9911796707
TMI Blog2024 (4) TMI 921X X X X Extracts X X X X X X X X Extracts X X X X ..... ere the explanation so offered is not found satisfactory, he can proceed and invoke the deeming provisions. In the instant case, 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. Following the said decision of DCIT Vs. Shri Ram Narayan Birla [ 2016 (9) TMI 1354 - ITAT JAIPUR] 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 surrender on account of advances were relating to the business being carried on by the Assessee. CIT(A) has also returned a finding that the advances were admitted as being related to business activity of the Assessee. Where the same has been found unrecor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , which was processed u/s 143(1) and thereafter, the case of the Assessee was selected for compulsory scrutiny and notices u/s 143(2) and 142(1) were issued. During the course of assessment proceedings, the AO also issued a Show Cause Notice dated 04.02.2021 stating that as per the Surrender Letter, the Assessee has made a surrender for a sum of Rs. 1,00,00,000 on account of difference in stock and the Assessee was also asked to explain the reasons for excess cash difference of Rs. 1,34,004/-found on the day of survey. 3.1 In response to the show cause, the Assessee filed his written submissions as under:- 26. 27. The details of the business income offered and its utilization is as under:- Particular Debit Credit Business Income (Credited to P/L account) 100,00,000/- Gold 87,90,988/- Silver 6,69,384/- Diamond 2,75,981.62/- Cash in hand 2,63,646.38/- Total 100,00,000/- 100,00,000/- 28. As regards the provisions of 115BBE of the IT Act. 1961, the same is as under: - Tax on income referred to in section 68 or section 69 or section 69A or section 69B or section 69C or section 69D 115BBE. 1(1) Where the total income of an assessee, (a) Includes any income referred to in section 68 or se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s nothing which the assessee has earned out of non-business activities. Therefore, what was offered during the course of survey pertains to regular business activities of the assessee and no part 01 income pertains to arising out of unexplained/unknown sources. It is also pertinent to mentioned here that the fact that income as offered during the course of survey was from regular business activity was duly found and accepted by the department during the course of survey. Therefore, the question of the applicability of section 115BBE does not arise at all. 3.2 The detailed submissions and the details of the stock furnished by Assessee the were examined by the A.O. but were found not acceptable. It was held by the A.O. that the Assessee s ITR showed that he had maintained books of account of the relevant year and had got its accounts audited and also had offered the income of Rs. 1,00,00,000/- as surrendered income but the Assessee itself had not shown / passed the requisite accounting entries in its books of account. The Assessee had shown only resultant income on credit side of the profit and loss account. The A.O. further found that no such details have been found available on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stock investment in construction of building and the business income. 5.2 Merely having a known business activity will not, per se, render any unexplained asset / income as business / profession income u/s 14, unless the burden of proving the source u/s 68 to 69D is also discharged. The onus of proving that such receipts are from an activity other than diseased business activities is not upon the AO. Therefore, there can be no presumption against the deeming fiction u/s 68 to 69D to hold that income/ investment, whose source is not explained, will still be classified as income under any head u/s 14. It would be, therefore, impermissible to attempt and classify such incomes under any of specific heads, even if there is any activity which can be remotely/indirectly linked to such deemed income. The word 'source' in the same context would refer to nexus of such income generating activity/transaction with name and identity, creditworthiness of person with whom such activity/transaction was done along with proving the genuineness of transaction also. 5.3 The requirement of proving these three essential ingredients to prove the source in order to escape the rigors of the deeming ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out a clear legal position that for any income to be treated as business income, the nexus / the source, has to be established. Hence, the action of the AO in applying the rate as prescribed u/s 115BBE on the surrendered income included in the ITR, treated by the Assessing Officer as income u/s 69 in the assessment order, is found sustainable. Keeping in view the above facts and discussion, it is held that the AO has rightly treated the surrender of Rs. 1,00,00,000/- on account of excess stock and excess cash of Rs. 1,34,004/- found during the survey as deemed income u/s 69 69A to be taxed as per the provisions of section 115BBE of the Act and confirmed the same by dismissing the Grounds of appeal of the Assessee. 6. During the course of hearing before us, ld. AR submitted that the Assessee is an individual, proprietor of a business entity, namely Raiwaz Jeweller, engaged in the business of gold smith and merchant trading of gold, silver and diamonds and the said business is the only source of income of the Assessee; that although the Assessee is the proprietor of the business, but the business of the Assessee was being looked after by the son, being the authorized representative o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the ld. CIT(A). It is important to refer the provisions of section 69 which reads as under: - Unexplained Investments 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 any source of income, and the assess offers no explanation about the nature and source of the investments or explanation offered by him is not, in the opinion of the [Assessing] Officer, satisfactory, the value of the investments may be deemed to be the income of the Assessee