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TMI Blog2023 (11) TMI 1093X X X X Extracts X X X X X X X X Extracts X X X X ..... tment or expenditure has been met. Where the assessee is able to explain the nature and source of investment or expenditure, and if they are recorded in the books of accounts, then such investment or expenditure will not be treated as deemed income, but if these conditions are not fulfilled, the same would be treated as deemed income of the assessee. ITAT, thereafter went on to hold that the important aspect that emerges was that for invoking deeming provisions under sections 69,69A, 69B 69C there should be clearly identifiable asset or expenditure, and thereafter they held that in a scenario where excess stock of the business is found, there is no physical distinction between the accounted and unaccounted stock, and such assets found cannot be said to be distinct or separate assets. Difference in stock has no independent identity of its own and is part and parcel of the entire lot of stock. The difference is only a mathematical expression in terms of value and not a separate independent identifiable asset, and therefore, it could not be stated that there is an undisclosed asset existing independently ; that once it was so held, then what was not declared to the department ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the impugned year survey action under section 133A of the Act was carried out on 20.11.2013 at the business premises of the assessee and during the course of survey, unexplained bullion, gold ornaments, cash and unaccounted expenditure to the tune of Rs. 2,00,90,073/- was found in the following manner: 1. Value of unexplained bullion found 3923 grams @ 3110 per gram Rs. 1,22,00,530/- 2. Value of unexplained gold ornaments found 380.148 grams @ Rs. 2950 per gram Rs. 70,21,437/- 3 Amount of unexplained cash found in shop Rs. 1,47,506/- 4. Amount of unaccounted expenses found incurred for shop renovation Rs. 7,20,600/- 5. The same was surrendered in entirety by the assessee. However in the return of income filed, the assessee declared total income of Rs. 80,14,612/- only. The discrepancy between the disclosed income and returned income related to allowability of remuneration paid to partners in terms of section 40(b)of the Act. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... where the business of the assessee was being run. Therefore, whatever was found and surrendered by the assessee had no separate identity but was found to be part of the business of the assessee only, and was also explained by the partners of the assessee firm in the statement recorded during the survey to have been made out of the undisclosed income of the business of the assessee firm. He thereafter pointed out that even the source of investment in bullion and gold ornaments and in unexplained expenditure was clarified by partners of the assessee-firm in the statement recorded which fact was duly noted by the ld.CIT(A). He pointed out that the ld.CIT(A) had rightly appreciated the fact that no counter question was asked by the Revenue to partners of the firm when they admitted to the said fact, and infact admission of the partners to the effect that the investment in excess stock of bullion ,jewellery etc was made out of unaccounted business income of the assessee, was accepted by the Revenue without any question. It was also pointed out to us that the assessee had not only declared the income on account of excess stock, cash or expenditure found during the survey, but had also bo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he appellant in his statement before the survey party as well as by way of an affidavit prepared consequent to the survey on 29.11.2013. These facts are not disputed by the A.O. In the said affidavit, the appellant has given the back ground of the declaration as well as the break up the declaration as under:- (Quote) An action u/s. 133A of the Income tax Act, 1961 was carried on the firm situated at BBZ, Sec.8, Opp. Show room, Zanda Chowk, Gandhidham, Kachchh on 20.11.2013, where the officials of Income tax department had found excess stock of bullion and gold ornaments, excess cash on hand and a paper containing an account of expenses, incurred on shop renovation. During the course of proceedings I was asked to explain and clarify the particulars of such excess stock, cash and expenses incurred. After obtaining consent of all my partners and while explaining above stated differences/documents I had made disclosure of undisclosed income which has been earned by the firm from the business activities carried on during the financial year 2013-14 relevant to assessment year 204-15 and which has not been recorded in books of accounts in the statement recorded during the proc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 89/-, the AO has also noted the same in his assessment order in his computation on page 12 of the order. The AO has not disbelieved the other entries of P L account. His grievance has arisen due to declared net profit being much lower than the amount declared during survey. As it can be seen from the above that it happened due claim of appellant of higher amount of remuneration to partners u/s 40(b) of the Act. Appellant has shown that such claim is approved by the changed partnership deed(dated 13.03.2012), the clause 14 of this deed is concerned with payment of remuneration to the partners. This clause was inline with section 40(b) of the Act, the said computation was submitted to the AO during Assessment proceedings vide appellant s 13.11.2016. The AO has not disputed this computation, however he has noted in para 4.3 of his order that this claim of deduction is the real reason for returned income being much less than the disclosed income. According to the AO this deduction is not available in this case because the disclosure during survey is not the part of the business income, rather it is a deemed income u/s 69. 