2023 (12) TMI 972 - AT - Income Tax

Income surrendered during survey - excess stock u/s 69B r.w.s. provisions of section 115BBE - nature and source of such unrecorded transactions and the necessary nexus with assessee s business - HELD THAT - No doubt, these transactions were not recorded at the time of survey thus qualify as unrecorded transactions satisfying one of the essential conditions, at the same time, the assessee has provided the necessary explanation about the nature and source of such unrecorded transactions and the necessary nexus with assessee s business has been established, thus, it cannot be said that these are unexplained transactions thus, doesn t satisfy the second condition for invoking the deeming provisions of section 69B of the Act. There is no physical distinction between the accounted stock and unaccounted stock. No such physical distinction was found by the Revenue either. We therefore find that the difference in stock so found out by the authorities has no independent identity and is in terms of value terms only and thus part and parcel of entire stock, therefore, it cannot be said that there is an undisclosed asset which existed independently and thus, what is not declared to the department is receipt from business and not any investment as it cannot be co-related with any specific asset and the difference should thus be treated as business income. In light of aforesaid discussion and in the entirety of facts and circumstances of the case, the income of Rs 50 lacs surrendered during the course of survey cannot be brought to tax under the deeming provisions of section 69B and the same has to be assessed to tax under the head business income . In absence of deeming provisions, the question of application of section 115BBE doesn t arise and normal tax rate shall apply. The AO is thus directed to assess the income of Rs 50 lacs under the head Income from Business/profession and apply the normal rate of tax. Assessee appeal allowed.

Summary

Issues Involved:
1. Treatment of income surrendered during survey on account of excess stock.
2. Application of Section 115BBE of the Income Tax Act, 1961.
3. Consideration of various binding judgments and case laws.

Summary:

1. Treatment of Income Surrendered During Survey:
The assessee, a partnership firm engaged in the business of manufacturing wearing apparels, underwent a survey action u/s 133A of the Income Tax Act on 29.08.2018. During the survey, discrepancies in physical stock verification led to a surrender of Rs. 50,00,000/- as additional business income. This amount was credited to the profit and loss account for the year ending 31.03.2019 and taxed at the normal rate in the return filed on 30.09.2019. The Assessing Officer (AO) later assessed the total income at Rs. 1,90,22,390/- after making additions and applied Section 115BBE on the surrendered amount, treating it under Section 69B for unexplained investments.

2. Application of Section 115BBE:
The AO's application of Section 115BBE was challenged, arguing that the surrendered amount should be treated as business income, not as unexplained investment under Section 69B. The assessee cited several judgments where similar circumstances led to the income being taxed as business income. The Tribunal examined the nature and source of the surrendered income and found it to be business-related, as the stock discrepancy was part of the regular business operations and not from any other source.

3. Consideration of Various Binding Judgments:
The Tribunal referred to multiple judgments, including those from the Chandigarh and Amritsar Benches of ITAT, which supported the assessee's stance. Key judgments cited included Daulat Ram Rawatmull vs. CIT, Shri Harish Sharma vs. The ITO, and M/s. Sham Jewellers, among others. These cases established that when no other source of income is identified, the surrendered amount should be treated as business income, not as deemed income under Section 69B.

Conclusion:
The Tribunal concluded that the surrendered income of Rs. 50,00,000/- during the survey should be assessed as business income and not under the deeming provisions of Section 69B. Consequently, Section 115BBE was not applicable, and the normal tax rate should apply. The AO was directed to assess the surrendered income under the head "Income from Business/Profession" and apply the normal tax rate. The appeal of the assessee was allowed.

Order Pronouncement:
The order was pronounced in the open Court on 01.12.2023.