2022 (1) TMI 872 - AT - Income Tax

Unexplained excess cash and stock found and surrendered during the course of survey as business income - survey action u/s 133A - applicability of provisions of section 115BBE - CIT-A deleted addition - HELD THAT - The crux of the statement given during the course of survey on the facts that the alleged stock was not accepted to be undisclosed income from other sources but was a part of the business income which required some reconciliation as books of account were not completed at the time of survey proceedings - since the income alleged excess stock and excess cash found during the course of survey is part of the business income, the provisions of section 115BBE would not be applicable as rightly held by the ld. CIT(A) and also in view of the facts that there was an amendment in the provisions of section 115BBE w.e.f. 1st April 2017 and the assessee s case is pertaining to A.Y. 2015-16, thus, it is not be applicable on the case of assessee. Observation of the Ld. AO clearly indicates that he is not aware how to disclose the undisclosed income in the books of account. In case he was not satisfied with the book results, he has to first find error/mistake in the books of account, give detailed finding on it, and then should have re-casted the trading account. The manner in which the Ld. AO has made addition is not justified and thus Ld. CIT(A) has rightly deleted the addition by accepting book results shown by the assessee. AO has also not given weightage to the fact that once the excess stock has been debited in the Profit and Loss Account then the unsold stock as on 31st March 2015 also forms part of the closing stock which is to be valued as per the method regularly adopted by the assessee. We, find no reason to interfere in the finding of Ld. CIT(A) deleting the impugned addition made by the ld. AO and has also holding that the provisions of section 115BBE of the Act are not applicable on the assessee since the income declared during the course of survey is a business income . Accordingly all three grounds of appeal raised by the revenue are dismissed.

Summary

Issues Involved:
1. Treatment of unexplained excess stock as business income.
2. Treatment of excess cash as business income.
3. Applicability of Section 115BBE of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Treatment of Unexplained Excess Stock as Business Income:
The primary issue revolves around whether the excess stock found during the survey should be treated as business income or income from undisclosed sources. The Revenue argued that the excess stock of ?3,90,15,200/- for Vijay Kumar Surana and ?3,41,51,000/- for Rajendra Kumar Surana was income from undisclosed sources. However, the CIT(A) concluded that the excess stock was part of the business income, as it was recorded in the trading account and shown on the debit side. The Tribunal upheld this view, noting that the excess stock was part of the regular business operations and no other incriminating materials were found to suggest otherwise. The Tribunal also referenced the Rajasthan High Court decision in CIT vs. Bajargan Traders, which supported the view that unrecorded stock related to regular business activities should be treated as business income.

2. Treatment of Excess Cash as Business Income:
Similarly, the excess cash found during the survey, ?9,84,843/- for Vijay Kumar Surana and ?8,55,607/- for Rajendra Kumar Surana, was also contested. The Revenue contended that this should be treated as income from undisclosed sources. However, the CIT(A) and the Tribunal found that the excess cash was part of the business income. The Tribunal noted that the cash was recorded in the books and shown on the credit side of the profit and loss account. The treatment of excess cash was consistent with the treatment of excess stock, and no evidence suggested that the cash was from any source other than the business operations.

3. Applicability of Section 115BBE of the Income Tax Act, 1961:
The Revenue argued that the provisions of Section 115BBE, which prohibit deductions in respect of expenditure or allowance for income from undisclosed sources, should apply. However, the CIT(A) and the Tribunal concluded that Section 115BBE was not applicable in this case. The Tribunal observed that the amendment to Section 115BBE, which includes the prohibition of set-off of any loss, was effective from 01.04.2017, whereas the assessment year in question was 2015-16. Therefore, the provisions of Section 115BBE could not be applied retrospectively. The Tribunal also emphasized that the excess stock and cash were part of the business income, not income from other sources, further supporting the non-applicability of Section 115BBE.

Conclusion:
The Tribunal upheld the CIT(A)'s decision to treat the excess stock and cash as business income and confirmed that Section 115BBE was not applicable for the assessment year 2015-16. The appeals by the Revenue were dismissed, and the findings of the CIT(A) were affirmed for both Vijay Kumar Surana and Rajendra Kumar Surana.