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TMI Blog2023 (8) TMI 143X X X X Extracts X X X X X X X X Extracts X X X X ..... cannot be co-related with any specific asset and the difference should therefore be treated as undeclared business income rather than deemed income. What is equally relevant is that though the excess stock has been found and valued but whether the investment in the excess stock has happened during the year or the same has been carried over from the earlier years is not emerging from the findings of the AO which is also a prerequisite condition before invoking the deeming provisions of section 69 of the Act. Thus the income surrendered during the course of survey cannot be brought to tax under the deeming provisions of section 69 and the same has been rightly offered to tax under the head business income . In absence of deeming provisions, the question of application of section 115BBE doesn t arise for consideration. Decided in favour of assessee. - ITA NO. 588/Chd/2022, ITA NO. 589/Chd/2022 - - - Dated:- 27-7-2023 - Shri. Aakash Deep Jain, VP And Shri. Vikram Singh Yadav, AM For the Assessee : Shri Tej Mohan Singh, Advocate For the Revenue : Smt. Amanpreet Kaur, Sr. DR ORDER PER VIKRAM SINGH YADAV, A.M. : These are two appeals filed by the afore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e has disclosed additional income of Rs. 5,47,515/- on account of excess stock found during the course of survey as income from business. 5. During the course of assessment proceedings, a show cause dt. 23/01/2021 was issued requiring the assessee to show cause as to why the income of Rs. 5,47,515/- be not considered as unexplained investment and be treated as deemed income under section 69 of the act and brought to tax as per the provisions of Section 115BBE of the Act. In response, the assessee submitted that during the course of survey, it had provisionally evaluated the stock of the assessee s business which were physically found at the business premises and compared the same with the values worked out provisionally as per the books of account as the audit of books of accounts had not been conducted and the value of the closing stock as on 31/03/2017 had not been finally determined. It was further submitted that the difference in the value of stocks of plywood so provisionally determined although not existing actually had been taken in the books of account and since been offered for taxation as part of business income duly reflected in the P L account. 6. The submission s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ck as business income for taxation in addition to the normal business income at the conclusion of the survey operation vide its letter dated 02.05.2017 which is available in the assessee's Paper Book. It was submitted that the said sum of Rs. 5,47,515/- was offered for tax as additional business income at normal rate applicable for the period under reference and which was accepted by the Revenue authorities at the relevant point in time. It was submitted that the Revenue authorities who had conducted the survey were satisfied about the source of the said transactions which had been carried on by the assessee under the name and style of M/s Jain Plywood and no questions or objections were raised during the course of survey proceedings and therefore, the onus cast on the assessee was duly discharged. It was submitted that the additional income so offered was duly recorded in the books of account and basis thereof, was offered to tax by the assessee while filing his return of income. It was submitted that the AO, however, brought the amount to tax u/s 115BBE of the Act merely for the reason that such income had been offered for taxation during the course of survey proceedings and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ers (ITA No.258 of 2017). Further, reliance was placed on Coordinate Ahmedabad Benches decision in case of Chokshi Hiralal Maganlal Vs. DCIT [2011] 45 SOT 349 (Ahmedabad) and Chandigarh Benches decision in case of M/s Sham Jewellers Vs. The DCIT (in ITA No. 375/Chd/2022). 10. It was, accordingly, submitted that in light of the aforesaid submissions, the amounts so surrendered during the course of survey proceedings is clearly in the nature of business income and it has been duly offered to tax under the head income from business profession . Therefore, the action of the AO in treating the business income so offered by the assessee as deemed income u/s 69 and bringing the same to tax under the amended section 115BBE deserve to be set aside and necessary relief be provided to the assessee. 11. Per contra, the Ld. DR relied on the findings of the lower authorities and it was submitted that the AO has invoked the provisions of Section 69 of the Act for the reason that the source of money for purchasing the stock found excess during the course of survey has not been explained by the assessee. It was submitted that the stock may be business asset but the income for the purchase ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the instant case and the same are reproduced as under: 13. We have heard the rival contentions and purused the material available on record. The genesis of the present case lies in the survey operations u/s 133A conducted at the business premises of the assessee on 8/07/2016 wherein the assessee surrendered a sum of Rs 84.80 lacs, thereafter the return of income filed by the assessee on 23/03/2018 was selected for compulsory manual scrutiny as per CBDT guidelines presumably to examine whether the assessee has honoured the surrender so made at the time of survey while filing his return of income, as also evident from the conduct of the assessment proceedings by the AO in terms of issuing the show-cause and seeking comments of the assessee on the amount so surrendered during the course of survey and subsequent passing of the assessment order. As per the AO, the amount so surrendered by the assessee during the course of survey though has been offered in the return of income and thus, the assessee has honoured the surrender of income so made but at the same time, the income so offered in the return of income falls under the deeming provisions of section 69 and 69A of the Act and