2023 (8) TMI 289 - AT - Income Tax

Correct head of income - receivables / debtors found during the course of survey u/s 133A - business income or deemed income u/s 69 - Applicability of higher rate of tax u/s 115BBE - HELD THAT - As it is a case where there are unrecorded sales made by the assessee during the current financial year and receivables arising out of such unrecorded sales have been offered to tax as additional business income by the assessee. The source of such unrecorded receivables is thus the unrecorded sales which have been explained by the assessee and thus, the necessary nexus with the business of the assessee has been established. The name of the person, the amount receivables, date, etc has been duly recorded in the diary, thus, the statement of the assessee duly stand corroborated by the contents of the diary so found during the course of survey. No doubts, these transactions were not recorded at the time of survey thus qualify as unrecorded transactions satisfying one of the essential conditions, at the same time, the assessee has provided the necessary explanation about the nature and source of such unrecorded transactions, thus, it cannot be said that these are unexplained transactions thus, doesn t satisfy the second condition for invoking the deeming provisions of section 69 of the Act. Income surrendered during the course of survey cannot be brought to tax under the deeming provisions of section 69 of the Act and the same has been rightly offered to tax under the head business income and as a necessary corollary, in absence of deeming provisions, the question of application of section 115BBE doesn t arise for consideration. Decided in favour of assessee.

Summary

Issues Involved:
1. Whether the income of Rs. 15,00,000/- surrendered during the survey should be taxed as business income or deemed income under Section 69.
2. Applicability of Section 115BBE to the surrendered income.

Summary:

Issue 1: Treatment of Surrendered Income
The assessee, a proprietor of M/s Shivam Coir Foam Products, surrendered Rs. 15,00,000/- during a survey under Section 133A. The assessee claimed this amount as business income, reflected in the Profit and Loss Account, and paid taxes accordingly. The AO, however, treated this amount as deemed income under Section 69, arguing that the assessee failed to establish a nexus between the receivables and his business affairs with documentary evidence. The AO held that the amount should be taxed under Section 115BBE as the transactions were not recorded in the books of account at the time of the survey.

Issue 2: Applicability of Section 115BBE
The assessee argued that Section 115BBE is a machinery provision to levy tax on unexplained income and does not apply to income already offered as business income. The AO and CIT(A) disagreed, stating that the assessee did not satisfactorily explain the nature and source of the surrendered income, thus invoking Section 69 and Section 115BBE.

Tribunal's Findings:
The Tribunal examined whether the surrendered income could be deemed as unexplained under Section 69. It noted that the assessee had explained the income as arising from business transactions recorded in a diary found during the survey. The Tribunal emphasized that the foundational requirement for invoking Section 69 is the failure to explain the nature and source of the income, which was not the case here. The Tribunal cited precedents where similar surrendered incomes were treated as business income, not unexplained income.

Conclusion:
The Tribunal concluded that the income of Rs. 15,00,000/- surrendered during the survey was rightly offered as business income and not as deemed income under Section 69. Consequently, Section 115BBE was not applicable. The appeal of the assessee was allowed.