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TMI Blog2025 (3) TMI 210X X X X Extracts X X X X X X X X Extracts X X X X ..... r letter, which infact has formed the basis of findings of the AO, and thus part and parcel of entire sock therefore it cannot be said that assessee has an undisclosed asset which existed independently and thus what is not declared to the Department is receipt from the business operation and not any investment as it cannot be correlated with any specific asset and difference thus be treated as business income.
The amount representing the excess stock found during the course of survey cannot be brought to tax under the deeming provisions of Section 69B of the Act and the same has to be assessed to tax under the head business income and in absence of any deeming provision the question of application of Section 115BBE does not arise and normal tax rate shall apply which has been applied by the assessee while filing the return of income. Appeal of the assessee is allowed. X X X X Extracts X X X X X X X X Extracts X X X X ..... in the Profit & Loss Account and the assessee has not given any explanation about the source of making the investments in purchase of excess stock. Thereafter, he referred to the provisions of Section 69B and a show cause was issued to the assessee as to why the amount so surrendered on account of additional stock should not be taxed as per the provisions of Section 115BBE of the Act. 3.2 In response, the assessee filed his submission stating that the assessee has surrendered the stock of nickel quantity 5650 Kgs valuing Rs. 50,00,000/- in order to cover any discrepancy in the stock already recorded in the books of accounts and copy of the stock tally was submitted. It was further submitted that the assessee duly revised the stock value in its trading account and discharged the due tax liability thereon by offering the said amount as business income. It was submitted that the sale value of the stock is also recorded in the books of account and due tax liability thereon has been discharged. It was further submitted that the said stock quantity was also duly reflected in the stock register and stock tally reported in the Tax Audit Report certified by the Chartered Accountant and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ock. The condition of proving the source of such investment in stock is the primary condition for applicability of provisions of Section 69B of the Income Tax Act which the assessee has not fulfilled and thus such income cannot be considered as income from business as claimed by the assessee. The offer to surrender had been made by the assessee only after a survey u/s 133A was conducted at the premises of the assessee and detailed physical verification of the stock in possession of the assessee was made. The assessee has neither recorded the investment in stock in the books nor the assessee has explained the sources of the same during the survey and assessment proceedings. 3.5 The AO further noted that the assessee failed to provide the sources of investment in excess stock found during survey The assessee could not explain and failed to furnish any bills and source of payment of such excess stock found during survey. The stock and the capital for investment in such stock cannot come from vacuum and there ought to be some source. The assessee failed to submit any material evidences that the investment in stock was out of the unaccounted sales made by the business or the capital wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee. It was further submitted that during the course of survey, the statement of the Partner of assessee firm, Shri Amarjit Gandhi was recorded and in the said statement, he has stated that the amount has been surrendered on account of additional stock as business income for F.Y. 2018-19. It was submitted that the Revenue has not given any adverse remark on the said statement of the assessee which makes it clear that the Revenue itself is of the opinion that the excess stock found during the course of survey pertains only to the business of the assessee. It was further submitted that during the course of survey as well as during the course of assessment proceedings, the AO accepted the fact that the assessee has been engaged in the business of trading of ferrous and non ferrous metals and other than this, the assessee is not engaged in any other business and there is no other source of income from where the assessee can earn income and moreover, the stock found during the course of survey is the stock from the only business of the assessee. Hence the income so surrendered should be treated as normal business income of the assessee on account of valuation difference of stock ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e however, the condition before invoking the same is that the assessee has either failed to explain the nature and source of such income or the AO doesn't get satisfied with the explanation so offered by him. 8.1 In particular, for the deeming provisions of Section 69B to be attracted in the instant case, there has to be a finding that the assessee has made investments in the stock during the financial year and such investments are not fully recorded in the books of accounts so maintained by the assessee, and the assessee offers no explanation about the nature and source of the investments or the explanation so offered is not found satisfactory in the opinion of the AO, the latter can proceed and the value of the investment may be deemed as income of the assessee for such financial year. Therefore, the explanation so offered by the assessee explaining the nature and source of such undisclosed income and the reasonability of the explanation so offered by the assessee needs to be analysed and examined to draw necessary conclusions in this regard and discretion so vested in the AO for invocation of the deeming fiction so envisaged in the statute can be exercised. 8.2 For the purpo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1,00,00,000/- is voluntarily surrendered on account of excess stock found out of their normal business income for the current financial year 2018-19 over and above normal business income. We therefore find that the nature and source of such unaccounted stock is nothing but arising out of assessee's business operations. No doubt, these transactions were not recorded at the time of survey thus qualify as unrecorded transactions satisfying one of the essential conditions, at the same time, the assessee has provided the necessary explanation about the nature and source of such unrecorded transactions and the necessary nexus with assessee's business has been established, thus, it cannot be said that these are unexplained transactions thus, doesn't satisfy the second condition for invoking the deeming provisions of section 69B of the Act. 8.3 In case of Chokshi Hiralal Maganlal vs. DCIT, 131 TTJ (Ahd.) 1, briefly the facts of the case before the Coordinate Ahmedabad Benches 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y 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. 8.4 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. 8.5 Following the said decision of the Coordinate Ahmedabad Bench, the Jaipur Bench in case of DCIT Vs. Shri Ram Narayan Birla (ITA No. 482/JP/2015 dt. 30 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eated as undeclared business income explaining the investment. In the present case the excess stock was part of the stock. The revenue has not pointed out that the excess stock has any nexus with any other receipts. Therefore, we do not find any fault with the decision of the ld. CIT (A) directing the AO to treat the surrendered amount as excess stock qua the excess stock found." 8.6 Thereafter, the Coordinate Jaipur Benches in case of Bajargan Traders Vs. ACIT (in ITA No. 137/JP/2017 dt. 17/03/2017) 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nate Chandigarh Benches in case of Gaurish Steels Pvt. Ltd. Vs ACIT 43 ITR (Trib) 414 has held as under: "10. We have heard the rival contentions and perused the material available on record. This is a fact on record that the assessee surrendered an amount of Rs. 70 lacs as additional income during the course of survey conducted at its premises on account of following heads: (i) Discrepancy on account of cash found Rs. 9 lacs (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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of the business of the assessee amounting to Rs. 1.25 crores. The Ld.CIT(A) in para 9 of the order has outlined the facts relating to the surrender made by the assessee stating that during survey a pocket diary was found from the account section of the assessee company which contained entry of receivables amounting to Rs. 1.25 crores on pages 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 reco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee and set off of losses was to be allowed against the same as rightly claimed by the assessee. The appeal of the Revenue, therefore, in ITA No.408/Chd/2018 is dismissed. 23. Now coming to the facts of the case in ITA No/1494/Chd/2017, the income surrendered was on account of the following as narrated above in earlier 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, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al Commissioner of Income Tax Vs. Deccan Jewellers Ltd. reported in (2021) 438 ITR 131 (AP) held that 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 car ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the assessee has only one source of income i.e. business income and nowhere has it been 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." 8.12. In the instant case as well, there is no physical distinction between the accounted stock and unaccounted stock. No such physical distinction was found by the Revenue either. We therefore find that the difference in stock so found out by the authorities has no independent identity and is in terms of value terms only and thus part and parcel of entire stock, therefore, it cannot be said that there i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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