The Chandigarh bench of the Income Tax Appellate Tribunal (ITAT) held that the deeming provision of Section 69 of the Income Tax Act, 1961 doesn’t apply when the assessee provides a proper explanation regarding the unrecorded sale.
The assessee is a partner along with his wife in M/s Supreme Petro Foam Industry, a partnership firm engaged in manufacturing Foam products, and sole proprietor in M/s Shivam Coir Foam Products which sells Foam products on a wholesale and retail basis, besides that, they have no other source of income/interest in any other business/concern.
A survey action under Section 133A of the Income Tax Act took place at the business premises and the assessee surrendered a sum of Rs. 15,00,000/- on account of receivables/debtors. The assessee filed his return of income under Section 139(4) of the Income Tax Act at the returned income of Rs. 21,33,420/- including the amount surrendered of Rs. 15,00,000/-.
There were certain discrepancies noticed with respect to M/s Supreme Petro Foam Industry wherein the assessee surrendered a sum of Rs 90 lacs in terms of discrepancy in stock and construction expenses.
Further, in respect of M/s Shivam Coir Foam Products, the assessee was asked about the hand-written particulars in terms of certain names and amounts recorded in a diary found during the course of the survey, and in response, the assessee has submitted that these entries pertain to his proprietorship concern M/s Shivam Coir Foam products, Khanna.
It was submitted that these entries are advances/receivables from various persons in respect of his business dealings and were recorded for the purpose of memory. It was further stated that to buy a piece of mind, he offers a sum of Rs 15 lacs as additional income for the current financial year subject to no penal action.
The same was subsequently reiterated in the surrender letter wherein the assessee has stated that he offers the additional income for the current financial year at a normal rate of tax as the said income has been earned by him out of business transactions in the current year.
It was a case where there were unrecorded sales made by the assessee during the current financial year and receivables arising out of such unrecorded sales have been offered to tax as additional business income by the assessee. The source of such unrecorded receivables is thus the unrecorded sales which have been explained by the assessee and thus, the necessary nexus with the business of the assessee has been established.
The Two-member bench comprising of Aakash Deep Jain (Vice-President) and Vikram Singh Yadav (Accountant member) held that the name of the person, the amount receivables, date, etc has been duly recorded in the diary, thus, the statement of the assessee duly stand corroborated by the contents of the diary so found during the course of survey.
No doubt, these transactions were not recorded at the time of the survey and 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, thus, it cannot be said that these are unexplained transactions thus, doesn’t satisfy the second condition for invoking the deeming provisions of Section 69 of the Income Tax Act.
Therefore, the income of Rs 15,00,000/- surrendered during the course of the survey cannot be brought to tax under the deeming provisions of Section 69 of the Income Tax Act and the same has been rightly offered to tax under the head “business income” and as a necessary corollary, in absence of deeming provisions, the question of application of Section 115BBE of the Income Tax Act doesn’t arise for consideration. Thus, the appeal of the assessee was allowed.
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