of such financial year. 7.1 From the bare reading of the provisions of section 69 of the Act, it is very much clear that there must be some investments not found in the books of account of the Assessee and the Assessee offered no explanation about the nature and source thereof or the explanation offered, was not in the opinion of the Assessing Officer satisfactory, then, the amount invested in the books of the Assessee be charged to Income Tax and taxed at the rate of 60%. In the instant case, the Assessee has already declared the additional investments found as business income received by it in the normal c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xplained without reverting to the source explained, accepted and supported by the documents relating to the Assessee. As such, there is no doubt about the source of the investments as explained by the Assessee in its statement recorded during the course of survey on 05.09.2018. If the source of investments from income of business transactions has been found satisfactory as was explained and stated at the time of survey, particularly when no question was ever raised by the department about the source of investment, then the question of treating the same as an unexplained investment is totally unwarranted. The section invoked in the assessment or considering the same as deemed investment under section 69, is an action having no substance and without any basis or rationale on the part of the Assessing Officer. Even this contention of the Assessee is further strengthened from the fact that the income which was declared by the Assessee during the survey and was accepted by the department as it is, no other source of income was ever confronted by the department at the time of survey, even thereafter. Further declaration of the surrendered income in the return and accepting the statement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of income at the maximum marginal rate. The objective behind the introduction of the section 115BBE was only to curb the practice of laundering of unaccounted money. 7.9 Based on the above, it is requested that the tax on the additional income already declared in Profit and Loss account of the Assessee be kindly treated as business income taxed accordingly and not as per the provisions of Section 115BBE of the Act. 7.10 The Assessee, through his additional Ground of appeal has also submitted that the AO had gravely erred in invoking the provisions of section 69 read with section 115BBE on the excess cash of Rs. 1,34,004/- and since the excess cash was related to the same business of purchase and sale of jewellery, hence, the normal rate of tax should be levied on excess cash. 7.11 The contention of the Assessee is that when the income / investment is already surrendered during the survey and also offered for taxes while filing return of income, the same cannot be treated as unexplained investment. Therefore, if an investment is not unexplained than the expenditure claimed in relation to that investment cannot be disallowed. 8. It was submitted that the Assessee had offered sum to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and evidently, the source of additional income offered for taxation was found to be from the said business only as duly corroborated by the statement of the Assessee recorded by the Revenue Authorities at the conclusion of the survey proceedings. 9. It was submitted that the additional income so surrendered was offered for taxation at the rates applicable at the relevant point in time and which has also been accepted by the authorities while accepting the surrender letter. It was submitted that the AO has not denied this fact and has rather accepted that the discrepancies found/detected during the survey operations pertain to the business which is being carried on by the Assessee. It was further submitted that Section 115BBE is a machinery provision enabling the AO to levy tax as per the specified tax rate, provided the income is assessable as deemed income under the deeming provisions. It was submitted that, however, in the instant case, the deeming provisions are clearly not attracted as the source of the income has been duly explained by the Assessee during the course of survey proceedings. It was, accordingly, submitted that unless and until the deeming provisions are attracted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r can be estimated and treated as income from undisclosed sources; that correctness of estimate is question of fact and degree; that absence of direct evidence does not preclude assessment by inference and estimate; that it is duty of the ITO to make exhaustive enquires and gather some material as the basis of the estimate; that the estimate without details may not be accepted; that where the expenditure on marriage of the Assessee was understated, the ITO estimated the expenditure and treated the same as from undisclosed sources, the joint family had been spending monies for the marriage, it was held that it was more probable that estimated income belongs to HUF and that the Assessee was entitled to the benefit of doubt. 13. We have heard the rival contentions and pursued 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 24.09.2019 wherein the Assessee surrendered a sum of Rs. 1,00,00,000/- thereafter the return of income filed by the Assessee on 24.09.2019 was selected for compulsory manual scrutiny as per CBDT guidelines presumably to examine whether the Assessee has hono ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... opinion of the AO. 16. Recently, in case of Surender Kumar others (ITA No. 398/Chd/2022), the Chandigarh Bench of the Tribunal 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, 69B, 69C and 69D would reveal that those provisions are attracted in respect of the credits, cash, expenditure, investment etc. regarding which the Assessee offers no explanation about the nature and source thereof. It is to be pointed out that the income is to be assessed u/s 68 wherein any sum is found cred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 of the Act. Therefore, we do not find any justification on the part of the ld. PCIT in invoking the Revisionary jurisdiction in this case. 17. Therefore, the foundational requirement before invoking the deeming provisions is not that there were certain survey operations u/s 133A and some undisclosed income has been detected a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 19. 