2023 (2) TMI 639 - AT - Income Tax

Surrendered business income not subject to amended tax provisions

The Tribunal dismissed the Revenue's appeal, affirming that the surrendered income was classified as business income and not subject to the amended ... Applicability of amended section 115BBE as prospective law - taxation of surrendered excess stock and cash as business income versus deemed income under sections 69/69A/69B - effect of search and survey disclosures on subsequent assessmentApplicability of amended section 115BBE as prospective law - retrospective operation of tax amendments - Amendment to section 115BBE (w.e.f. 01.04.2017) could not be applied to search/survey disclosures made on 28.09.2016 and was not attracted to assessment completed at returned income for AY 2017-18. - HELD THAT: - The Tribunal accepted the CIT(A)'s finding that the search and survey occurred on 28.09.2016 and the amendment to section 115BBE was inserted later (15.12.2016) with operative effect from 01.04.2017. The authorities relied upon establish that a substantive taxing amendment is to be given prospective effect unless specifically made retrospective. As the assessing officer applied the amended provision to the facts of the case as of the date of search (28.09.2016), such application was erroneous. The amended scheme of section 115BBE, which imposes the higher rate and disallows set-offs where income under sections 68-69D is involved, therefore did not apply to the surrendered income in this case, where assessment was completed at the returned income without fresh additions. [Paras 4, 8]Amended provisions of section 115BBE are not applicable to the surrendered income in this case and AO erred in invoking them.Taxation of surrendered excess stock and cash as business income - scope of deeming provisions under sections 69/69A/69B - effect of acceptance of returned income by the assessing officer - The surrendered amounts constituted business income of the assessee and were not caught by the deeming provisions (sections 69/69A/69B) so as to attract section 115BBE, given the facts and acceptance by the AO. - HELD THAT: - The Tribunal endorsed the CIT(A)'s findings that (i) the assessee, a trader in jewellery and bullion, surrendered excess stock and cash during search and survey, (ii) the assessee explained the source as income from its declared business activities (forward commodity trading, mediation, sale of jewellery), and (iii) the assessee included the surrendered amount in the return filed under section 139(1), which the AO accepted and completed assessment at returned income without making additions under sections 69/69A/69B. The Tribunal relied on consistent judicial authority holding that where excess stock/cash is part of mixed business stock and its source is satisfactorily explained, it is assessable as business income rather than as a separately identifiable asset under deeming provisions. Because the AO did not make any addition under the deeming provisions and accepted the returned income, the higher penalised tax treatment under section 115BBE was not warranted. [Paras 5, 6, 7, 8]Surrendered excess stock and cash are taxable as business income and do not fall within sections 69/69A/69B for invoking section 115BBE in the present facts; AO's contrary stance rejected.Final Conclusion: Revenue's appeal dismissed: the Tribunal upheld the CIT(A)'s conclusion that (i) the amended section 115BBE could not be retrospectively applied to search/survey disclosures of 28.09.2016 and (ii) the surrendered excess stock and cash, having been explained as business receipts and accepted in the return without additions under deeming provisions, are taxable as business income and not liable to the penalised treatment under section 115BBE. Issues Involved:1. Applicability of amended provisions of Section 115BBE of the Income Tax Act, 1961.2. Classification of surrendered income as business income or deemed income under Sections 68, 69, 69A, 69B, 69C, or 69D.3. Retrospective application of tax amendments.Detailed Analysis:1. Applicability of Amended Provisions of Section 115BBE:The primary issue was whether the amended provisions of Section 115BBE, effective from 01/04/2017, could be applied retrospectively to the Assessment Year 2017-18. The Revenue argued that the amended provisions should apply to the surrendered income of Rs. 4,53,43,587/- determined under Section 69B. The Tribunal noted that the amendment came into force on 01/04/2017, and the search occurred on 28/09/2016, making the retrospective application inappropriate. The Tribunal cited the Supreme Court's ruling in CIT vs. Vatika Township Pvt Ltd, emphasizing that amendments to tax statutes should not impose retrospective levies causing undue hardship to the assessee.2. Classification of Surrendered Income:The Revenue contended that the surrendered income should be taxed under the amended provisions of Section 115BBE, treating it as unexplained money under Section 69A and unaccounted investment under Section 69B. The assessee argued that the surrendered income was business income from trading in bullion and mediation. The Tribunal agreed with the assessee, noting that the excess stock and cash were part of the business income, supported by various judicial precedents, including Bajrang Traders vs. ACIT and Fashion World vs. ACIT. The Tribunal emphasized that the AO did not make any addition under Sections 69A or 69B and accepted the returned income, including the surrendered amount as business income.3. Retrospective Application of Tax Amendments:The Tribunal highlighted that the amendment to Section 115BBE was prospective and could not be applied retrospectively to the financial year 2016-17. The Tribunal referenced several judgments, including those from the Rajasthan High Court and ITAT benches, supporting the view that substantive law should be applied prospectively unless explicitly stated otherwise. The Tribunal concluded that the AO erred in applying the amended provisions of Section 115BBE retrospectively.Conclusion:The Tribunal dismissed the Revenue's appeal, affirming that the surrendered income was business income and not subject to the amended provisions of Section 115BBE. The Tribunal emphasized that the amendment was prospective and the AO's acceptance of the returned income without any addition under Sections 69A or 69B supported the assessee's position. The Tribunal's decision was based on the factual matrix and consistent judicial precedents, ensuring that the assessee was taxed under the normal rates applicable to business income.