Income Surrendered during Survey Treated as Business Income, Not Unexplained Investment: ITAT Deletes Higher Tax u/s 115BBE [Read Order]
The Bench noted that the disputed income was generated in the ordinary course of business and already been offered to tax at the normal rate
The Jaipur Bench of the Income Tax Appellate Tribunal (ITAT) recently deleted higher tax imposed on an assessee, affirming that income voluntarily surrendered during a survey constitutes business income and thus cannot be treated as unexplained investment to attract a higher rate of tax under Section 115BBE of the Income Tax Act, 1961.
Understanding Common Mode of Tax Evasion with Practical Scenarios, Click Here
A survey was conducted on July 4, 2016 at the premises of Dr. Jagdish Kumar Arora, the proprietor of JK Hospital, Bhawanimandi. The proprietor was also involved in real estate development.
During the survey, the department found a diary containing entries of unrecorded sundry debtors amounting to ₹2.05 crore which the assessee surrendered as additional income for the relevant financial year. He subsequently filed his return of income on November 6, 2017 declaring a total income of ₹2.16 crore inclusive of the surrendered amount.
The Assessing Officer however, treated the surrendered amount as unexplained investment under Sections 69 and 69A and sought to tax it at a higher rate of 60% plus surcharge and cess under Section 115BBE; the relevant assessment order affirming the same was passed on December 25, 2019.
The assessee contested the matter before the Commissioner of Income Tax (Appeals), Jaipur–4 who upheld the assessment order, prompting the assessee to approach the ITAT.
The assessee, represented by Shrawan Kumar Gupta filed written submissions contending that the sum of ₹2.05 crore surrendered during the survey was income from the regular business activities of the assessee in the hospital and real estate sectors, with the same having been duly offered to tax at the normal rate.
The assessee emphasized that no material had been found during the survey to suggest any undisclosed source of income and therefore the provisions of Sections 69 and 115BBE were inapplicable relying on the Tribunal’s decision in M/s Silver Wings Life Spaces v. DCIT, Circle-1, Kota (2024) where the surrendered income had been treated as business income.
Meanwhile, the Revenue represented by Anita Rinesh, JCIT-Sr. maintained that the assessee had not substantiated the source of the amounts noted in the diary and so, such income was liable to be taxed at the higher rate of sixty percent plus surcharge and cess.
The Bench of Rathod Kamlesh Jayantbhai, Accountant Member and Narinder Kumar, Judicial Member examined whether the surrendered income could be treated as deemed income under the provisions of Sections 68 to 69C or be taxed as normal business income.
The Tribunal observed that the Assessing Officer had failed to establish that the surrendered amount represented any investment or asset outside the assessee’s regular line of business and that the income was generated in the ordinary course of business and already been offered to tax at the normal rate.
Circumstantially, the ITAT noted that when the source of surrendered income is clearly linked to the regular business of the assessee, it cannot be treated as unexplained or subjected to the punitive provisions of Section 115BBE. The Tribunal emphasized that the deeming provisions under Sections 68 to 69C are exceptional and apply only where the assessee fails to explain the source and nature of income satisfactorily which was not the matter in this case.
Accordingly, the ITAT allowed the appeal and deleted the income tax addition made by the AO.
Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates
