2023 (9) TMI 677 - AT - Income Tax

Unexplained cash credits u/s. 68 - taxability u/s. 115BBE - amount offered under the caption Incentives and Discounts relating to cash deposits made in the bank account - on analysis of financial results, including purchase and sale and also stock position before demonetization and after demonetization, the AO came to the conclusion that the assessee has suppressed turnover and whatever unaccounted income earned from said turnover has been brought into books as income from discounts and incentives - As per CIT(A) it is assessable under the head income from business and profession - HELD THAT - As clearly admitted by the Assessing Officer in the assessment order, the appellant had disclosed income from discounts and incentives for last two assessment years and the Department has accepted the claim of the assessee. Further, the disclosure made by the appellant is taken support from the conclusion drawn by the AO in light of analysis of purchase and sales turnover for last five years, where the AO had recorded categorical finding that after demonetization, the sales turnover of the assessee has been increased by more than 100%. AO further concluded that the assessee has routinely suppressed its turnover and generated unaccounted cash over the period and the same has been brought into books in the form of discounts and incentives. Therefore, from the reasons given by the AO, it is abundantly clear that the income disclosed under the head discounts and incentives is inextricably linked to the business activity of the appellant. Therefore, once the nature and source of credit found in the books of accounts of the assessee is linked to business, then any income generated out of such business activity is assessable under the head income from business and profession alone, but not under the provisions of section 68 of the Act. The ld. CIT(A), after considering relevant facts has rightly held that income declared by the appellant towards discounts and incentives is assessable under the head income from business and profession, but not u/s. 68 of the Act. Application of provisions of section 115BBE - In the present case, since the assessee has declared income under the head profit and gains of the business, and further the same has been held so, the question of application of higher rate of tax under provisions of section 115BBE of the Act, does not arise. The ld. CIT(A), after considering relevant facts has rightly directed the Assessing Officer to compute tax in respect of income declared under the head profit and gains of business towards discounts and incentives, under normal rate of tax applicable to firms. Thus, we are inclined to uphold the findings of the ld. CIT(A) and reject grounds of appeal taken by the revenue. Enhanced rate of tax - application of provisions of section 115BBE of the Act, in light of amendment to section 115BBE of the Act by the Taxation Laws (Second Amendment) Bill, 2016 - We find that, although the Ld. Counsel for the assessee and the ld. DR present for the revenue has argued the issue of applicability of enhanced rate of tax by the Taxation Law (Second Amendment) Bill, 2016 which has received assent of the President on 15.12.2016, but fact remains that income declared by the appellant towards discounts and incentives under the head income from business and profession has been held to be assessable under the head income from profit and gains of business, the question of adjudication of legal ground taken by the appellant and argued by the ld. DR becomes infructuous in nature and thus, the same is therefore not taken up for adjudication. But, we left open the issue for adjudication at appropriate times, if issue arises for consideration. Appeal filed by the revenue is dismissed.

Summary

Issues Involved:
1. Whether the income declared under the head "Incentives and Discounts" should be treated as business income or unexplained cash credits under Section 68 of the Income Tax Act.
2. Applicability of Section 115BBE for taxing the income declared under "Incentives and Discounts."

Summary:

Issue 1: Treatment of Income under "Incentives and Discounts"
The Revenue challenged the CIT(A)'s direction to treat the amount declared under "Incentives and Discounts" as business income rather than unexplained cash credits under Section 68. The assessee, engaged in trading gold jewellery and other items, had deposited significant cash during the demonetization period. The Assessing Officer (AO) concluded that the income declared as "Incentives and Discounts" was from suppressed sales turnover and treated it as unexplained cash credits, invoking Section 68. However, the CIT(A) found that the AO did not provide specific reasons for changing the head of income and noted that the AO had accepted the income as linked to business activities. Thus, the CIT(A) held that the basic ingredients of Section 68 were not satisfied, and the income should be treated as business income.

Issue 2: Applicability of Section 115BBE
The AO applied Section 115BBE, imposing a higher tax rate on the income declared under "Incentives and Discounts." The CIT(A) disagreed, stating that once the income is linked to business activities, it should be taxed under normal provisions applicable to business income, not under Section 68. The Tribunal upheld the CIT(A)'s decision, noting that the AO had accepted the income as arising from business activities, and therefore, Section 115BBE was not applicable.

Conclusion:
The Tribunal dismissed the Revenue's appeal, confirming that the income declared under "Incentives and Discounts" should be treated as business income and taxed under normal provisions, not under Section 68 or Section 115BBE. The legal arguments regarding the amendment to Section 115BBE were deemed infructuous as the income was held to be business income.