9911796707
TMI Blog2023 (7) TMI 1086X X X X Extracts X X X X X X X X Extracts X X X X ..... that the excess-cash represented assessee s income from unexplainable source attracting the provisions of section 69A. AR, in his submission, has referred to a part of the reply and not taken into account this part of assessee s reply. Being so, we are inclined not to accept Ld. AR s submission that the excess cash could be treated as business income. We uphold the action of lower-authorities in holding excess cash as deemed income u/s 69A attracting higher rate of tax u/s 115BBE. The assessee fails to this extent. Appeal of assessee is partly allowed. - ITA No. 428/Ind/2022 - - - Dated:- 17-7-2023 - SHRI VIJAY PAL RAO, JUDICIAL MEMBER And SHRI B.M. BIYANI, ACCOUNTANT MEMBER For the Assessee : Shri Kunal Agrawal, CA Shri Mahesh Agrawal, CA, Ld. Ars For the Revenue : Shri Ashish Porwal, Sr. DR ORDER Per B.M. Biyani, A. M. Feeling aggrieved by appeal-order dated 09.11.2022passed by learned Commissioner of Income-Tax (Appeals)-3, Bhopal [ Ld. CIT(A) ], which in turn arises out of assessment-order dated 25.06.2021 passed by learned DCIT, Central Circle-2, Bhopal [ Ld. AO ] u/s 143(3) of Income-tax Act, 1961 [ the Act ] for Assessment-Year [ AY ] ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ess cash should not be treated as unexplained investment in stock u/s 69 and unexplained money u/s 69A. Finding no reply from assessee, though the AO accepted the additional income of Rs. 3,03,37,828/- as declared by assessee but assessed the same u/s 69/69A and thereby applied higher rate of tax u/s 115BBE. Aggrieved by action of AO, the assessee went in first-appeal. 4. During first-appeal, both of the assessee and the AO made submissions which are re-produced by CIT(A) in Para No. 3.1.1 to 3.1.3 of his order. The assessee s contention was such that its sole source of income was the business of gold and silver jewellery for about 30 years and the excess-stock as well as excess-cash were the outcome of suppressed business income over the years; no other source of income except the same business had been found during survey. The assessee also relied upon certain judicial rulings where such income had been accepted as business income. Regarding excess-stock, it was further submitted that the excessstock was a part and parcel of overall physical stock found during survey and was neither found nor identified separately. Per contra, the AO s submission to CIT(A) was such that if the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he difference of 2,70,449 grams was observed and the same was valued at Rs. 82,56,808/- applying average rate of Rs. 30.53 per gram. Referring to the replies given by assessee s partner to both of Q.No. 6 and 7, Ld. AR submitted that the assessee s partner admitted to accept the difference of Rs. 2,14,98,376/- and Rs. 82,56,808/- as additional undeclared income in addition to regular income of current financial year 2017-18 and pay tax thereon. (b) In regard to excess-cash, Ld. AR submitted that as per Q.No. 8, the authorities found physical cash of Rs. 15,66,134/- as against the cash-balance of Rs. 8,24,982/- disclosed by books of account and thus arrived at excess cash of Rs. 7,41,152/-. But, the assessee s partner, explained the difference to the extent of Rs. 1,58,508/- immediatelyand admitted to accept the remaining difference of Rs. 5,82,644/- as additional undeclared income in addition to regular income of current financial year 2017-18 and pay tax thereon. Ld. AR submitted that nowhere in Q.No. 6, 7, 8, the survey-officer has asked the assessee to explain the source of excess-stock/excess-cash and nowhere in the replies the assessee has admitted the same as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om the entire discussion is that for invoking deeming provisions under sections 69, 69A, 69B 69C there should be clearly identifiable asset or expenditure. In the present case we find that entire physical stock of Rs.25,14,306/- was part of the same business. Both kind of stock i.e. what is recorded in the books and what was found over and above the stock recorded in the books, were held and dealt uniformly by the assessee. There was no physical distinction between the accounted stock or unaccounted stock. No such physical distinction was found by the Revenue either. The assessee has repeatedly claimed that unaccounted business income is invested in stock and there is no amount separately taxable under section 69. The department has ignored this claim of the assessee and sought to tax the difference between book-stock and physical-stock as unaccounted investment under section 69 without considering the claim of the assessee that first the business receipt has to be considered and then investment should be treated as coming out of such unaccounted income. The difference in stock so worked out by the authorities below had no independent identity of its own and it is part and parcel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s integral and inseparable (mixed) part of declared asset, falling under a particular head, then the difference should be treated as undeclared business income explaining the investment. 