th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the assessee was found to be owner of cash so found at the time survey, such cash has not been recorded in the books of accounts so maintained by the assessee, and the assessee offers no explanation about the nature and source of the cash or the explanation so offered is not found satisfactory in the opinion of the AO. 16. Recently, in case of Surender Kumar others (ITA No. 398/Chd/2022), the Coordinate Chandigarh Benches has held that there is difference between the undisclosed income and unexplained income and the deeming provisions are attracted in respect of undisclosed income however, the condition before invoking the same is that the assessee has either failed to disclose the nature and source of such income or the AO doesn t get satisfied with the explanation so offered by him and the relevant findings read as under: 10. We have considered the rival contentions and have gone through the record. As per the provisions of Section 115BBE of the Act, the income tax on income referred to in Section 68 or Section 69 or Section 69A or Section 69B or Section 69C or Section 69D are chargeable to tax at a higher rate. Now a perusal of the provisions of Section 68, 69, 69A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd, as noted above, the AO duly made enquiries from the assessee as to the nature and the source of the aforesaid surrendered income and has also show caused the assessee as to why the same should not be charged at a higher rate of tax as per provisions of Section 115BBE of the Act. The ld. AO after considering the submissions and explanations of the assessee accepted the contention of the assessee that the surrendered income was out of the business income of the assessee. The perusal of the impugned order of the ld. PCIT would show that the ld. PCIT has not pointed out as to why the explanation offered by the assessee to the AO was not satisfactory and further what more enquiries are required to be conducted in this case, which the AO had failed to conduct. The ld. PCIT has simply based his opinion and order on the Audit Objections/Report as pointed out even in the Audit Report that since the same was undisclosed income of the assessee which was surrendered by the assessee during the survey action and therefore, the same was to be assessed under the provisions of Section 68 to 69D of the Act. The above reasoning of the survey party is not in accordance with the relevant provisions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o explain the discrepancy. In response, the assessee submitted that at this point in time, he was not in a position to explain the said discrepancy found in cash and offered the difference of Rs. 9,80,000/- for taxation. In Question No. 11, the survey team noted that one note pad (katcha) was found during the course of survey and advance to various persons to the tune of Rs. 55,00,000/- has been found noted therein and the assessee was asked to explain the nature of these advances. In response, the assessee submitted that these advances relates to his business activity, however he is not in a position to explain the same at this moment of time and to buy peace of mind, he offered this amount of Rs. 55,00,000/- for taxation for the F.Y. 2016-17 pertaining to A.Y 2017-18. In Question No. 12, the survey team stated that stock to the tune of Rs. 17,38,400/- has been found as per the books of account maintained by the assessee, however on physical verification, stock to the tune of Rs. 37,38,210/- has been determined and the assessee was asked to explain the difference of excess stock valued at Rs. 20,00,000/-. In response, the assessee submitted that at this moment of time, he is not i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ically found has been valued and then, compared with stock as recorded in the books of accounts, thus, there is clear nexus of stock with the assessee s business. The statement of the assessee is available on record and related documents so found during the course of survey are stated to be in possession of the Revenue authorities. Apparently, the AO has failed to take into consideration the statement of the assessee recorded during the course of survey holistically, and other documents and findings of the survey team which are very much part of the records. Following the surrender so made during the course of survey, the assessee has honored the surrender so made and offered the additional income as business income in his return of income and paid due taxes thereon. 20. In our view, what is relevant before invoking the deeming provisions is not just the factum of survey action but besides that, what is the explanation so offered by the assessee explaining the nature and source of income so found during the course of survey proceedings and which has not been recorded in the books of accounts and the same is the essence of the statutory provisions as duly recognized by the Courts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee is not acceptable in the facts of the present case which is clearly absent in the instant case. Therefore, where the ld PCIT himself is not clear about the applicability of relevant provisions and in the same breath holding the Assessing officer to task by not invoking the said provisions is clearly shooting in the dark which cannot be sustained in the eyes of law and the order so passed therefore cannot be held as erroneous in the eyes of law. 22. In case of Chokshi Hiralal Maganlal Vs. DCIT (Supra), briefly the facts of the case were that during the course of survey under section 133A which was carried out at the premises of the assessee, excess stock of gold and silver ornaments were found and in the return of income subsequently filed by the assessee, he had included the value of excess stock as part of closing stock inventory. However the AO observed that the said disclosure was not consistent with the provisions of Section 69B of the Act and same was accordingly brought to tax under section 69B. The Ld. CIT(A) confirmed the order of the AO and thereafter on further appeal, the Coordinate Ahmedabad Bench held that the excess stock found during the survey is not sepa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vestment 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 of entire lot of stock. The difference between declared stock in the books and what is physically found would only be a mathematical expression in terms of value and not 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. 