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Facts
During a survey, the assessee surrendered Rs. 1,00,50,041/- which included amounts for renovation and excess stock. The Assessing Officer (AO) applied Section 69A/69C and Section 115BBE, taxing it at 60%. The assessee argued that these amounts were business income.
Held
The Tribunal held that for Section 69A/C to apply, there must be discovery of unexplained money or articles not recorded in books. The assessee had explained the source of funds as business income, and the Revenue had not falsified this explanation. Therefore, the surrendered income should be assessed under normal business income provisions.
Key Issues
Whether surrendered amounts for renovation and stock discrepancy during a survey are to be treated as unexplained income under Section 69A/69C and taxed under Section 115BBE, or as business income.
Sections Cited
69A, 69C, 115BBE, 133A, 131
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, DIVISION BENCH, ‘B’ CHANDIGARH
Before: SHRI RAJPAL YADAV & SHRI KRINWANT SAHAY
Assessee by : Shri Sudhir Sehgal, Advocate Revenue by : Dr. Ranjit Kaur, Addl.CIT, Sr.DR Date of Hearing : 13.01.2025 Date of Pronouncement : 17 .01.2025 PHYSICAL HEARING O R D E R PER RAJ PAL YADAV, VP
The assessee is in appeal before the Tribunal against the order of the Commissioner of Income Tax (Appeals) [in short ‘the CIT (A)’] dated 16.02.2024 passed for assessment year 2020-21.
The assessee has taken five grounds of appeal, but its grievance revolves around a single issue namely, ld. CIT(A) A.Y.2020-21 2 has erred in upholding the application of Section 69A/69C read with provisions of Section 115BBE of the Income Tax Act on the income surrendered by the assessee during the course of survey amounting to Rs.1,00,50,041/-.
The brief facts of the case are that assessee is an individual running a proprietorship concern namely M/s Mittal Enterprises, Ludhiana. He was engaged in the business of trading of yarn and yarn waste. He has filed his return of income on 10.02.2021 declaring total income at Rs.2,70,64,470/-. A survey action under Section 133A of the Income Tax Act was conducted upon the business premises of the assessee on 05.03.2020. During the course of survey operation, assessee had made surrender of Rs.1,50,00,000/- which included Rs.48,48,280/- incurred on account of renovation of office building and Rs.52,01,761/- on account of alleged excess stock found at the business premises of the assessee. These amounts have been offered by the assessee for taxation but AO has applied Section 69A/69C and applied the rate of taxation at 60% provided under Section A.Y.2020-21 3 115BBE. He was of the view that this is unexplained income of the assessee.
Appeal to the CIT(A) did not bring any relief to the assessee.
The ld. Counsel for the assessee took us through the statement of the assessee recorded under Section 131/133A of the Income Tax Act on the date of survey. Typed copy of this statement is available at page No.55 of the Paper Book.
He specifically drew our attention towards Question No. 12, 14, 18 and 19 of the statement. On the strength of these replies, he submitted that at that very time it was disclosed by the assessee that source of funds for this declaration is the business income. For the facility of reference, we take note of these questions and their answers :
Q 12. I am showing you printout of office building account placed at page number 2 to 7 of the impounded documents where in amount of Rs. 48,48,280/- is mentioned, Please produced the connected ledger account where these expenses/payments have been recorded? Ans. I have recently made renovation but the same has not been recorded in our books till today. Anyhow, I surrender a sum of Rs. 48,48,280/- on account of renovation of the office building carried out during the year and offer to pay tax voluntarily, subject to no penal action. It is further submitted that the amount of renovation is spend out of business earned during the year.
ITA No.198/CHD/2024 A.Y.2020-21 4
Q14. On the perusal of trail balance, it is observed that no stock in recorded but on actually verification of your godown at Tibba Road, Ludhiana it is found that actual stock of amount of Rs. 52,01,761/-. Please explain the discrepancy? Ans. The stock in lying there due to some purchases at present. I cannot say anything anyhow just to buy piece with the department. I surrender a sum of Rs. 52,01,761/- subject to penal action and I will deposit tax and advanced tax on the amount of Rs.52,01,761/-. Further, stock is a part of my business and may kindly be treated as business income. Q.18. I am showing you page number 152 of impounded documents wherein an / amount of Rs. 2,87,05,921 is reflected under the head "Bad debt" account out of which Rs. 2,34,14,753/- pertain to Vaibhav Yarn Limited. Please provide evidence that the amount has been treated is bad debt during the year? Ans. The copy of ledger account for F.Y. 2014-15 and 2015-16 have already been produced for verification alongwith specimen copy of bills issued by M/s Vaibhav Yams Mills Pvt. Ltd. The amount is outstanding in our books of account since 31.03.2016 at Rs. 2,34,14,753/-. We are request the party to settle and pay the amount. However, party is not paying an amount for the last three- four years. Hence, the amount has been classified as bad and doubtful debt,
Q. 19 Do you want to say anything else? Ans. I do not want to anything else I have already voluntarily disclosed an amount of Rs. 1,00,50,041/- during the F.Y. 2019-20 relevant to assessment year 2020-21 as additional business income over and above my regular profits subject to no penal action. I undertake to pay the due advance tax on the additional income offered on or before 31.03.2020. The proceedings u/s 133A have been carried in very peaceful and cordial atmosphere and the additional income has been offered voluntarily to buy peace of mind without any pressure as far.
