2024 (7) TMI 1620 - AT - Income Tax

Surrendered income from sundry debtors and excess cash constitutes business income taxable at normal rates, not under sections 69 & 69A

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The ITAT Jaipur held that surrendered income from sundry debtors and excess cash found during survey constituted business income taxable at normal rates, ... Treatment to the surrendered income on account of sundry debtors and excess cash found - income undisclosed or unexplained investment or money u/s 69 & 69A OR business income - whether the income offered by the assessee falls within the meaning of section 69 & 69A or not, and as to whether the same is to be charged to tax at normal rate or the rate as prescribed u/s. 115BBE? - HELD THAT:- It is not a case of investment of the abovesaid amount by the assessee, and rather, as per list prepared by the assessee, a case of receipt of the amounts from the sundry debtors, which was offered for tax as regular income of the assessee firm. Said claim of the assessee was not disputed or challenged, and furthermore, there is no further evidence adverse to said claim raised by the assessee. Therefore, it cannot be said to be a case where provisions of section 69 come into application. See M/S MONTU SHALLU KNITWEARS [2023 (12) TMI 972 - ITAT CHANDIGARH] wherein held nature and source of such unaccounted stock is nothing but arising out of assessee’s business operations. No doubt, these transactions were not recorded at the time of survey thus qualify as unrecorded transactions satisfying one of the essential conditions, at the same time, the assessee has provided the necessary explanation about the nature and source of such unrecorded transactions and the necessary nexus with assessee’s business has been established, thus, it cannot be said that these are unexplained transactions thus, doesn’t satisfy the second condition for invoking the deeming provisions of section 69B. The amounts surrendered by the assessee at the time of survey could not be subjected to tax under the deeming provisions of section 69 & 69A of the Act. When the source and nature of income had already been considered and accepted, the subject amounts were required to be subjected to tax at normal rate. Appeal filed by the assessee is allowed 1. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered in this judgment include:Whether the income surrendered by the assessee during the survey falls under the provisions of sections 69 and 69A of the Income Tax Act, 1961.Whether the higher tax rate under section 115BBE of the Income Tax Act is applicable to the surrendered income.Whether the assessee should be allowed to treat the surrendered income as business income, and thus be taxed at the normal rate applicable to business income.Whether the amendment to section 115BBE, which increased the tax rate, applies retrospectively or prospectively.Whether the assessment proceedings and the subsequent application of section 115BBE were justified.2. ISSUE-WISE DETAILED ANALYSISIssue 1: Applicability of Sections 69 and 69A- Legal Framework and Precedents: Sections 69 and 69A of the Income Tax Act deal with unexplained investments and unexplained money, respectively. These sections allow the income tax authorities to deem certain unexplained amounts as income if the assessee fails to provide a satisfactory explanation.- Court's Interpretation and Reasoning: The Tribunal analyzed whether the surrendered income, which was derived from sundry debtors and excess cash, should be classified under sections 69 and 69A. The Tribunal noted that the surrendered amounts were related to the business activities of the assessee and were not separate investments or money that could be deemed unexplained.- Key Evidence and Findings: The Tribunal considered the fact that the surrendered income was disclosed as part of the business income in the return filed by the assessee. The assessee had provided explanations regarding the source of the income, linking it to business transactions.- Application of Law to Facts: The Tribunal found that the conditions for invoking sections 69 and 69A were not met, as the income was not unexplained but was related to the business activities.- Treatment of Competing Arguments: The Tribunal rejected the revenue's argument that the surrendered income was unexplained, noting that the income was disclosed as business income and taxed accordingly.- Conclusions: The Tribunal concluded that sections 69 and 69A were not applicable to the surrendered income.Issue 2: Applicability of Section 115BBE- Legal Framework and Precedents: Section 115BBE prescribes a higher tax rate for income deemed under sections 68, 69, 69A, etc. The section was amended to increase the tax rate from 30% to 60% for the assessment year 2017-18 onwards.- Court's Interpretation and Reasoning: The Tribunal examined whether the higher tax rate under section 115BBE applied to the surrendered income. It noted that the income was disclosed as business income and not as unexplained income under sections 69 and 69A.- Key Evidence and Findings: The Tribunal considered the explanation provided by the assessee regarding the nature and source of the income, which was linked to business activities.- Application of Law to Facts: The Tribunal found that since the income was not deemed under sections 69 and 69A, the higher tax rate under section 115BBE was not applicable.- Treatment of Competing Arguments: The Tribunal rejected the revenue's argument that the higher tax rate should apply, as the income was not unexplained.- Conclusions: The Tribunal concluded that the higher tax rate under section 115BBE was not applicable to the surrendered income.Issue 3: Retrospective or Prospective Application of Section 115BBE- Legal Framework and Precedents: The amendment to section 115BBE was effective from the assessment year 2017-18 onwards. The Tribunal considered whether this amendment applied retrospectively or prospectively.- Court's Interpretation and Reasoning: The Tribunal noted that the amendment was explicitly stated to apply from the assessment year 2017-18, indicating a prospective application.- Key Evidence and Findings: The Tribunal relied on the language of the amendment and relevant circulars to determine the intended application of the amendment.- Application of Law to Facts: The Tribunal found that the amendment applied prospectively and did not affect the tax rate applicable to the income surrendered before the amendment.- Treatment of Competing Arguments: The Tribunal dismissed the revenue's argument for retrospective application, citing the clear language of the amendment.- Conclusions: The Tribunal concluded that the amendment to section 115BBE applied prospectively.3. SIGNIFICANT HOLDINGS- The Tribunal held that sections 69 and 69A were not applicable to the surrendered income, as the income was related to business activities and not unexplained investments or money.- It was determined that the higher tax rate under section 115BBE did not apply to the surrendered income, as it was not deemed under sections 69 and 69A.- The Tribunal concluded that the amendment to section 115BBE applied prospectively from the assessment year 2017-18, and not retrospectively.- The appeal filed by the assessee was allowed, and the order of the CIT(A) was set aside.