2023 (7) TMI 733

..... k is itself worked out from assumptions how can it be concluded that appellant has unexplained investment which is a definite term. Applying provisions of Section 69B on estimated figure is illegal and wrong. The same therefore may very kindly be deleted. 3. That the learned CIT(A) erred in confirming the view of the AO of applying provisions of Section 115BBE on business income without even considering the purpose of legislature behind introducing the provisions of Section 115BBE. The action taken by learned CIT(A) of confirming the addition made by AO is illegal and wrong. The same therefore may very kindly be deleted. 4. That the learned CIT(A) erred in confirming the view of the AO that the alleged excess stock is covered u/s 69B and not under the head business income. When the appellant is engaged only in business activity and the stock found is of the same items which appellant manufactures/trades, how can the same be treated as unexplained investment. That section 69B casts heavy burden on the shoulders of the AO. He has not only to conclusively find that there is some unexplained investment done by the appellant which exceeds the amount recorded in books but also the .....

..... arried out the relevant entries in its books of accounts of the amount of stock surrendered under the head purchases and corresponding entries for crediting the stock. The assessee has specifically shown this income under the head extra ordinary items. The excess stock found during the course of survey is the same as finished goods manufactured by the assessee and deal in the same stock therefore, the excess stock will be treated as business stock of the assessee. This excess stock does not have any independent identity but it is integral and inseparable part of declared asset therefore, the difference can be treated as undeclared business income which has been offered by the assessee in the return of income for invoking provisions of section 69B of the Act there should be clearly identifiable asset separate from the other business asset of the assesse. If there is no physical distinction between accounted stock and unaccounted stock, the unaccounted stock will be treated as undeclared business income. Further in the statement recorded during the course of survey specific query was asked about source of income and assessee explained that the excess stock is generated out of its nor .....

..... l as relevant material on record. The dispute before us is only regarding applicability of the provision of section 69B and consequential higher rate of tax u/s 115BBE of the Act in respect of the income surrendered and offered to tax by the assessee on account of excess stock found during the survey. The assessee has declared the income as business income in the return income which was treated by the AO as deemed income u/s 69B of the Act. The AO has made the addition in para 4.2.3 to 4.3 as under: "4.2.3 Disclosure by assessee as business income is not of any help unless the same is supported by necessary evidences to establish the same as such. Since documentary evidences in respect of excess stock found and source of investment in excess stock remain unexplained, deeming fiction of 698 applies. Plea of the assessee that he has no other source of income is also not found tenable unless corroborative evidences are produced by the assessee to establish the same as income from business transactions for the year under consideration. 4.2.4 Even if the assessee offers the same suo moto as income in the ROI, it does not take away such income out of category of deemed incomes u/s 6 .....

..... mount of Rs. 58,78,145/- in form of excess stock, Rs. 52,86,831/-in form of sales and not recorded in its regular books of accounts and without supporting documentary evidences as detected at the time of survey u/s 133A is treated as deemed income u/s 69B/69A of the I.T.Act, 1961 and to be taxed as per provisions of secretion 115BBE of the I.T.Act, 1961. Penalty proceeding u/s 271AAC is also initiated separately. 6. The AO has applied the provision of section 69B of the Act for want of any supporting evidence regarding source of excess stock and nature of income which was not found recorded in the books of account at the time of survey. On appeal the Ld. CIT(A) has confirmed the order of the AO on the similar reasoning by relying the judgment Hon'ble Madras High Court in the case of M/s. SVS Oil Mills vs. ACIT in Income Tax Appeal No.765 of 2018. It is pertinent to note that during the course of survey what was detected in respect of the stock was that the physical stock found at the business premises of the assessee was excess in comparison to the stock recorded in the books of account. It is not the case of the AO that the excess stock found during the survey was separated from .....

