2024 (2) TMI 326 - AT - Income Tax

Addition u/s 69B r.w.s.115BBE - unexplained investment - amount offered during survey - primary condition for applicability of provisions of section 69B fulfilled or not? - As submitted when there is no other source of income identified during the course of survey or during the course of assessment proceedings, any income arising to the assessee shall be treated to be out of the normal business of the assessee only - Taxability at higher rate of tax u/s 115BBE - HELD THAT - For the deeming provisions of Section 69B to be applied, firstly, there has to be a finding by the AO that the assessee has made investments during the financial year in the construction/purchase of the building. Thereafter, AO is also required to record a finding that the amount expended on making such investments in the building exceeds the amount recorded in this behalf in the books of account so maintained by the assessee for any source of income. Thereafter, the assessee has to be given an opportunity and his explanation has to be sought and in a scenario, where the assessee offers no explanation about such excess amount or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the excess amount may be deemed to be the income of the assessee for such financial year. Therefore, we are unable to appreciate where the Assessing officer says that the condition for proving the source of such investment is the primary condition for applicability of provisions of section 69B of the Act which the assessee has not fulfilled. Onus to prove - There has to be some material/documentation in form of bills, invoices, payment receipts, etc which shows that there is outflow of funds from the assessee to certain third parties towards purchase or construction of the building or atleast an obligation on part of the assessee to pay certain sum to third parties towards purchase or construction of building. Therefore, the onus is clearly on the Assessing officer to discharge this burden and record a specific finding in this regard and once the same is done, the onus can be shifted to the assessee to explain the nature and source of such investment. We find that in the instant case, AO has clearly failed in discharging this initial onus and it is thus a clear case of mechanical application of provisions of section 69B without satisfying the essential condition contained therein. There is nothing on record, infact, there is no whisper in the entire survey proceedings, which has formed the basis for the compulsory scrutiny, and the subsequent assessment proceedings, that there is any material/documentation which even remotely demonstrate that the assessee has expended certain sum of money on construction of the building over and above the amount which has been recorded in the books of accounts. Whole case of the Revenue rests on the statement of one of the Partners of the assessee s firm recorded u/s 131 at the close of the survey proceedings conducted at the business premises of the assessee - It is a settled proposition of law that the statement recorded u/s 131 during the course of survey has no evidentiary value in absence of any corroborative evidence on record and in this regard, useful reference can be drawn to the decision of CIT vs Khader Khan Son 2007 (7) TMI 182 - MADRAS HIGH COURT wherein it was held that statement recorded during the course of survey u/s 133A has no evidentiary value as the officer is not authorized to administer the oath and to take any sworn statement which alone has evidentiary value as contemplated under law and reference was drawn to provisions of section 132(4) which enables the authorized officer to examine person on oath and where any such statement so recorded can be used in evidence under the Act. Therefore, in our considered view, in the instant case, the statement of the partner of the assessee firm recorded u/s 131 during the course of survey and subsequent affirmation thereof by the assessee by way of surrender letter on a standalone basis and without any corroborative evidence doesn t fulfill the statutory mandate of deeming provisions which provides that it is for the Assessing officer to records a finding that the assessee has made investments during the financial year in the construction/purchase of the building and the amount expended on making such investments in the building exceeds the amount recorded in this behalf in the books of account so maintained by the assessee and for the purposes of recording such a finding, there has to be some tangible material in possession of the Assessing officer which demonstrate that certain amount has been actually expended by the assessee during the year towards the purchase or construction of the building which is clearly absent in the instant case. Therefore, the statement of the one of the partners of the assessee firm without any corroborative evidence cannot come to the aid of the Assessing officer for the purposes of invoking the deeming provisions of Section 69B of the Act. Even if we look at the statement so recorded of the partner of the assessee firm, we find that there is clear affirmation that the land and building was purchased in the year 2014 and the same has been duly reflected in the books of accounts. Further, in order to buy piece of mind and to avoid litigation, an amount of Rs 45 lacs has been offered on account of addition made to factory building and the source thereof has been stated to be out of business income. Therefore, even taking into consideration the said statement on a standalone basis, we find that the source of investment has been stated to be out of business income and the surrender has been duly honored by the assessee while filing the return of income wherein the amount has been offered to tax under the head business income and the deeming provisions therefore cannot be invoked in the instant case. Thus we are of the considered view that the income has been rightly offered to tax by the assessee under the head business income and provisions of section 69B r/w 115BBE cannot be invoked in the instant case. Appeal of the assessee is allowed.

Summary

Issues Involved:
1. Taxation of the amount surrendered during the survey under Section 69B read with Section 115BBE of the Income Tax Act, 1961.
2. Consideration of various judicial precedents and arguments presented by the assessee.
3. Determination of whether the surrendered amount should be taxed at the normal rate or under the provisions of Section 115BBE.

Summary:

1. Taxation of the Amount Surrendered During Survey:
The primary issue in the appeal was whether the amount of Rs. 45,00,000/- surrendered by the assessee during the survey should be taxed as business income at the normal rate or as unexplained investment under Section 69B, attracting the provisions of Section 115BBE of the Income Tax Act, 1961. The Assessing Officer (AO) and the CIT(A) concluded that the surrendered amount was unexplained investment and should be taxed under Section 69B, invoking Section 115BBE.

2. Consideration of Judicial Precedents and Arguments:
The assessee argued that the surrendered amount should be treated as business income, citing various judicial precedents where similar circumstances led to the amount being taxed at the normal rate. The assessee emphasized that the surrendered amount was due to a valuation difference in the building and not an unexplained investment. The assessee also pointed out that no other source of income or discrepancies were found during the survey, and the amount was surrendered to buy peace of mind.

3. Determination of Taxation Rate:
The Tribunal examined the facts, including the statement made by the assessee during the survey and the lack of corroborative evidence from the AO to prove the excess investment. It was noted that the AO failed to provide tangible material or documentation to demonstrate that the assessee expended money on the building over and above what was recorded in the books. The Tribunal highlighted that the statement recorded during the survey without corroborative evidence has no evidentiary value. The Tribunal concluded that the income was rightly offered to tax by the assessee under the head "business income," and the provisions of Section 69B read with Section 115BBE could not be invoked.

Conclusion:
The Tribunal allowed the appeal, holding that the surrendered amount should be taxed as business income at the normal rate and not under the provisions of Section 115BBE. The decision emphasized the importance of corroborative evidence and the proper application of deeming provisions under the Income Tax Act.