2023 (12) TMI 99 - AT - Income Tax

Categorization of income - Undisclosed income surrendered consequent to survey action u/s. 133A - excess stock found during the course of survey proceedings - Charging of tax rate u/s. 115BBE of Act on undisclosed investment - investment in stock remains unexplained and the assessee failed to substantiate such investment during the survey proceeding - assessee submitted a revised computation moving the undisclosed income surrendered under the head of income Income from other sources to Income from Business and Profession - HELD THAT - As we held that the source of undisclosed income surrendered by the assessee could not be substantiated the same should be covered as taxable income under the head Income From Other Sources . Therefore the original computation and return of income filed by the assessee was with correct application of law wherein the income was shown as income from other sources and the tax was offered at special rates under the provisions of sec.115BBE of the Act. The assessee s explanation before the Ld.CIT(A) which were accepted by the Ld.CIT(A) were found under the erroneous appreciation of facts by the Ld.CIT(A) wherein there was no whisper or observation on the source of investment in excess stock found during the survey. CIT(A) has recorded that the assessee has offered income on account of excess stock found during the survey by crediting the capital amount of the assessee and subsequently adding the excess stock to the closing stock in the balance sheet the stock becomes part of regular books of accounts of the assessee and was made available for subsequent sale - Also further observed that the AO has not rejected the books of accounts of the assessee and rather accepted the entries passed in the books of accounts. We cannot subscribe to the view expressed by the CIT(A) since the AO has accepted the income offered by the assessee comes under the head Income from Other Sources and offered higher rate of tax on the said income therefore there was no occasion for the AO to go into the integrities of the books of accounts to make them liable to be rejected. Thus the order of the Ld.CIT(A) was not according to the facts and law and therefore the same is liable to be quashed and the findings of the AO in his order deserves to be sustained. Consequently appeal filed by the Revenue is allowed with the observation that surrender amount on account of excess stock accepted as undisclosed income by the assessee source of which is unexplained nonetheless belongs to activities other than regular business of the assessee as admitted by assessee himself should be categorized as Income From Other Sources and taxes to be charged at special rates in accordance with provisions of sec.115BBE of the Act. Appeal of the Revenue is allowed.

Summary

Issues Involved:
1. Acceptance of revised computation of income and deletion of tax rate under section 115BBE on undisclosed investment.
2. Classification of unrecorded amounts under section 115BBE of the Income Tax Act.

Summary:

Issue 1: Acceptance of Revised Computation of Income and Deletion of Tax Rate under Section 115BBE on Undisclosed Investment
The appellant, an individual trading in household goods, was subjected to a survey under section 133A of the Income Tax Act, 1961, which revealed an undisclosed investment in excess stock amounting to Rs. 2,01,25,976/-. Initially, the assessee declared this amount as income from other sources and paid taxes under section 115BBE. However, during assessment proceedings, the assessee revised the computation, categorizing the undisclosed income as "Income from Business and Profession," arguing that the excess stock was accumulated from regular business activities. The Assessing Officer (AO) did not accept this revised computation and proceeded with the original computation, treating the income under section 115BBE. The Commissioner of Income Tax (Appeals) [CIT(A)] accepted the revised computation, but the Revenue appealed against this decision.

Issue 2: Classification of Unrecorded Amounts under Section 115BBE of the Income Tax Act
The Revenue argued that the undisclosed income should be treated as income from other sources due to the lack of explanation regarding the source of investment in the excess stock. The assessee contended that the excess stock was part of the regular business and should be taxed as business income. The Tribunal examined the facts and found that the assessee had initially declared the undisclosed income under section 115BBE and paid the corresponding tax. The Tribunal noted that the AO had correctly treated the undisclosed income as income from other sources due to the assessee's inability to substantiate the source of investment in the excess stock. The Tribunal also referenced the case of M/s. Shree Sita Udyog v. DCIT, where similar circumstances led to the classification of undisclosed income as business income. However, in the present case, the Tribunal found no such evidence or observations from the AO supporting the assessee's claim.

The Tribunal concluded that the CIT(A) had erroneously accepted the revised computation without proper consideration of the source of the undisclosed income. The Tribunal upheld the AO's decision to classify the undisclosed income under section 115BBE and charge tax at the special rate, thereby allowing the Revenue's appeal.

Conclusion:
The Tribunal quashed the CIT(A)'s order and sustained the AO's findings, categorizing the undisclosed income as "Income from Other Sources" and applying the tax rate under section 115BBE. The Revenue's appeal was allowed.