2024 (11) TMI 1022 - AT - Income Tax

Treatment to income surrendered - Additional income declared during course of survey proceedings - additional income which was offered in the return of income under the head Income from other sources - AO treated it as income from unexplained sources and to be added u/s 68 r.w.s. 115BBE - assessee explained that the amounts in question are nothing but income from land business which are received in cash and are over and above the regular income. Thus, the source of income has clearly been explained as out of business and not from any other activities - HELD THAT - A perusal of the assessment order clearly shows that the assessee has categorically given the details of the land with survey number etc from which he has received excess cash which was not recorded in the books of account and which was surrendered during the course of survey and offered in the tax return. Thus, the assessee has categorically stated the nature and source of income during the course of survey itself which was offered to tax in the return filed. Under these circumstances, we have to see as to whether the provisions of sections 68, 69, 69A, 69B, 69C or 69D r.w.s. 115BBE of the Act are to be attracted or not. As decided in the case of Hari Narain Gattani 2020 (10) TMI 559 - ITAT JAIPUR that where the assessee surrenders undisclosed income during search action for relevant year, it is not necessary that tax rate has to be charged as per provision of section 115BBE. We find in the case of Bajaj Sons Ltd. 2021 (5) TMI 956 - ITAT CHANDIGARH has held that where director of assessee-company surrendered a certain sum during search and the Assessing Officer treated said sum as income from unexplained sources and invoked provisions of section 115BBE and charged tax at a higher rate, since the Assessing Officer had not pointed out any unexplained credit in the books of account, provisions of sections 68, 69, 69A, 69B, 69C and 69D were not attracted on surrendered amount and aforesaid surrender not being covered under the provisions of sections 68, 69, 69A, 69B, 69C and 69D, provisions of section 115BBE were not attracted. Assessee appeal allowed.

Summary

Issues Involved:
1. Whether the additional income of Rs. 2 crore declared during the survey should be taxed as 'income from unexplained sources' under Section 68 read with Section 115BBE of the Income Tax Act, 1961.
2. The applicability of Section 115BBE regarding the tax rate on the additional income declared during the survey.
3. The relevance of the appellant's failure to disclose the names of the persons from whom cash was received in determining the nature of the income.

Issue-wise Detailed Analysis:

1. Taxation of Additional Income as 'Income from Unexplained Sources':

The primary issue was whether the additional income of Rs. 2 crore, declared during a survey under Section 133A, should be treated as 'income from unexplained sources' under Section 68 of the Income Tax Act. The Assessing Officer argued that since the appellant could not explain the source of the additional income, it should be taxed as unexplained credit. The CIT(A) upheld this view, emphasizing that the appellant failed to provide the names of the persons from whom the cash was received, thus failing to establish the source of the income. The appellant contended that the cash receipts were related to land dealings, with specific survey numbers mentioned, indicating a business transaction rather than unexplained income. The Tribunal found merit in the appellant's argument, noting that the appellant had provided details of the land transactions during the survey, thereby explaining the nature and source of the income. Consequently, the Tribunal held that the income should not be classified as 'income from unexplained sources' under Section 68.

2. Applicability of Section 115BBE and Tax Rate:

The second issue concerned the applicability of Section 115BBE, which mandates a higher tax rate for income classified under Sections 68, 69, 69A, 69B, 69C, and 69D. The Assessing Officer and CIT(A) applied this section, resulting in a higher tax rate on the additional income. The appellant argued that the income should be taxed at the normal rate, asserting that it was derived from business activities. The Tribunal referred to several precedents, including cases from Jaipur and Chandigarh Benches, where it was held that if the income arises from business activities and is not unexplained, Section 115BBE should not apply. The Tribunal concluded that since the income was related to land dealings, it should be taxed at the normal business income rate, not under the provisions of Section 115BBE.

3. Non-disclosure of Names and Its Impact:

The appellant's failure to disclose the names of the persons from whom the cash was received was a significant point of contention. The CIT(A) and Assessing Officer viewed this as a failure to establish the source of the income, justifying the application of Section 68. However, the Tribunal noted that the appellant had provided sufficient details about the land transactions and survey numbers, which established a clear nexus between the cash receipts and the land dealings. The Tribunal found that the failure to disclose names did not negate the explanation of the income's source, especially given the detailed information provided about the land transactions.

Conclusion:

The Tribunal allowed the appeal, setting aside the orders of the Assessing Officer and CIT(A). It concluded that the additional income of Rs. 2 crore should not be taxed as 'income from unexplained sources' under Section 68, nor should it be subjected to the higher tax rate under Section 115BBE. The Tribunal emphasized the appellant's explanation of the income's source as related to land dealings, thus treating it as business income to be taxed at the normal rate.