TMI Blog2022 (1) TMI 683X X X X Extracts X X X X X X X X Extracts X X X X ..... counted business and source thereof stated during the course of search itself and no other incriminating material was found during search proceedings and therefore is not an undisclosed income as held by the ld. AO. We, therefore, find no infirmity in the finding of Ld. CIT(A) rightly holding that the provision of section 115BBE of the Act are not applicable on the surrendered income on account of excess stock valuing found during the course of search - Decided in favour of assessee. - ITA No.05/Ind/2020 - - - Dated:- 6-1-2022 - Shri Manish Borad, Accountant Member And Mis Madhumita Roy, Judicial Member For the Appellant : Shri P.K. Mitra, CIT-DR For the Revenue : S/Shri Anil Kamal Garg Arpit Gaur, ARs ORDER PER MANISH BORAD, A.M: The above captioned appeal at the instance of Revenue is directed against the order of Commissioner of Income Tax (Appeals) (in short CIT(A)), Bhopal dated 23.10.2019 which is arising out of the order u/s 143(1) of the Income Tax Act 1961(In short the Act ) dated 30.12.2018 framed by ACIT-(Central)-I, Indore. The Revenue has raised following grounds of appeal: 1.On the facts and in the circumstances o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e by making written submissions and producing necessary evidences books of account, bills, vouchers, bank statements and other necessary documents, before the learned AO, for his necessary verification. Assessment u/s.143(3) of the Act was completed assessing the Total Income at ₹ 4,75,80,568/- as against the returned income of ₹ 3,34,05,000/-. The sole addition of ₹ 1,41,75,568/- was made on account of excess stock by holding the same as unexplained investment under s.69 r.w.s. 115BBE of the Act. The AO held that the assessee could not explain the sources of excess stock amounting to ₹ 1,41,75,568/- and thus, held such excess stock as his unexplained investment under s. 69 of the Act and taxed the same as per the amended provisions contained under section 115BBE of the Act, applicable w.e.f. 1-4-2017. 3. Aggrieved assessee preferred an appeal before the ld. CIT(A)-3, Bhopal. The addition so made by the AO was not agitated before the ld. CIT(A) and only the action of the AO in invoking the provisions of ss.69 r.w.s. 115BBE of the Act was challenged. During the course of the appellate proceedings, the assessee made a detailed written submission which is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onditions must get satisfied. In other words, three conditions are to be fulfilled cumulatively, either (i), (ii) (iii) OR (i), (ii) (iv). 1.3 The Hon ble Jurisdictional ITAT, Indore Bench in the case of Mukesh Sangla HUF vs. DCIT (2016) 27 ITJ 172 (Trib.-Indore) has held that the provisions of s.69 are applicable only on cumulative satisfaction of the three conditions specified therein [kindly refer PB Page No. 82 to 115]. 2.0 In the instant case, the condition no. (i) (ii) have got satisfied but, neither condition no. (iii) nor (iv) has got satisfied. In the instant case, during the course of the entire assessment proceedings, the assessee was never required to make his explanation on the nature and sources of such investment. 3.1 Undisputedly, the assessee, while recording his statement under s.132(4) before the search party, in reply to question no. 8 [kindly refer PB Page No. 31], suo mottu and in an unequivocal term, had explicitly explained the sources of the acquisition of the excess stock found in his business premises, situated at UG-1, 35/1, Bada Sarafa, Indore, during the course of the search. 3.2 It was stated that the excess stock so ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... utshell, physically, a lesser quantity of pure gold got transferred to the customers than that shown in the books of account thereby resulting into accumulation of unrecorded stock with the assessee. It is submitted that it was such stock only which was found in excess during the course of the search. 