2024 (7) TMI 1706 - AT - Income Tax

Surrendered survey amounts treated as regular business income; Sections 69, 69A inapplicable, Section 115BBE not attracted

ITAT AMRITSAR - AT held that the amounts surrendered during survey (excess cash Rs.9,59,000 and sundry debtors Rs.20,00,000) were attributable to the ... Applicability of tax rates as prescribed u/s 115BBE - income surrendered by the assessee in course of survey u/s 133A - HELD THAT:- We are of the view that provisions of section 69 and 69A of the Act 61, are attracted in cases of unrecorded transactions, whose nature and source is unexplained. In the instant case before us it is admitted fact that the assessee is carrying on a business of bakery and restaurant, which is a running business activity, and the source of income surrendered in course of survey was duly explained to have been earned out of bakery and restaurant business itself, which is the regular business activity of the assessee. Even otherwise also the revenue has not unearthed any other source of income activity other than what is disclosed by the assessee. We find that the same is duly reflected in the income tax returns and audited balance sheet filed in normal course. In respect of the loose sheets and diaries impounded in course of survey, the same contains advances to parties and receivables from parties, which is classified under the head “Sundry Debtors”. The surrender of income has been made by the assessee under the said head and the revenue has also accepted the same. On this aspect we refer to the judgment of the Chandigarh Bench [2019 (5) TMI 8 - ITAT CHANDIGARH] in the case of Famina Knit Fabs vs ACIT, where on an identical fact the bench concluded that debtors were generated out of business sales which were not recorded in the books of accounts, but nevertheless the source of the said debtors are established to be out of business. In case of the excess cash found and surrendered by the assessee, it has been explained to be the receipts from restaurant business and bakery sales not recorded in books. We find that the facts are identical, to the above case decided by the coordinate Amritsar Bench, and we find that in the instant case the assessee has explained from the very first day that the excess cash found, is out of business sales of bakery and restaurant carried on by the assessee and the revenue has not brought on record any other activity of the assessee which is capable of generating the excess cash. Department has not disputed the explanation of the assessee on the date of survey and has accepted the quantum surrender of the assessee being fully satisfied and accepted the same and there is no discontent of the department as far as the survey report is concerned. In the instant case the survey team has accepted the statement of surrender on the condition that there will be no penalty and prosecution in the matter subject to the surrender of additional income by way of excess cash amounting to Rs. 9,59,000/- and Ugrahi (sundry debtors) Rs 20,00,000/-, both together, totaling Rs.29,59,000/-. We hold that the excess cash found and surrendered during survey and the entries in loose documents and diaries, impounded, during survey, are all related to, and sourced, out of the regular business of bakery and restaurant, carried on by the assessee and the total surrendered amount are to be considered as business income of the assessee and the deeming provisions of section 69 and 69A of the Act 61, are not applicable to the facts of the instant case and as such applicability of section 115BBE of the Act 61 does not arise. The surrendered amount are to be subjected to tax at normal rates. Appeal of the assessee is allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether amounts surrendered during survey, consisting of excess cash and unrecorded entries in impounded loose documents described as 'ugrahi' (sundry debtors/advances), are taxable as business income or are to be treated as unexplained/undisclosed income under the deeming provisions (sections 69/69A) and consequently taxable at the special rate under section 115BBE. 2. Whether section 115BBE (special tax rate) applies to surrendered income declared during a survey conducted prior to the effective date of the amended provisions (question of temporal applicability and on what characterisation of income the special rate can be invoked). ISSUE-WISE DETAILED ANALYSIS - Issue 1: Characterisation of surrendered amounts as business income vs deemed unexplained income under sections 69/69A Legal framework: Sections 69 and 69A operate to deem unexplained money or investments as income where the nature or source is not satisfactorily explained. Survey statements under section 133A may record voluntary surrenders; classification of surrendered amounts depends on whether source and nature are adequately established as arising from disclosed business activity. Precedent treatment (followed/distinguished): The Tribunal considered coordinate-bench decisions holding that where surrendered amounts (debtors/receivables) are shown to arise from business sales and no other source is unearthed, such amounts are business income (not deemed unexplained income). Decisions to the contrary (holding additions under section 69/69A where the source remained unexplained or inconsistent) were considered distinguishable on facts where contemporaneous explanations or corroborative account entries were absent. Interpretation and reasoning: The Tribunal placed emphasis on contemporaneous and subsequent conduct: (a) the assessee carried on a running bakery and restaurant business; (b) the surrender during survey expressly stated the amounts as additional business income; (c) the surrendered amounts were reflected/credited in audited financial statements and returns as business income; (d) the Department did not establish any other source of income or conduct independent enquiries that contradicted the assessee's explanation; and (e) the survey team accepted the surrender subject to no penalty/prosecution. On the impounded loose sheets, entries were consistent with advances/receivables (sundry debtors) linked to normal business transactions. For excess cash, the assessee consistently explained it as unrecorded sales proceeds from the business. In this factual matrix, the Tribunal found the preponderance of probability favors a business-source explanation, and the statutory deeming of unexplained income under sections 69/69A cannot be invoked. Ratio vs. Obiter: Ratio - where surrendered amounts in survey are contemporaneously and consistently explained as arising from the taxpayer's disclosed business, recorded in audited accounts and returns, and no other source is discovered by the Revenue, such amounts should be treated as business income and not as deemed unexplained income under sections 69/69A. Obiter - discussion distinguishing various High Court/tribunal authorities on differing facts; remarks on survey-team acceptance as a factual factor informing the finding. Conclusion (Issue 1): The surrendered amount of Rs.29,59,000, comprising excess cash and unrecorded advances/receivables, was held to be business income. Sections 69 and 69A were found inapplicable on the facts; accordingly, the deeming additions were not sustainable. ISSUE-WISE DETAILED ANALYSIS - Issue 2: Applicability of section 115BBE special tax rate to surrendered income declared during survey Legal framework: Section 115BBE prescribes a special rate of tax on income which is deemed to be income under specified deeming provisions. Its applicability therefore depends on whether the income in question is charged as deemed unexplained income under those provisions and also on any temporal applicability of legislative amendments. Precedent treatment (followed/distinguished): The Tribunal relied on coordinate-bench authorities holding that section 115BBE applies only where an addition is made under deeming provisions; if surrendered amounts are accepted as business income and assessed under normal heads, section 115BBE does not apply. Temporal applicability arguments were not decisive given the primary characterisation issue. Interpretation and reasoning: Because the Tribunal concluded that the surrendered amounts were business income (assessed under the normal head and reflected in audited accounts and returns), the threshold for invoking section 115BBE - i.e., that the income is taxable as deemed unexplained income - was not met. Consequently, the question of the retrospective or prospective applicability of amendments to section 115BBE did not arise on these facts. The Tribunal further noted that the Revenue had not established that the amounts were investments or income from other sources that would attract deeming; hence, enhanced tax rate under section 115BBE could not be imposed. Ratio vs. Obiter: Ratio - section 115BBE cannot be applied where the income has been satisfactorily established as business income and is not brought to tax under the deeming provisions; temporal applicability of amendments becomes academic if the substantive characterisation defeats invocation of the special rate. Obiter - observations on effective dates of amendments and their potential relevance in other fact patterns where deeming provisions are legitimately invoked. Conclusion (Issue 2): Section 115BBE did not apply to the surrendered amount because the amount was held to be regular business income and not deemed unexplained income; therefore tax is to be computed at normal rates. OVERALL CONCLUSION AND DISPOSITION The Tribunal held that, on the facts, the preponderance of probability establishes the surrendered sums as arising from the declared bakery and restaurant business and recorded in audited financial statements and returns; sections 69/69A do not apply and section 115BBE therefore cannot be invoked. The assessment of the surrendered amount as business income at normal rates was directed to be sustained, and the appeal was allowed.