2024 (4) TMI 921 - AT - Income Tax

Addition u/s 69 r.w.s. 115BBE - amount surrendered during survey on account of difference in stock and excess cash difference - contention of the Assessee is that when the income / investment is already surrendered during the survey and also offered for taxes while filing return of income, the same cannot be treated as unexplained investment - HELD THAT - The statement of the Assessee has to be read as a whole and not in piecemeal especially where the Revenue is relying on the same statement and in such circumstances, the defence available to the Assessee in terms of part of the statement not been considered by the Revenue cannot be ignored. The mere fact that survey/search proceedings have been initiated at the business premises of the Assessee doesn t mandate the AO to automatically invoke the deeming provisions and before invoking the deeming provisions, he has to call for the explanation of the Assessee and only where the explanation so offered is not found satisfactory, he can proceed and invoke the deeming provisions. In the instant case, we find that the difference in stock so found out by the authorities has no independent identity and is 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 undeclared business income. Following the said decision of DCIT Vs. Shri Ram Narayan Birla 2016 (9) TMI 1354 - ITAT JAIPUR has taken a similar view holding that the excess stock so found during the course of survey was part of the stock and the Revenue has not pointed out the excess stock has any nexus with any other receipts other than the business being carried on by the Assessee. The surrender on account of advances were relating to the business being carried on by the Assessee. CIT(A) has also returned a finding that the advances were admitted as being related to business activity of the Assessee. Where the same has been found unrecorded in the books of account, the same has to be brought to tax under the head business income . Thus, the income surrendered during the course of survey cannot be brought to tax under the deeming provisions of section 69 and 69A of the Act and the same has been rightly offered to tax under the head business income . In absence of deeming provisions, the question of application of section 115BBE doesn t arise for consideration. Decided in favour of assessee.

Summary

Issues Involved:
1. Applicability of Section 69 read with Section 115BBE on surrendered stock.
2. Applicability of Section 69 read with Section 115BBE on excess cash.
3. Consideration of judgments relied upon by the assessee.

Summary:

Issue 1: Applicability of Section 69 read with Section 115BBE on surrendered stock

The Assessee challenged the applicability of Section 69 read with Section 115BBE on Rs. 1,00,00,000/- surrendered during a survey on account of stock discrepancies. The Assessee argued that the surrendered amount was business income from the normal course of business and should be taxed at the normal rate. The A.O. and CIT(A) held that the Assessee did not satisfactorily explain the nature and source of the surrendered stock, thus deeming it unexplained under Sections 68 to 69D and taxable under Section 115BBE. The Tribunal, referencing various judgments, concluded that the surrendered stock related to the Assessee's regular business activities and should be treated as business income, not unexplained income under Section 69, thus Section 115BBE was not applicable.

Issue 2: Applicability of Section 69 read with Section 115BBE on excess cash

The Assessee also contested the applicability of Section 69 read with Section 115BBE on excess cash of Rs. 1,34,004/- found during the survey. The A.O. added this amount to the Assessee's income as unexplained under Section 69A and taxed it under Section 115BBE. The Tribunal noted that the Assessee had explained the excess cash as part of the business income. Following the same rationale as with the surrendered stock, the Tribunal held that the excess cash should be treated as business income and not as unexplained income under Section 69A, thereby Section 115BBE was not applicable.

Issue 3: Consideration of judgments relied upon by the assessee

The Assessee argued that various judgments from the jurisdictional Chandigarh Bench of ITAT were ignored. The Tribunal reviewed these judgments and noted that the A.O. and CIT(A) failed to establish a direct link between the surrendered income and unexplained sources. The Tribunal emphasized that the burden of proof lies on the revenue to disprove the Assessee's explanation. The Tribunal found the Assessee's explanation satisfactory and consistent with the nature of the business, thus rejecting the applicability of Section 69 and 115BBE.

Conclusion:

The Tribunal ruled in favor of the Assessee, stating that the surrendered stock and excess cash were part of the business income and should be taxed at the normal rate, not under Section 115BBE. The appeal was allowed, and the additions made by the A.O. and sustained by the CIT(A) were set aside.