2023 (10) TMI 370 - AT - Income Tax

Unexplained cash payments - unaccounted receipts from the demonetization period were to be treated as unexplained as it had been preceded by IDS and then succeeded by PMGKY schemes - DR submitted that the assessee s case is clearly covered under the provisions of section 115BBE - DR submitted that the IDS disclosure that was made to disclose the undisclosed amounts of prior assessment years cannot be considered for AY 2017-18. Hence, the IDS amount paid by the assessee-firm and partner cannot be allowed for the purpose of telescopic benefit - As per assessee no material evidence was brought on record by the Ld. AO to prove that it is not a business income - HELD THAT - CIT(A) has verified the income declared under IDS 2016 which was filed by the assessee on 26/09/2016 and based on such finding the Ld. CIT(A) has allowed the telescoping benefit claimed by the assessee. Further, we find force in the argument of the Ld. AR that the Ld. AO has not brought any material evidence to prove that it is not the business income of the assessee. Even before us, the Revenue has not produced any records supporting the claim of the Ld. AO. Further, we find that the Ld. AO has also failed to examine how the assessee generated the cash deposit outside the books of account. No documentary evidence was also gathered by the Revenue with respect to the excess stock as contended by the Ld. AO. Further, from the sworn statement of Sri Grandhi Ramjee, in response to Q. No. 15, he had admitted that an amount was generated by the assessee firm outside the books of account during the FY 2016-17. Further, in response to Q. No. 16, he has also admitted that the assessee-firm has offered Rs. 1 Cr under IDS scheme in the name of the assessee-firm and partners and has requested to give the telescoping benefit to pay the tax on the balance amount of Rs. 3,65,27,000/- We are of the considered view that the Ld. CIT(A) has rightly held that the assessee had explained nature and source of payment of Rs. 4.65 Crs - income of Rs. 4.65 Crs for the AY 2017-18 represents partly the transaction found in a search U/s. 132 of the Act. The transaction of the appellant was found in the search case of DRK Reddy Educational Society. The transaction has not been recorded in the books of account maintained in the normal course of business. Therefore, it is purely undisclosed income but cannot be unexplained as it does not form part of books of account. The appellant had also explained the source being cash generated out of business. It is for the Assessing Officer to examine how the sales were generated and the manner in which the undisclosed income is generated. AO s contention that no excess stock was found has not basis in the absence of any details of stock. The only point on which the survey conducted is the value of investment and no other details. Thus the appellant had explained that nature and source of payment - Decided against revenue.

Summary

Issues Involved:
1. Treatment of cash payments as 'unaccounted but explained' or 'unexplained'.
2. Applicability of Section 115BBE for taxation of undisclosed income.
3. Eligibility for telescoping benefit of income disclosed under IDS 2016.

Summary:

Issue 1: Treatment of Cash Payments
The Revenue challenged the Ld. CIT(A)'s decision to treat cash payments of Rs. 4,65,27,000/- as 'unaccounted but explained'. The Ld. DR argued that these payments should be considered 'unexplained' as they were made during the demonetization period and were not disclosed under the IDS or PMGKY schemes. The Ld. AR defended the Ld. CIT(A)'s decision, stating that the source of cash was business receipts generated outside the books of account, which was admitted in the sworn statement. The Tribunal upheld the Ld. CIT(A)'s decision, noting that the Revenue failed to provide evidence that the cash was not business income and did not examine how the cash was generated outside the books.

Issue 2: Applicability of Section 115BBE
The Revenue contended that the undisclosed income should be taxed under Section 115BBE at special rates. The Ld. AO had denied the telescoping benefit and considered the cash as unexplained, invoking Section 115BBE. The Ld. CIT(A) disagreed, finding that the assessee had explained the source of income as business receipts. The Tribunal supported the Ld. CIT(A)'s view, stating that the Ld. AO did not provide evidence to prove the income was not from business, thus Section 115BBE was not applicable.

Issue 3: Eligibility for Telescoping Benefit
The Ld. AO denied the telescoping benefit of Rs. 1 Cr disclosed under IDS 2016, arguing it was for prior assessment years. The Ld. CIT(A) allowed the benefit, verifying the IDS disclosure and finding that the source of income was explained. The Tribunal upheld the Ld. CIT(A)'s decision, noting that the Revenue did not raise a specific ground regarding telescoping in the appeal.

Conclusion:
The Tribunal dismissed the Revenue's appeal, supporting the Ld. CIT(A)'s decisions on all issues. The Cross Objection by the assessee was also dismissed as infructuous, as the Tribunal upheld the Ld. CIT(A)'s order.