2024 (1) TMI 1271 - AT - Income Tax

Addition u/s 69A and 69B - discrepancies noticed in excess cash, excess stock and recoverable in Survey u/s 133A - surrendered amount treated as income from other sources(unexplained investment) as against declared business income by assessee - HELD THAT - Assessee has been confronted with not just the discrepancy so found during the course of survey but the nature and source thereof during the course of survey proceedings and it is clearly emerging that the source of such income is from its business operations. There is a clear statement of the partner of the assessee that the advances are related to its business, however since the same have not been recorded in the books of account, he has offered the same to taxation. Similarly, the stock physically found has been valued and then, compared with stock as recorded in the books of account, thus, there is clear nexus of stock with the Assessee's business. The statement of the partner of the assessee is available on record and related documents so found during the course of survey are stated to be in possession of the Revenue authorities. Apparently, the AO has failed to take into consideration the statement of the partner of the assessee recorded during the course of survey holistically, and other documents and findings of the survey team which are very much part of the records The mere fact that survey/search proceedings have been initiated at the business premises of the Assessee doesn't mandate the Assessing officer to automatically invoke the deeming provisions and before invoking the deeming provisions, he has to call for the explanation of the Assessee and only where the explanation so offered is not found satisfactory, he can proceed and invoke the deeming provisions. We find that in the present case, the difference in stock found by the authorities has no independent identity and it is part and parcel of the entire stock. Therefore, it cannot be said that there is an undisclosed asset which existed independently and thus, what has been declared before the Department is received from business and it is not any investment, since it cannot be co-related with any specific assets. The difference, therefore, should be treated as the undeclared business income of the assessee. Following the said decision of Shri Ram Narayan Birla 2016 (9) TMI 1354 - ITAT JAIPUR has taken a similar view holding that the excess stock so found during the course of survey was part of the stock and the Revenue has not pointed out the excess stock has any nexus with any other receipts other than the business being carried on by the Assessee. Thus we hold that the income surrendered by the assessee during the survey cannot be brought to tax under the deeming provisions of Section 69A and 69B of the Income Tax Act and the same has been rightly offered to tax by the assessee under the head of business income. In the absence of applicability of the deeming provisions, there is no question of the provisions of Section 115BBE. Assessee appeal allowed.

Summary

Issues Involved:
1. Invocation of provisions of Section 69A on the surrendered amount.
2. Applicability of Section 115BBE for charging tax at 60%.

Summary:

Issue 1: Invocation of Provisions of Section 69A on the Surrendered Amount

The case involves an assessee's appeal against the order of CIT(A) upholding the invocation of Section 69A on a surrendered amount of Rs. 40,00,000, treating it as income from other sources rather than business income. The assessee contended that the entire amount, including excess cash, unexplained debtors, and excess stock, was already declared in the books as business income. During a survey, the assessee surrendered Rs. 40,00,000, which included Rs. 21,00,000 for excess stock, Rs. 9,00,000 for excess cash, and Rs. 10,00,000 for unexplained debtors. The AO treated these amounts as unexplained investments under Sections 69A and 69B, arguing that the sources remained unexplained and could not be considered as regular business income. The CIT(A) confirmed this, stating that the nexus between the surrendered income and business income must be established with cogent evidence, which the assessee failed to do. The assessee argued that the discrepancies were due to valuation differences and that the surrendered income was from regular business activities. However, the CIT(A) held that the assessee could not provide documentary evidence to establish this nexus.

Issue 2: Applicability of Section 115BBE for Charging Tax at 60%

The CIT(A) upheld the AO's application of Section 115BBE, which prescribes a 60% tax rate on the surrendered income treated under Sections 69A and 69B. The assessee argued that once the entries were passed in the books of account, the surrendered income should not fall under Sections 69, 69A, and 69B. The CIT(A) relied on various case laws, including Fakir Mohammed Haji Hasan vs. CIT and others, which emphasized the need to establish the source and nexus of the surrendered income with business activities. The CIT(A) concluded that the AO rightly treated the surrendered amount as deemed income under Sections 69A and 69B, taxable under Section 115BBE.

Conclusion:

The Tribunal held that the foundational requirement for invoking Sections 69A and 69B is to establish that the assessee made investments or was found to be the owner of cash not recorded in the books, and the explanation offered was unsatisfactory. The Tribunal found that the assessee's partner had stated during the survey that the discrepancies were related to business operations. The Tribunal emphasized that the explanation offered by the assessee must be analyzed before invoking the deeming provisions. The Tribunal concluded that the surrendered income should be treated as business income, not deemed income under Sections 69A and 69B, and thus not subject to Section 115BBE. The appeal was allowed.