8.3 Facts of such declaration by way of affidavit and state ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lery or other valuable article, or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the money and the value of the bullion, jewellery or other valuable article may be deemed to be the income of the assessee for such financial year. It is apparent that invocation of section 69A requires failure of appellant to submit nature and source of acquisition of the impugned asset. In the present case the appellant was asked about excess stock during the survey itself and in reply to question 13 put before him during statement recorded u/s 131 on 20.11.2013 the appellant has clearly stated that this excess stock of gold ornament was bought from the business income earned during the relevant previous year itself from the transactions which were not recorded in the books. Similar explanation was given in respect of unrecorded expenses on shop of the appellant. This explanation was not dismissed by the officer recording the statement; rather in question no. 15 the appellant was asked as to when it will pay the applicable tax on the undisclosed income of Rs. 2,00,90,073/- which was declared undisclosed income of the current FY 2013-14 . It is t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ks and they were quantified at Rs. 2,00,90,073/- crore by valuing the excess stock of bullion and gold ornament. These items were not recorded in the books of account of the appellant and therefore no sale purchase and other details of such clandestine activities were found during survey. This is quite natural that no sale/purchase invoices will be found in respect of such unexplained investment in the stock, which had to disclosure by the appellant during the survey. Now the A.O. s argument is that the appellant had failed to submit documentary evidences and other details related to such alleged trading and therefore it cannot be said that such investment has been derived and hence part of the same business cannot be accepted. 8.8 This is very strange argument in which A.O. is refusing to accept the obvious and logical fact that a person involved in business of trading in ornaments is likely to derive even undisclosed part of his profit from the said trading activities. If A.O. had any doubt that impugned investment were earned from any other activities then he should have pointed out towards likely sources of such undisclosed income. The statement of appellant and subsequent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... receipts under the particular head. It is observed that there is no conflict with the decision of Hon ble Gujrat High Court in the case of Fakir Mohd. Hajihasan(Supra) wherein investment in an assets 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 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 should be treated as undeclared business income explaining the investment. In the present case stock was part of the stock. The revenue has not pointed out that excess stock has any nexus with any other receipts. Therefore we do not fine any fault with the decision of the ld. CIT(A) directing to the AO to treat the surrendered amount as excess stock qua the excess stock. Here in the present case is also the same position. 1.2 Further the Hon ble Bench has followed the above decision in the case of Bajrang Traders v/s ACIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stock of Gold ornament found in the shop of the appellant vis a vis stock of the same as found in the book of the appellant. It is not possible to argue that the excess stock found is not related to the regular business of the appellant. Hon ble Income Tax Appellate Tribunal Ahmedabad has held in their decision in the case of Fashion World,, Ahmedabad vs. Assessee ITA No. 1634/Ahd/2006 A Y:2002-03 (Quote) .. 