2021 (5) TMI 956 - AT - Income Tax

Unexplained cash found during the search action - assessee has submitted that neither any incriminating material nor any unexplained expenditure was found during the search action in respect sum surrendered by the assessee company - HELD THAT - A separate surrender of ₹ 97.11 lacs has been made by Shri SB Bajaj Director of the assessee company on account of unexplained cash found during the search action. However, so far as the surrender of ₹ 15 lac to cover any discrepancy is concerned, the AO has not pointed out any unexplained credit in the books of account, any unexplained investment, any unexplained money, bullion or jewellery, any unexplained expenditure or any amount of loan repaid in the assessment order in this respect. Therefore, the provisions of Section 68, 69, 69A, 69B, 69C and 69D are not attracted on the surrendered . The said amount of ₹ 15 lacs was offered in case any discrepancy is found in the books of account. However, in actual neither any unexplained investment nor any unexplained expenditure or otherwise any unexplained asset was found during the search action so far as the aforesaid surrender of ₹ 15 lacs was concerned. In these circumstances, the aforesaid surrender of ₹ 15 lacs can be said to have been offered to cover up the discrepancies in respect of likely disallowances of claims, if any, relating to its business income. Since the aforesaid surrender is not covered under the provisions of Section 68, 69, 69A, 69B, 69C and 69D, the provisions of Section 115BBE are not attracted in this case. The action of the lower authorities in invoking provisions of Section 115BBE on the surrender income is set aside and the AO is directed to compute the said surrendered income under normal provisions as applicable to the business income of the assessee. Appeal of the assessee stands allowed.

Summary

Issues:
1. Invocation of Section 115BBE on surrendered income of ?15 lacs.

Analysis:
The appeal was filed against the order of the Commissioner of Income Tax (Appeals)-5, Ludhiana, regarding the invocation of Section 115BBE of the Income Tax Act on the surrendered income of ?15 lacs. The assessee argued that the surrendered amount did not fall under sections 68, 69, 69A, 69B, 69C, or 69D, and was reflected as "Income from business or profession" in the return. The assessee contended that the amount was surrendered to cover potential discrepancies in the accounts. However, the Assessing Officer (AO) treated it as income from unexplained sources and applied the higher tax rate under Section 115BBE.

During a search operation, the Director of the assessee surrendered ?89.61 lacs on unexplained cash found at his premises, with an additional ?7.50 lacs later surrendered. Subsequently, another ?15 lacs was surrendered to cover any discrepancies. The AO, after the assessee revised the return to include the surrendered amount, invoked Section 115BBE. The assessee challenged this before the CIT(A) but was unsuccessful.

The Tribunal noted that while a significant surrender was made by the Director, the ?15 lacs surrender was specifically to address potential discrepancies in the accounts. No unexplained credit, investment, money, expenditure, or loan repayment was found related to this ?15 lacs. As a result, the provisions of sections 68, 69, 69A, 69B, 69C, and 69D were not applicable to this amount. The Tribunal concluded that the invocation of Section 115BBE was unjustified as the surrendered amount did not fall under the specified sections.

Therefore, the Tribunal set aside the lower authorities' decision to apply Section 115BBE to the surrendered income of ?15 lacs and directed the AO to compute this income under normal provisions applicable to business income. Consequently, the appeal of the assessee was allowed.

This detailed analysis highlights the key arguments, facts, legal provisions, and the Tribunal's reasoning leading to the decision to overturn the application of Section 115BBE on the surrendered income, emphasizing the absence of unexplained elements and the purpose behind the surrender.