Without evidence of other source, income to be treated out of normal business of assessee- ITAT

When there is no other/separate source of income identified during the course of survey or during the course of assessment proceedings, any income arising to the assessee shall be treated to be out of the normal business of the assessee only

ABCAUS Case Law Citation:
ABCAUS 3788 (2023) (08) ITAT

Important Case Laws relied upon:
Harish Sharma vs. ITO
Daulatram Rawatmull vs. CIT [1967] 64 ITR 593
Mansfield and Sons v. CIT [1963] 48 ITR 254
M/s. Sham Jewellers

In the instant case, the assessee had challenged the order passed by the CIT(A) in confirming the Assessing Officer’s (AO) order to the extent of considering surrendered  income as Income from undisclosed sources and treating it as unexplained money under section 69A of the Income Tax Act, 1961 (the Act) and charge higher rate of tax under Section 115BBE of the Act.

A survey u/s 133A of the Act was conducted in assessee’s premises. The assessee surrendered an amount under three counts, namely short cash, short stock and other discrepancies/ miscellaneous business income and offered them for taxation as business income.

Subsequently, the case was selected for scrutiny and the out of the surrendered amount related to other discrepancies was taken as income from undisclosed source u/s 69A of the Act and calculated the tax u/s 115BBE in special rate. Rest of the surrendered amount was taken as normal business income and tax was calculated as normal rate.

The CIT(A) upheld the order of the AO.

The assessee relied upon the judgment of the coordinate bench where during the course of assessment proceedings, the various explanations submitted by the assessee had duly mentioned that the surrendered income was derived from the business. The assessment order nowhere had contradicted the explanation of the assessee. The AO had not brought on record any evidence to demonstrate that the assessee had any other source of income except income from business. In such circumstances and fcats the ITAT had held that deeming such income under the provisions of sections 68 or 69 would not hold good.

In the instant case, the Tribunal observed that the revenue was not able to submit any evidence during

assessment and appeal proceeding that the said income is not connected with the business income of the assessee or accumulated from non-recognising source.

The Tribunal opined that when all the incomes earned by the assessee were only from the business income of the assessee, there do not arise any question as to application of provisions of section 69A of the Act and hence taxing such income at special rate as per section 115BBE is improper.

The Tribunal stated that it is a settled principle in law that when there is no other/separate source of income identified during the course of survey or during the course of assessment proceedings, any income arising to the assessee shall be treated to be out of the normal business of the assessee only.

Accordingly, following the judgment of the Co-ordinate Bench, the Tribunal held that the conversion of business income into other income and application of section 69A was bad and illegal and levy of tax u/s 115BBE was quashed. 

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