5.4 Undisputedly, the assessee was not having any other business other than that of the gold jewelleries. In such circumstances, the sources of acquisition of excess physical stock ought to be out of the regular business only. 5.5 Once the sources of excess physical stock are accepted to be out of the regublar business income, the additional income of ₹ 1,41,75,568/- has to be classified under the head of Business Income only and accordingly, it was liable to be charged at the normal rates prescribed, by the relevant Finance Act, for any individual assessee, for the assessment year under consideration. iii) THE AMENDED PROVISIONS OF SECTION 115BBE IN RESPECT OF HIGHER TAX RATE WOULD NOT APPLY RETROSPECTIVELY 6.1 Search operations were carried out on 15-12-2016, in the early morning hours at 6:00 A.M. 6.2 Amendment under s.115BBE was brought ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2 WHEN THE ASSESSEE HAS NOT CARRIED OUT ANY OTHER BUSINESS FOREIGN TO HIS MAIN BUSINESS, THE UNEXPLAINED STOCK OUGHT TO BE REGARDED AS REGULAR BUSINESS INCOME ONLY i) Pr. CIT Vs Bajargan Traders 2017 (11) TMI 388 (Raj.) Raj.HC ii) ACIT vs. M/s. A Star Exports and M/s. Asian Star Diamonds International Pvt. Ltd. 2016 (5) TMI 1312 (ITAT Mum.) ITAT Mum. iii) ACIT vs. Sanjay Bairathi Gems Ltd. (2017) 189 TTJ 487 (Jp) ITAT Jaipur iv) ITO v. Jamnadas Muljibhai (2006) 99 TTJ 197 ITAT Rajkot v) M/s Silver Palace vs. DCIT ITA No. 893/PUNE/2016 dt. 29.06.18 ITAT Pune ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vii) CIT Vs S.A. Wahab [1990] 48 Taxman 362 (Ker.) Ker.HC viii) Avani Exports Vs CIT [2012] 23 taxmann.com 62 (Guj.) Guj.HC ix) Shew BhagwanGoenka Vs CTO 1973 32 STC 368 Cal.HC x) Priyadarshani Construction vs. ITO (2012) 19 ITJ 276 (Trib.- Indore) ITAT Indore) 4 AMENDED PROVISIONS OF S.115BBE CANNOT BE APPLIED RETROSPECTIVELY i) DCIT, Central-2, Indore vs. M/s. Punjab Retail Pvt. Ltd. 2021 (11) TMI 405 (ITAT Indore) ITAT Indore ii) Lovish Singhal Ors. vs. ITO Ors. (2018) 53 CCH 250 (JodhTrib.) Jodhpur IT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clared excess stock as undisclosed income in return of income for AY 2017-18. However, the AO required the assessee to separately credit the excess stock of ₹ 1,41,75,568/- in P/L account but the same was not done by him. The AO therefore, considering the excess stock as unexplained investment made addition of ₹ 1,41,75,568/- to the income of the appellant u/s 69 r.w.s 115BBE of the Act. 4.1.1 The appellant during the course of appellate proceedings has stated that an excess stock of gold was found during the course of search and the same was also not recorded in regular books of accounts, thereby the AO has invoked provisions of section 69, however, no enquiry was made by the AO regarding the source of acquisition of excess stock, therefore, the disallowance made by the AO u/s 69 r.w.s 115BBE is unlawful. Further, the amended provisions of section 115BBE are applicable from 01.04.2017 and not from the date of search. 4.1.2 I have considered the entire matrix of the case, various case law cited by the appellant and also perused assessment order. It is undisputed fact that during the course of search excess stock of gold worth ₹ 1,41,75,568/- was foun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red by the assessee, such explanation in the opinion of the Assessing Officer is not satisfactory. Conditions (i) and (ii) are mandatory in nature and out of condition (iii) and (iv) only one or both as the case may be fulfilled. In the instant case condition no (i) and (ii) has been fulfilled by the appellant, however, on perusal of copy of assessment order it has been observed that neither the search party nor the AO has ever enquired about source of acquisition of excess stock. During the course of search statement of appellant was also recorded on oath u/s 132(4) of the Act wherein in reply to Q.No 8 the appellant has specifically and clearly admitted that the undisclosed income has been earned out of business income in the relevant pervious year. Thus, condition (iii) or (iv) has not been invoked by the appellant, therefore, addition u/s 69 alone of this fact is untenable as held by Hon ble Jurisdictional ITAT, Indore Bench in the case of Mukesh Sangla HUF vs. DCIT (2016) 27 ITJ 172 (Trib.-Indore). Nonetheless, neither the search party during course of search nor the AO during assessment proceeding found that appellant has been doing business other than manufacturing an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, 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 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. (b) DCIT (Central), Ajmer Vs. Ramnarayan Birla (ITA No. 482/Jp/2015 dated 30.09.2016) In this case, it is held 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 ₹ 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 ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he present case we find that entire physical stock of ₹ 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 assessee. There 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n this case, it is held as under:- I have heard the rival contentions and record perused. I have also carefully gone through the orders of the authorities below. I have also deliberated on the judicial pronouncements referred by the lower authorities in their