Madhya Pradesh High Court observed that each branch of a business could be described, as a distinct source of income. A source of income, therefore, may be described as the spring or fount from which a clearly defined channel of income flows. It is that which by its nature and incidents constitutes a distinct and separate origin of income, capable of consideration as such in isolation from other sources of income, and which by the manner of dealing adopted by the assessee can be treated so.

Kerala High CourtCommissioner Of Income-Tax vs India Sea Foods on 24 September, 1986

Author: T V IyerBench: T K Thommen, T V Iye

23. This view of ours is fortified by the decision of the Privy Council in CIT v. Chunilal B. Mehta, [1938] 6 ITR 521, where it was observed that the list of heads

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(in Section 6 of the 1922 Act), was a list of " sources ". The same view was reiterated by the High Court of Bombay in the decision in Kusumben D. Mahadevia v. CIT, [1963] 47 ITR 214 in the following terms at page 221 :

"It thus appears that in the Act, the expression 'source ' and the expression ' heads of income' are used in one and the same sense and it means property, movable or immovable, belonging to an assessee or the activity of an assessee that yields or brings income to him, within the meaning of the Act. "

Bombay High CourtSheraton Apparels, Max ... vs Assistant Commissioner Of ... on 3 May, 2002

Equivalent citations: 2002 (5) BomCR 19, (2003) 1 BOMLR 888, 2002 256 ITR 20 Bom, 2003 (1) MhLj 302

The term "source of income" as understood in the Income-tax Act is to identify or classify income so

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as to determine under which head, out of the various heads of income referred to in Section 14 of the Act, it would fall for the purposes of computation of the total income for charging income-tax thereon.

Bombay High CourtKusumben D. Mahadevia vs Commissioner Of Income-Tax, ... on 18 September, 1961

Equivalent citations: (1961) 63 BOMLR 1011, 1963 47 ITR 214 Bom

Author: TambeBench: V Desai, Y Tambe

It thus appears that in the Act, the expression "source" and the expression "heads of income" are used in one and the same sense and it means property, movable or immovable, belonging to an assessee or the activity of an assessee that yields or brings income to him, within the meaning of the Act.

Further illuminating and guiding are sage words of Apex court in 61 ITR 428 holding that “Whether an income falls under one head or another has to be

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decided according to the common notions of practical men for the Act does not provide any guidance in the matter.”

Further Hon’ble Apex court in 273 ITR Page 1 in D.P.Sandhu Brothers has held that

“….But because we have held that   Section 45   cannot be applied, it is not open to the Department to impose tax on such capital receipt by the assessee under any other Section. This Court, as early as in 1957 had, in United Commercial Bank Ltd. V. Commissioner of Income Tax Ltd., West Bengal (1957) 32 ITR 688, held that the heads of income provided for in the Sections of the Income Tax Act, 1922 are mutually exclusive and where any item of income falls specifically under one head, it has to be charged under that head and no other. In other words, income derived from different sources falling under a specific head has to be computed for the purposes of taxation in the manner provided by the appropriate Section and no other. It has been further held by this Court in East India Housing and Land Development

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Trust Ltd. V. Commissioner of Income Tax, West Bengal (1961) 42 ITR 49 that if the income from a source falls within a specific head, the fact that it may indirectly be covered by an another head will not make the income taxable under the latter head. (See also: Commissioner of Income Tax Vs. Chugandas and Co.(1964) 55 ITR 17)…. Therefore, if the income is included under any one of the heads, it cannot be brought to tax under the residuary provisions of   Section 56 …”

More recently this is succinctly explained by Apex court in case of  Raj Dadarkar & Associates vs. ACIT [2017] 394 ITR 592 holding that “Before dealing with the respective contentions, we may state, in a summary form, scheme of the Act about the computation of the total income. Section 4 of the Act is the charging Section as per which the total income of an assessee, subject to statutory exemptions, is chargeable to tax. Section 14 of the Act enumerates five heads of income for the purpose of charge of income tax and computation of total income. These are: Salaries, Income from house property, Profits and gains of business or

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profession, Capital gains and Income from other sources. A particular income, therefore, has to be classified in one of the aforesaid heads. It is on that basis rules for computing income and permissible deductions which are contained in different provisions of the Act for each of the aforesaid heads, are to be applied. For example, provisions for computing the income from house property are contained in Sections 22 to 27 of the Act and profits and gains of business or profession are to be computed as per the provisions contained in Sections 28 to 44DB of the Act. It is also to be borne in mind that income tax is only One Tax which is levied on the sum total of the income classified and chargeable under the various heads. It is not a collection of distinct taxes levied separately on each head of the income.”

