2021 (4) TMI 1141 - AT - Income Tax

Addition as headless deemed income - Unaccounted income u/s. 68 to section 69D - Appellant had disclosed the same as undisclosed stock as evident from profit loss account, stock record etc. - CIT(A) held that the value of excess stock found during survey was not to be assessed as business income u/s. 28 - HELD THAT - As stated provisions of section 115BBE, it is noticed provision of section 115BBE(2) has been inserted by the Finance Act 2016 w.e.f. 01.04.2017 which specifically say that no deduction in respect of any expenditure or allowance or set off any loss shall be allowed to the assessee under any provision of the act in computing his income referred to in clause (a) of sub-section (1). In sub-section (2) of section 115BBE as introduced by Finance Act, 2012 only disallowance of expenditure or other allowance was considered against unaccounted income u/s. 68 to section 69D but business loss was not covered. It is only by Finance Act, 2016 w.e.f. 01.04.2017 it is inserted in the provision to deny benefit of set off of any loss. Therefore, in the case of the assessee, if we reduce the business income then we shall arrive at loss In that case the amount of ₹ 50,00,000/- will become taxable under the head income from other sources . But a set off of business loss of ₹ 49,70,470/- shall become allowable since the provision to deny set off of loss is introduced w.e.f. 01.04.2017 in section 115BBE of the Act. Even under these circumstances also, the assessee will derive the gross total income of ₹ 29,530/- . Since the case of the assessee is pertained to assessment year 2015-16, therefore, in the light of the above facts and findings, the appeal of the assessee is allowed.

Summary

Issues Involved:
1. Legality of the addition of ?50 lakh as headless deemed income.
2. Consideration of submissions and evidence by the CIT(A).
3. Classification of the declared income as business income or headless deemed income.

Detailed Analysis:

1. Legality of the addition of ?50 lakh as headless deemed income:
The assessee challenged the CIT(A)'s order upholding the addition of ?50 lakh as headless deemed income, arguing it was illegal, unlawful, and against the principles of natural justice. The assessee contended that the income was disclosed as undisclosed stock in the profit and loss account and stock records. The CIT(A) upheld the addition, stating that the assessee failed to provide sufficient documentary evidence to prove that the stock worth ?1.60 crores was with the marketing team outside Ahmedabad. The CIT(A) further held that any unexplained investment or asset could be deemed income under sections 69, 69A, 69B, or 69C of the Income Tax Act, and no business income deductions are available on such deemed income.

2. Consideration of submissions and evidence by the CIT(A):
The assessee argued that the CIT(A) did not fully and properly consider the submissions and evidence provided. During the survey, discrepancies were found between physical stock and stock as per books, leading to a disclosure of ?50 lakh by the assessee. The assessee explained that the stock discrepancy was due to stock with the marketing team, which was not recorded in the books at the time of the survey. The assessee also claimed that the ?50 lakh was shown in the profit and loss account under "Other income (income tax declaration)" and that the taxable income was reduced due to bank interest/charges amounting to ?74,63,173/-. The CIT(A) dismissed the appeal, relying on the Gujarat High Court's decision in Fakir Mohammad Hazi Hasan, which treated the undisclosed amount as headless income due to a lack of satisfactory explanation from the assessee.

3. Classification of the declared income as business income or headless deemed income:
The assessee maintained that the ?50 lakh declared during the survey was business income and not headless income. The Assessing Officer added the ?50 lakh to the total income, noting that the assessee had not shown the declared income in the return. The assessee argued that the income was shown in the profit and loss account and that the taxable income was less than ?50 lakh due to significant financial charges. The tribunal noted that the lower authorities did not disprove the genuineness of the bank interest/charges expenditure. The tribunal considered judicial precedents, including cases where undeclared investments integral to declared assets were treated as business income. The tribunal also noted that amendments to section 115BBE, which disallow the set-off of losses against unexplained income, were applicable from 01.04.2017 and not relevant to the assessment year 2015-16. Therefore, the tribunal concluded that the ?50 lakh should be treated as business income, allowing the set-off of business losses, resulting in a gross total income of ?29,530/- for the assessee.

Conclusion:
The tribunal allowed the appeal, concluding that the ?50 lakh declared during the survey should be treated as business income, permitting the set-off of business losses, and resulting in a taxable income of ?29,530/-. The tribunal emphasized that the amendments to section 115BBE were not applicable to the assessment year in question.