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. Ld. AR submitted that the reliance of CIT(A) on the decision in M/S SVS Oil Mills (supra) is mis-placed. Ld. AR submitted that in that case, the AO, CIT(A) and ITAT, all three authorities, recorded a clear finding that the assessee neither recorded the excess-stock/excesscash in books of account nor declared in the return of income and based on such finding, the Hon ble High Court was pleased to hold that no substantial question of law arose in assessee s appeal. But, in the present case, the assessee has very much recorded the excessstock and excess-cash in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ince the surrendered income consists of two components, namely (i) excess-stock, and (ii) excess-cash, we would like to deal both components separately one by one. Excess-Stock : 9. Firstly, we are in agreement with the very first and foremost contention of Ld. AR that in Q.No. 6 and 7 of statement, the survey-officer has nowhere asked the assessee to explain the source of excessstock/ excess-cash; he has simply asked the assessee to explain the difference. Going further to replies, we do not find that the assessee s partner has admitted the same as having been earned from undisclosed sources ; he has only admitted the same as additional undeclared income in addition to regular income. Therefore, from the questions raised and replies given, it is little difficult to deduce that the additional undeclared income was earned from undisclosed or unknown sources. Needless to mention that it is also undisputed that the assessee is a partnership firm and its sole source of income for last 30 years is the business of jewellery and no evidence had been found during survey indicating any other source of income and the assessee claims that the excess-stock was outcome of suppress ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ock 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 normal course of its business and was part of the total business stock available at the business premises and also observing that provisions of section 115BBE of the Act are applicable from 01.04.2017 and are thus not applicable on the case of assessee as the search was carried out on 15.12.2016 observing as follows: Ground No 1 to 5:- Through these grounds of appeal, the appellant has challenged the treating of Rs. 1,41,75,568/- declared during search as unexplained investment u/s 69 r. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... losed 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 the Act:- The AO found appellant of guilty of invoking provisions of section 69 of the Act and has re-classified the income of the appellant u/s 69A of the Act. before moving ahead, I find it important to quote relevant provision section 69 of the Income Tax Act which is as under:- 69. Where in the financial year immediately preceding the assessment year the assessee has made investments which are not recorded in the books of account, if any, maintained by him for a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dentifiable 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 only be applied the case where the asset is separately applicable and separately identifiable and it should have independent physical existence of its own. Since the 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. Similar, view has been taken by Hon ble jurisdictional In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. Haji Hasan (supra) where investment in an asset or expenditure is not identifiable and no nexus was established then with any head of income and thus was not available for set off against any loss under any other head. Therefore, the Hon ble Coordinate Bench held that where asset in which undeclared investment is sought to be taxed is not clearly identifiable or does not have independent identity but is integral and inseparable (mixed) part of declared asset, falling under a particular head, then the difference ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 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 this case, it is held as under:- 9. Since in the present case excess stock found during the survey 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 survey officers, the provisions of section 69B cannot be made applicable as primary condition for invoking the provisions of section 69A, 69B is that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 income. Otherwise even if the same is taxed under s. 115BBE of the Act, the provisions of not allowing the set off has come into effect from 1st April, 2017. (g) ACIT vs M/s A Star Exports and M/s Asian Star Diamonds International Pvt Ltd (2015) 5 TMI 1312 (ITAT Mumbai) wherein it has been held as under:- 8. We have considered rival contentions, carefully gone through the orders of the authorities below and also deliberat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amonds 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 Partner of the firm was again recorded on 20.11.2012 wherein in reply to the question no. 22 he has stated that this undisclosed income is generated through unrecorded trading of diamonds. Q.22 Please explain as to how this undisclosed income is generated? Ans: it is through unrecorded trading of diamonds. It is clear from the above facts that the declaration was related to business stock in trade hence it is evident that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed during the course of search itself and no other incriminating material was found during search proceedings and therefore is not an undisclosed income as held by the ld. AO. We, therefore, find no infirmity in the finding of Ld. CIT(A) rightly holding that the provision of section 115BBE of the Act are not applicable on the surrendered income on account of excess stock valuing at Rs. 1,41,75,568/- found during the course of search. Thus, grounds no. 1 to 3 raised by the revenue are dismissed. 11. Therefore, once the facts emerging from record shows that the excess stock found during survey was a part of entire lot of stock of assessee, part of which is recorded in books of account and part of the same was not found recorded and therefore, treated as excess stock at the time of survey and consequently surrendered by the assessee and also offered to tax in the return of income then the excess stock cannot be treated as deemed income u/s 69 or 69B of the act in view of the judgment of Hon ble Rajasthan High Court and Coordinate Bench of this Tribunal cited above. Accordingly, this issue is decided in favour of the assessee and against the revenue. The orders of the authorities ..... 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