2024 (4) TMI 1217 - AT - Income Tax

Conversion of booking amount into loan as unexplained receipt u/s 69A - taxation at higher rate u/s 115BBE - in search and seizure action u/s 132 based on seized material the assessee surrendered inter alia the income on account of these booking amounts converted into unsecured loans - HELD THAT - In the case in hand when the seized material itself explain the nature and source of the transactions and further the assessee in the statement recorded u/s 132(4) has unambiguously explained the nature of transactions being initially received as booking advance and on cancellation of booking by prospective buyers the said booking advance was converted into unsecured loan to be paid along with interest which is also reflected in the seized material itself. Accordingly In view of the decision of Tapesh Tyagi 2023 (11) TMI 333 - ITAT DELHI we hold that the transitions of unsecured loan recorded in the seized material do not fall in the ambit of section 69A of the Act and consequently the provisions of section 115BBE would not be attracted. Since the issue is common for all the assessment years and based on the same seized material and nature of transactions therefore, this finding is applicable for all the assessment years. Appeal of assessee allowed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal issues considered in this judgment are:

• Whether the Commissioner of Income Tax (Appeals) [CIT(A)] erred in confirming the Assessing Officer's (AO) order treating the conversion of booking amounts into loans as unexplained receipts under Section 69A of the Income Tax Act and consequently taxing them at a higher rate under Section 115BBE.
• Whether the amounts in question should have been assessed under Section 68 as unexplained cash credits instead of Section 69A.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Treatment of Conversion of Booking Amounts into Loans as Unexplained Receipts under Section 69A

Relevant Legal Framework and Precedents:

Section 69A of the Income Tax Act deals with unexplained money, bullion, jewelry, or other valuable articles found in the possession of the assessee and not recorded in the books of account. Section 115BBE provides for a higher rate of tax on income referred to in Section 69A.

Court's Interpretation and Reasoning:

The Tribunal examined whether the amounts received initially as booking advances and later converted into loans upon cancellation of bookings could be treated as unexplained money under Section 69A. The Tribunal noted that the seized documents contained detailed entries explaining the nature and source of these transactions, including names of persons, amounts, and dates.

Key Evidence and Findings:

The Tribunal found that the seized materials (BS-1 and BS-3) provided comprehensive details about the transactions, including the nature and source of the loans. The entries were self-explanatory, showing that the amounts were initially received as booking advances and later converted into loans upon cancellation.

Application of Law to Facts:

The Tribunal held that since the seized documents themselves explained the nature and source of the transactions, the amounts could not be treated as unexplained money under Section 69A. The Tribunal emphasized that the provisions of Section 69A apply when the nature and source of the money are unexplained, which was not the case here.

Treatment of Competing Arguments:

The Revenue argued that the assessee failed to explain the nature and source of the loan amounts, justifying their treatment as unexplained money. However, the Tribunal found that the seized documents provided sufficient explanation, and the assessee had surrendered the amounts due to their non-recording in the books, not due to unexplained nature.

Conclusions:

The Tribunal concluded that the transactions did not fall within the ambit of Section 69A, and consequently, the provisions of Section 115BBE were not applicable. The Tribunal allowed the appeals of the assessee for all assessment years involved.

Issue 2: Assessment under Section 68 as Unexplained Cash Credits

Relevant Legal Framework and Precedents:

Section 68 of the Income Tax Act pertains to unexplained cash credits in the books of account. The assessee argued that the amounts should have been assessed under this section instead of Section 69A.

Court's Interpretation and Reasoning:

The Tribunal did not specifically address the applicability of Section 68, focusing instead on whether Section 69A was appropriate. By ruling out Section 69A, the Tribunal implicitly suggested that the amounts did not qualify as unexplained cash credits under Section 68 either, given the detailed explanations in the seized documents.

Conclusions:

The Tribunal did not find it necessary to reclassify the amounts under Section 68, as the primary issue was the incorrect application of Section 69A. The appeals were allowed based on the findings related to Section 69A.

3. SIGNIFICANT HOLDINGS

Preserve Verbatim Quotes of Crucial Legal Reasoning:

"The seized material itself reflect nature and source of these transactions by giving all the necessary details then the same cannot be treated as unexplained money u/s 69A of the Act."

Core Principles Established:

• Section 69A applies only when the nature and source of money are unexplained, which was not the case here due to detailed entries in seized documents.
• Transactions recorded in seized materials with sufficient detail cannot be treated as unexplained under Section 69A.

Final Determinations on Each Issue:

• The Tribunal allowed the appeals, ruling that the amounts in question were not unexplained under Section 69A, and therefore, Section 115BBE was not applicable.
• The Tribunal did not reclassify the amounts under Section 68, as the primary issue was resolved by addressing the incorrect application of Section 69A.