6. Regarding addition of Rs. 10,06,250/- under section 69 ld. AR submitted that this has to be considered as business income as what is found is business stock . It cannot have a different character than the business income. He submitted that in any case, tax has to be levied on total income after clubbing income under different heads including income under section 69. Therefore, there is no separate identity of addition under section 69 even if one follows the decision of Hon. Gujarat High Court in the case of Fakir Mohmed Haji Hasan vs. CIT (supra). He then claimed that once investment in stock is considered as business outgoing then partners of the firm are entitled for higher remuneration as per section 40(b). Ld. AR referred to the decision of Hon. S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f articles not recorded in the books of account or the unexplained expenditure may be deemed to be the income of such assessee. It follows that the moment a satisfactory explanation is given about such nature and source by the assessee, then the source would stand disclosed and will, therefore, be known and the income would be treated under the appropriate head of income for assessment as per the provisions of the Act. When the income cannot be so classified under any one of the heads of income under section 14, it follows that the question of giving any deductions under the provisions which correspond to such heads of income will not arise. The provisions of sections 69, 69A, 69B and 69C, treat unexplained investments, unexplained money, bullion, etc., and unexplained expenditure as deemed income where the nature and source of investment, acquisition or expenditure, as the case may be, have not been explained or satisfactorily explained. Therefore, in these cases, the source not being known, such deemed income will not fall even under the head Income from other sources . Therefore, the corresponding deductions which are applicable to the incomes under any of these various heads, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as deemed income but where investment /expenditure is not recorded in the books of account and/or their nature and source is not explained or not satisfactory explained, deeming provision under these four sections can be invoked by the AO and investment/expenditure would be treated as deemed income of the assessee. Thus for invoking these deeming sections first condition has to be necessarily satisfied that they are not recorded in the books of account regularly maintained by the assessee. But for establishing nexus of such investment/expenditure with a head of income and to take the benefit of set off, assesseehas to necessarily explain the nature and source of such investment/expenditure and establish its nexus with any head of income. Hon. Gujarat High Court further held that for claiming trading loss in respect of an asset whose investment was found unexplained, it was necessary for the assessee to explain the nature and source of its acquisition and on its failure to do so the trading loss on the confiscation of the asset could not be set off. 10. We notice that the set off of any trading loss against deemed income assessed under sections 69, 69A, 69B 69C is not directl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of business loss against deemed income under sections 69, 69A, 69B 69C. 11. But this does not mean that loss computed under any of the five heads mentioned in section 14 - (i) 'salary', (ii) 'income from house property', (iii) 'profits and gains from business or profession', (iv) 'capital gains' and (v) 'income from other sources' - cannot at all be adjusted against unexplained investment or expenditure. What is necessary as per Hon. Gujarat High Court is that source of acquisition of asset or expenditure should be clearly identifiable. In the case before Hon. Gujarat High Court the source of gold confiscated was not identifiable and hence adjustment was not permitted. 12. Thus the important aspect that emerges from 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 asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case may be. It is because when assessee fails to explain satisfactorily the source of such investment then it should be taxed under section 69, 69A, 69B 69C as the case may be. It should not be done at the first instance without giving opportunity to the assessee to establish nexus. Therefore, there is no conflict with the decision of Hon. Gujarat High Court in the case of Fakir Mohmed 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, we hold 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 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 s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the assessee, pertained to the excess stock in which the assessee conducted business, i.e. bullion, gold, jewellery and ornaments, besides, small quantum of excess cash and details of unaccounted expenditure of renovation of shop . that in the statement of the partners, recorded during survey, they had admitted to the fact that source of investment in excess stock found was out of the business income of the assessee only. that the Revenue never questioned this admission of the partners of the assessee-firm and accepted it as such. 9. In the backdrop of these facts, we hold that the ld.CIT(A) has rightly applied the decision of the ITAT, Ahmedabad Bench in the case of Fashion World (supra) wherein in identical set of facts, the ITAT had analysed the provisions of section 69A, 69B, 69C etc. and held that for invoking the said provision, there are two conditions to be satisfied; (i) that investment or expenditure is not recorded in the books of the assessee, and (ii) nature source of acquisition of assets or expenditure are not explained or are not explained satisfactorily. Thereafter the meaning of nature was elaborated upon stating that it would require the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X
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