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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 ..... nt in the case of Surinder Kumar reported in [2023] 102 ITR (Trib.) 247. 3. That the various submissions and arguments/case laws as quoted before the Ld. CIT(A) have not been appreciated. 4. That the Ld. CIT(A) has failed to appreciate that during the course of survey, no other income was noticed by the department and, as such, taxing the amount offered as deemed income, is against the facts and circumstances of the case. 5. That the Ld. CIT(A) has also failed to appreciate that at the time of survey, it was agreed that the applicant shall pay the taxes on the amount offered during survey at the normal rate of taxes, for which, the payment of advance tax was made within the stipulated time. 6. That the appellant craves leave to add or amend the grounds of appeal before the appeal is finally heard or disposed-off." 3. Briefly the facts of the case are that a survey operation under section 133A was conducted on 17/09/2018 at the business premises of the assessee. During the course of survey, the assessee surrendered a sum of Rs. 50,00,000/- on account of excess stock. Subsequently, the assessee filed its return of income on 23/10/2019 declaring total income of Rs. 59,78,000/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... considered but were found to be without any cogent documentary evidence by the AO. As per the AO, the assessee has claimed that the investment in the excess stock was derived from the business but the assessee has not given any explanation regarding the sales and purchases on account of which such business income was earned. Further, the assessee has not given details of the persons from whom the excess stock, which was found at its premises on the date of survey, was purchased. Even during the course of survey, the assessee was having the full opportunity to show the sources of the income from where the investment was made in the excess stock but the assessee had not given any explanation showing that such income was its business income. Further, the assessee had not provided the bills and vouchers which were not recorded in the regular books of accounts and which the assessee did not wanted to update in his books of accounts and because of which the assessee had generated unaccounted business income as claimed by him. Therefore, in view of the facts of the case and the material available on record, it was noted by the AO that the sources of investment in the excess stock remain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and thus the preponderance of probability is that such investment in excess stock is considered as unexplained investment of the assessee u/s 69B of the Income Tax Act and as the income is to be assessed u/s 69B of the Income-tax Act, 1961, it would be subject to tax as per the provisions of the section 115BBE of the Income-tax Act, 1961. 4. Being aggrieved, the assessee carried the matter in appeal before the Ld. CIT(A), who has since sustained the said findings of the AO. 5. Against the said findings and the direction of the Ld. CIT(A) the assessee is in appeal before us. 6. During the course of hearing, the Ld. AR submitted that the case of the assessee was selected for scrutiny only on account of the amount of Rs. 50,00,000/- surrendered by the assessee during the course of survey. It was submitted that the said surrender was made by the assessee on account of difference in valuation of stock as evident from the surrender letter dt. 17/09/2018 which is placed at paper book page no. 27 and on perusal thereof, it is clear that the surrender has been made on account of difference in the valuation of inventory. It was submitted that after such surrender, the assessee increased ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It was submitted that the assessee has not been able to establish nexus between the excess stock and normal business income. Further no documentary evidence has been submitted to justify the additional income of Rs 50,00,000/- as business income. It was accordingly submitted that the action of the AO in applying the deeming provisions of section 69B and tax rate as prescribed u/s 115BBE of the Act on the surrendered income is justified and the Ld. CIT(A) has rightly affirmed the order of the AO in treating the surrender on account of unaccounted stock found during the course of survey as deemed income under section 69B of the Act and which has been brought to tax as per the provisions of Section 115BBE of the Act. It was accordingly submitted that the order so passed by the Ld. CIT(A) be confirmed and the appeal so filed by the Assessee be dismissed. 8. We have heard the rival contention and perused the material available on the record. We find that the matter is squarely covered by the decision of Coordinate Chandigarh Benches in case of M/s A P Knit Fab Vs. The DCIT (Supra) wherein under identical set of facts and discussing at length various authorities quoted at the Bar, the m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the difference of Rs 1,00,24,282/- and to buy peace of mind, he surrendered a sum of Rs 1,00,00,000/- on account of excess stock found on physical verification. We find that the stock physically found has been valued and then, compared with the value of stock so recorded in the books of accounts and the difference in the value of the stock so found belonging to the assessee firm has been offered to tax. There is thus no dispute that there is a commonality in the stock so found and as recorded in the books and in absence of which, the comparison would not have been possible and difference would not have been worked out. The Revenue has not pointed out that the excess stock has any nexus with any other receipts other than the business being carried on by the assessee. There is thus a clear nexus of stock physically so found with the stock in which the assessee regularly deals in and recorded in the books of accounts and thus with the business of the assessee and the difference in value of the stock so found is clearly in nature of business income. The statement of the partner of the assessee firm is available on record and related documents so found during the course of survey are st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovisions of Section 69B cannot be made applicable as primary condition for invoking the said provision is that the asset should be separately identifiable and it should have independent physical existence of its own and since excess stock as a result of suppression of profit from business over the years and has not kept identifiable separately but as part of overall physical stock found, the investment in the excess stock has to be treated as business income and thereafter has referred to the decision of the Tribunal in case of Fashion Fashion World Vs. ACIT (IT Appeal No. 1634(Ahd.) of 2006, dt. 12/02/2010) wherein the Tribunal had observed as under: "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 conf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 only where no nexus is established with any head then it should be considered as deemed income under section 69, 69A, 69B & 69C as 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 un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing Rs. 77,66,887/- was found in respect of gold and silver jewellery. The Coordinate Bench in the case of Chokshi Hiralal Maganlal vs. DCIT, 131 TTJ (Ahd.) 1 has held that in a cases 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch 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. Accordingly, we do not see any infirmity in assessee's bringing such transaction in its books of accounts and the accounting treatment thereof so as to regularise its books of accounts. In fact, the same provides a credible base for Revenue to bring to tax subsequent profit/loss on sale of such stock of rice in future. 