Hon’ble Gujarat High Court in the case of J.K. Chokshi vs. ACIT (T.A. No.149 of 2003) order dated 22/12/2014 held as under:-“7. Once it is established that the assessee had no other source of income at the relevant time or in the past, it can be safely concluded

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that the assessee had no other income other than income from business. Now, when the business activity of the assessee has been accepted and no other source of income is found, then there was no justification for disallowing the salary paid to Partners at Rs.4.50 Lacs. Therefore, the disallowance of Rs.4.50 Lacs granted by the A.O and confirmed by the Tribunal is erroneous and deserves to be quashed and set aside. Our view is buttressed by the principle rendered by the Calcutta High Court in the case of Md.Serajuddin & Bros.v.CIT [2012] 24 taxmann.com 46 (Cal.) In view of the above, the question no. 1 as to whether the Tribunal is right in confirming disallowance of Rs.4,50,000/- made by the Assessing Officer under Section 40(b) of the Income-tax Act, 1961 is answered in the negative in favour of the assessee and against the Revenue.”Further P&H high court in case of Dulari Digital Photo Services ... vs Commissioner Of Income Tax on 10 September, 2013 reported at 219 Taxman 126 has held that

“… The expression "income from other sources" would come into play only where income is relatable

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to a known source. Where the income is not relatable to any known or any bona fide source, it would necessarily be brought to tax or considered as income of the assessee, under Section 68 of the Act. Section 68 of the Act clearly provides that where a sum is credited in the books of assessee and the assessee is unable to offer any explanation about the nature and source thereof, or the explanation offered is not satisfactory, the sum so credited may be charged to income tax as the income of the assessee of that previous year. What is brought to tax under Chapter IV of the Act is an income from a known source, i.e., a particular source from which the income flows but the source of a particular revenue receipt cannot be pegged down to any particular source, provisions of Section 14 of the Act, particularly "income from other sources", would not apply and such income would necessarily fall under Section 68 of the Act, being unexplained cash receipts that do not fall within the definition of "income from other sources".”

Amritsar ITAT in case of The Dy. Commissioner Of Income ... vs Sh Inderjit Mehta, Bathinda on

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30 November, 2017 has held that, while explaining Kim Pharma Punjab & Haryana high court revenue favoring decision reported at 250 CTR 454:

“….To quote from 'Kim Pharma' 250 CTR 454 (supra) itself, such amounts have been held to be assessable as business income:

"In the facts of the present case, we find that assessee during the course of survey had surrendered the income as income from other sources, though a plea has been raised by the assessee that the income was surrendered as income from job work but no evidence to prove the stand of the assessee has been brought on record. The assessee had also surrendered additional income of Rs.10 lacs in assessment year 2005-06 on account of sundry credits, repairs to building and advances to staff, which being relatable to business carried on by assessee was included as income from business. However, in respect of cash found during survey, which was not reflected in the books of account, no source was declared by the assessee and in the

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absence of nature of source of cash being proved; the same is not assessable as income from business. In the circumstances, we hold the order of the CIT(A) in including the additional income as deemed income u/s 69A of the Act and not allowing the benefit of the business losses determined against the said deemed income. The grounds of appeal raised by the assessee are dismissed." 12.1 From the above finding, it is apparent that the surrender made on account of sundry credits, repairs to building and advances to staff have been held to be relatable to business, whereas only in respect of cash, it was held to be not relatable to business. Therefore, the surrender on account of stock and unexplained investment related to business, whereas the cash is not assessable as income from business.”

