2023 (11) TMI 925 - AT - Income Tax

Deemed income u/s 69/69A/69B r.w.s.115BBE - income surrendered and offered to tax by the assessee on account of excess stock, advances and excess-cash found during survey - while filing return of income assessee faithfully honoured his surrender and disclosed additional income as Income from Business u/s 28 and paid taxes @ normal rate of tax as applicable to business income - assessee s main contention was such he was aged about 72 years at the time of survey and his sole source of income was the manufacturing business of footwear for more than 35 years and the excess-stock, advances and cash were the outcome of suppressed business income over the years; no other source of income except the same business had been found during survey HELD THAT - Excess-Stock - Once the facts emerging from record shows that the excess stock found during survey was a part of entire lot of stock of assessee, part of which is recorded in books of account and part of the same was not found recorded and therefore, treated as excess stock at the time of survey and consequently surrendered by the assessee and also offered to tax in the return of income then the excess stock cannot be treated as deemed income u/s 69 or 69B of the act in view of the judgment of Bajarang Traders 2017 (11) TMI 388 - RAJASTHAN HIGH COURT and Anoop Neema 2022 (1) TMI 683 - ITAT INDORE . The lower-authorities are not justified to hold excess-stock as something which was not business income and thereby invoke deeming provisions of section 69 or 69B read with section 115BBE. The orders of the authorities below qua this issue is set aside. The assessee succeeds to this extent. Advances for purchase of raw-material - CIT(A) has clearly mentioned that the assessee admitted the advances as unaccounted business income during survey. Then, we also find that acting upon such admission, the assessee has recorded income in books of account and offered in income-tax return. Then in such a situation, we do not find any reason to tinker with the nature of income declared by assessee in the survey, more particularly when the advances are related to and part of business of assessee and the revenue has no evidence to prove otherwise. Therefore, we do not find any justification on the part of lower-authorities in invoking section 69 read with section 115BBE of the act. The orders of the authorities below qua this issue is set aside. The assessee succeeds to this extent. Excess-Cash - We find that the assessee is an individual who can have cash from any source. Even if the cash is physically kept at business premise, it cannot be said that it was part of business income. We further find that the CIT(A) has given contemporary findings and also rightly relied upon decision of ITAT, Indore in Shyam Lal Goyal (supra). It is to be noted that the Ld. AR has not proved by means of statement recorded during survey or by any other evidence that the impugned excess-cash represented business income of assessee. Therefore, we have no basis to interfere with the conclusion taken by CIT(A) holding excess-cash as deemed income u/s 69A attracting higher rate of tax u/s 115BBE. The assessee fails to this extent. Appeal of assessee is partly allowed.

Summary

Issues Involved:
1. Jurisdiction and procedural issues.
2. Classification and tax treatment of surrendered income (excess stock, advances, and excess cash).

Summary:

1. Jurisdiction and Procedural Issues:
The assessee raised several jurisdictional and procedural grounds, including the legality of the order passed without jurisdiction, the absence of notice u/s 143(2), and improper transfer of the case without notice u/s 127. However, both sides did not make any pleading on these grounds during the hearing, and the Tribunal dismissed these grounds as not pressed or pleaded.

2. Classification and Tax Treatment of Surrendered Income:

Excess Stock:
The Tribunal agreed with the assessee's contention that the excess stock found during the survey was part of the total stock of the business and not separately identifiable. The Tribunal cited various judicial rulings, including the Hon'ble Rajasthan High Court in Pr. CIT vs. Bajarang Traders and ITAT Ahmedabad in M/s Fashion World Vs. ACIT, which held that excess stock found during the survey should be treated as business income and not as deemed income u/s 69 or 69B. The Tribunal concluded that the lower authorities were not justified in treating the excess stock as deemed income and invoking section 69 or 69B read with section 115BBE. The assessee succeeded on this issue.

Advances:
The Tribunal found that the advances given by the assessee for the purchase of raw materials were part of the business and were recorded in the books of account and offered in the income-tax return. The Tribunal held that there was no justification for the lower authorities to invoke section 69 read with section 115BBE for these advances. The assessee succeeded on this issue as well.

Excess Cash:
The Tribunal held that the excess cash found during the survey could not be conclusively linked to the business income of the assessee. The Tribunal upheld the lower authorities' decision to treat the excess cash as deemed income u/s 69A and apply the higher rate of tax u/s 115BBE, relying on the decision of ITAT Indore in Shyam Lal Goyal. The assessee failed on this issue.

Conclusion:
The appeal was partly allowed, with the Tribunal setting aside the lower authorities' orders regarding excess stock and advances but upholding the treatment of excess cash as deemed income.