2023 (3) TMI 612 - AT - Income Tax

Tribunal rules surrender without evidence not undisclosed income under tax law

The Tribunal held that the surrender made during the survey without incriminating material and on an adhoc basis did not necessarily represent profits to ... Rectification of mistake u/s 154 - non- inclusion of surrendered income in the Book Profits of the assessee as per section 115JB - re-computing the book profits u/s.115JB by considering the adhoc disclosure made during the course of survey as income of the Appellant for the purpose of computation of book profits u/s. 115 JB - HELD THAT:- We are in agreement with the assessee in this regard that it is surely not a clear case of the amount being invariably included in the book profits of the assessee on the basis of the facts before us. In the absence of any incriminating material found, substantiating the surrender made, the same cannot invariably be said to represent the profit of the assessee for disclosure to its shareholders. If the surrender was corroborated with some undisclosed asset or incriminating document found, revealing the nature and manner of earning the income surrendered, it necessarily represented profits which needed to be disclosed in the profit and loss account also for the benefit of shareholders of the company. But without any incriminating material and without any clue about the nature of the disclosure also, the same could not be said to invariably represent undisclosed income/profits of the assessee to be included in its profit and loss account. The assessee at its discretion may include the surrender in its income for paying taxes thereon, but this fact ipsodixit will not mandate inclusion of the surrender in its Book Profits also. Therefore it is not plain and simple that the surrender made during survey, on adhoc basis without any incriminating material found, was to be necessarily included in its profit and loss account/ book profits. We agree with assessee that to arrive at such a conclusion required a long drawn process of reasoning and debate. For the above reasons therefore, we hold, that the non- inclusion of surrendered income in the Book Profits of the assessee as per section 115JB of the Act, was not a patent error amenable to rectification u/s 154 of the Act.The adjustment so made, therefore, is directed to be deleted. Decided in favour of assessee. Issues involved:The judgment involves the confirmation of addition in a rectification order passed by the Assessing Officer (AO) under section 154 of the Income Tax Act, 1961, concerning the re-computation of book profits under section 115JB of the Act.Issue 1:The appeal challenges the confirmation of the AO's order under section 154 of the Act.The AO rectified the book profits of the assessee by adding the income surrendered during a survey. The AO noted that the surrendered income was not considered for paying tax under the Minimum Alternate Tax (MAT) regime, leading to a discrepancy in tax liabilities. The assessee argued that the surrender was adhoc without incriminating material, not warranting inclusion in book profits under section 115JB.Issue 2:The appeal contests the re-computation of book profits under section 115JB.During a survey, the assessee surrendered Rs. 17 crores as income from other sources. The AO re-computed the book profits by including this surrendered income, leading to a higher tax liability under MAT. The assessee argued that the surrender lacked incriminating material and should not be automatically included in book profits without proper justification.Judgment:The Tribunal held that the surrender made during the survey, without incriminating material and on an adhoc basis, did not necessarily represent profits to be included in the book profits of the assessee. The absence of substantiating evidence meant that the surrender could not be deemed undisclosed income requiring inclusion in the profit and loss account. The Tribunal agreed that a detailed analysis and debate were necessary to conclude on such inclusions. Consequently, the adjustment made by the AO under section 154 was deemed not a patent error and was directed to be deleted. As a result, the appeal of the assessee was allowed.Separate Judgment:No separate judgment was delivered by the judges in this case.