2025 (4) TMI 583 - AT - Income Tax

Treatment to the surrendered income on account of sundry debtors and excess cash found - income undisclosed or unexplained investment or money u/s 69 69A in place of business income - Whether the same is to be charged to tax at normal rate or the rate as prescribed u/s. 115BBE? - HELD THAT - The assessment proceedings were concluded accepting the return of income but while doing so ld. AO considered that income disclosed on account of debtors recorded in the diary as income chargeable to tax as per provision of section 69 of the Act and charged tax in accordance with the provisions of section 115BBE of the Act. The bench noted in the survey proceeding neither the question as to source or the details of the debtors were asked the assessee on being questioned offered the income for the current year and the same has been accepted and not question was raised about the year of earning that income and thereby the accounted as debtors of the assessee. Since that finding is missing from the time of survey till the completion of the assessment proceeding. Without bringing anything contrary ld. AO could not charge that income chargeable to tax as per provision of section 69 of the Act. As decided in Silver Wings Life Spaces 2024 (7) TMI 1620 - ITAT JAIPUR amounts surrendered by the assessee at the time of survey could not be subjected to tax under the deeming provisions of section 69 69A of the Act. When the source and nature of income had already been considered and accepted the subject amounts were required to be subjected to tax at normal rate. Decided in favour of assessee.

Summary

ISSUES PRESENTED and CONSIDERED

The core legal issues considered in the judgment include:

• Whether the income disclosed during the survey falls within the meaning of section 69 & 69A of the Income Tax Act, 1961, and whether it is subject to tax at the normal rate or the higher rate prescribed under section 115BBE of the Act.
• The validity of the assessment under limited scrutiny and whether the scope was improperly expanded without proper approval.
• Whether the provisions of section 115BBE apply retrospectively to income disclosed during a survey conducted before the amendment.
• Whether the income declared as sundry debtors should be treated as business income or unexplained investment under section 69.
• The applicability of section 69 to the disclosed income and whether the higher tax rate under section 115BBE is justified.
• The treatment of the affidavit filed by the assessee and whether it was wrongly rejected by the CIT(A).

ISSUE-WISE DETAILED ANALYSIS

1. Applicability of Section 69 and Section 115BBE

The relevant legal framework involves sections 69 and 115BBE of the Income Tax Act. Section 69 pertains to unexplained investments, while section 115BBE prescribes a higher tax rate for income deemed under sections 68, 69, 69A, 69B, and 69C.

The Tribunal noted that the income disclosed during the survey was treated as sundry debtors related to the business activities of the assessee. The assessee argued that this income should be taxed as business income, not as unexplained investment under section 69. The Tribunal observed that the revenue did not dispute the source of income or provide any contrary evidence. Therefore, the Tribunal held that the income should be assessed as business income, not under section 69, and thus not subject to the higher tax rate under section 115BBE.

2. Validity of Limited Scrutiny Assessment

The assessment was initially selected for limited scrutiny to examine specific issues. The Tribunal found that the Assessing Officer expanded the scope of scrutiny without proper approval, violating CBDT instructions. The Tribunal cited precedents where assessments were invalidated due to such procedural lapses.

3. Retrospective Application of Section 115BBE

The Tribunal considered whether the amended provisions of section 115BBE, which increased the tax rate, applied retrospectively. The Tribunal referred to judicial precedents, including Supreme Court judgments, emphasizing that amendments imposing additional burdens are generally prospective unless explicitly stated otherwise. The Tribunal concluded that the higher tax rate under section 115BBE could not be applied retrospectively to income disclosed before the amendment.

4. Treatment of Affidavit

The assessee filed an affidavit during the appellate proceedings, which the CIT(A) rejected. The Tribunal noted that the affidavit was not rebutted by the revenue with any contrary evidence. Citing legal principles, the Tribunal held that unchallenged affidavits should be accepted as evidence, and the rejection by the CIT(A) was unwarranted.

SIGNIFICANT HOLDINGS

The Tribunal made several significant holdings:

• The income disclosed during the survey, treated as sundry debtors, should be assessed as business income, not under section 69. Consequently, the provisions of section 115BBE do not apply, and the income is subject to the normal tax rate.
• The expansion of the limited scrutiny assessment without proper approval was invalid, rendering the assessment order procedurally flawed.
• The amended provisions of section 115BBE, imposing a higher tax rate, do not apply retrospectively to income disclosed before the amendment date.
• The affidavit filed by the assessee should have been considered as evidence since it was not rebutted by the revenue.

CONCLUSIONS

In conclusion, the Tribunal allowed the appeal filed by the assessee, setting aside the order of the CIT(A). The Tribunal directed that the income disclosed during the survey be treated as business income, not subject to the higher tax rate under section 115BBE. The Tribunal also highlighted procedural lapses in the assessment process and emphasized the prospective application of tax law amendments.