Applicability of section 115BBE to surrender made during survey is highly debatable – ITAT

Applicability of section 115BBE to surrender made during survey is highly debatable. ITAT quashed rectification order imposing higher tax rate

ABCAUS Case Law Citation:
ABCAUS 2950 (2019) (05) ITAT

Important Case Laws Cited/relied upon by the parties
Shri Lovish Singhal, Sriganganagar & Ors. Vs. ITO
CIT v/s Bajargan Traders
DCIT vs. Ramnarayan Birla

The assessee had challenged the order of the CIT(A) confirming the leby of maximum marginal rate of 30% by applying the provisions of section 115BBE of the Income Tax Act, 1961 (the Act) to the surrender of stock made during the survey u/s 133A.

A survey u/s 133A of the Act was conducted at the business places of the assessee’s various firms. During the course of survey, certain discrepancies were noticed and loose papers alongwith incriminating documents were found. The assessee surrendered additional income in the year under consideration.

Thereafter, the Assessing Officer issued notice u/s 154 of the Act stating that the income which was surrendered during the course of survey attracted provisions of section 69 of the Act and as per the section 115BBE of the Act, the tax should have been calculated @ 30%.

The Assessing Officer sought the explanation of the assessee. In response, the assessee submitted that since the provisions of section 69 were not applicable in this case, therefore, section 115BBE should not be applied.

The Assessing Officer however, was not satisfied from the submissions of the assessee and held that the surrendered amount was subject to tax @ 30% u/s 115BBE of the Act.

Being aggrieved, the assessee carried the matter to the CIT(A). He submitted that during the course of survey unrecorded stock was found as the books of the assessee were not complete at that time. Accordingly the assessee had filed the return of income and disclosed these items as income from business and profession and paid the due tax accordingly.

It was further submitted that the provisions of section 69 deals with unexplained investment but the assessee was found in possession of stock which was not an investment, in fact, it was the stock in trade and hence the provisions of section 69 of the Act were not applicable.

It was also stated that assessee surrendered the income under the head ‘income from business and profession’ in which the provisions of sections 68 to 69D of the Act were not applicable.

However, the CIT(A) confirmed the action of the Assessing Officer.

Before the Tribunal, the sole contention of the assessee was that the applicability of section 115BBE for surrendered income in the course of survey is highly debatable issue and hence not covered under the preview of section 154 and it was not a mistake apparent from records.

The Tribunal observed that it was an admitted fact that the Assessing Officer invoked the provisions of section 154 of the Act and held that the surrendered amount of the assessee was subjected to tax @ 30% as per the provisions of section 115BBE of the Act.

The Tribunal noted that the Coordinate Bench of the Tribunal had held that the provisions of section 115BBE of the Act were not applicable if the surrender was made on account of excess stock found during the course of survey.

It was noted that the Coordinate Bench had relied upon the judgment of the Hon’ble High Court which had an occasion to answer the issue whether the amount surrendered by way of investment in the unrecorded stock had to be brought to tax under the head “business income” or “income from other sources”. The Hon’ble High Court had held that the investment in the excess stock had to be brought to tax under the head “business income” and not under the head income from other sources.

So, the issue was a debatable, therefore, the CIT(A) was not justified in confirming the action of the Assessing Officer for making the rectification u/s 154 of the Act.

Accordingly, the impugned order is set aside and it is held that the provisions of section 154 of the Act were not applicable in the present case and the Assessing Officer was not justified in making the rectifications u/s 154 of the Act.

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