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TMI Blog2023 (7) TMI 1456X X X X Extracts X X X X X X X X Extracts X X X X ..... o finding in the order of the assessment that income so surrendered has been determined as income referred to in Sec. 68, Sec. 69, Sec. 69A, Sec. 69B, Sec. 69C or Sec. 69D. Therefore, while drawing the strength from the decision of Shri Hari Narain Gattani [ 2020 (10) TMI 559 - ITAT JAIPUR] wherein income surrendered by the assesee was taxed u/s 115BBE of the Act @ 60% by passing order u/s 154 of the Act but the same was quashed by the ITAT. Thus we are of the view that the unaccounted stock found during survey is related to business and thus assessable as business income under the normal provisions of the Act. Therefore, the order passed by the AO u/s 154 is quashed and thus the appeal of the assessee is allowed. - Hon ble SHRI SANDEEP GOSAIN, JUDICIAL MEMBER For the Assessee : Shri P.C. Parwal, CA For the Revenue : Shri Anoop Singh, Addl. CIT ORDER PER: SANDEEP GOSAIN, JM This appeal filed by the assessee is directed against order of the ld. CIT(A) dated 17-04-2023, National Faceless Appeal Centre, Delhi [ hereinafter referred to as (NFAC) ] for the assessment year 2015-16 raising therein following grounds of appeal. 1. The ld. CIT(A), NFAC has erred on facts and in law in dism ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the course of hearing, the ld. AR of the assessee prayed to quash the order passed by the AO u/s 154 of the Act for which the ld. AR of the assessee filed the following written submission. 1. At the outset it is submitted that Ld. CIT(A) has decided the appeal without any discussion on the submission made by the assessee. Further he held that the rectification sought by the assessee is not the rectification of mistake within the confines of the provisions of section 154 of the IT Act, 1961 ignoring that rectification is not sought by the assessee but it is the AO who has rectified its order. According to Ld. CIT(A) such rectification do not come under the purview of section 154 and therefore the ground of assessee ought to have been allowed but he has wrongly dismissed the appeal of assessee. 2. It is submitted that the assessee offered business income of Rs.36,96,223/- on account of stock difference. The assessee in reply to Q. No.15 of his statement dt. 10.10.2014 (PB 16-17) has explained the reason for the same but still offered the same for tax as business income and paid tax on it under the normal provisions of the Act. However, the AO in order passed u/s 154 has held that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ould not have been treated as undisclosed investment under s. 69 but assessable as business income No contrary view either of any High Court or the apex Court has been placed to demonstrate that the explanations offered by the assessees in the course of assessment were either perverse or contrary to law Tribunal was correct in law in holding that unaccounted and excess stock found during the course of search shall be assessed as business income PCIT Vs. Bajargan Traders DBITA No.258/2017 order dt. 12.09.2017 (Raj.) (HC) (Case laws compilation PB 7-11) In this case the assessee is a partnership firm dealing in sale of food grain, rice and oil seeds. A survey u/s 133A was conducted on the business premises. During the survey assessee surrendered excess stock of rice. The assessee submitted that the investment in procurement of such stock of rice is clearly identifiable and related to the regular business stock of the assessee. AO taxed the amount surrendered by way of investment in unrecorded stock of rice under the head Income from other sources. In appeal, the Hon ble ITAT allowed the claim of assessee by holding as under:- 2.10. We have heard the rival contentions and perused the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lar business stock of the assessee. The decision of the Co-ordinate Bench in case of Shri Ramnarayan Birla (supra) supports the case of the assessee in this regard. Therefore, the investment in the excess stock has to be brought to tax under the head business income and not under the head income from other sources . In the result, ground No. 1 of the assessee is allowed. On further appeal by department, Hon ble Rajasthan High Court upheld the above findings of ITAT and dismissed the appeal filed by the department. DCIT Vs. Sh. Ram Narayan Birla ITA No.482/JP/2015 order dt. 30.09.2016 (Jaipur) (Trib.) (Case laws compilation PB 12-19) In this case it was held that the excess stock is to be assessed as part of the normal stock and to be taxed under the head income from business. The relevant finding of ITAT at Para 4.3 reads 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 jewellery. During the course of survey excess stock valuing Rs. 77,66,887/- was found in respect of gold and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ness and therefore, the undisclosed income declared during the survey is assessable under the head 'Business income' and not u/s 69A. 4. In view of above it is submitted that unaccounted stock found during survey is related to the business and thus assessable as business income under normal provisions of the Act and not u/s 115BBE. Otherwise also, Hon ble Supreme Court in case of ITO Vs. Volkart Bros. [1971] 82 ITR 50 has held that a mistake apparent from record must be an obvious and patent mistake and not something which can be established by a long drawn process of reasoning on points on which there may conceivably be two options. A decision on a debatable point of law is not a mistake apparent from the record. In view of above, order passed by AO u/s 154 be quashed. 2.4 On the other hand, the ld. DR supported the order of the ld. CIT(A). 2.5 The Bench has heard both the parties and perused the materials available on record including the judgement cited by respective parties. From the facts on record, it is noted that the assessee is a Prop. Of M/s. Hardik Jewellers which is engaged in the trading of gold, silver and diamond jewellery. A survey u/s 133A of the Act was co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar's business income. In the assessment completed u/s 143(3), AO charged the tax and interest at normal rates of tax for individual. There is nothing stated either in the pre-amended or post-amended provisions of sec. 115BBE that where the assessee surrenders undisclosed income during the search action for the relevant year, the tax rate has to be charged as per provision of sec. 115BBE. In the assessment order passed u/s 143(3), there is no finding by the AO that the income so surrendered has been determined as income referred to in sec. 68, sec. 69, sec. 69A, sec. 69B, sec. 69C or sec. 69D. Secondly, in the computation of tax liability, the tax liability on the undisclosed income has been determined as per slab rate of taxation applicable to an individual and not @ 30% as specified in sec. 115BBE. Thus, none of the aforesaid provisions referred in sec. 115BBE has been invoked by AO during the assessment proceedings and therefore, the contention of the revenue that during the assessment proceedings the tax rate has been charged @ 30% on surrendered income u/s 115BBE is not factually correct. Hence, the action of AO in increasing the rate of taxation from 30% to 60% and levying ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 amounting 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 in purchase of such unrecorded stock of rice has been recorded in the books of accounts and offered to tax by crediting the said amount in the profit and loss account. Had this investment been made out of known source, there was no necessity for assessee to credit the profit/loss account and offer the same to tax. Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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 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 in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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