Contrary to this, there is nothing possessed by the Revenue.
On the other hand ld. DR contended that the Revenue Authorities have specifically held that these are unexplained incomes of the assessee which required to be assessed under separate rate of taxes. She relied upon impugned orders.
ITA No.198/CHD/2024 A.Y.2020-21 5
We have duly considered the rival contentions and gone through the record carefully. In order to attract Section 69A/C, there has to be discovery of any money, bullion, jewellery or other valuable articles owned by the assessee and such money, bullion, jewellery etc. is not recorded in the books of account of the assessee maintained by him for any source of income and the assessee offers no explanation about the “nature and source of acquisition” of the money.
If this provision is being examined in the light of explanation given by the assessee even during the course of survey, then it would reveal that assessee has specifically emphasized expenditure of Rs.48,48,280/- out of business income. He emphasized that he would have taken note of these expenses in the books of account which are not complete. As far as the sum of Rs.52,01,761/- is concerned, this was added on account of discrepancy in the stock. Nobody has weighed stock even during the course of survey. They just pointed out certain discrepancies and assessee said in order to end the litigation with the Revenue and having peace of mind, he offered it for taxation. Nowhere in the Survey Report, it has been alleged how much was the Opening Stock, how much was lying at the premises. It was a waste cotton yarn. Had A.Y.2020-21 6 it been actually weighed, then it would have to be lifted with the help of crane. It would have been taken on the weighing scale. In order to avoid all this exercise, assessee offered excess stock for assessment. But he put a caveat that he should not be visited with penalty or other penal consequence. Thus, his statement is to be read in the light of the provisions of Section 69A or 69C which provides unexplained expenses, whose nature and source was not explained. It is pertinent to note that during the survey itself, assessee has explained the nature of expenses and the source from where expenses have been incurred/assets have been acquired. According to the assessee, the source was of business income. The revenue has not falsified this explanation. We could appreciate the case of the Revenue had some investments in shares was found or some investment in the land is found, which has no connection with the regular source of business income but there was nothing that sort of nature noticed by Survey Team.
Therefore, this declared income deserves to be assessed under the regular provisions. In the past, we find that this issue has fallen for consideration before the ITAT on a number of occasions, we make reference to some A.Y.2020-21 7 observations of the ITAT in some of the cases, which read as under :
* Hon'ble Chandigarh (Jurisdictional) Bench of ITAT in the case of M/s. Sham Jewellers in 1TA No. 375/CHD/2022, wherein, it has been held as under:
"Ground Nos. 8 & 9 challenge the action of the lower authorities in applying the provisions of section II5BBE and thereby charging tax at the rate of 60%. The main thrust of the arguments of the id. AR has been that all the additions made or sustained relate only to the business income of the assessee and that nowhere in the assessment order has it been alleged that some other source of income had been detected which gave rise to additional income. It is seen that during the course of assessment proceedings, the various explanations submitted by the assessee hove duly mentioned that the surrendered income was derived from the business. A perusal of the assessment order would also show that nowhere in the body of the assessment order, the AO has even contradicted this explanation of the assessee. The AO has not brought on record any iota of evidence to demonstrate that the assessee had any other source of income except income from business and, therefore, it is our considered view that deeming such income under the provisions of sections 68 or 69 would not hold good. In our view, in such a situation, the AO could not have legally and validly resorted to taxing the income of the assessee at the rate of 60% in terms of provisions of section 115BBE of the Act."
