2022 (11) TMI 126 - AT - Income Tax

Tribunal rules on tax rate for surrendered income under Section 68, emphasizes burden of proof

Assistant Commissioner of Income Tax, Circle-2 (1), Jabalpur. Versus Sandesh Kumar Jain

The Tribunal partly allowed the Revenue's appeal, upholding the addition of Rs. 24 lakhs under Section 68. It held that the tax rate applicable to the ... Correct head of income - Addition u/s 69B v/s business income u/s. 28 - whether the income on account of excess stock found during survey, which is admitted, is assessable as business income u/s. 28, or as income from an undisclosed source u/s. 69 (69B)? - head of income under which the amount represented by excess, i.e., with reference to the assessee’s books of account, stock-in-trade, is liable to be assessed, assumes significance as the tax rate for the unexplained income is chargeable u/s. 115BBE, which is @ 60% w.e.f. 01/04/2017 - HELD THAT: - The tax rate being in respect of incomes which are imputed with reference to a transaction/s, it is possible to administer the same, another aspect of the matter that stands considered by us. That is, a tax rate for transactions made up to 14/12/2016, and another for those thereafter. Subsequent mention of the applicability of the amended provisions of ss. 271AAB and 271AAC with reference to the date on which the Presidential assent to the Act is received, further corroborates this view, which is based on the clear language of the Amending Act, as well as the principle that a substantive amendment is to be generally prospective. We draw support from the decision in Vatika Township Pvt. Ltd. [2014 (9) TMI 576 - SUPREME COURT] reiterating the settled law of the rule against retrospectivity. The tax rate applicable to the impugned income would, therefore, be at 30%, i.e., the rate specified in sec. 115BBE as on 30/11/2016, the date of the surrender of income per statement u/s133A (PB-1, pgs.35-44). This, it may be noted, is also consistent with our view that the income is liable to be assessed u/s. 69B. Addition u/s. 68 - The assessee has deliberately kept the two transactions apart, and the same stand divulged only now. Rather than providing credence, the same debilitates the assessee’s case, clearly suggesting of there being something more to the transaction than meets the eye. Could the same be under circumstance regarded as proved or as satisfactorily explained? To our mind, surely not; the genuineness of the transaction, even the purpose of which stands not explained at any stage, being highly suspect. The excess stock found at survey seemingly suggest of the assessee’s accounts as not reflecting the true state of affairs. It could be a case under-invoicing, as the ld. CIT(A) says, albeit without any material to exhibit the same, which fact was confirmed by us with Shri Bardia during hearing. As it appears to us, then, Rs. 24 lacs represents the on-money on sale of duplex flat to the creditor, who had paid the same in absence of availability of cash. The same was accordingly repaid to him in toto, in March, 2017, subsequent to the sale, on receipt of cash. Assessee, in view of the foregoing, abysmally fails on Revenue’s Gd. 1. We, accordingly, have little hesitation in, vacating the findings by the ld. CIT(A), uphold, in the facts and circumstances of the case, the addition for Rs. 24 lacs and, further, u/s. 68. There is also no scope for telescoping inasmuch as the cash receipt to the assessee, as inferred by us, arises in March, 2017, i.e., after the date of survey on 29/11/2016. The credit entry that is unexplained being in October, 2016, the same being liable to tax u/s. 115BBE, shall yet be at 30%, as opined by us at para 4.2 of this order. Revenue’s appeal is partly allowed. Issues Involved:1. Taxability of surrendered income under Section 69B and applicability of Section 115BBE.2. Addition of Rs. 24 lakhs under Section 68.Issue-wise Detailed Analysis:1. Taxability of Surrendered Income under Section 69B and Applicability of Section 115BBE:The first issue revolves around whether the income on account of excess stock found during a survey is assessable as business income under Section 28 or as income from an undisclosed source under Section 69B of the Income Tax Act. The Assessing Officer (AO) taxed the surrendered amount under Section 69B, applying a tax rate of 60% as per Section 115BBE, effective from 01/04/2017. However, the Commissioner of Income Tax (Appeals) [CIT(A)] allowed relief, stating that the amendment to Section 115BBE increasing the tax rate to 60% was effective from 01/04/2017 and thus not applicable for the financial year 2016-17.The Tribunal found little substance in the assessee's argument that the income should be treated as business income. The Tribunal explained that profits from business cannot be determined mid-year and must be ascertained at the end of the accounting period. The excess stock, not referable to the regular accounts, should be regarded as income from an undisclosed source. The Tribunal emphasized that the burden of proof lies on the assessee to demonstrate that the excess stock represents suppressed profit from business operations. The Tribunal cited various legal precedents to support this view, including CIT vs Ashokbhai Chimanbhai and CIT vs. Ganapathi Mudaliar.Regarding the retrospective application of the amended tax rate under Section 115BBE, the Tribunal agreed with the assessee that the amendment should not apply retrospectively. The Tribunal noted that the amendment, effective from 15/12/2016, should not affect transactions concluded before this date. The Tribunal referred to the decision in CIT vs. Vatika Township Pvt. Ltd., which supports the principle that substantive amendments should generally be prospective. Consequently, the Tribunal held that the tax rate applicable to the surrendered income should be 30%, as specified in Section 115BBE before the amendment.2. Addition of Rs. 24 Lakhs under Section 68:The second issue concerns the addition of Rs. 24 lakhs under Section 68, which was outstanding in the name of an individual. The AO added this amount as the assessee did not furnish relevant documents during the assessment proceedings. The assessee later provided these documents before the CIT(A), who admitted them and called for a remand report. The AO, in the remand report, emphasized that the creditor's bank account statement was not filed, leaving the source of the credit unexplained. The CIT(A) accepted the additional evidence without confronting the AO, leading to the deletion of the addition.The Tribunal found the CIT(A)'s decision to be inappropriate, noting that the CIT(A) had mixed up the grounds related to the stock surrender and the cash credit. The Tribunal emphasized that the CIT(A) should have extended an opportunity for verification of the additional evidence to the AO before relying on it. The Tribunal also highlighted the mandatory nature of Rule 46A and the lack of justification for the admission of additional evidence by the CIT(A).The Tribunal considered whether to admit the additional evidence itself but found no compelling reason to do so. The Tribunal noted that the assessee had not provided a satisfactory explanation for the non-submission of the bank statement earlier. The Tribunal also found the transaction involving the Rs. 24 lakhs to be highly suspect, suggesting that it could represent on-money from the sale of a duplex flat. Consequently, the Tribunal upheld the addition of Rs. 24 lakhs under Section 68, noting that the credit entry remained unexplained.Conclusion:The Tribunal partly allowed the Revenue's appeal, upholding the addition of Rs. 24 lakhs under Section 68 while holding that the tax rate applicable to the surrendered income should be 30%, not 60%, as the amendment to Section 115BBE was not retrospective. The Tribunal emphasized the importance of adhering to procedural rules and the burden of proof lying with the assessee to substantiate claims regarding the nature and source of income.