Rs.50 lakh survey surrender treated as business income under s.69B, s.115BBE inapplicable; normal tax rates apply

ITAT held that the Rs.50 lakh surrendered during survey were unrecorded receipts linked to the assessee's business and, lacking independent physical identity, could not be treated as undisclosed assets under s.69B; accordingly the deeming provisions and s.115BBE were inapplicable. The amount must be assessed as income from business/profession at the normal tax rate. The AO was directed to assess the Rs.50 lakh under business income and apply normal rates. Appeal allowed.

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Issues Involved:
1. Treatment of income surrendered during survey on account of excess stock.
2. Application of Section 115BBE of the Income Tax Act, 1961.
3. Consideration of various binding judgments and case laws.

Summary:

1. Treatment of Income Surrendered During Survey:
The assessee, a partnership firm engaged in the business of manufacturing wearing apparels, underwent a survey action u/s 133A of the Income Tax Act on 29.08.2018. During the survey, discrepancies in physical stock verification led to a surrender of Rs. 50,00,000/- as additional business income. This amount was credited to the profit and loss account for the year ending 31.03.2019 and taxed at the normal rate in the return filed on 30.09.2019. The Assessing Officer (AO) later assessed the total income at Rs. 1,90,22,390/- after making additions and applied Section 115BBE on the surrendered amount, treating it under Section 69B for unexplained investments.

2. Application of Section 115BBE:
The AO's application of Section 115BBE was challenged, arguing that the surrendered amount should be treated as business income, not as unexplained investment under Section 69B. The assessee cited several judgments where similar circumstances led to the income being taxed as business income. The Tribunal examined the nature and source of the surrendered income and found it to be business-related, as the stock discrepancy was part of the regular business operations and not from any other source.

3. Consideration of Various Binding Judgments:
The Tribunal referred to multiple judgments, including those from the Chandigarh and Amritsar Benches of ITAT, which supported the assessee's stance. Key judgments cited included Daulat Ram Rawatmull vs. CIT, Shri Harish Sharma vs. The ITO, and M/s. Sham Jewellers, among others. These cases established that when no other source of income is identified, the surrendered amount should be treated as business income, not as deemed income under Section 69B.

Conclusion:
The Tribunal concluded that the surrendered income of Rs. 50,00,000/- during the survey should be assessed as business income and not under the deeming provisions of Section 69B. Consequently, Section 115BBE was not applicable, and the normal tax rate should apply. The AO was directed to assess the surrendered income under the head "Income from Business/Profession" and apply the normal tax rate. The appeal of the assessee was allowed.

Order Pronouncement:
The order was pronounced in the open Court on 01.12.2023.

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