* In addition to this, in the case of M/s. Sham Fashion Mall in the Hon'ble Chandigarh Bench of IT AT has held as under: in the case of Sham Fashion Mall, the only issue before us is the challenge to the provisions of section 115BBE by the AO and its sustenance by the Ld. CIT-(A). In this case the returned income has been accepted by the AO. We have also gone through the assessment order as well as the order of the Ld. CIT-(A) and it is seen that nowhere in the orders of both the lower authorities is there any fact brought on record or even a whisper of any allegation against the assessee that the assessee had any other source of income except income from business and income from other source. There is no iota of evidence to even suggest that the lower authorities had unearthed any other source of income of the assessee except under the heads of income declared by the assessee in the return of income. Therefore, in absence of any such evidence of any other undisclosed source of income of the assessee having been detected by the tax authorities, we are afraid that A.Y.2020-21 8 the invocation of provisions of section 115BBE will not hold good in the present case as well. The detailed reasons and observations in this regard have already been incorporated in Para 10.17 to 10.23 of this order in the case of M/s Sham Jewellers wherein also we have rejected the action of the Income Tax Authorities in applying the provisions of section I15BBE of the Act. Likewise, on identical facts and on identical reasoning and law, we allow the grounds of the assessee in the present appeal also and hold that the application of provisions of section 115BBE of the Act in the case of M/s Sham Fashion Mall was bad in law and the same cannot be sustained. 13.0 In the result, also stands allowed." • Hon'ble Chandigarh (Jurisdictional) Bench of ITAT in the case of Gaurish Steels Pvt. Ltd. as reported in 82 Taxmann.com 337, wherein, it has been held as under:
"It has been held that income surrendered by the assessee during the survey on account of discrepancy in cost of construction of building, discrepancy in stock and discrepancy in advances and receivables would be considered as business income and not as deemed income under section 69."
• In the case of Bajaj Sons. Ltd., the Hon'ble Chandigarh Bench of ITAT, has stated as under:
'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 amount of Rs. 15 lacs. The said amount of Rs. 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 Rs. 15 lacs was concerned. In these circumstances, the aforesaid surrender of Rs. 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.
9. In view of this, since the aforesaid surrender is not covered under the provisions of Section 68, 69, 69A, 69B, 69C and 69D, the provisions of Section II5BBE are not attracted in this case.
10. In view of the above, the action of the lower authorities in invoking provisions of Section II5BBE on the surrender income of Rs. 15 lacs is set aside and the AO is directed to compute the said surrendered A.Y.2020-21 9 income under normal provisions as applicable to the business income of the assessee.
In the result, appeal of the assessee stands allowed." * The binding judgment of Hon'ble Chandigarh Bench in the case of The DCIT vs M/s Khurana Rolling Mills Pvt. Ltd. as reported in ITA No. 745/CHD/2016.
'9. In the facts of the present case, it is not disputed that the surrender had been made on account of undisclosed debtors. Since the facts are identical to that in the case of Famina Knit Fobs (supra), and no distinguishing facts have been brought to our notice by the Ld. DR, the decision rendered in that case will also apply to the present case, following which we hold that the Ld. CIT{A) had rightly treated the surrendered income as in the nature of business income of the assessee and accordingly, allowed the benefit of set off of losses against the same. The order of the Ld.CIT(A) is accordingly, upheld. The ground raised by the Revenue is dismissed." * In the case of Prashanti Surya Conduction Co. Pvt. Ltd. in the Hon'ble Chandigarh (jurisdictional) ITAT Bench has held as under. "Since the facts of the present case are identical to that in Gaurish Steels Pvt. Ltd. (supra), the surrender having been made by the assessee on account of investment made in the BOT project which was the business of the assessee, the decision rendered by the I.T.A.T. in the said case will squarely apply in the present case, following which we hold that the income surrendered by the assessee of Rs. 1.75 crores is assessable under the head income from business and profession".
* In the case of M/s. Arora Alloys vs. DCIT in the Hon'ble Chandigarh (jurisdictional) ITAT Bench has held as under.
"In the light of the above, let us examine the facts of the present case. The stand of the assessee is that expenditure incurred for construction of building was from the routine business, and such addition of Rs.32 lakhs ought to be treated as business income. We find force in this contention of the Id. counsel for the assessee, because the expenditure incurred for creating a business asset and it must have been generated through the business carried out by the assessee. It is pertinent to bear in mind that expenditure laid out for the purpose of business is to be .allowed deduction either as expenditure or to be capitalized on which depreciation will be allowed. The assessee might have earned income from the business which has not been accounted and used for constructing the business asset, though specific details have not been A.Y.2020-21 10 discussed either in the impugned order about the nature of evidence found during the course of survey. We also need not to ponder on this aspect because the assessee has admitted this unexplained expenditure on construction of building. This admission has to be accepted as given by the assessee, wherein it was alleged that it is for the purpose of the business. Therefore, to the extent the expenditure incurred for construction of the building, out of unexplained source is concerned, it is to be construed as earned from the business and it will take character of the business income. Once this income is to be assessed under the "business income", then all incidental benefits for set off from brought forward loss or any other expenditure is to be given to the assessee."
In view of above discussion, this appeal is allowed. The AO is directed to assess the sum of Rs.1,00,50,041/- under normal provisions. In other words, same rate of tax is to be applied which is applied on the declared income of Rs.2,70,64,470/-. To make it specific, this surrendered income be not assessed under Section 115BBE. Normal rate of taxation be applied on it.
In the result, appeal is allowed.
Order pronounced on 17.01.2025.