..... istence on its own. Coordinate Bench of this Tribunal in case of ACIT vs. Anoop Neema(supra) has also considered an identical issue as under: "7. We have heard rival contentions and perused the records placed before us. Revenue's sole grievance is that Ld. CIT(A) erred in not treating the income of Rs. 1,41,75,568/- declared during the course of search carried out on 15.12.2016 as unexplained investment u/s 69 r.w.r.t. 115BBE of the Act. We notice that during the course of search excess stock of gold weighing 6433.812 gms was found amounting to Rs.1,41,75,568/-. Mr. Anoop Neema in his statement recorded on oath on 16.12.2016 u/s 132(4) of the Act accepted the value of excess stock as additional business income for financial year 2016-17. So far as, admission of undisclosed income of Rs.1,41,75,569/- is concerned there is no dispute at the end of both the parties. The bone of contention is that whether the provision of section 115BBE of the Act are applicable on the surrendered income of Rs.1,41,75,568/- we find that Ld. CIT(A) on examination of the fact, settled judicial precedence, also appreciating that the alleged income is business income earned by the assessee during the nor .....

..... stock of gold worth Rs. 1,41,75,568/- was found in possession of appellant. Therefore, appellant during search made disclosure of 1,41,75,568/- on account of undisclosed income, however, the appellant while filing return of income has directly credited the same in his capital account and without showing the same as additional income. Therefore, the additional income offered was not shown in profit and loss account. Thus, the AO was justified in making addition on account of undisclosed income declared in statement recorded on oath u/s 132(4) during search. Also, the appellant has accepted the addition made by the AO amounting to Rs. 1,41,75,568/- vide written submissions dated 26.07.2019. However, the appellant has objected to the findings of the AO on treating the additional income offered (or say business income) by the appellant as unexplained investment u/s 69 r.w.s 115BBE of the Act. After considering the plea of appellant interalia facts of the case it can be easily said that the instant case revolves around applicability of two different sections i.e. section 69A and section 115BBE of the IT Act. (a) Applicability of provisions of section 69A (unexplained investment) of .....

..... r than manufacturing and trading of gold ornaments or has any other undisclosed source of income. Further the excess stock found in possession of the appellant was not kept separately and was not easily identifiable. The excess stock was part of the mixed lots of stock found at the premises of the appellant which included declared stock as per books of account and also the excess stock as found during the search. Since the excess stock in possession was not clearly identifiable or was not kept at a secret place, therefore, it can be safely held that the same could have been earned/accumulated over the time. However, this presumption of accumulating over a period of time is ruled out with simple stroke of statement of appellant wherein he has admitted that the same has been earned in FY 2016-17(AY 2017-18). Further, the appellant does not have any income other than manufacturing and trading of gold ornaments, therefore, the excess stock found during search was earned out of business income by the appellant. Hon'ble Ahmadabad ITAT in the case of Chokshi Hiralal Maganlal vs DCIT, (ITA No 3281/Ahd/2009 dated 05.08.2011) has held that "the provisions of section 69A/69B of the IT Act can .....

..... has held that in a cases where source of investment/expenditure is clearly identifiable and alleged undisclosed asset has no independent existence of its own or there is no separate physical identity of such investment/expenditure then first what is to be taxed is the undisclosed business receipt invested in unidentifiable unaccounted asset and only on failure it should be considered to be taxed under section 69 on the premises that such excess investment is not recorded in the books of account and its nature and source is not identifiable. Once such excess investment is taxed as undeclared business receipt then taxing it further as deemed income under section 69 would not be necessary. Therefore, the first attempt of the assessing authority should be to find out link of undeclared investment/expenditure with the known head, give opportunity to the assessee to establish nexus and if it is satisfactorily established then first such investment should be considered as undeclared receipt under that particular head. It is observed that there is no conflict with the decision of Hon'ble Gujarat High Court in the case of Fakir Mohd. HajiHasan (supra) where investment in an asset or expendi .....

..... ot a separate independent identifiable asset. Therefore, it cannot be said that there is an undisclosed asset existed independently. Once this is so then what is not declared to the department is receipt from business and not any investment as it cannot be co-related with any specific asset. 14. To conclude sum of Rs.8,10,011/- being difference in stock is represented by undeclared business income. It does not have a separate physical identity. It is to be only taxed under the head 'business'. Other assets have separate physical identity being furniture and fixtures, air conditioners etc. They cannot have a direct nexus with business and therefore investment therein has to be considered under section 69 only. 15. In view of the above, AO is directed to consider the sum of Rs.8,10,011/- as undisclosed business income assessable under the head 'business' and other two sums under section 69. The business income including application of section 40(b) has to be considered accordingly. For calculation of income in view of our above observations, we restore the matter to the file of AO. (d) Chokshi Hiralal Maganlal Vs. DCIT, Ahemadabad (ITA No. 3281/Ahd/2009 dated 05.08.2011) In .....

