TMI Blog2023 (7) TMI 733X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT(A) rightly holding that the provision of section 115BBE are not applicable on the surrendered income on account of excess stock valuing found during the course of search. Thus, grounds no. 1 to 3 raised by the revenue are dismissed. Whether the excess stock found during the search which is not separate from the entire lot of stock of the assessee can be treated as other valuable articles though certainly not in the nature of bullion and jewellery ? - The Hon ble Apex Court in M/s D.N. Singh [ 2023 (5) TMI 746 - SUPREME COURT] has analyzed the provision of section 69, 69A 69B and particularly the term other valuable articles as employed in the provision of section 69B - In the light of the Doctrine of ejusdem generis noscitur a sociis it is held that other valuable articles as provided in section 69A 69B of the Act must be read ejusdem generis and statutory interpretation would be that a generic word receives a limited interpretation by reason of its context and take its meaning from the specific term used in the provision. Therefore, the term other valuable articles would draw the meaning from the specific terms used in the provision of section 69B which is bulli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... covered u/s 69B and not under the head business income. When the appellant is engaged only in business activity and the stock found is of the same items which appellant manufactures/trades, how can the same be treated as unexplained investment. That section 69B casts heavy burden on the shoulders of the AO. He has not only to conclusively find that there is some unexplained investment done by the appellant which exceeds the amount recorded in books but also the appellant offers no explanation about it. Both the conditions with due respect have not been fulfilled by the AO. The addition so confirmed by learned CIT(A) being illegal and wrong. The same therefore may very kindly be deleted. 2. The solitary issue arises in this appeal of the assesse is whether in the facts and circumstances of the case the Ld. CIT(A) justified in confirming the order of the AO in applying the provision of section 69B and higher tax rate u/s 115BBE of the Act on the surrendered income on the excess stock offered/declared in the return of income. The assessee company is engaged in the manufacturing and trading of plastic water tank and other plastic products. A survey u/s 133A of the Act was conduct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g provisions of section 69B of the Act there should be clearly identifiable asset separate from the other business asset of the assesse. If there is no physical distinction between accounted stock and unaccounted stock, the unaccounted stock will be treated as undeclared business income. Further in the statement recorded during the course of survey specific query was asked about source of income and assessee explained that the excess stock is generated out of its normal business and therefore the source of surrendered income stands proved. Thus, the Ld. AR has submitted that the conditions provided u/s 69, 69A, 69B 69C of the Act are not been satisfied in the case of the assessee when the excess stock is nothing but part of the regular stock generated out the business activity of the assessee and the same is inseparable from the declared stock. Hence the amount surrendered will be treated as business income. In case of the assessee the AO has not found any money, bullion, jewellery or other valuable article as such. The surrender has been made on the basis of alleged stock calculated on the basis of applying some presumptions like assuming GP rate as constant. Further the alleged ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s stock found and source of investment in excess stock remain unexplained, deeming fiction of 698 applies. Plea of the assessee that he has no other source of income is also not found tenable unless corroborative evidences are produced by the assessee to establish the same as income from business transactions for the year under consideration. 4.2.4 Even if the assessee offers the same suo moto as income in the ROI, it does not take away such income out of category of deemed incomes u/s 698/69A for the financial year in which they are found. Rather, offering such income suo-moto in ROI for the financial year in which they are found, without any supporting evidences to support the year of income and the nature of income and also not having recorded such income in books of accounts for the business/profession maintained if any. itself tantamount to having applied and accepted the provisions of deeming such assets as income of the financial year in which it was found u/s 698/69A. If it were not to be interpreted so, then it was impossible for the assessee also to ascertain as to for which financial year the unrecorded assets pertain to and for which FY the income therein pertaine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order of the AO on the similar reasoning by relying the judgment Hon ble Madras High Court in the case of M/s. SVS Oil Mills vs. ACIT in Income Tax Appeal No.765 of 2018. It is pertinent to note that during the course of survey what was detected in respect of the stock was that the physical stock found at the business premises of the assessee was excess in comparison to the stock recorded in the books of account. It is not the case of the AO that the excess stock found during the survey was separated from other stock of the assessee but it is one and common nature of stock found during the survey except the quantity of the stock on physical verification was found to be excess in comparison to the stock recorded in the books of accounts. Therefore, there is no separable identifiable stock found during the survey then the regular stock of the assessee generated from the business activity of manufacturing of plastic water tank and other plastic items. It is also not a case of inflated purchase so as to require to prove the genuineness of the purchase but it is a case of excess stock found during the survey on physical verification and thereby the quantum of stock was in excess. Hence ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stock as additional business income for financial year 2016-17. So far as, admission of undisclosed income of Rs.1,41,75,569/- is concerned there is no dispute at the end of both the parties. The bone of contention is that whether the provision of section 115BBE of the Act are applicable on the surrendered income of Rs.1,41,75,568/- we find that