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2024 (1) TMI 966 - AT - Income TaxIncome surrendered during the course of survey - addition of excess cash, excess stock and unexplained advances found - deemed income u/s 69/69A and to be taxed as per provisions of Section 115BBE - HELD THAT - Difference in stock - Stock physically found has been valued and then, compared with the value of stock so recorded in the books of accounts and the difference in the value of the stock so found has been offered to tax in the statement so recorded of the assessee. The statement of the assessee thus stands corroborated by the stock physically found at the time of survey. There is also no dispute that there is a commonality in the stock so found and as recorded in the books and in absence of which, the comparison would not have been possible and difference would not have been worked out. The Revenue has not pointed out that the excess stock has any nexus with any other activities other than the business of purchase and sale of chicken, fish and goats being carried on by the assessee. In the instant there is no physical distinction between the accounted stock and unaccounted stock. No such physical distinction was found by the Revenue either. We therefore find that the difference in stock so found out by the authorities has no independent identity and is in terms of value terms only and thus part and parcel of entire stock, therefore, it cannot be said that there is an undisclosed asset which existed independently and thus, what is not declared to the department is receipt from business and not any investment as it cannot be co-related with any specific asset and the difference should thus be treated as business income. The income surrendered during the course of survey cannot be brought to tax under the deeming provisions of section 69A of the Act and the same has to be assessed to tax under the head business income as rightly offered by the assessee in the return of income. In absence of deeming provisions, the question of application of section 115BBE doesn t arise and normal tax rate shall apply. The AO is thus directed to assess the income under the head Income from Business/profession and apply the normal rate of tax. Excess cash found physically during the course of survey - Explanation of the assessee that excess cash so found is out of unrecorded sales transaction has not been disputed by the AO. There is a difference between the unrecorded transactions and the unexplained transactions. Once the assessee has explained that the unrecorded cash is out of unrecorded sale transactions, in absence of anything contrary on record in terms of any other activity other than business activity of the assessee, the deeming provisions cannot be attracted. In light of aforesaid discussion and in the entirety of facts and circumstances of the case, the income surrendered during the course of survey cannot be brought to tax under the deeming provisions of section 69A of the Act and the same has to be assessed to tax under the head business income as rightly offered by the assessee in the return of income. In absence of deeming provisions, the question of application of section 115BBE doesn t arise and normal tax rate shall apply. The AO is thus directed to assess the income of Rs 9,96,000/- under the head Income from Business/profession and apply the normal rate of tax. Unexplained advances - There is no tangible material in possession of the Revenue which demonstrate that the assessee has undertaken any such transactions with the so called persons so mentioned in the diary seized during the course of survey. The nature of transactions, the identity of the persons and the date of entering into such transactions are completely absent in the instant case. Even during the course of assessment proceedings, the AO vide show-cause dated 10/02/2021 has asked the assessee to furnish specific particulars of the transactions in terms of particulars of the persons, the date, the amount and mode of making such advances which demonstrate that the AO was not in possession of any tangible material in his possession found either during the course of survey or during the assessment proceedings. Therefore, it is a case where basis the statement of the assessee recorded u/s 131 during the course of survey on a standalone basis and without any corroborative evidence, an incorrect inference has been done by the Assessing officer that there are unrecorded advances made by the assessee. As we have held above, the statement u/s 131 on standalone basis without any corroborative material has no evidentiary value. The assessee has proved from the contents of the diary that the surrender was made on basis of incorrect appreciation of facts and therefore, incorrect and unwarranted and cannot be justified by any stretch of imagination. The entries in the diary are clearly incomprehensible in terms of certain minimum particulars to establish any authenticity of the transactions so claimed to be undertaken by the assessee or corroborated with other material found during the course of survey and/or post survey proceedings which is clearly absent in the instant case and therefore, cannot be made basis of addition in the instant case. In view of the prayer so made and relief so sought, and given that the assessee has suo-moto offered a sum of Rs 35 lacs while filing his return of income and has paid taxes by way of advance tax and self assessment thereon, no interference is called for as far as amount of Rs 35 lacs disclosed in the return of income and taxes paid thereon is concerned. Appeal of the assessee is allowed.
Issues Involved:
1. Treatment of surrendered amount as deemed income under Sections 69/69A and taxation under Section 115BBE. 2. Classification of surrendered income as unexplained investment instead of business income. 3. Applicability of Section 69A/69 read with Section 115BBE for taxing the surrendered income. 4. Consideration of detailed written submissions by the CIT(A). 5. Allowance of debt recycling and adjustment of Rs. 70 lacs. 6. General grounds for adding or amending grounds of appeal. Summary of Judgment: Issue 1: Treatment of Surrendered Amount as Deemed Income under Sections 69/69A and Taxation under Section 115BBE The assessee, running a proprietary concern, surrendered Rs. 1,42,50,000/- during a survey operation, which included excess cash, excess stock, and unexplained advances. The AO treated these as deemed income under Sections 69/69A and taxed them under Section 115BBE. The assessee contended that these should be treated as business income. The Tribunal held that the excess stock and cash found during the survey were part of the business operations and should be treated as business income, not deemed income under Sections 69/69A. Consequently, Section 115BBE was not applicable, and normal tax rates should apply. Issue 2: Classification of Surrendered Income as Unexplained Investment Instead of Business Income The Tribunal noted that the excess stock and cash were part of the business operations and not separate investments. The stock and cash found were integral to the business, and therefore, the surrendered income should be treated as business income. The Tribunal relied on the principle that unrecorded business income invested in stock does not constitute a separate identifiable asset and should be taxed as business income. Issue 3: Applicability of Section 69A/69 Read with Section 115BBE for Taxing the Surrendered Income The Tribunal held that the deeming provisions of Sections 69/69A require a clear finding by the AO based on tangible material. In this case, the statement recorded during the survey and the surrender letter alone, without corroborative evidence, did not fulfill the statutory mandate for invoking Sections 69/69A. Therefore, the surrendered income could not be taxed under Section 115BBE, and normal tax rates should apply. Issue 4: Consideration of Detailed Written Submissions by the CIT(A) The Tribunal noted that the CIT(A) did not appropriately consider the detailed written submissions provided by the assessee. The Tribunal emphasized the importance of examining the nature and source of the surrendered income and the business operations of the assessee. Issue 5: Allowance of Debt Recycling and Adjustment of Rs. 70 Lacs The Tribunal found that the diary seized during the survey, which recorded advances, was a "dumb document" without dates or clear descriptions. The assessee's explanation that the advances were part of business transactions was plausible. The Tribunal directed the deletion of the addition of Rs. 70 lacs made by the AO, as the advances were part of the business operations and not unexplained investments. Issue 6: General Grounds for Adding or Amending Grounds of Appeal The Tribunal allowed the assessee's appeal and directed that the surrendered income be assessed as business income under normal tax rates, thus addressing the general grounds for adding or amending grounds of appeal. Conclusion: The Tribunal allowed the appeal, directing that the surrendered income be treated as business income and taxed at normal rates, not under the deeming provisions of Sections 69/69A and Section 115BBE. The addition of Rs. 70 lacs on account of alleged advances was deleted.
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