Refer case of J.C. Thakkar Vs. CIT [27 ITR 658 (Bom)] and the decision of the High Court of Madras in the case of H.C. Kothari and others Vs. CIT [20 ITR 579 (Mad)] in support of the proposition that if an income falls under more than one head, the assessee has the option of

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choosing the head of income which makes the burden of the assessee lighter.( Income Tax Appellate Tribunal – Mumbai Hansat Maneklal Savani, Mumbai vs Assessee on 12 December, 2013)

Taking contra view from P&H high court, Hon'ble Gujarat High Court in the case of CIT Vs. M/s Shilpa Dyeing and Printing Mills (P) Ltd.(2014) 381 DTR 381 (Guj) has held that:

“We may further notice that the decision in case of Fakir Mohmed Haji Hasan Vs. Commissioner of Income Tax (supra) came-up for consideration in case of Deputy Commissioner of Income Tax Vs. Radhe Developers Incia Ltd. and anr  (2010) 329 ITR 1 (Guj) (supra),it was observed as under:

The decisions of this Court in the case of Fakir Mohmed Haji Hasan (supra) and Krishna Textiles (supra) are neither relevant nor germane to the issue considering the fact that in none of the decisions the Legislative Scheme emanating from conjoint reading of provisions of sections 14 & 56 of the Act have been considered. The Apex Court in the case of

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D.P.Sandu Bros.Chembur P. Ltd.,(supra) has dealt with this very issue while deciding the treatment to be given to a transaction of surrender of tenancy right. The earlier decisions of the Apex Court commencing from case of United Commercial Bank Ltd.Vs. CIT (1957) 32 ITR 688 (SC) have been considered by the Apex Court and, hence, it is not necessary to repeat the same. Suffice it to state that the Act does not envisage taxing any income under any head not specified in   section 14   of the Act. In the circumstances, there is no question of trying to read any conflict in the two judgments of this Court as submitted by the learned Counsel for the Revenue.”

(Also refer Gaurish Steels Pvt. Ltd. Vs. ACIT, 43 ITR (Trib.) CHD-Trib)

Therefore in light of said principle if five heads (sources of income)are discussed in juxtaposition to section 68 to section 69D (dealing with unexplained income in form of cash credit , investment , money and expense etc) , one principle which may be inferred is that five heads normally apply when

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source of income is existing/identified like business is there, capital asset is there, house property is there , employment is there etc , and when source is missing and is inchoate and income remains anonymous in nature then possibility to invoke section 68 to section 69D may be applied . To put it simply if business income is undisclosed then source of income being business , business head should continue to apply . For example when in search and survey and other 26AS cases suppressed receipts from business are detected and thereafter when profit element which is deduced from such suppressed receipts , said profit element could not be taken u/s 68 to 69D and business head would apply to said profit element as far as nature of income is concerned. Whereas if no tangible source is available to a person and still certain unexplained income (asset) is found in hands of said person then strict liability u/s 68 to section 69D may arise.

Circular No 37 of 2016 dated 2/11/2016 which states that disallowances made while computing business income related to business activity shall enhance profits of eligible business for purposes of

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deduction under chapter VI-A may also apply in context of section 115BBE to decide whether an income falls under business head etc or under section 68 to section 69D.

2. Legislative intent behind section 115BBE may be culled out from :Budget speech of then Finance Minister Hon’ble Sh Pranab Mukherjee(March 16, 2012) “…155. I propose a series of measures to deter the generation and use of unaccounted money….. Taxation of unexplained money, credits, investments, expenditures etc., at the highest rate of 30 per cent irrespective of the slab of income..”Further, the memorandum to the Finance Bill, 2012 on Section 115BBE reads as under :-

"Under the existing provisions of the Income-tax Act, certain unexplained amounts are deemed as income under section 68, section 69, section 69A, section 69B, section 69C and section 69D of the Act and are subject to tax as per the tax rate applicable to the assessee. In case of individuals, HUF, etc., no tax is levied up to the basic exemption limit. Therefore, in

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these cases, no tax can be levied on these deemed income if the amount of such deemed income is less than the amount of basic exemption limit and even if it is higher, it is levied at the lower slab rate. In order to curb the practice of laundering of unaccounted money by taking advantage of basic exemption limit, it is proposed to tax the unexplained credits, money, investment, expenditure, etc., which has been deemed as income under section 68, section 69, section 69A, section 69B, section 69C or section 69D, at the rate of 30% (plus surcharge and cess as applicable). It is also proposed to provide that no deduction in respect of any expenditure or allowance shall be allowed to the assessee under any provision of the Act in computing deemed income under the said sections.