Ld. CIT(A) on examination of the fact, settled judicial precedence, also appreciating that the alleged income is business income earned by the assessee during the normal course of its business and was part of the total business stock available at the business premises and also observing that provisions of section 115BBE of the Act are applicable from 01.04.2017 and are thus not applicable on the case of assessee as the search was carried out on 15.12.2016 observing as follows: Ground No 1 to 5:- Through these grounds of appeal, the appellant has challenged the treating of Rs. 1,41,75,568/- declared during search as unexplained investment u/s 69 r.w.s 115BBE of the Act and not as a business income. During the course of search, valuation of stock was taken by registered valuer and net weight of gold was found at 25,857.490 gms valued at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons dated 26.07.2019. However, the appellant has objected to the findings of the AO on treating the additional income offered (or say business income) by the appellant as unexplained investment u/s 69 r.w.s 115BBE of the Act. After considering the plea of appellant interalia facts of the case it can be easily said that the instant case revolves around applicability of two different sections i.e. section 69A and section 115BBE of the IT Act. (a) Applicability of provisions of section 69A (unexplained investment) of the Act:- The AO found appellant of guilty of invoking provisions of section 69 of the Act and has re-classified the income of the appellant u/s 69A of the Act. before moving ahead, I find it important to quote relevant provision section 69 of the Income Tax Act which is as under:- 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 assessee offers no explanation about the nature and source of the investments or the explanation offered by him is not, in the opinion of the Assessing Officer, s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a period of time is ruled out with simple stroke of statement of appellant wherein he has admitted that the same has been earned in FY 2016-17(AY 2017-18). Further, the appellant does not have any income other than manufacturing and trading of gold ornaments, therefore, the excess stock found during search was earned out of business income by the appellant. Hon ble Ahmadabad ITAT in the case of Chokshi Hiralal Maganlal vs DCIT, (ITA No 3281/Ahd/2009 dated 05.08.2011) has held that the provisions of section 69A/69B of the IT Act can only be applied the case where the asset is separately applicable and separately identifiable and it should have independent physical existence of its own. Since the excess stock is a result of suppression of profit from business over the years and has not been kept identifiable separately but is the part of overall physical stock found, the investment in the excess stock has to be treated as business income. Similar, view has been taken by Hon ble jurisdictional Indore tribunal in the case of M/s Shahnai Shriram Market vs ITO 1(1), Ujjain (ITA No 658/Ind/2014 dated 15.05.2015. (a)(i) It is a settled law that additional income declared on ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... med 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 investment is sought to be taxed is not clearly identifiable or does not have independent identity but is integral and inseparable (mixed) part of declared asset, falling under a particular head, then the difference should be treated 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 st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. (d) Chokshi Hiralal Maganlal Vs. DCIT, Ahemadabad (ITA No. 3281/Ahd/2009 dated 05.08.2011) In this case, it is held as under:- 9. Since in the present case excess stock found during the survey is not separately and clearly identifiable but is part of mixed lots of stock found at the premises which included declared stock as per books and also the excess stock as computed by the survey officers, the provisions of section 69B cannot be made applicable as primary condition for invoking the provisions of section 69A, 69B is that the asset should be separately identifiable and it should have independent physical existence of its own.Since excess stock is a result of suppression of profit from business other the y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also the excess stock as computed by the authorized officers during the search operation at the premise. Since excess stock is a result of suppression of profit from business over the years and has not been kept identifiable separately but is the part of overall physical stock found, the investment in the excess stock has to be treated as business income. Further, the excess stock so found is part of the regular business, therefore, following decision of Hon'ble Tribunal Bench Jaipur in case of Ramnarayan Birla (cited supra), the same has to be taxed under the business income. Otherwise even if the same is taxed under s. 115BBE of the Act, the provisions of not allowing the set off has come into effect from 1st April, 2017 (g) ACIT vs M/s A Star Exports and M/s Asian Star Diamonds International Pvt Ltd (2015) 5 TMI 1312 (ITAT Mumbai) wherein it has been held as under:- 8. We have considered rival contentions, carefully gone through the orders of the authorities below and also deliberated on the judicial pronouncements referred by lower authorities in their respective orders as well as cited by ld. DR and AR during the course of hearing before us. From the re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... should be treated as a business income. In this connection it was stated that at the time of search, the investigating officers found unaccounted stock in the business premise of the assessee at 114/116, Mittal Court, 'C' Wing, 11th Floor, Nariman Point, Mumbai - 400021. This stock was valued at 13,47,63,640/- by the income tax valuer. Consequently the assessee declared this amount as stock in trade and this contention of the assessee was accepted by the Investigating officer. Who has released the stock after valuation and not impounded/seized. The statement of Shri Vipul P. Shah Partner of the firm was again recorded on 20.11.2012 wherein in reply to the question no. 22 he has stated that this undisclosed income is generated through unrecorded trading of diamonds. Q.22 Please explain as to how this undisclosed income is generated? Ans: it is through unrecorded trading of diamonds. It is clear from the above facts that the declaration was related to business stock in trade hence it is evident that the declaration amount is required to be