13. Thus in a case 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 sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as to be considered accordingly. For calculation of income in view of our above observations, we restore the matter to the file of AO. 23. In the instant case as well, we find that the difference in stock so found out by the authorities has no independent identity and is part and parcel of entire stock, therefore, it cannot be said that there is an undisclosed asset which existed independently and thus, 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 and the difference should thus be treated as undeclared business income. 24. Following the said decision of the Coordinate Ahmedabad Bench, the Jaipur Bench in case of DCIT Vs. Shri Ram Narayan Birla (Supra) has taken a similar view holding that the excess stock so found during the course of survey was part of the stock and the Revenue has not pointed out the excess stock has any nexus with any other receipts other than the business being carried on by the assessee. The relevant findings are contained at para 4.3 which read as under: 4.3. We have heard rival contentions and perused the material available on record. Undisputed facts eme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rgan Traders Vs. ACIT (Supra) has similarly held as under: 2.10. We have heard the rival contentions and perused the material available on record. During the course of survey, the assessee has surrendered an amount of Rs. 70,04,814/- towards investment in stock of rice which had not been recorded in the books of accounts. Subsequently, in the books of accounts, the assessee has incorporated this transaction by debiting the purchase account and crediting the income from undisclosed sources. In the annual accounts, the purchases of Rs. 70,04,814/-were finally reflected as part of total purchases amounting to Rs. 33,47,19,658/- in the profit and loss account and the same also found included as part of the closing stock amount to Rs. 1,94,42,569/-in the profit/loss account since the said stock of rice was not sold out. In addition to the purchase and the closing stock, the amount of Rs. 70,04,814/- also found credited in the profit and loss account as income from undisclosed sources. The net effect of this double entry accounting treatment is that firstly the unrecorded stock of rice has been brought on the books and now forms part of the recorded stock which can be subsequently s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (ii) Discrepancy on cost of construction of building Rs. 21 lacs (iii) Discrepancy in stock Rs. 10 lacs (iv) Discrepancy in advances and receivable Rs. 30 lacs 11. These facts have not been disputed by any one at any stage. The only issue to be considered by us is whether the income of Rs. 70 lacs surrendered is to be taxable as business income or income from other sources or as deemed income under sections 69A, 69B and 69C of the Act as held by the Assessing Officer. A number of judicial pronouncements have been cited during the course of hearing, however, we have to bow down to the proposition laid down by the Jurisdictional Punjab Haryana High Court in the case of M/s Kim Pharma Pvt. Ltd.(supra) since this is the only judgment of the Jurisdictional High Court which were brought to our notice. 12. On perusal of the said judgment, we find ourselves in agreement with the submission of the learned counsel for the assessee, that the only issue in that case was the taxability of cash surrendered during the course of survey, as the assessee had also sur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 27, 28, 31 and 33, which were not recorded in the regular books of the assessee and were subsequently surrendered stating that these entries were unaccounted sundry receivables being surrendered as income under the head business, to buy piece of mind and subjected to no penalty and further that the losses incurred by the assessee in the impugned year will be adjusted against this surrendered income. The relevant facts as stated by the CIT(A) in para 9 of his order and which are not disputed, are reproduced hereunder: 9. Adverting now to the facts of the instant case, it is seen that when survey proceedings were conducted at the business premises of the appellant company, a pocket diary was found from the accounts section which contained entries of receivables amounting to Rs. 1.25 crores on page nos. 27, 28, 31 and 33, which were not recorded in the regular books of accounts. When these entries were confronted to the appellant company while recording the statement on 15/09/2012, it was stated: that these entries are sundry receivables which has not been accounted for in the books of accounts and in order to buy peace of mind, the same is surrendered as income under the head ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... part of our order: (i) investment of Rs. 60 lacs in Kothi at Sukhmani Enclave in the name of Smt. Rekha Miglani; (ii) Sundry creditors and advances received from customers amounting to Rs. 132 lacs; (iii) Gross profit on sale out of books amounting to Rs. 198 lacs and; (iv) surrender to cover miscellaneous discrepancies in loose papers etc. amounting to Rs. 10 lacs. 24. As far as the surrender made on account of investment in Kothi of Rs. 60 lacs, neither is the same disclosed in the books of the assessee nor source of the same disclosed. Therefore, the same is to be assessed as deemed income u/s 69 of the Act. The same applies to the surrender of Rs. 10 lacs made to cover the miscellaneous discrepancies in loose paper of Rs. 10 lacs. Neither the nature of the discrepancies, nor any source relating to the same has been disclosed and, therefore, the same is also to be assessed as deemed income u/ss 69, 69A, 69B and 69C of the Act. 25. As far as the surrender of Rs. 132 lacs made on account of sundry creditors and advances received from customers and Rs. 198 lacs on account of gross profit on sale out of