respective orders as well as cited by the ld AR during the course of hearing before the ITAT in the context of factual matrix of the case. From 18 ITA 142 to 146/Jodh/2018 Vasu Singhal Vs ITO with 4 Ors. cases the record, I find that during the course of survey, income was surrendred by the assessee on account of stock, excess cash found out of sale of stock and also in respect of incriminating documents. As per judicial pronouncements cited by the ld. AR and also the decision of Hon ble Rajasthan high court in the case of Bajrang Traders in Income Tax Appeal No. 258/2017 dated 12/09/2017 I observe that the Hon'ble High Court in respect of excess stock found during the course of survey and surrender made thereof was found to be taxable under the head business and profession . Similarly in respect of excess cash found out of sale of goods in which the assessee was dealing was also found to be taxable as business inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... jewellery, precious and semi precious metals and miners and ornaments and article made thereof including jewellery, decorative and precious objects of arts and crafts and to cut, design polish rough diamond, gems and precious stones and that of investment and lending and to do any other business as may be mutually agreed upon by the partners. In the return of income filed for the year under consideration, the assessee has shown income under the head profit and gains of business and profession and other sources. In the search action, three loose papers were found and seized as part of Annx - 5 of the panchnama prepared on 29.10.2011 at the office premises of 114/116, Mittal Court, C-Wing, 11th floor, Nariman Point, Mumbai - 400021. These documents mention the carat value, rate per carat and total value of diamonds. In the course of search proceedings Shri Vipul Shah confirmed that these loose papers were containing stock details of M/s A'Star Exports, M/s. Asian Star Diamond International P. Ltd. and M/s. Rahil Agencies. The stock mentioned in the above referred seized papers was stated as placed in one safe located at the office premises. The stock of diamonds found from the sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anation and nature of source of acquisition as undisclosed stock received from the unaccounted trading of diamond as source of income. The partner of the firm has time and again stated in his statement that diamond found in the premises during the search is out of unrecorded trading of diamonds hence the third part of section 69 is not satisfied hence the said stock is not taxable under section 69 of the Act. (h) M/s Surekh Jewellers vs DCIT ITA No 18/PN/2016 dated 12.06.2016. (i) M/s Silver Palace vs DCIT ITA No 893/PUNE/2016 dated 29.06.2018 (ITAT Pune) (j) M/s Solanki Jewellers vs DCIT ITA No 858/PN/2016 dated 18.11.2016. (k) ITO vs Jmandas Muljibahai (2006) 99 TTJ 197 (ITAT Rajkot). (l) M/s Dev Raj Hi Tech Machines vs DCIT ITA No 326 of 2014 dated 07.10.2015 (ITAT Amritsar) (a)(ii) From the above discussion and in view of the plethora of judgments on this settled issue, I am of the considered view that section 69 was clearly not applicable in the case of appellant and the suppressed income found by way of excess stock was business income of the appellant and cannot be treated as unexplained investment u/s 69A of the IT Act. (b) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s total income been reduced by the amount of income referred to in clause (i). The provisions of section 115BBE of the Income Tax Act are applicable where addition is made under section 68, 69, 69A, 69B, 69C and 69D i.e. from residuary category w.e.f 01.04.2017. Hon ble Supreme court in the case of CIT vs Vatika Township Pvt Ltd (2014) 24 ITJ 532 (SC): (2014) 271 CTR 1: (2014) 227 Taxmann 121 has held that An amendment made to the taxing statute can be said to be intended to remove hardships only of the assessee, not of the department-on the contrary, imposing a retrospective levy on the assessee would have caused undue hardship. Hon ble ITAT Indore in the case of Priyadharshani Construction vs ITO (2012) 19 ITJ 276 (Trib-Indore) has held that Substantive law shall be understood to be applicable prospectively unless made specifically retrospective. Similar view was taken in following judgments by various courts and tribunals:- Hon ble Rajasthan High Court in the case of CIT vs Bajargan Traders [Appeal No 258/ 2017 dt 12-09-2017]; Hon ble Ahmedabad bench of ITAT in the case of Chokshi Hiralal Maganlal vs DCIT as reported in 141 TTJ 001; Hon ble ..... X X X X Extracts X X X X X X X X Extracts X X X X
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