2025 (9) TMI 978 - AT - Income Tax

Appeal allowed: Income surrendered during survey to be taxed under regular provisions, not under Sections 69A/69C or 115BBE

ITAT (Chandigarh) allowed the appeal, holding that income surrendered during a survey should be assessed under regular provisions rather than under ... Addition u/s 69A/69C r/w provisions of Section 115BBE - income surrendered by the assessee during the course of survey - assessee is an individual running a proprietorship concern - HELD THAT:- Nobody has weighed stock even during the course of survey. They just pointed out certain discrepancies and assessee said in order to end the litigation with the Revenue and having peace of mind, he offered it for taxation. Nowhere in the Survey Report, it has been alleged how much was the Opening Stock, how much was lying at the premises. It was a waste cotton yarn. Had it been actually weighed, then it would have to be lifted with the help of crane. It would have been taken on the weighing scale. In order to avoid all this exercise, assessee offered excess stock for assessment. But he put a caveat that he should not be visited with penalty or other penal consequence. Thus, his statement is to be read in the light of the provisions of Section 69A or 69C which provides unexplained expenses, whose nature and source was not explained. It is pertinent to note that during the survey itself, assessee has explained the nature of expenses and the source from where expenses have been incurred/assets have been acquired. According to the assessee, the source was of business income. The revenue has not falsified this explanation. We could appreciate the case of the Revenue had some investments in shares was found or some investment in the land is found, which has no connection with the regular source of business income but there was nothing that sort of nature noticed by Survey Team. Therefore, this declared income deserves to be assessed under the regular provisions. This appeal is allowed. AO is directed to assess the sum under normal provisions. Assessee appeal allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether amounts voluntarily surrendered during a survey under Section 133A, which the assessee explains as derived from business income and relates to renovation expenditure and excess stock, attract deeming provisions of Sections 68/69/69A/69C and the special tax rate under Section 115BBE or are assessable as business income under ordinary provisions. 2. Whether the Revenue bears an evidentiary onus to show that surrendered amounts represent unexplained money, bullion, jewellery, unexplained investment, unexplained expenditure or an undisclosed source distinct from the declared business income before invoking Sections 69A/69C (and thereby Section 115BBE). ISSUE-WISE DETAILED ANALYSIS - Issue 1: Applicability of Sections 69A/69C and Section 115BBE to surrendered amounts offered as business income during survey Legal framework: Sections 69A and 69C apply to unexplained expenditure and unexplained money, bullion, jewellery or valuable articles discovered with the assessee and not recorded in books, where the assessee offers no explanation about their nature and source; Section 115BBE prescribes a special rate (60%) for income credited or found as unexplained under specified deeming provisions. Precedent Treatment: The Tribunal relied on a series of jurisdictional ITAT decisions holding that amounts surrendered during survey on account of discrepancies in stock, expenditure for construction/renovation or undisclosed debtors, when explained as arising from the business, are to be treated as business income and not as deemed unexplained income under Sections 68/69/69A/69C for the purpose of applying Section 115BBE. These precedents were followed and applied. Interpretation and reasoning: The Tribunal analyzed the assessee's contemporaneous statements recorded under Sections 131/133A where the assessee explicitly stated that the renovation expense (Rs. 48,48,280) and excess stock (Rs. 52,01,761) were funded from business earnings and that the surrendered Rs. 1,00,50,041 was offered voluntarily as additional business income. The Tribunal held that for Sections 69A/69C to be attracted there must be a discovery of unexplained assets/money not recorded in books and an absence of explanation as to their nature and source. Where the assessee has given a clear explanation linking the amounts to business income, and the Revenue has not falsified that explanation or produced contrary evidence (for example, showing investments or assets unrelated to business income), the deeming provisions cannot be applied. The Tribunal noted the factual absence of any weighing of stock, any documentation contradicting the assessee's claim, or any finding that the amounts related to a source other than the business. Ratio vs. Obiter: Ratio - Where amounts surrendered during survey are contemporaneously and consistently explained as arising from the assessee's business and the tax authorities fail to controvert that explanation with evidence of an alternative source or unexplained assets, such amounts are assessable as business income under normal provisions and not catchable by Sections 69A/69C or Section 115BBE. Obiter - Observations on hypothetical scenarios (e.g., if investments in unrelated assets had been found) serve only as illustrative contrasts and do not affect the ratio. Conclusion: The Tribunal concluded that the surrendered sum of Rs. 1,00,50,041 is business income assessable under ordinary provisions; Sections 69A/69C and Section 115BBE are not attracted where the assessee's contemporaneous explanation links the amounts to business income and Revenue adduces no contrary evidence. ISSUE-WISE DETAILED ANALYSIS - Issue 2: Evidentiary burden on Revenue before invoking deeming provisions and special rate Legal framework: Deeming provisions operate where the requirements of the statute are satisfied; the assessment officer must establish discovery of unexplained money/assets or unexplained entries and must demonstrate absence or insufficiency of explanation regarding nature and source. Precedent Treatment: The Tribunal followed earlier jurisdictional decisions holding that invocation of Sections 68/69/69A/69C and the consequential applicability of Section 115BBE is unsustainable if the AO has not brought on record any material contradicting the assessee's assertion that the amounts relate to business income or if no unexplained investment/expenditure/asset has been found. Interpretation and reasoning: The Tribunal emphasized that the Revenue had not produced any evidence to falsify the assessee's contemporaneous admissions that the amounts were from business. The survey record did not record details (e.g., opening stock, physical weighing) to substantiate an alternative conclusion. The Tribunal held that without such evidence the statutory prerequisites for deeming cannot be said to be satisfied. It observed that the AO's mere invocation of deeming provisions absent factual foundation in the survey/assessment record is improper. Ratio vs. Obiter: Ratio - Revenue must demonstrate factual discovery of unexplained assets or money and must displace the assessee's explanation before invoking deeming provisions and the special tax rate under Section 115BBE. Obiter - Discussion of evidentiary methods (weighing, lifting with crane) illustrates adequacy of inquiry but is not essential to the holding. Conclusion: The Tribunal concluded that the Revenue failed to discharge the evidentiary burden necessary to invoke the deeming provisions; consequently the special tax rate under Section 115BBE could not be applied. DISPOSITION / RELIEF ORDERED (as derived from reasoning) The Tribunal allowed the appeal, directed the Assessing Officer to assess the surrendered amount under normal provisions applicable to business income and to apply the normal rate of tax corresponding to the assessee's declared income instead of applying Section 115BBE.