Cash surrendered during survey not covered by deeming provisions of section 69 and 69A – ITAT
In a recent judgment, ITAT Amritsar has held that excess cash found and surrendered during survey was not covered by deeming provisions of section 69 and 69A hence not taxable at higher rate under section 115BBE.
ABCAUS Case Law Citation:
4188 (2024) (08) abcaus.in ITAT
In the instant case, the assessee had challenged the order passed by the CIT(A) in upholding the income surrendered during survey assessable as deemed income under sections 69 and 69A of the Income Tax Act, 1961 (the Act) and not as business income.
The main ground raised by the assessee was relating to applicability of tax rates as prescribed u/s 115BBE, of the Act with respect to the income surrendered by the assessee in course of survey u/s 133A of the Act.
The appellant assessee was an individual, engaged in purchase and sale of bakery products and was also running a small restaurant in the same premises. The assessee maintained regular books of accounts and regularly filed returns of income supported by auditor’s report.
A survey u/s 133A was conducted at the said premises. During the course of survey, inventory of stock and cash was taken by the survey team and some loose papers and documents were also impounded from the premises. Though there was no discrepancy in stock, excess cash was found at the premises, compared to books of accounts and entries in the impounded loose sheets were found unrecorded in regular books of the assessee.
The assessee explained the unrecorded entries in the loose sheets as receivables from parties against sales and advances to parties for goods and raw materials and the excess cash available in the shop was explained to have come out of restaurant sales and sales of bakery products.
The assessee agreed to surrender the excess cash and entries. As per the surrender letter the assessee declared that the above income will be declared in the return, which will be in addition to the normal business profits and the surrender is being made voluntarily subject to that no penalty and prosecution shall be carried out against him.
Subsequently, the assessee declared the said income in the return as business income and has paid full tax at normal rates.
The assessment was completed by the Assessing Officer (AO), on the returned income without any variation u/s 143(3) of the Act, but the surrendered income was charged to tax under the deeming provisions of section 69 of the Act, at rates applicable u/s 115 BBE, relying on the observation of the Hon’ble Punjab and Haryana High court that merely because an assessee carries on certain business, it does not necessarily follow that the amounts surrendered by him are on account of its business transactions. There is no presumption that amount surrendered by an assessee is his business income. It is for the assessee to establish the source of such surrendered income.
Before the Tribunal, the assessee contended that the entries found by the survey team, in the impounded documents was advances / ugrahi, meaning receivables from parties against sales and advances to parties for goods and raw materials and the excess cash available in the shop has been explained to have come out of restaurant sales and sales of bakery products.
It was submitted that surrendered amount had been duly recorded and capitalized in the balance sheet, and in the computation of income, the surrendered income was offered for taxation as business income. The same which was accepted by the AO after examination of all books of accounts in course of scrutiny, without any variation or any adverse findings.
It was further submitted that the revenue had not brought on record any evidence to prove that the assessee was engaged in any other business or activity, which can generate excess cash other than the bakery and restaurant business carried on by the assessee.
In support of his contentions, the assessee relied on various judicial decisions and submitted
that the facts of the judgments relied upon by CIT(A) were different from the facts of the case of the assesse.
The Tribunal opined that provisions of section 69 and section 69A of the Act, are attracted in cases of unrecorded transactions, whose nature and source is unexplained. In the instant case it was admitted fact that the assessee was carrying on a business of bakery and restaurant, which was a running business activity, and the source of income surrendered in course of survey was duly explained to have been earned out of bakery and restaurant business itself, which was the regular business activity of the assessee. Even otherwise also the revenue had not unearthed any other source of income activity other than what is disclosed by the assessee.
The Tribunal observed that the Co-ordinate Bench had held that the preponderance of probability, is that the debtors were sourced from the business of the assessee. Therefore, there was no question of treating it as deemed income from undisclosed sources u/s 69, 69A, 69B, or 69C of the Act and the same was held to be in the nature of business income of the assessee.
Similarly, the Co-ordinate Bench in another case where revenue was unable to show any other sources related to excess cash found in the survey, held that the application of section 115BBE was bad in law.
The Tribunal observed that in the instant case the facts were identical, to the case decided by the coordinate Amritsar Benches, and in the instant case the assessee had explained from the very first day that the excess cash found, was out of business sales of bakery and restaurant carried on by the assessee and the revenue had not brought on record any other activity of the assessee which was capable of generating the excess cash. Moreover, the department had not disputed the explanation of the assessee on the date of survey and had accepted the quantum surrender of the assessee being fully satisfied and accepted the same and there was no discontent of the department as far as the survey report is concerned.
The Tribunal further observed the decision of the jurisdictional High court where the Hon’ble court had held that “the statement of surrender has got to be accepted in toto or has got to be ignored”.
The Tribunal held that the excess cash found and surrendered during survey and the entries in loose documents and diaries, impounded, during survey, were all related to, and sourced, out of the regular business of bakery and restaurant, carried on by the assessee and the total surrendered amount were to be considered as business income of the assessee and the deeming provisions of section 69 and 69A of the Act were not applicable to the facts of the instant case and as such applicability of section 115BBE of the Act does not arise.
Accordingly, assessee’s appeal was allowed.
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