This amendment will take effect from 1st April, 2013 and will, accordingly, apply in relation to the assessment year 2013-14 and subsequent assessment years. [Clause 45)."

The italicized words “…to curb the practice of laundering of unaccounted money …” brings home

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the point that laundering and unaccounted money must be there to apply section 115BBE . So when laundering and unaccounted money is not there then section 115BBE may not apply on basis of purposive interpretation principle. Laundering and unaccounted money have set connotations in eyes of law and are not words of infinite scope. Further the jurisdictional condition to invoke this draconian provision (sec 115BBE) which needs to be fulfilled at the outset is provisions of section 68 to section 69D are applicable undoubtedly without which section 115BBE would remain non-starter.

This interpretation principle is in accordance with well settled interpretation principle that legislative intent has crucial role to interpret the statute as held by Hon’ble supreme Court decision in case of “

CRIMINAL APPEAL NOS.12171219 OF 2017 [Arising out of S.L.P. (Crl.) Nos. 26402642 of 2016]

Ms. Eera                                                            Through Dr. Manjula Krippendorf          ... Appellant(s)

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Versus State (Govt. of NCT of Delhi) & Anr.        …Respondent(s)

In its order dated July 21, 2017 has observed as under:

“24. It is thus clear on a reading of English, U.S., Australian and our own Supreme Court judgments that the ‘Lakshman Rekha’ has in fact been extended to move away from the strictly literal rule of interpretation back to the rule of the old English case of Heydon, where the Court must have recourse to the purpose, object, text, and context of a particular provision before arriving at a judicial result. In fact, the wheel has turned full circle. It started out by the rule as stated in 1584 in Heydon’s case, which was then waylaid by the literal interpretation rule laid down by the Privy Council and the House of Lords in the mid 1800s, and has come back to restate the rule somewhat in terms of what was most felicitously put over 400 years ago in Heydon’s case.”

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While so holding the Hon’ble Supreme Court has emphasised that “Interpretation must depend on the text and the context. They are the basis of interpretation. One may well say if the text is the texture, context is what gives the colour. Neither can be ignored. Both are important. That interpretation is best which makes the textual interpretation match the contextual”. .

In Commissioner of Income Tax, Bangalore Vs. J.H. Gotla Yadagiri AIR 1985 SC 1698 Hon’ble Apex Court propounded that though equity and taxation are often strangers, attempts should be made that these do not remain always so and if a construction results in equity rather than injustice, then such construction should be preferred to the literal construction.  In Oxford University Press v. Commissioner of Income Tax (2001) 3 SCC 359, Mohapatra, J. has opined that interpretation should serve the intent and purpose of the statutory provision.  . In that context, the learned Judge has referred to the authority in State of T.N. v. Kodaikanal Motor Union (P) Ltd. (1986) 3 SCC 91 wherein this Court after referring to K.P.

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Varghese v. ITO[ (1981) 4 SCC 173 and Luke v. IRC (1964) 54 ITR 692 has observed:-

“The courts must always seek to find out the intention of the legislature. Though the courts must find out the intention of the statute from the language used, but language more often than not is an imperfect instrument of expression of human thought. As Lord Denning said it would be idle to expect every statutory provision to be drafted with divine prescience and perfect clarity. As Judge Learned Hand said, we must not make a fortress out of dictionary but remember that statutes must have some purpose or object, whose imaginative discovery is judicial craftsmanship. We need not always cling to literalness and should seek to endeavour to avoid an unjust or absurd result. We should not make a mockery of legislation. To make sense out of an unhappily worded provision, where the purpose is apparent to the judicial eye ‘some’ violence to language is permissible.”