..... n in the judicial pronouncements as discussed above, I hold that the lower authorities were not justified in taxing the surrender made on account of excess stock and excess cash found U/s 69 of the Act. Thus, there is no justification for taxing such income U/s 115BBE of the Act. (f) ACIT Vs. Sanjay Bairathi Gems Ltd - 189 TTJ 487/492 (Jp). In this case, it is held as under:- From the above, it is seen that the excess stock found during the search operation is not separately and clearly identifiable but is part of mixed lots of stock found at the premises which included declared stock as per books and also the excess stock as computed by the authorized officers during the search operation at the premise. Since excess stock is a result of suppression of profit from business over the years and has not been kept identifiable separately but is the part of overall physical stock found, the investment in the excess stock has to be treated as business income. Further, the excess stock so found is part of the regular business, therefore, following decision of Hon'ble Tribunal Bench Jaipur in case of Ramnarayan Birla (cited supra), the same has to be taxed under the business in .....

..... e Income Tax Department at the time of prohibitory order execution and was valued as follows: The statement of Shri Vipul Shah was again recorded on 27/12/2010, wherein he admitted the unaccounted stock of 34,50,00,516/- including unaccounted stock of 13,47,63,640/- pertain to the assessee. The computation of the total income of the assessee had declared undisclosed income of 13,47,63,640/- in the form of stock of polished diamonds under the head "profit and gains of the business and profession". In the course of assessment the assessee submitted .its explanation on why the undisclosed stock should be treated as a business income. In this connection it was stated that at the time of search, the investigating officers found unaccounted stock in the business premise of the assessee at 114/116, Mittal Court, 'C' Wing, 11th Floor, Nariman Point, Mumbai - 400021. This stock was valued at 13,47,63,640/- by the income tax valuer. Consequently the assessee declared this amount as stock in trade and this contention of the assessee was accepted by the Investigating officer. Who has released the stock after valuation and not impounded/seized. The statement of Shri Vipul P. Shah Par .....

..... excess stock of gold was found amounting to Rs. 1,41,75,568/-. The appellant made voluntary declaration of additional income and the same has been taken into consideration in regular return of income. Till this point there is not dispute. The issue creating dispute is that the additional income disclosed by appellant (during search) has been incorporated in books of accounts as business income, however, the AO has treated the same as unexplained investment u/s 69 of the Act and made subsequent addition in the income of appellant by applying tax rate as per amended provisions of section 115BBE of the Act. First of all let me discuss whether the provisions of section 115BBE are applicable to this case or not. Therefore the relevant extract of pre-amended and post amended provisions of section 115BBE is reproduced for the sake of clarity:- Pre amended provisiosn of section 115BBE of the Act:- "115BBE(1). Where the total income of an assessee includes any income referred to in section 68, section 69, section 69A, section 69B, section 69C or section 69D, the income-tax payable shall be the aggregate of- (a) the amount of income-tax calculated on income referred to in section 6 .....

..... yan Borla [Appeal No 482/ JP/ 2015 dt 30-09-2016]; * Hon'ble Supreme Court in the case of Lakhmichand Baijnath Vs CIT as reported in 35 ITR 416; * Hon'ble Apex Court in the case of Nalini Kant Ambalal Mody vs SAL Narayan Row as reported in 61 ITR 428. In the instant case search u/s 132 of the Act took place on 15.12.2016. Since, the search in the case of appellant was carried out on 15.12.2016 and additions were made consequential to search, therefore, the assessing officer was not justified in stating that provisions u/s 115BBE were invoked by the appellant which infact was applicable from 01.04.2017 and not from 15.12.2016 (date of search). 4.1.3 In view of the above discussion, it is evident that the appellant does not have any other source of income except manufacturing and trading of gold ornaments. Also, neither the search party nor the AO was able to bring to light other facts or evidence suggesting that the excess stock was not acquired through business activities carried out by the appellant. Therefore, the AO is directed to treat the sum of Rs. 1,41,75,568/-, which was voluntarily disclosed as additional income, as business income of the appellant by applying .....