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 account and the same is the essence of the statutory provisions as duly recognized by the Courts and various Benches of the Tribunal and which has been reiterated from time to time. The statement of the Assessee has to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ant 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. 21. In case of ChokshiHiralalMaganlal 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 separately and clearly identifiable but is part of mix lot of stock found at the premises which include ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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 corelated 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 section 69 on the premises that such excess investment is not recorded in the books of account and its nature and source is not iden ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nstant 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. 23. Following the said decision of the Coordinate Ahmedabad Bench, the Jaipur Bench of the Tribunal 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 emerged from the record that at the time of survey excess stock was found. It is also not disputed that the Assessee is engaged in the business of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uring 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 sold out and the profit/loss therefrom would be subject to tax as any other normal business transaction. Secondly, the unrecorded investment which has gone ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ge. 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 surrendered income of Rs. 10 lacs in assessment year 2005-06 on account of sundry credits, repairs to building and advances to staff, which being relatable to business carried on by the Assessee was already included as income from business. 13. In the present case, we see that the Assessing Officer has nowhere disputed the business losses incurred by the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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 business for F.Y. 2012-13 relevant to asstt. Year 2013-14 subject to no penalty and prosecution under the I.T. Act, 1961. Since the company is incurring losses in current F.Y. 2012-13, the surrendered income will be adjusted against these losses. [Extracted from the impugned assessment order; pages 5 6]. 20. Clearly, it is evident from the above that the surrender was on account o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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 the business carried on by the Assessee and are thus in the nature of business income. Therefore, the set off of business losses, both current and brought forward are to be allowed as per the provisions of law. As far as the income surrendered and to be assessed u/s 69, 69A, 69B and 69C of the Act, as held above before us, the same is to be subjected to tax as per the provisions of section 115BBE of the Act. 28. In the instant case as w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Coordinate Bench of the ITAT went on to further hold that though the said income was not recorded in the books of the Assessee but the source of the same stood duly explained by the Assessee as being from the business of the Assessee and even otherwise no other source of income of the Assessee was on record either disclosed by the Assessee or unearthed by the Revenue. The Bench further held that the preponderance of probability, therefore, is that the debtors were sour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct 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. 30. 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. The matter pertaining to A.Y 2006-07 came up for consideration before the Coordinate Chandigarh Benches and taking note of the statement of the General Manager of the Assessee company recorded during the course of survey wherein he had admitted the said cash has been generated out of income from other sources and in the absence of nature of source of cash being proved, it uphold the order of the CIT(A) in including the additional income as deemed income u/s 69A of the Act and relevant findings r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 only 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 been taken note of by the Hon'ble Gujrat High Court. 10. In the facts of the present case, we find that Assessee during the course of survey had surrendered the income as income from other sources though a plea has been raised by the Assessee that the income was surrendered as income from job work but no evidence to prove the stand of the Assessee has been brought on record. The Assessee had also surrendered additional income of Rs. 10 lacs in Assessment Year 2005-06 on account of sundry credits, repairs to building and advan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to what has been recorded in the books of account. 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. 32. As to how the judgement of Delhi High Court in the case of Yadu Hari Dalmia v. Commissioner of Income Tax, Delhi (Central) , (supra) is at all applicable, does not stand made out. If at all, it helps the Assessee rather than the Department in as much as it holds that it is the duty of the ITO to make exhaustive enquiries to gather some material as the basis of the estimation. In the present case, on the other hand, the proposition is that since the Assessee had explained the surrendered income to be from its business, the onus to prove otherwise shifted on to the A.O., as discussed herein above. 33. In the light of the aforesaid discussion and in the entirety of the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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