In Seaford Court Estates Ltd. vs. Asker [1949] 2 All ER 155 hallowed by time, outlining the duty of the

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Court to iron out the creases, it was enunciated, that whenever a statute comes up for consideration, it must be remembered that it is not within human powers to foresee the manifold sets of facts which may arise and even if it were, it is not possible to provide for them in terms free from all ambiguity, the caveat being that the English language is not an instrument of mathematical precision. It was held that in an eventuality where a Judge, believing himself to be fettered by the supposed rule that he must look to the language and nothing else, laments that the draftsmen have not provided for this or that or have been guilty of some or other ambiguity, he ought to set to work on the constructive task of finding the intention of the Parliament and that he must do this not only from the language of the statute, but also from a consideration of the social conditions which gave rise to it and of the mischief which it was passed to remedy and then he must supplement the written word so as to give “force and life” to the intention of the legislature. The Supreme Court, in the case of CIT v. Amarchand N. Shroff , administered a caution that a fiction should not be

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stretched beyond the purpose for which it was enacted. The said caution was also noticed by the Supreme Court in the case of CIT v. Ajax Products Ltd. [19651 55 ITR 741.

3. The major change in section 115BBE was brought by Taxation Laws (Second Amendment) Bill, 2016 (26/11/2016) (received assent of the President on 15/12/2016) subsequent to demonetization announcement of high denomination notes (HDN’s) ,wherein under statement of objects and reasons it was stated that “…Evasion of taxes deprives the nation of critical resources which could enable the Government to undertake anti-poverty and development programmes. It also puts a disproportionate burden on the honest taxpayers who have to bear the brunt of higher taxes to make up for the revenue leakage. As a step forward to curb black money, bank notes of existing series of denomination of the value of five hundred rupees and one thousand rupees (hereinafter referred to as specified bank notes) issued by the Reserve Bank of

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India have been ceased to be legal tender with effect from the 9th November, 2016. 2. Concerns have been raised that some of the existing provisions of the Income-tax Act, 1961 could possibly be used for concealing black money. It is, therefore, important that the Government amends the Act to plug these loopholes as early as possible so as to prevent misuse of the provisions. The Taxation Laws (Second Amendment) Bill, 2016, proposes to make some changes in the Act to ensure that defaulting assessees are subjected to tax at a higher rate and stringent penalty provision….” In the press release dated 1/12/2016 it was clarified by CBDT that “…It is hereby clarified that the above Bill has not introduced any new provision regarding chargeability of tax on jewellery. The Bill only seeks to enhance the applicable tax rate under section 115BBE of the Income-tax Act,

1961 (the Act) from existing 30% to 60% plus surcharge of 25% and cess thereon.This section only provides rate of tax to be charged in case of unexplained investment in assets.

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The chargeability of these assets as income is governed by the provisions of section 69, 69A & 69B which are part of the Act since 1960s. The Bill does not seek to amend the provisions of these sections. Tax rate under section 115BBE is proposed to be increased only for unexplained income as there were reports that the tax evaders are trying to include their undisclosed income in the return of income as business income or income from other sources. The provisions of section 115BBE apply mainly in those cases where assets or cash etc. are sought to be declared as ‘unexplained cash or asset’ or where it is hidden as unsubstantiated business income, and the Assessing Officer detects it as such….”

Above press release makes it amply clear that aforesaid change made in 2016 has no where changed the basic corpus of the provision (Sec 115BBE) which is attracted only when section 68 to section 69D are applicable ,and no change is made in provisions of section 68 to section 69D either by 27 | P a g e

amendment bill of 2016 nor by section 115BBE. So sans section 68 to section 69D , section 115BBE can not be invoked. Further it clarifies that amendment bill only increases the tax rate without anything more. Moreover, it notably clarifies that section 115BBE has restricted applicability to “unexplained investment in asset” or “unexplained cash or asset”. The fear and apprehension in minds of assesses carrying real business gets addressed by press release when it says that only hidden “unsubstantiated” business income as “detected” by AO shall come under purview of section 115BBE . Therefore when business income is substantiated by surrounding circumstances and material available on record (like assessee is regularly and consistently showing business income and is maintaining books of account etc for business, and is registered with other govt agencies like VAT and Service tax , running infrastructure etc) then no adverse inference u/s 115BBE may be possible.

