The Amritsar Bench of Income Tax Appellate Tribunal (ITAT) has set aside the application under Section 69 read with Section 115BBE of the Income Tax Act 1961 directing the Assessing Officer (AO) to treat the building expenditure as part of surrendered income already disclosed during the survey as business income.
A survey was conducted at the business premises of the assessee, Sharp Chucks and Machines Pvt. Ltd. on 15.07.2016 and thus, it was submitted that this case was not covered by the demonetization period and the appellant to settle the case based on discrepancy noticed by the survey team made a surrendered of sum of 1.61 crores as additional business income for financial year 2016-17 relevant to the Assessment Year under consideration.
During scrutiny proceedings, the AO accepted the fact that the appellant surrendered a total sum of Rs. 1.61 crores which was utilised in the excess stock, excess cash, and in expenditure of building.
The Assessing Officer had accepted the fact that the additional income derived by the appellant was out of the business carried out, however, while passing the order under Section 153(3) of the Income Tax Act dated 20.09.2021, he had disputed the surrendered income amounting to Rs.81,95,000/- as being utilised for construction of building and so taxed under Section 69 read with Section 115BBE of the Income Tax Act, 1961.
In appeal, the CIT(A) observed that a sum representing income from other sources and the balance income representing business income because the funds to the tune were used for construction of factory buildings. The CIT(A) stated that as per AO, the building construction expenses were never entered in the books of accounts before the survey proceedings and that the additional disclosure under head building was done only after the survey was conducted.
Thus, he concluded as per AO, if survey proceeding was not conducted at the business premises of the assessee, the assessee would never have made addition in the books of accounts and alleged that the assessee could not substantiate that it was generated out of his regular business activity. Therefore, in the absence of any documentary evidence, the additional disclosure was made under the head of a building under construction.
Rohit Kapoor, on behalf of the assessee submitted that while confirming the addition it was ignored the fact that the appellant had earned the undisclosed income from sale/ purchase of goods and material outside books of accounts. That the CIT(A) while confirming action of AO had not been able to discharge the onus that the assessee was involved in activity other than the business activity.
He also contended that the surrendered income would be assessed under the head income from Business as the assessee’s surrender was on account of cash found during the survey, discrepancy in the cost of construction of building, and discrepancy in stock and by no stretch of imagination, any of these incomes could be considered as income under any head other than business
V.S. Aggarwal, on behalf of the revenue, stood by the impugned order.
The two-member Bench of M. L. Meena, (Accountant Member) and SH. Anikesh Banerjee, (Judicial Member) observed that, “In our view, once a specific surrender made by the assessee explaining the source as business income and investment transaction in excess stock, cash and building construction as above, before the Income Tax department and due Tax has been realised, the department would not have case to take a U turn while framing the assessment of the assessee by taxing the same under the head Income from other sources under Section 69 of Income Tax Act, 1961.”
The Bench also observed that the CIT(A) had failed to consider the statement recorded during survey wherein it had been clearly stated by the assessee before the authorised officer that the expenditure incurred on factory was born out of undisclosed business income. Even the survey team had not found any other source of income except the business income.
The Bench disposed of the appeal filed by the assessee directing the Assessing Officer to treat surrendered income to the extent of expenditure on building as business income.
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