Facts of the Case

The assessee was engaged in the business of trading in liquor, Ayurvedic medicines, kirana and other goods. A survey under section 133A was conducted on 18.01.2018, during which incriminating documents relating to purchase of immovable property were found. The assessee admitted that the actual purchase consideration of a property at M.G. Marg, Allahabad was ₹3 crore, whereas only ₹1.15 crore was recorded in the registered sale deed.

Out of the total consideration, an amount of ₹1.85 crore was not recorded in the books of accounts nor disclosed in the return of income for AY 2018-19. Though the assessee admitted the undisclosed investment during survey, the amount was not incorporated in the audited accounts or return of income. Tax on the said amount was paid later, after the case was selected for scrutiny.

The Assessing Officer treated the undisclosed investment as unexplained under section 69/69B and taxed it at the special rate under section 115BBE. Further, rental income from two properties let out on a day-to-day basis to pilgrims was treated as business income, and certain sundry creditors were added under section 68.

 

Issues Involved

  1. Whether undisclosed investment admitted during survey but not recorded in books or return attracts section 69/69B.
  2. Whether subsequent payment of tax absolves the assessee from taxation under section 115BBE.
  3. Whether merely stating the head of income constitutes a valid explanation of source under section 69.
  4. Whether income from daily letting of properties constitutes business income or income from house property.
  5. Whether depreciation is allowable when rental income is assessed as business income.
  6. Whether addition under section 68 for sundry creditors was justified.

 

Petitioner’s Arguments

The assessee contended that the omission to include ₹1.85 crore in the return was inadvertent and that tax on the said amount had been paid suo-motu before issuance of notice under section 142(1). It was argued that once tax was paid, the amount ceased to be undisclosed and section 69 could not be invoked. The assessee further contended that absence of mala fide intent and voluntary disclosure should exclude application of section 115BBE.

On rental income, it was argued that properties were acquired as investments and merely letting them out to pilgrims would not convert rental income into business income. Alternatively, depreciation under section 32 was claimed. For section 68 additions, it was submitted that sundry creditors were genuine and subsequently repaid.

 

Respondent’s Arguments

The Revenue argued that the undisclosed investment was detected during survey from third-party evidence and was not voluntarily disclosed. The assessee neither recorded the investment in books nor paid advance or self-assessment tax prior to scrutiny. Reliance was placed on the Supreme Court judgment in MAK Data Pvt. Ltd. v. CIT, holding that voluntary disclosure after detection does not absolve an assessee from statutory consequences.

It was contended that explaining the “head of income” does not amount to explaining the “source” of investment under section 69. Since the assessee failed to explain how and when the income was generated, section 69/69B and section 115BBE were rightly applied.

 

Court Order / Findings

The ITAT Allahabad held that once incriminating material is unearthed during survey and an investment is found unrecorded or partly recorded in books, the provisions of sections 69/69B are attracted, even if the assessee later includes the amount in income or pays tax. The Tribunal categorically held that:

  • Subsequent payment of tax does not remove the applicability of section 69.
  • To escape section 69, the assessee must explain how the income was generated and in which year, not merely the head of income.
  • Section 115BBE applies mandatorily once section 69/69B is invoked.

The Tribunal relied extensively on the Supreme Court ruling in MAK Data Pvt. Ltd. v. CIT, holding that disclosure after detection lacks bona fides and does not protect the assessee from penal taxation. The addition of ₹1.85 crore under section 69/69B and taxation under section 115BBE was upheld.

 

Important Clarification

The Tribunal clarified that disclosure must be complete, timely, and accompanied by proper explanation of source and year of accrual to escape the rigours of section 69. Merely paying tax after scrutiny or claiming inadvertent omission is insufficient.

On rental income, the Tribunal held that daily letting with managerial services constitutes a systematic commercial activity, taxable as business income. However, depreciation under section 32 was directed to be allowed. The issue of sundry creditors under section 68 was restored to the Assessing Officer for verification, and relief was granted for statistical purposes.

Link to download the order -  https://www.mytaxexpert.co.in/uploads/1770878635_RAJESHKUMARJAISWALALLAHABADVS.DEPUTYACITCENTRALALLAHABAD2.pdf  

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