Taxpayer Cannot Dispute Taxability of Income Admitted in Return After 14 Months of Survey: Karnataka HC [Read Order]

In a recent ruling, the Karnataka High Court dismissed the appeal filed by the assessee and held that a taxpayer cannot dispute the taxability of income voluntarily admitted in the return nearly 14 months after a survey.

The case arose after a survey under Section 133A of the Income Tax Act was conducted on 27.09.2016 at the premises of the appellant Shri Narayan Rao Hebri, who is engaged in real estate business. After the survey by a letter, the assessee offered Rs. 1,14,20,100 as additional income for Assessment Year 2017–18. Later, the assessee filed his return of income declaring total income of Rs. 1,91,25,040, which included the said additional income, and tax was paid on it.

Read More: Need to Restore an Old PAN? Here’s What the Madras HC Directedthe Income Tax Dept to Do [Read Order]

The case was selected for limited scrutiny to verify a cash payment of Rs. 24,00,000 made during the demonetization period. The Assessing Officer treated the said Rs. 24,00,000 as unexplained cash and also taxed Rs. 1,14,20,100 under Section 115BBE at the rate of 60%. The assessment order was passed.

The assessee filed an appeal before the Commissioner of Income Tax (Appeals). Before the CIT(A), the assessee challenged the addition of Rs. 24,00,000 and also questioned the application of Section 115BBE on the additional income. The CIT(A) dismissed the appeal and confirmed the assessment.

The assessee then approached the Income Tax Appellate Tribunal. Before the Tribunal, the assessee argued that the additional income of Rs. 1,14,20,100 was offered only on the basis of a statement recorded during survey and without any incriminating material.

They also argued that the income was admitted under coercion. The Tribunal deleted the addition of Rs. 24,00,000 but upheld the taxation of Rs. 1,14,20,100, holding that the income was voluntarily offered and declared in the return.

The matter was carried to the High Court. A Division Bench comprising Justice S.G. Pandit and Justice K.V. Aravind observed that the assessee had voluntarily offered the additional income by letter and had included it in the return filed.

Read More: Charging Franchise Fee by Educational Society is IncidentalActivity, Not Commercial Venture: Delhi HC [Read Order]

The court observed that the return was filed nearly 14 months after the survey and that the assessee neither retracted the letter nor revised the return under Section 139(5). The court explained that if the assessee believed that the income was wrongly offered, the Act provides remedies such as revising the return. However, no such step was taken.

The court also observed that before the Assessing Officer and the CIT(A), the assessee did not challenge the taxability of the additional income but only questioned the rate of tax under Section 115BBE. The tribunal pointed out that the plea of non-taxability was raised for the first time before the Tribunal and that such an issue involved mixed questions of fact and law. In the absence of foundational facts on record, the Tribunal was justified in rejecting the contention.

The court further observed that in case of admitted income declared in the return, the burden is not on the Assessing Officer to prove its evidentiary basis. The assessee consciously declared the income and tax was paid. The court found it difficult to accept that coercion continued even at the time of filing the return after a long gap.

In view of these findings, the High Court held that no substantial question of law arose for consideration and dismissed the appeal. It upheld the Tribunal's order insofar as it confirmed the taxability of Rs. 1,14,20,100.

Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates