2024 (6) TMI 215 - AT - Income Tax

Correct head on income - income admitted in survey proceedings - business income or unexplained investments - assessee family was subjected to survey u/s 133A wherein assessee admitted certain income which was also offered in the return of income as Business Income - as per AO in the absence of any identifiable and verifiable sources, the income would be assessable as undisclosed investments u/s 69 which would be subjected to rate of tax as specified u/s 115BB - assessee and his family is engaged in money lending business for past more than 20 years HELD THAT - We are of the considered opinion that sundry debtors would keep on changing continuously in view of the fact that certain advances would be given and certain advances would be received back by the assessee at any given point of time. Nevertheless, the assessee family has already offered the differential of debtors between two dates as his undisclosed income. We also find that these debtors arise out of money lending business being carried by the assessee family. Any discrepancy in debtors, in such a case, would be part and parcel of assessee s money lending business and it could very well be said that the discrepancy has arisen out of unaccounted income earned by the assessee from this business only and therefore, the same would be taxable as business income only. There is nothing on record that the assessee family has any other sources of income. The assessee is stated to be doing same business for last more than 20 years. All these facts support the case of the assessee. We also find that during the course of survey, a statement was recorded from the assessee s son. In reply as stated that the family was not maintaining proper books of accounts for finance business and record the transactions on rough sheets - balances would be updated on fortnightly basis. The complete list of outstanding balances was also furnished wherein outstanding amounts was shown as Rs. 12.31 Crores. As on 31-03-2016, the assessee s family reflected debtors to the tune of Rs. 7.41 Crores in their respective returns of income. In reply to question no.11, the assessee merely stated that differential in advances are out of undisclosed income. In our opinion, the same would arise out of business only since the assessee does not have any other substantial source of income. It could be said that difference in debtors was accumulated out of income from business and the undisclosed business income, if any, was ploughed back into business to lend more money. In such a case, the excess debtors could be said to have arisen out of normal business activity only and therefore, the same would be assessable as business income - See M/S. MOOKAMBIKA IMPEX VERSUS DCIT CENTRAL CIRCLE-3 (4) , CHENNAI. 2023 (7) TMI 1159 - ITAT CHENNAI Thus we would hold that the assessee has correctly offered the additional income as Business Income only. The provisions of Sec.69 r.w.s. 115BBE would have no application. The Ld. AO is directed to re-compute the income and demand payable by the assessee. The corresponding grounds stand allowed. Addition u/s 56(2)(vii)(b) - difference in stamp duty value and document value with respect to one property which have been purchased by the assessee during the year - assessee raised an additional ground during first appellate proceedings - CIT(A) did not admit the additional ground against which the assessee is in further appeal before us - AR has pleaded for adjudication on merits - HELD THAT - We are of the opinion that since all the facts were available before first appellate authority, this ground should not have been rejected on technical grounds. Nevertheless, we direct Ld. CIT(A) to adjudicate this issue on merits. The grounds thus raised stand allowed for statistical purposes.

Summary

Issues Involved:
1. Determination of the heads of income under which impugned additions would fall.
2. Addition u/s 56(2)(vii)(b) for the difference in stamp duty value and document value of a purchased property.

Summary:

Issue 1: Determination of Heads of Income
The appeals by two different assessees for AY 2017-18 arose from a common order by CIT(A) concerning assessments framed by AO u/s 143(3). The primary issue was to determine the heads of income for impugned additions. The assessee admitted income of Rs. 343.40 Lacs and was scrutinized for cash deposits during the demonetization period. The assessee's family, engaged in money lending business, was surveyed u/s 133A, revealing additional income offered as 'Business Income'. The AO, however, assessed the income as 'income from other sources' due to lack of substantiation that advances were from money lending business, and taxed it as undisclosed investments u/s 69, subjected to tax rate u/s 115BBE.

During appellate proceedings, the assessee argued that the income was unaccounted business income, supported by a list of debtors and confirmation letters from borrowers. The CIT(A) upheld the AO's decision, noting unexplained sources for the Rs. 4.90 Crores increase in advances. However, the Tribunal found that the assessee's family had no other substantial income sources and the discrepancy in debtors arose from the money lending business. The Tribunal concluded that the excess debtors were part of normal business activity and should be taxable as 'business income', not u/s 69, referencing various case laws including M/s Mookambika Impex vs. DCIT and CIT vs Bajargan Traders.

Issue 2: Addition u/s 56(2)(vii)(b)
In ITA No.897/Chny/2023, an additional issue involved an addition u/s 56(2)(vii)(b) for Rs. 4.31 Lacs, representing the difference between the stamp duty value and the document value of a purchased property. The CIT(A) did not admit the additional ground on technical grounds. The Tribunal directed the CIT(A) to adjudicate this issue on merits, allowing the grounds for statistical purposes.

Conclusion:
Both appeals were allowed, directing the AO to re-compute the income and demand payable by the assessee, and the CIT(A) to adjudicate the additional ground on merits. The provisions of Sec.69 r.w.s. 115BBE were deemed inapplicable, affirming the income as 'Business Income'.