No Unaccounted Assets Or Investments Found: Delhi High Court Rejects Revenue's Plea For Higher Tax

The Delhi High Court has dismissed an appeal filed by the Income Tax Department seeking to levy tax at a higher rate under Section 115BBE of the Income Tax Act, 1961, holding that neither the Assessing Officer nor the Principal Commissioner of Income Tax had recorded any finding regarding the existence of undisclosed or unaccounted assets or investments.

The Division Bench of Justices Dinesh Mehta and Rajneesh Kumar Gupta upheld the ITAT order, observing that in the absence of unexplained investments, the very applicability of Section 69 was “out of question”. Consequently, the higher tax rate under Section 115BBE could not be invoked either.

Section 69 of the Income Tax Act deals with unexplained investments. It permits such investments to be treated as the assessee's income where the assessee has made investments not recorded in the books of account and offers no satisfactory explanation regarding their nature and source.

Section 115BBE, in turn, provides for a higher tax rate on income referred to in Section 69.

Revenue had challenged ITAT order which had allowed the assessee's appeal against an order passed by the Principal Commissioner under Section 263 of the Act. The Commissioner had directed the Assessing Officer to levy tax at a higher rate on additions of Rs. 3.75 crore towards unexplained investments and receivables under Section 69 read with Section 115BBE for the assessment year 2018-19.

Before ITAT, the assessee had contended that the additions were essentially in the nature of business income and could not have been brought to tax under Section 69.

Accepting this contention, ITAT held that the additions in question were business income.

Assailing the Tribunal's decision, the Revenue argued that excess stock and undisclosed cash had been found during the course of a search and, therefore, the Commissioner was justified in directing the levy of tax at a higher rate under Section 115BBE.

However, the assessee pointed out that there was no evidence to show that any cash or excess stock had been found. Rather, the Assessing Officer had found a shortage of stock, and the Revenue's case was therefore based on an incorrect factual premise.

The High Court accepted this submission, noting that neither the Assessing Officer nor the Commissioner had recorded any finding about the unearthing or existence of undisclosed or unaccounted assets or investments.

“The absence of unexplained investments, renders the very applicability of Section 69 of the Act of 1961 out of question,” the Court observed.

It added that since the applicability of Section 69 itself had not been established, the question of applying the higher tax rate under Section 115BBE did not arise.

As such, the appeal was dismissed.

For Appellant: Standing Counsel Ruchir Bhatia, Junior Standing Counsel Pratyaksh Gupta and Junior Standing Counsel Anant Mann

For Respondent: Advocate Abhimanyu Jhansa, Advocate Thonpinao Thangal and Advocate Ayushi Srivastava