2024 (12) TMI 1685 - AT - Income Tax

Undisclosed cash and excess stock found in search: treated as business income, not s.69A, avoiding s.115BBE tax rate

The dominant issue was whether undisclosed cash and unaccounted/excess stock detected during search, and offered as additional income, should be assessed ... Undisclosed cash as well as unaccounted stock found in the course of search - business income OR undisclosed investment u/s 69A - HELD THAT:- As decided in Overseas Leathers [2023 (4) TMI 1207 - ITAT CHENNAI] additional income offered by the assessee on account of cash and excess stock is liable to be taxed as business income and not unexplained investment in terms of provisions of section 69A at special rates of 115BBE. Decided in favour of assessee. 1. ISSUES PRESENTED AND CONSIDERED (i) Whether excess cash found during search, admitted by the assessee and not supported by a substantiated source, is required to be assessed as business income or as unexplained money under section 69A (with consequential application of section 115BBE). (ii) Whether excess stock found during search, admitted by the assessee as not recorded in the regular books, is required to be assessed as business income or as unexplained investment/unexplained asset under section 69A (with consequential application of section 115BBE). 2. ISSUE-WISE DETAILED ANALYSIS Issue (i): Tax treatment of excess cash found during search-business income vs section 69A Legal framework: The Court considered the competing characterization of the surrendered amount either as business income or as 'unexplained money' under section 69A, and the resulting implication of taxation at special rates under section 115BBE if section 69A applied. Interpretation and reasoning: The Court treated as material that (a) excess cash was found in a search; (b) it was admitted as additional income during search proceedings; (c) the statement recorded during search had evidentiary value and was not retracted; (d) the authorities did not bring material to establish that the cash was not connected with business income; and (e) the audited books were not disturbed. The Court held that, on these facts, the surrendered cash was to be regarded as arising from business rather than being taxed as unexplained money under section 69A. Conclusion: Excess cash admitted during search was held assessable as business income and not as unexplained money under section 69A; consequently, the special rate consequence under section 115BBE was not attracted on this characterization. Issue (ii): Tax treatment of excess stock found during search-business income vs section 69A Legal framework: The Court examined whether excess stock found in search and admitted as unrecorded should be assessed as business income or brought to tax as an unexplained item under section 69A (with section 115BBE consequences). Interpretation and reasoning: The Court found the facts decisive that the excess stock was found during search, was admitted as additional income, and the admission was not retracted. The Court distinguished the revenue's reliance on a decision arising from a survey context, noting that search statements carry stronger evidentiary value and emphasizing the absence of any finding here that the assessee failed to make corresponding accounting treatment in a manner undermining its business-income claim. The Court further held that the lower authorities failed to produce material showing that the excess stock was not linked to the assessee's business and therefore should not be forced into section 69A treatment merely because it was found unrecorded at the time of search. Conclusion: Excess stock admitted during search was held assessable as business income and not as unexplained investment/asset under section 69A; therefore, taxation under section 115BBE on that basis was rejected. The revenue's challenge failed and the appeal was dismissed.