the books, both of them clearly are in relation to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... where the assessee was engaged in the business of Gold and Diamond jewellery and Silver articles and during the search and seizure operation u/s 132, excess stock was found to be declared and the assessee had submitted that excess stock was result of suppression of profit from business over the years and the same had not been kept identified separately and the AO had duly considered and accepted the assessee s explanation that investment in excess stock was to be treated as business income, the revisional powers invoked by the Principal Commissioner u/s 263 of the Act were not correct in the eyes of law. 10.19 The ITAT Chandigarh Bench in the case of Famina Knit Fabs Vs. ACIT reported in (2019) 176 ITD 246 (Chd-Trib) has held that, wherein during the course of survey, a surrender was made by the assessee on account of debtors / receivables which was based on a diary found during the course of survey and the Revenue had accepted that the surrender was on account of receivables, it followed that the debtors were generated from the sales made by the assessee during the course of carrying on the business of the assessee which was not recorded in the books of the assessee. The Coor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... brought on record that the assessee had any other source of income except business income and, therefore, we respectfully state that judgement of the Hon ble Punjab and Haryana High Court in the case of Kim Pharma Pvt. Ltd (supra) would not apply on the facts of the present case. 10.23 Accordingly, keeping in view the various judicial precedents as cited above and respectfully following the same, we hold that the AO could not have legally invoked the provisions of section 115BBE of the Act in the present case and further the Ld. CIT(A) was also not legally correct in upholding of the application of provisions of section 115BBE of the Act. Accordingly, ground Nos. 8 and 9 are also allowed. 31. Now, coming to the decision of Kim Pharma (P) Ltd. Vs. CIT [2013] 35 taxmann.com 456 (P H). Briefly the facts of the case were that the survey under section 133A was conducted at the business premises of the assessee and during the course of survey, cash amounting to Rs. 5,00,000/- was found which was surrendered by the assessee for A.Y 2006-07 and another amount of Rs. 10,00,000/- was surrendered for A.Y. 2005-06 on account of sundry credits, repair to building and advances to staff ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Act, therefore, the corresponding deductions under the head Profits and gains are not available to the assessee. The business loss determined for the year is not allowed to be setoff against such deemed income included in the books of account. The alternative plea of the assessee of assessing the income under the head income from other sources and allowing set off of losses u/s 71 of the Act also fail in view of the above. 9. The learned AR for the assessee had placed reliance in CIT Another Vs. S.K.Srigiri Bros. (supra) for the proposition that even in cases of survey, the additional income surrendered is includible as income from business. In the facts of that case, we find that the Tribunal after considering the records and statement given by the partners of the assessee firm, on facts, came to the conclusion that assessee had received additional income from business onl y and not from other sources. The said conclusion of the Tribunal was upheld by the Hon'ble Karnataka High Court in CIT another vs. S.K.Srigiri Bros. (supra) and the remuneration paid to the partners was held allowable against the additional income form business. The said precedent has be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has clearly stated that he is running a sole proprietorship business concern in name of M/s Singla Wires and Allied products since 2008 wherein he manufactures and sells aluminum and copper wires and all along, the same is his only source of income and thereafter, he has been confronted with discrepancies in terms of cash found excess as compared to what has been recorded in the books of accounts, certain advances relating to his business written in a rough diary and excess value of stock as compared to what has been recorded in the books of accounts. Therefore, we find that the assessee has been confronted with not just the discrepancy so found during the course of survey but the nature and source thereof during the course of survey proceedings and it is clearly emerging that the source of such income is from his business operations. Thus, the decision of the Hon ble High Court, being rendered in the specific facts and circumstances of the said case, doesn t support the case of the Revenue in the instant case. 33. In light of aforesaid discussion and in the entirety of facts and circumstances of the case and following the decisions supra, the income of Rs 84,80,000/- surrendere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat there is an undisclosed asset which existed independently and thus, 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 and the difference should therefore be treated as undeclared business income rather than deemed income. Further, what is equally relevant is that though the excess stock has been found and valued but whether the investment in the excess stock has happened during the year or the same has been carried over from the earlier years is not emerging from the findings of the AO which is also a prerequisite condition before invoking the deeming provisions of section 69 of the Act. 16. In light of aforesaid discussions and in the entirety of facts and circumstances of the case and following the decisions referred supra, the income of Rs 5,47,515/- surrendered during the course of survey cannot be brought to tax under the deeming provisions of section 69 of the Act and the same has been rightly offered to tax under the head business income . In absence of deeming provisions, the question of application of section 115BBE doesn t arise for consideration. 17. In ITA No. 589/Chd/2022 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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