2023 (3) TMI 283 - AT - Income Tax

Nature of income surrendered during the course of survey - Addition u/s 69 r/w section 115BBE or business income - income surrendered by the assessee on account of receivables - HELD THAT - The nature of surrendered income was therefore unrealized sundry receivables generated out of out of book sales undertaken by the assessee. The factum thereof has been accepted by the Survey team and where the AO dispute the nature of such surrender or the findings of department s own survey team, the AO has to lead positive evidence to arrive at any contrary finding. Nothing has been brought on record in this regard. Therefore, the picture which is clearly emerging from the material available on record is the nature of surrender is amount of unrealized receivables from the sales undertaken by the assessee as part of his regular business dealings and which have not been recorded in the books of accounts. Where the assessee has subsequently recorded the same in his books of accounts as part of business income, it cannot be said that the said action on part of the assessee is not in accordance with accepted accounting methodology and the nature of such income is other than business income. As relying on M/S FAMINA KNIT FABS AND M/S MEHTA ENGINEERS VERSUS THE A.C.I.T., CIRCLE-3 2019 (5) TMI 8 - ITAT CHANDIGARH the income so surrendered by way of account receivables cannot be brought to tax under the deeming provisions u/s 69 r/w section 115BBE and has been rightly offered by the assessee under the head business income . In the result, the matter is decided in favour of the assessee.

Summary

Issues:
- Valid jurisdiction of the Assessing Officer
- Tax levied under section 115BBE on surrendered business income
- Applicability of section 115BBE to surrendered amount
- Acceptance of surrender letter during survey

Analysis:
1. The appeal was filed against the order of the Ld. Commissioner of Income Tax, (Appeals)-5, Ludhiana, regarding the jurisdiction of the Assessing Officer and the tax treatment of the surrendered business income under section 115BBE of the Income Tax Act, 1961.

2. The survey conducted at the assessee's business premises led to the declaration of Rs. 20,00,000 as surrendered income, which the Assessing Officer sought to tax under section 69 r.w.s 115BBE. The assessee, engaged in coal resale business, argued that the surrendered amount was part of normal business income and not subject to penal action.

3. The assessee contended that the surrendered amount represented unrealized sundry receivables from discrepancies in sales, which were duly recorded in the books of accounts as business income. The assessee's return of income included the surrendered amount, and the assessment wrongly invoked section 69 r/w section 115BBE.

4. The Tribunal noted that the surrendered income was related to the business dealings of the assessee and was in accordance with accepted accounting methodology. Citing precedents, the Tribunal held that the surrendered amount, being business income, could not be taxed under deeming provisions of section 69 r/w section 115BBE.

5. The Tribunal referred to the decision in the case of Famina Knit Fab vs. ACIT and upheld that the surrendered income of the assessee was sourced from business activities and should be assessed under the head "business income." Consequently, the appeal of the assessee was allowed, setting aside the order of the Ld. CIT(A).

6. The Tribunal pronounced the order in favor of the assessee, emphasizing that the surrendered amount of account receivables should not be taxed under deeming provisions but treated as business income. The appeal was allowed, and the matter was decided in favor of the assessee.