..... said deeming provisions and chargeable to tax under section 115BBE of the Act. 8. Firstly, how the ld PCIT has arrived at a conclusive finding that the discrepancies found, confronted and accepted by the assessee during the course of survey attract the deeming provisions of section 68, 69, 69A, 69B & 69C is not apparent from the impugned order. Merely stating that excess cash is clearly covered u/s 68 or 69A, excess stock is covered u/s 69 or 69B, construction of Shed/Godown is covered u/s 69B or 69C and advances made to Sundry Parties is covered u/s 69, 69B or 69D is like an open ended hypothesis which is not supported by any specific finding that the matter shall fall under which of the specific sections and how the conditions stated therein are satisfied before the said provisions are invoked. It is like laying a general rule, which to our mind is beyond the mandate of law, that wherever there is a survey and some income is detected or surrendered by the assessee, the deeming provisions are attracted by default and by virtue of the same, provisions of section 115BBE are attracted. The ld PCIT has to record his specific findings as to the applicability of the relevant provisio .....

..... said fact is corroborated by the surrender letter dated 21.10.2016. Apparently, the ld PCIT has failed to take into consideration these documents which are very much part of the records. Following the surrender so made, the assessee has offered the additional income as business income in his return of income and paid due taxes thereon. During the course of assessment proceedings, the Assessing officer has specifically taken cognizance of these facts, as apparent on the face of the assessment order, that assessee has voluntarily surrendered Rs 1,02,00,000/- over and above the normal business income in his return of income and has accordingly not drawn any adverse inference. We therefore find that the Assessing officer has duly taken cognizance of statement of the assessee recorded during the course of survey, the surrender letter and the return of income, and after examination thereof and due application of mind has not drawn any adverse inference and income has been rightly assessed under the head "business income". In light of the same, we are of the considered view that the order so passed by the Assessing officer cannot be held as erroneous due to lack of enquiry or for that mat .....

..... ticles as per the provisions of section 69B of the Act. An identical issue has been considered and decided by Hon'ble High Court as well as this Tribunal in series of cases some of these are reproduced above. Accordingly in the facts of the case the excess stock would not fall in the mischief of section 69B of the Act. The question also arises whether the excess stock found during the search which is not separate from the entire lot of stock of the assessee can be treated as other valuable articles though certainly not in the nature of bullion and jewellery. This question has been considered by the Hon'ble Supreme Court in the latest judgment in case of M/s D.N. Singh vs. CIT, Central, Patna and Another 150 taxmann.com 301 (SC) as under: 64. It is a case of the appellant that applying the Principle of Ejusdem Generis, bitumen would stand out as a strange bed fellow in the company of its immediate predecessor words, viz., money, bullion and jewellery. In other words, it is the case of the appellant that bitumen is a clear misfit and it could not have been the legislative intention to treat bitumen as other valuable article. Our attention is drawn to the Circular No. 20D dated 07.0 .....

..... nd which do not carry any saleable interest, are not the "valuable things or articles" contemplated either by subsection (5) of section 132 of the Act or by rule 112A of the Rules. There is nothing in the record to show that the fixed deposit receipts, which are seized in this case, carry any inherent market value with them. They are merely the documents evidencing the debt due to the assessee. Similarly, the documents of title relating to an immovable property also contain no more value than an evidentiary one. Thus, since none of those documents has got any intrinsic value in terms of money, we are of the opinion that they are not covered by sub-section (5) of section 132 of the Act or rule 112A of the Rules." (Emphasis supplied) 66. Unlike a document of title or a fixed deposit receipt, which cannot, by itself, be disposed of or alienated, bitumen would be goods, which can be transferred. It would have a value in the market depending upon its quality. In Commissioner of Income Tax v. M.K. Gabrial Babu and others19, the High Court of Kerala was dealing with the question, as to whether immovable property would be covered within the expression 'other value article or thing' w .....

