DETERMINATION OF INCOME TAX UNDER SECTION 115BBE OF INCOME TAX ACT, 1961

[Mr. M. GOVINDARAJAN]

Section 115BBE

Section 115BBE of Income Tax Act, 1961 (‘Act’ for short) provides the procedure for determination of tax on income under section 68 of 69 or section 69A or section 69B or Section 69C or Section 69D.

Section 115BBE (1) provides that where the total income of an assessee,-

1. includes any income referred to in section 68, section 69, section 69A, section 69B, section 69C or section 69D and reflected in the return of income furnished under section 139; or
2. determined by the Assessing Officer includes any income referred to in section 68, section 69, section 69A, section 69B, section 69C or section 69D, if such income is not covered under clause (a),

the income-tax payable shall be the aggregate of-

1. the amount of income-tax calculated on the income referred to in clause (a) and clause (b), at the rate of 60%; and
2. the amount of income-tax with which the assessee would have been chargeable had his total income been reduced by the amount of income referred to in clause (i).

Section 115BBE (2) provides that no deduction in respect of any expenditure or allowance or set off of any loss shall be allowed to the assessee under any provision of this Act in computing his income referred to in clause (a) and clause (b) of sub-section (1).

Section 68 – Cash credits

Section 68 of the Act provides that where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year.

In M/S ADMIRE REALTORS PRIVATE LTD. VERSUS DCIT, CENTRAL CIRCLE, VARANASI, U.P. - 2022 (8) TMI 1274 - ITAT VARANASI, the assessee is a Private Limited Company and has claimed to be engaged in construction and other ancillary and related activities and it claimed to have derived income under the head business and profession.  The Assessing Officer observed during course of assessment proceedings that for all the assessment years from 2011-12 to 2016-17, the assessee had not offered income to the scale offered in AY 2017-18. Since there was a sudden rise in income which was found to be disproportionate to income offered in earlier years as compared to impugned AY 2017-18 which is the year of demonetization, the AO asked assessee to provide justification for the cash deposits made during demonetization period.  The Assessee informed that the said income has come from the consultancy services.   The AO held that the consultancy receipt of Rs. 8,29,500/- shown by assessee is unexplained cash credit u/s. 68 of the 1961 Act, and is to be taxed @60% by invoking provisions of Section 115BBE of the 1961 Act.  The appeal was also dismissed.  The assessee filed appeal before ITAT.

The ITAT held that the assessee has failed to justify that consultancy income claimed by it to have earned during the year under consideration was genuine consultancy income earned by it, and rather the assessee has converted unaccounted and undisclosed cash under the garb of alleged consultancy income and we hold that no such consultancy services were rendered by the assessee.  The Assessee failed to provide identity and creditworthiness of the persons giving cash to it towards alleged consultancy services and genuineness of the transaction could also not been proved by the assessee.  The entire transaction of consultancy income was coloring device adopted by assessee to give legitimacy to its unaccounted and undisclosed cash/money/income by depositing cash in bank during demonetization period, to avoid old demonetized bank notes held by it from becoming valueless as legal character of old bank notes of denomination of Rs. 500 and Rs. 1000 were withdrawn, owing to demonetization announced on 08th November, 2016.

The ITAT held that both the authorities have passed well reasoned, detailed and speaking order, and we are not inclined to interfere with the orders passed by authorities below, and we confirm the appellate order passed by ld. CIT(A).

Section 69 – Unexplained investments

Section 69 of the Act provides that where in the financial year immediately preceding the assessment year the assessee has made investments which are not recorded in the books of account, if any, maintained by him for any source of income, and the assessee offers no explanation about the nature and source of the investments or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the value of the investments may be deemed to be the income of the assessee of such financial year.

In MR. SHANMUGAM ETHIRAJ VERSUS THE INCOME TAX OFFICER, NON-CORPORATE WARD-1 (4) , CHENNAI - 2022 (5) TMI 733 - ITAT CHENNAI the assessee has withdrawn cash to the tune of Rs.2,19,59,800/- and made cash deposit to the tune of Rs.1,17,38,500/- into City Union Bank account during the relevant financial year. The Assessing Officer never disputed fact that cash withdrawal from bank account is higher than amount of cash deposited into bank account. ITAT held that  then the A.O. ought not to have made additions under section 69 towards cash deposits into bank account only for the reason that there is time gap of more than 3 to 5 days between cash withdrawal and cash deposits from very same bank account. It was not the case of the Assessing Officer that cash withdrawal from bank account on earlier occasion had been spent by the assessee or used for some other purposes. In absence of any finding contrary to explanation of the assessee that cash deposits into bank account is out of withdrawal from earlier occasion cannot be disregarded. The learned CIT(A), without appreciating above facts has simply confirmed additions made by the Assessing Officer. Hence, ITAT reversed the  findings of the learned CIT(A) and direct the Assessing Officer to delete additions made towards cash deposits into City Union Bank account u/s.69 of the Income Tax Act, 1961.

Section 69A – Unexplained money etc.

Section 69A of the Act provides that where in any financial year the assessee is found to be the owner of any money, bullion, jewellery or other valuable article and such money, bullion, jewellery or valuable article is not recorded in the books of account, if any, maintained by him for any source of income, and the assessee offers no explanation about the nature and source of acquisition of the money, bullion, jewellery or other valuable article, or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the money and the value of the bullion, jewellery or other valuable article may be deemed to be the income of the assessee for such financial year.

In INCOME TAX OFFICER (INTERNATIONAL TAXATION) , VIJAYAWADA VERSUS SRI RAVI SURYADEVARA, GUNTUR. - 2022 (7) TMI 793 - ITAT VISAKHAPATNAM, the assessee being a Non-Resident Indian sold along with his daughter agricultural lands during the AY 2017-18 for a recorded consideration of Rs. 92,47,500/-.  The Department was of the view that it was only 50% of the sale consideration and the remaining 50% of the sale consideration was received by way of cash.  AO treated the cash credits as unexplained money in terms of provisions of section 69A and accordingly proposed to assessee the same U/s. 115BBE.  AO has observed that the accumulated cash must have been used for some other specified purpose and would have exhausted.  The assessee contended that that the amount was withdrawn for purchasing of some land and consequent to announcement of demonetization the amount was again redeposited in the bank account by the assessee.  But no documentary evidences were produced by the assessee to substantiate the same.

The ITAT observed that the assessee being an NRI, these cash withdrawals and deposits were made by the relatives of the assessee. The Ld. AR has also not clearly demonstrated with evidences that the withdrawals by assessee is for buying of agricultural lands. The Ld. AR also failed to furnish any explanation of withdrawals of Rs. 25 lakhs on 20/09/2016 & Rs. 50 lakhs on 17/10/2016 when already the assessee/relatives of the assessee are holding Rs. 95 lakhs cash on 1/9/2016.   In the absence of any cogent evidences, establishing the purpose of withdrawals, ITAT allowed a sum of Rs. 25 lakhs deposited on 16/11/2016 being the first deposit by the assessee consequent to demonetization.

Section 69B – Investments not disclosed in the book

Section 69B of the Act provides that where in any financial year the assessee has made investments or is found to be the owner of any bullion, jewellery or other valuable article, and the Assessing Officer finds that the amount expended on making such investments or in acquiring such bullion, jewellery or other valuable article exceeds the amount recorded in this behalf in the books of account maintained by the assessee for any source of income, and the assessee offers no explanation about such excess amount or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the excess amount may be deemed to be the income of the assessee for such financial year.

Section 69C – Unexplained expenditure

Section 69C of the Act provides that where in any financial year an assessee has incurred any expenditure and he offers no explanation about the source of such expenditure or part thereof, or the explanation, if any, offered by him is not, in the opinion of the Assessing Officer, satisfactory, the amount covered by such expenditure or part thereof, as the case may be, may be deemed to be the income of the assessee for such financial year.  Such unexplained expenditure which is deemed to be the income of the assessee shall not be allowed as a deduction under any head of income.

In RAGAVS DIAGNOSTIC & RESEARCH CENTRE PVT. LTD. VERSUS THE ASSISTANT COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE 2 (4) , BANGALORE - 2022 (9) TMI 584 - ITAT BANGALORE, the ITAT held that when an assessee offers no explanation or the explanation offered is not satisfactory in the opinion of the AO, then the amount of such expenditure is to be taxed as income u/s. 69C of the Act. The satisfaction to be recorded by the AO should not be objective satisfaction exercised at his discretion, but a subjective satisfaction based on the facts of the case. It would then mean that justification for exercise of the power has to be found by the authority by making a subjective satisfaction on the basis of objective material and such satisfaction must be reflected in the reasons recorded in writing while exercising the power.

In the present case, the assessee is in the business of running a diagnostic centre and the only source of income is the receipts from patients which are stated to be the source for unexplained expenditure. That being the case the AO has not brought any contrary material on record to state that the source for the expenditure was other than from business income and has formed the opinion based on conjectures and surmises. While exercising the quasi-judicial functions, the administrative authorities have to reach satisfaction on the basis of material available and not on conjectures and surmises. The test of reasonableness has to be satisfied which in our view failed in the case under consideration. Therefore, ITAT was of the view that the additional income offered cannot be taxed u/s. 115BBE and delete the impugned addition. Accordingly the assessee is allowed to set off the current year loss against the additional income offered to tax as business income..

Section 69D – Amount borrowed or repaid on hundi

Section 69D provides that where any amount is borrowed on a hundi from, or any amount due thereon is repaid to, any person otherwise than through an account payee cheque drawn on a bank, the amount so borrowed or repaid shall be deemed to be the income of the person borrowing or repaying the amount aforesaid for the previous year in which the amount was borrowed or repaid, as the case may be.   If in any case any amount borrowed on a hundi has been deemed under the provisions of this section to be the income of any person, such person shall not be liable to be assessed again in respect of such amount under the provisions of this section on repayment of such amount.