2.11. Having said that, the next issue that arises for consideration is whether the amount surrendered by way of investment in the unrecorded stock of rice has to be brought to tax under the head "business income" or "income from other sources". In the present case, the assessee is dealing in sale of foodgrains, rice and oil seeds, and the excess stock which has been found during the course of survey is stock of rice. Therefore, the investment in procurement of such stock of rice is clearly identifiable and related to the regular business stock of the assessee. The de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... usiness losses incurred by the assessee. The books have not been rejected. It was stated at the Bar that even at the time of survey, in the trading account prepared by the survey team, there were losses incurred by the assessee. All these facts have not been disputed by the Assessing Officer. Further, the surrender made by the assessee was on account of cash found during the course of survey, discrepancy in the cost of construction of building, discrepancy in stock and discrepancy in advances and receivables. By no stretch of imagination, any of these incomes apart from cash can be considered as income under any head other that the 'business income'. 14. Nowhere in his order the Assessing Officer has been able to bring on record the fact that the income surrendered during the course of survey was not out of the business of the assessee. Also nowhere he has objected to the heads under which the assessee had surrendered these amounts, i.e. cash, construction of building, discrepancy in stock and discrepancy in advances and receivable. Further, even the survey team has not found any source of income except the business income. Now, following the judgment of Jurisdictional Hi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ." 20. Clearly, it is evident from the above that the surrender was on account of debtors/receivables relating to the business of the assessee only. The Revenue has accepted the surrender as such, as being on account of receivables. It follows 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. 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. Even otherwise no other source of income of the assessee is there on record either disclosed by the assessee or unearthed by the Revenue. The preponderance of probability therefore is that the debtors were sourced from the business of the assessee. Therefore, there is no question of treating it as deemed income from undisclosed sources u/s 69, 69A, 69B and 69C of the Act and the same is held to be in the nature of Business Income of the assessee. Having held so, the same was assessable under the head 'business and profession' and as stated above, the benefit of set off of losses both cu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is to be subjected to tax as per the provisions of section 115BBE of the Act." 8.10 In the instant case as well, the surrender on account of excess stock, being the regular stock in which assessee deals in and thus related to the business being carried on by the assessee. 8.11 Similarly, the Coordinate Chandigarh Bench in case of M/s Sham Jewellers Vs. The DCIT (Supra) has held as under: "10.17 Ground Nos. 8 & 9 challenge the action of the lower authorities in applying the provisions of section 115BBE and thereby charging tax at the rate of 60%. The main thrust of the arguments of the Ld. AR has been that all the additions made or sustained relate only to the business income of the assessee and that nowhere in the assessment order has it been alleged that some other source of income had been detected which gave rise to additional income. It is seen that during the course of assessment proceedings, the various explanations submitted by the assessee have duly mentioned that the surrendered income was derived from the business. A perusal of the assessment order would also show that nowhere in the body of the assessment order, the AO has even contradicted this explanation of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing it as deemed income from undisclosed sources u/s 69, 69A, 69B, or 69C of the Act and the same was held to be in the nature of business income of the assessee. 10.20 Thus, as in the present case, where the source of investment or expenditure is clearly identifiable and the alleged undisclosed asset has no independent existence of its own or there is no separate physical identity of such investment or expenditure, then, first, what is to be taxed is the undisclosed business receipt invested in unidentifiable unaccounted asset and only on failure can it be considered to be taxed u/s 69 of the Act and further where once such investment or expenditure is brought within the purview of tax as undeclared business receipt, then taxing it further as deemed income u/s 69 would be completely out of place. 10.21 Similar view was taken by the Coordinate Bench of ITAT Ahmedabad in the case of Chokshi Hiralal Maganlal Vs. DCIT reported in 131 TTJ 1 (Ahd.) 10.22 It is also seen that the Ld. CIT(A) has relied on the judgement of the Hon'ble Punjab & Haryana High Court in the case of Kim Pharma Ltd. Vs. CIT in ITA No. 106 of 2011 (O&M) and the Ld. CIT DR has also quoted the same in his ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uestion of application of section 115BBE doesn't arise and normal tax rate shall apply. The AO is thus directed to assess the income under the head "Income from Business/profession" and apply the normal rate of tax." 9. In the instant case as well, it is an admitted fact that the surrender on account of excess stock is of regular stock in which the assessee deals in and thus related to the business being carried on by the assessee. Further the stock so found is not physically distinguishable and there is as such no physical distinction between accounted stock and unaccounted stock and no such physical distinction was found by the Revenue either. We therefore find that the difference in stock so found out by the authority has no independent identity and is in terms of value terms only, as evident from the surrender 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 differen ..... X X X X Extracts X X X X X X X X Extracts X X X X
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