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4. Some real life and practical case studies which may help us to understand this lethal provision in more better way are taken up in this section of the Article:

4.1 An assessee is there who is carrying on business of sale of diamonds. He is surveyed by income tax department u/s 133A of the Act. During survey he surrenders explicitly that out of business he has earned excess stock of Rs 10 lacs and excess investment of Rs 10 lacs. Total surrender made is Rs 20 lacs. Following questions can arise from this:

i) Whether such surrender of excess stock or investment from business activity can fall u/s 68 to 69D read with section 115BBE or it shall be treated as business nature income ?

ii) If assessee surrenders it in return of income u/s 139(1) whether penalty u/s 270A or (section 271(1)(c)) can be levied ?

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Apropos first part of the case study (i) above, direct answer to this can be found from:

Income Tax Appellate Tribunal - MumbaiAcit Cen Cir 13, Mumbai vs Rahil Agencies, Mumbai on 23 November, 2016

“19. We have considered rival contentions and found that by applying provisions of Section 115BBE the AO has declined set off of business loss against income declared during the course of survey/search. The provisions of Section 115BE are applicable on the income taxable under section 68, 69, 69A, 69B, 69C or 69D of the Act. The income declared by the assessee is unrecorded stock of diamond found during the course of search. The assessee is in the business of diamond trade and such stock was part of the business affair of the company. Therefore since income declared is in the nature of business income, the same is not taxable under any of the section referred above and accordingly   section 115BBE   has no application in case.”

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Further as discussed in preceding portion of the paper, when income can fall under more than one head (here business head or section 68 to section 69D/115BBE) then assessee may opt for the provision which keeps his burden lighter (business head). Further if there are two views whether section 115BBE can be applied or not, as settled, view favoring assessee/taxpayer would be adopted. Here there can be myriad of surrenders made by assessee qua business activity. For example surrender made on basis of loose slip which is like jotting/scribbling /rough noting treating it as unexplained advances etc whether section 68 to section 69D can be applied r.w.s 115BBE? Answer should be no when one keeps in mind the ratio of Apex court ruling in Common cause case reported at 394 ITR 220 . That is if addition per se on basis of loose documents stands on weaker footing, and its tenability can be seriously contested, then to apply draconian provision of section 115BBE by casually and routinely taking recourse to section 68 to section 69D, to such doubtful and

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debatable inchoate income would lead to absurd and anomalous results. Therefore in authors opinion, even when assessee accepts certain addition to income loosely assessed u/s 68 to section 69D, to honor the surrender made u/s 133A etc, then also AO has got all rights to see whether conditions to apply section 115BBE are scrupulously satisfied or not. If slightest of doubt exist as to the applicability of the conditions which are sine qua non/indispensable to attract section 115BBE, then section 115BBE may not be applied.

Further, regarding approach to be adopted by revenue authorities u/s 68, it maybe

useful to make reference to full bench decision of P&H high court reported at 382

ITR 453:

The Hon'ble Punjab & Haryana High Court in a recent judgement in the case of

CIT vs Jawaharlal Oswal and Others (I.T.A. No. 49 of 1999, Judgment delivered

on 29.01.2016) dismissed the Department’s appeal by holding that suspicion and

doubt may be the starting point of an investigation but cannot, at the final stage of

assessment, take the place of relevant facts, particularly when deeming provision is

sought to be invoked. The Hon’ble Court has observed ,

“...The principle that governs a deeming provision is that the initial

onus

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lies upon the revenue to raise a prima facie doubt on the basis of

credible material. The onus, thereafter, shifts to the assessee to

prove that the gift is genuine and if the assessee is unable to

proffer a credible explanation, the Assessing Officer may

legitimately raise an inference against the assessee. If, however,

the assessee furnishes all relevant facts within his knowledge and

offers a credible explanation, the onus reverts to the revenue to

prove that these facts are not correct. The revenue cannot draw an

inference based upon suspicion or doubt or perceptions of

culpability or on the quantum of the amount, involved particularly

when the question is one of taxation, under a deeming provision.