Case laws

Presumptive income

The assessee is not supposed to maintain books of accounts, since the Return is filed as per the provisions of Section 44AD of the Act. Such income cannot be added and taxed under Section 115BBE of the Act.

In MILIND MANGILAL JAIN VERSUS ITO, WARD-1 (2) , JALGAON - 2022 (9) TMI 1093 - ITAT PUNE, the assessee has been regularly engaged in the jewellery business.  He has declared revenue of Rs.62.03 lakh for the year under consideration under Section 44AD.  The Assessing Officer observed that the assessee had maintained two bank accounts with HDFC Bank Ltd.   On being called upon to explain as to why the amounts of Rs.53,69,000/- and Rs.42,92,500/- deposited in these two bank accounts be not added to the total income, the assessee submitted that these accounts were used for making purchases of jewellery from Amritsar and Mumbai.  Unconvinced, the AO treated the entire deposits in these two bank accounts totaling to Rs.96,61,500/- as the assessee’s unexplained income and charged the same to tax under section 115BBE of the Act.  The Appellate Tribunal held that once the assessee has declared his income under section 44AD and it is a no-account case, the AO cannot resort to the balance sheet filed by the assessee during the course of assessment proceedings to pick up the item of inventory of gold and make addition for the same. If that be the logic, then the AO will end up making addition for all the items of assets shown in the balance sheet, which is unfounded. Therefore the ITAT  ordered to delete the addition.

Reasonable opportunity

In any litigation observing the principles of Natural Justice is mandatory.  It is also applicable to income tax matter.  The assessee is also expected to attend the hearing or produce documents as required by the Department.  Otherwise he cannot claim that the Department has not comply with the principles of Natural Justice.

In DHARMIN N THAKKAR (HUF) VERSUS THE INCOME-TAX OFFICER, WARD-4 (2) (1) , AHMEDABAD - 2022 (8) TMI 355 - ITAT AHMEDABAD, the ITAT held that It is seen from the appellate order though five opportunities were given by the NFAC from April, 2021 to November, 2021. The assessee does not dispute the above hearing dates, however not filed any submissions before NFAC and now claiming before us violation of principles of natural justice. The assessee could not produce before us any valid reasons for non appearance of the assessee, before the NFAC which was only National Faceless Appellate proceeding.    The assessee could not demonstrate the reasons for non appearance on the hearing dates by NFAC before deciding the appeal. So we do not find any merit in the grounds raised by the assessee. The same is hereby rejected.

Additional evidence

In ATUL DUSHYANT LALL VERSUS INCOME TAX OFFICER, WARD-34 (1) (2) MUMBAI - 2022 (7) TMI 216 - ITAT MUMBAI the assessee, an individual, has filed his return of income for the year under consideration on 27.08.2018, declaring total income at Rs. 37,98,870. Thereafter, the assessee revised the said return of income on 02.05.2019, pursuant to notice issued under section 139(9) of the Act issued on 05.04.2019. In the return the assessee enhanced his income of Rs. 4,10,040 under the head ‘income from other sources’ chargeable under normal rates and Rs. 12,20,035 under the head ‘income from other sources’ chargeable under special rate other than section 115BBE of the Act. The Assessing Officer accepted the revised return but added income under Section 115BBE to the tune of Rs.12,20,035/-.  The Appellate Authority also dismissed the appeal filed by the assessee against the order of the Assessing Officer. 

The ITAT observed that the documents, now furnished are by way of additional evidence, that could not be filed by the assessee before the lower authorities and the impugned addition was made in absence of these details.  The appellant sought admission of additional evidence and prayed for remanding this matter to the file of Assessing Officer for de novo adjudication.  Therefore ITAT remanded the matter to the file of Assessing Officer for de novo adjudication after consideration of all details, as submitted by the assessee.

Set off business losses

In M/S SABER PAPER LTD. VERSUS THE DCIT, CENTRAL CIRCLE-II, LUDHIANA AND THE ACIT, CENTRAL CIRCLE-II, LUDHIANA VERSUS M/S SABER PAPER LTD. - 2020 (6) TMI 132 - ITAT CHANDIGARH, it is clarified by  the CBDT Circular No.11 of 2019 whereby the CBDT has clarified that an assessee will be entitled to set off of losses against income determined u/s 115BBE of the Act till assessment year 2016-17.  The ITAT observed that The assessment years involved in these appeals being 2012-13 & 2013-14, therefore, the assessee is accordingly entitled to set off of current year losses against deemed income.  ITAT held that set off losses against the addition of income under Section 115BBE is eligible to the assessee.  The ITAT allowed the appeal filed by the appellant.