2024 (4) TMI 1138 - AT - Income Tax

Admission of additional income in search and seizure operation - AO was of the firm belief that income has to be charged to tax u/s 69 r.w.s 115BBE of the Act as income was never disclosed by the assessee and would never have been disclosed had there been no search proceedings - CIT(A) held the income as business income u/s 28 - HELD THAT - Assessee has earned income from commodity trading. Even if the same was not disclosed in its regular books of account by the assessee, the same was offered for tax as income from other sources. Provisions of section 69C of the Act do not apply as the impugned item is income and not investment. In our view, provisions of section 115BBE of the Act would apply if the income of the assessee is either declared or assessed u/s 68/69/69A/ 69B/69C/69D of the Act. But facts of the case in hand show that the assessee has declared income from commodity trading, which has been accepted as such by the Assessing Officer. Entries on the documents seized relate to offline commodity trading transactions relating to the assessee and the amount of profit is reflected on the account of these transactions. Transaction reflected on the seized paper represents future contract of purchase and sale of gold and silver on various dates. Since the income has been accepted by the AO, it can be safely presumed that the transactions recorded in the seized documents do not have any different character than that reflected on the seized paper and that is income of the assessee. Assessee has clearly explained the source of profit earned by him and as the source of income is identifiable, deeming provisions of section 69 cannot be applied on the profit from trading of speculative transactions. Decided against revenue.

Summary

Issues:
1. Classification of income as business income or undisclosed income.
2. Applicability of provisions of section 69 and 115BBE of the Income-tax Act, 1961.
3. Determination of income from commodity trading.
4. Interpretation of seized documents and transactions.
5. Application of section 69C and 115BBE of the Act.
6. Assessment of speculative transactions.

Analysis:
1. The key issue in this case was the classification of income amounting to Rs. 12,45,40,000 as either business income or undisclosed income. The Revenue contended that the income should be treated as undisclosed income found during a search and added by the Assessing Officer under section 69 read with 115BBE of the Act. However, the CIT(A) had classified the income as business income under section 28 of the Act.

2. The Tribunal carefully considered the arguments from both sides and examined the documentary evidence presented. It noted that the seized documents revealed commodity trading transactions by the assessee's brother, which led to the admission of unaccounted income during the search operation. The Assessing Officer invoked section 69 and 115BBE to tax the undisclosed income, rejecting the assessee's claim that it should be treated as income from other sources.

3. The Tribunal analyzed the facts of the case and determined that the assessee had indeed earned income from commodity trading, even though it was not recorded in the regular books of account. The income was disclosed during the search and seizure operation and offered for taxation as income from other sources. The Tribunal concluded that the provisions of section 69C did not apply as the income was not an investment but earned income from trading.

4. Regarding the interpretation of seized documents and transactions, the Tribunal found that the entries related to commodity trading transactions and the profit reflected in the documents represented future contracts of purchase and sale of gold and silver. Since the Assessing Officer accepted this income, the Tribunal inferred that the transactions recorded in the seized documents were reflective of the actual income earned by the assessee.

5. The Tribunal further clarified that the source of profit from commodity trading was identifiable, and therefore, the deeming provisions of section 69 could not be applied. It held that the provisions of section 69 were not applicable to the profit from speculative transactions, ultimately declining to interfere with the Assessing Officer's findings and dismissing the Revenue's appeal.

6. Consequently, the Tribunal dismissed the Revenue's appeal and did not delve into the issues raised in the cross objections. The appeal of the Revenue was dismissed, while the cross objection of the assessee was deemed unnecessary. The order was pronounced on 03.04.2024, concluding the matter before the Appellate Tribunal.