Thus, neither suspicion/doubt, nor the quantum shall determine

the exercise of jurisdiction by the Assessing Officer…. Further a

deeming provision requires the Assessing Officer to collect relevant

facts and then confront the assessee, who is thereafter, required to

explain incriminating facts and in case he fails to proffer a credible

information, the Assessing Officer may validly raise an inference of

deemed income under section 69-A. As already held, if the

assessee proffers an explanation and discloses all relevant facts

within his knowledge, the onus reverts to the revenue to adduce

evidence and only thereafter, may an inference be raised, based

upon relevant facts, by invoking the deeming provisions of Section

69-A of the Act. It is true that inferences and presumptions are

integral to an adjudicatory process but cannot by themselves be

raised to the status of substantial evidence or evidence sufficient

to raise an inference . A deeming provision, thus, enables the revenue

to raise an inference against an assessee on the basis of

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tangible material and not on mere suspicion, conjectures or

perceptions”

Apropos second part of the case study (ii) above, in author opinion, as per various precedents like Delhi high court in Neeraj Jindal 393 ITR Page 1 and SAS Pharmaceuticals etc , normal penalty u/s 270A (or section 271(1)(c)) etc may not be leviable once surrendered amount during survey is voluntarily reflected in return u/s 139(1).

4.2 An assessee is filing return on presumptive basis of his business/profession u/s 44AD/Sec 44ADA . Cash sales and receipts are declared on which profit is offered as per applicable rates prescribed under resp. provisions of sec 44AD/44ADA. During assessment , Assessing officer is not satisfied on genuineness of cash sales etc and assess them accordingly in section 68 to section 69 read with section 115BBE . Whether AO’s action is correct.

Firstly, receipts and sales even though cash, directly cannot be bodily lifted to section 68 as assessee has already offered profit on the same

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in presumptive income provision by which receipts stand offered for taxation and therefore section 68 applicability stands ruled out as it would amount to double taxation etc.(refer Gujarat high court in Vishal exports (3/07/2012) in Tax Appeal no 2471/2009).

Otherwise also , in worst case scenario, since sales and receipts per se are not income u/s 4 which is charging provision under the Act and only income can be considered , at best AO could make best judgment assessment u/s 144 read with section 145 and then also he is to make the assessment considering material on records whereby he can assess only income earned by assessee. By this route also, he would be required to make reasonable assessment. If assessee has already shown reasonable income, scope of further additions gets mitigated. It is settled law that under best judgment assessment it is not necessary that some additions are made. Here also by simply making best judgment assessment nature

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and character of income would not get altered.

To say that entire cash sales and receipts are income of assessee u/s 68 of the Act dehors section 44AD/44ADA, would come in the teeth of observations of Apex court in Maxopp case (supra) which says only net income can be considered under the Act.

4.3 If an assessee has earned income from trading of commodity derivative on recognized commodity exchange , which is established by documentary evidences like broker contract note etc can said income be treated as unexplained income u/s 68 to 69d so as to trigger section 115BBE? Since documentary evidences are of impeccable character, to lightheartedly apply section 68 etc r.w.s 115BBE to such income which is fully substantiated , may not pass muster of law.

Answer: Refer: T&AP high court decision in case of Pendurthi Chandrashekhar (order dated 23/02/2018) “…. Despite the availability of overwhelming and unimpeachable

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documentary evidence, the AO was not prepared to accept the same, as his approach appeared to be loaded with prejudice, suspicion and pre-determined mind and preconceived notions. The whole approach of the AO appears to be some how reject the every explanation of the assessee and the evidence produced in support of such explanation, by assigning reasons which are wholly imaginary and perverse. ….While the authorities are entitled to examine each transaction minutely, they cannot approach every transaction with undue suspicion by wearing coloured glasses. The approach of the AO reminds us of somebody describing a lamb as a dog and trying to make everyone to believe it to be so….”

Jaipur ITAT , ITA No. 431 & 432/JP/2016 , M/s Choice Buildestate Pvt. Ltd., Jaipur vs. ITO, Jaipur

Order dated 28/03/2018

“… If the Assessing Officer harbours any doubts of the legitimacy of any subscription he is empowered, nay duty-bound, to carry out thorough investigations. But if the Assessing Officer fails to unearth any wrong or illegal dealings, he cannot obdurately adhere to his

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suspicions and treat the subscribed capital as the undisclosed income of the Company. We therefore agree with the contentions of the ld AR that in absence of any falsity which have been found in the documents so submitted by the assessee company to prove the identity, creditworthiness and genuineness of the share transaction, these documents cannot be summarily rejected as has been done by the AO in the instant case. ..”

