Surrendered income from business discrepancies taxed at normal rates, not 60% under Section 115BBE.

Surrendered income from business discrepancies taxed at normal rates, not 60% under Section 115BBE.

Issue

Whether the additional income of Rs. 35 lakhs surrendered by the assessee during a survey operation (on account of discrepancies in cash, stock, etc.) should be taxed at the special flat rate of 60% under Section 115BBE or at normal slab rates applicable to business income.

Facts

• Survey Action: A survey was conducted at the assessee’s business premises, where the survey party found discrepancies in the books of accounts.

• Surrender of Income: Consequently, the assessee offered an additional income of Rs. 35,00,000/- to settle the discrepancies. The breakdown of the surrender included:

  • Excess Cash

  • Excess Stock

  • Unaccounted Advances

  • Unaccounted Investment in Building

• AO’s Stand: The Assessing Officer (AO) treated this surrendered amount as unexplained income under sections like 69/69A and applied the higher tax rate of 60% as per Section 115BBE of the Income Tax Act.

• CIT(A) Ruling: The Commissioner (Appeals) confirmed the AO’s action.

• Assessee’s Plea: The assessee contended that the income was generated solely from business activities (over and above recorded figures) and should be treated as “Business Income” taxable at normal rates, not as unexplained credits.

Decision

• The Tribunal partly allowed the appeal in favor of the assessee regarding the tax rate.

• Nature of Income: The Bench observed that the additional income was offered strictly on account of discrepancies found in the books (cash, stock, etc.) during the survey.

• Business Nexus: The Tribunal accepted the contention that this income was generated out of the business activities of the assessee.

• Applicable Rate: Since the source was identified as business operations, the provisions of Section 115BBE (applicable to unexplained credits/investments under Sections 68 to 69D) were not applicable.

• Direction: The AO was directed to charge tax on the surrendered Rs. 35 lakhs at normal rates applicable to income from business or profession.

Key Takeaways

• Source Identification is Crucial: If an assessee can demonstrate that surrendered income (even excess cash or stock) stems directly from business operations, it constitutes “Business Income” rather than “Unexplained Income.”

• Section 115BBE Applicability: This section, which imposes a higher tax rate (60%), applies when the source of income is not explained. It generally does not apply when the income is admitted as business receipts found during a survey.

• Statement Documentation: The Tribunal relied heavily on the statement recorded during the survey and the post-survey letter, which established the nexus between the surrendered amount and the business accounts.

THE INCOME TAX APPELLATE TRIBUNAL, CHANDIGARH
BENCH “SMC” CHANDIGARH
Shri Manjinder Singh Grewal,
# 95, Bhumal, Jagraon.
Vs
The Addl/DCIT,
Ludhiana.

Source :- 1762249904-GUtYJu-1-TO