..... such, the substantial question of law, i.e., (i) and (iii) are answered accordingly." (Emphasis supplied) 68. The word 'valuable' has been defined in Black's Law Dictionary as follows: - "Valuable adjective. Worth a good price; having financial or market value." 69. The word 'valuable' has been defined in the Concise Oxford Dictionary as follows: - The word 'valuable' has been defined as again an adjective. "worth a great deal of money. Very useful or important." 70. The word 'money' has been described in Black's Law Dictionary as follows: - "money. 1. The medium of exchange authorized or adopted by a government as part of its currency; esp. domestic currency .2. Assets that can be easily converted to cash . 3. Capital that is invested or traded as a commodity . 4. Funds; sums of money . - Also spelled (in sense4) monies. See Medium of Exchange; Legal Tender." 71. The word 'article' has been defined in Black's Law Dictionary as "Generally, a particular item or thing

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..... n notification and considered the applicability of the Principle of Noscitur a Sociis, to the facts: "12. The principle of statutory interpretation by which a generic word receives a limited interpretation by reason of its context is well established. In the context with which we are concerned, we can legitimately draw upon the "noscitur a sociis" principle. This expression simply means that "the meaning of a word is to be judged by the company it keeps." Gajendragadkar, J. explained the scope of the rule in State of Bombay v. Hosptial Mazdoor Sabha [(1960) 2 SCR 866 : AIR 1960 SC 610 : (1960) 1 LLJ 251] in the following words: (SCR pp. 873-74) "This rule, according to Maxwell, means that, when two or more words which are susceptible of analogous meaning are coupled together they are understood to be used in their cognate sense. They take as it were their colour from each other, that is, the more general is restricted to a sense analogous to a less general. The same rule is thus interpreted in "Words and Phrases" (Vol. XIV, p. 207): "Associated words take their meaning from one another under the doctrine of noscitur a sociis, (1990) 3 SCC 447 the philosophy of which is that the .....

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..... of the machinery analogous to that indicated by the words following it, was considered relevant for the purposes of the statute." 76. About Noscitur a Sociis and how it compares with ejusdem generis, the following statement in G.P. Singh (supra) on Statutory Interpretation is apposite: "It is a rule wider than the rule of ejusdem generis; rather the latter rule is only an application of the former." N. WHETHER BITUMEN IS 'OTHER VALUABLE ARTICLE' 77. This Court has referred to the Principles of Ejusdem Generis and Noscitur a Sociis, which undoubtedly are rules of construction the latter being described as having treacherous underpinnings and the former requiring the existence of a genus which is not exhausted by the categories catalogued in the statute. This Court has also referred to the definition of the words, money, bullion valuable and article. The Court approves the view taken by the High Court of Gujarat in Bhagwandas Narayandas (supra) that a document of title to immovable property or a fixed deposit receipt would not qualify as other valuable article. The reasons which have been given appear to us to be sound. A document of title or a fixed deposit receipt would no .....

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..... om the ambit of the words 'other valuable articles'. The concept of 'other valuable articles' may evolve with the arrival in the market of articles, which can be treated as other valuable articles on satisfying the other tests. 78. Bitumen is defined in the Concise Oxford English Dictionary as 'a black viscous mixture of hydrocarbons obtained naturally or as a residue from petroleum distillation, used for road surfacing and roofing'. Bitumen appears to be a residual product in the petroleum refineries and it is usually used in road construction which is also probabalised by the fact that the appellant was to deliver the bitumen to the Road Construction Department of the State. Bitumen is sold in bulk ordinarily. In the Assessment Order, the Officer has proceeded to take Rs. 4999.58 per metric ton as taken in the AG Report on bitumen scam. Thus, it is that the cost of bitumen for 2094.52 metric ton has been arrived at as Rs. 1,04,71,720.30. This would mean that for a kilogram of bitumen, the price would be only Rs.5 in 1995-1996 (F.Y). 79. Bitumen may be found in small quantities or large quantities. If the 'article' is to be found 'valuable', then in small quantity it must no .....

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2023 (7) TMI 733

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