4.4 If an assessee is filing return showing tuition income from past many years which is never disturbed and contradicted and post section 115BBE , ld AO tries to apply section 68 to 69D to said tuition income alleging it to be laundering of unaccounted money to get basic exemption benefit etc whether such attempt is lawful? As per legislative intent burden to apply section 115BBE and section 68 to section 69D rest on revenue shoulder. That burden cannot be discharged on basis of assumption and presumption only. For that cogent material is to be brought on records by necessary enquiry and examination. Sans cogent material, suggested straight application of section 115BBE and sec 68 to sec 69D treating tuition income as unexplained in nature may be defeated by consistency principle:

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a. 394 ITR 449 SC Godrej case Sec.14Ab. 388 ITR 1 SC (first year relevance u/s 35D)c. 358 ITR 295 (SC) Excel Indsutries cased. 106 ITR 1 (SC) Parshuram Potteriese. 193 ITR 321 (Radhaswami Satsang) SC

4.5 Can section 115BBE be applied in summary manner u/s 143(1) processing? Answer is emphatic no because it is highly contentious and moot issue.

4.6 To apply section 115BBE whether CIT can initiate revision proceedings u/s 263 which is missed by AO? Since section 263 uses the expression erroneous and prejudicial to interest of revenue, if on applicability of section 115BBE two views are possible, revision u/s 263 by CIT may not sustain in law.

5. Conclusion of the paper

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From aforesaid discussion following principles emerge:

i) Since section 68 to section 69D are discretionary in nature and section 115BBE is dependent on section 68 to section 69D said discretion has be exercised with extreme care and caution;

ii) “Laundering” of “unaccounted money” is to be seen as per legislative intent;

iii) Benefit of doubt should go to favor of taxpayer;iv) “Source” of income must be seen pragmatically

and not pedantically;v) Section 115BBE can not be applied in routine

and ordinary manner unless exceptional facts are there;

vi) Sales and receipts which are already offered for taxation under presumptive scheme etc by offering profit element therein, it may not be available for assessment u/s 68 as unexplained cash credit;

vii) Section 115BBE cannot be viewed as a tool to generate more revenue and is in nature of deterrent provision

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viii) All surrendered income during survey and search cannot be domiciled ipso facto in section 68 to section 69D read with section 115BBE without making holistic consideration of obtaining factual position specially business activity related income may not ordinarily get placed u/s 68 to section 69D

Closing Note

Hon'ble Supreme Court in the case of Krishena Kumar & Ors. V/s. Union of

India & Ors., AIR 1990 SC 1782.

“29. The argument of Mr. Shanti Bhushan is that the State's obligation

towards pension retirees is the same as that towards P.F. retirees. That

may be morally so. But that was not the ratio decidendi of Nakara.

Legislation has not said so. To say so legally would amount to

legislation by enlarging the circumference of the obligation and

converting a moral obligation into a legal obligation. It reminds us of

the distinction between law and morality and limits which separate

morals from legislation. Bentham in his Theory of Legislation, Chapter

XII, page 60 said:

“Morality in general is the art of directing the actions of men

in such a way as to produce the greatest possible sum of good.

Legislation ought to have precisely the same object. But although these

two arts, or rather sciences, have the same end, they differ greatly in

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extent. All actions, whether public or private, fall under the jurisdiction

of morals. It is a guide which leads the individual, as it were, by the hand

through all the details of his life, all his relations with his fellows.

Legislation cannot do this; and, if it could, it ought not to exercise a

continual interference and dictation over theconduct of men. Morality

commands each individual to do all that is advantageous to the

community, his own personal advantage included. But there are many

acts useful to the

community which legislation ought not to command. There

are also many injurious actions which it ought not to forbid, although

morality does so. In a word legislation has the same center with morals,

but it has not the same circumference.”

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