assessed under the head' Income from Business or profession. Thus, the undisclosed income of 13,47,63,640/- declared voluntari ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions of section 115BBE of the Act. First of all let me discuss whether the provisions of section 115BBE are applicable to this case or not. Therefore the relevant extract of pre-amended and post amended provisions of section 115BBE is reproduced for the sake of clarity:- Pre amended provisiosn of section 115BBE of the Act:- 115BBE(1). Where the total income of an assessee includes any income referred to in section 68, section 69, section 69A, section 69B, section 69C or section 69D, the income-tax payable shall be the aggregate of (a) the amount of income-tax calculated on income referred to in section 68, section 69, section 69A, section 69B, section 69C or section 69D, at the rate of thirty per cent; and (b) the amount of income-tax with which the assessee would have been chargeable had his total income been reduced by the amount of income referred to in clause (a). Post amended provisions of section 115BBE of the Act:- 115BBE(1). Where the total income of an assessee, (a) includes any income referred to in section 68, section 69, section 69A, section 69B, section 69C or section 69D and reflected in the return of income furnished und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovisions u/s 115BBE were invoked by the appellant which infact was applicable from 01.04.2017 and not from 15.12.2016 (date of search). 4.1.3 In view of the above discussion, it is evident that the appellant does not have any other source of income except manufacturing and trading of gold ornaments. Also, neither the search party nor the AO was able to bring to light other facts or evidence suggesting that the excess stock was not acquired through business activities carried out by the appellant. Therefore, the AO is directed to treat the sum of Rs. 1,41,75,568/-, which was voluntarily disclosed as additional income, as business income of the appellant by applying normal tax rate while giving effect of this order. Therefore, appeal on these grounds is Allowed. 8. We on perusal of the above finding and the various judgments and decisions referred hereinabove by Ld. CIT(A) find that the alleged excess stock was not kept separately at any other place and was part of the total business tock found at the assessee s business premises are sufficient enough to indicate that the alleged investment in excess stock is part of the business income we also find that alleged excess sto ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d advances made to Sundry Parties is covered u/s 69, 69B or 69D is like an open ended hypothesis which is not supported by any specific finding that the matter shall fall under which of the specific sections and how the conditions stated therein are satisfied before the said provisions are invoked. It is like laying a general rule, which to our mind is beyond the mandate of law, that wherever there is a survey and some income is detected or surrendered by the assessee, the deeming provisions are attracted by default and by virtue of the same, provisions of section 115BBE are attracted. The ld PCIT has to record his specific findings as to the applicability of the relevant provisions and how the explanation called for and offered by the assessee is not acceptable in the facts of the present case which is clearly absent in the instant 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 l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee has voluntarily surrendered Rs 1,02,00,000/- over and above the normal business income in his return of income and has accordingly not drawn any adverse inference. We therefore find that the Assessing officer has duly taken cognizance of statement of the assessee recorded during the course of survey, the surrender letter and the return of income, and after examination thereof and due application of mind has not drawn any adverse inference and income has been rightly assessed under the head business income . In light of the same, we are of the considered view that the order so passed by the Assessing officer cannot be held as erroneous due to lack of enquiry or for that matter, requisite enquiry on the part of the Assessing officer. Where the Assessing officer after due appreciation of facts and circumstances of the case, assessed the income under the head business income and didn t invoke the deeming provisions as so suggested by the ld PCIT, we do not believe that there is any error on part of the Assessing officer and the order so passed by him cannot be held as erroneous. As we have stated above, the ld. PCIT without recording any specific findings as to the applica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hough certainly not in the nature of bullion and jewellery. This question has been considered by the Hon ble Supreme Court in the latest judgment in case of M/s D.N. Singh vs. CIT, Central, Patna and Another 150 taxmann.com 301 (SC) as under: 64. It is a case of the appellant that applying the Principle of Ejusdem Generis, bitumen would stand out as a strange bed fellow in the company of its immediate predecessor words, viz., money, bullion and jewellery. In other words, it is the case of the appellant that bitumen is a clear misfit and it could not have been the legislative intention to treat bitumen as other valuable article. Our attention is drawn to the Circular No. 20D dated 07.07.1964 issued by Central Board of Direct Taxes, which has been adverted to. {see paragraph 48} 65. In Bhagwandas Narayandas v. Commissioner of Income Tax, Ahmedabad and others18, the question, which, inter alia, fell for consideration before a learned Single Judge of High Court of Gujarat, was, whether fixed deposit receipts and title deeds of immovable property were valuable things or articles , which required a showcause notice under Rule 112A of the Income-Tax Rules, 1962. Section 132 if ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alue than an evidentiary one. Thus, since none of those documents has got any intrinsic value in terms of money, we are of the opinion that they are not covered by sub-section (5) of section 132 of the Act or rule 112A of the Rules. (Emphasis supplied) 66. Unlike a document of title or a fixed deposit receipt, which cannot, by itself, be disposed of or alienated, bitumen would be goods, which can be transferred. It would have a value in the market depending upon its quality. In Commissioner of Income Tax v. M.K. Gabrial Babu and others19, the High Court of Kerala was dealing with the question, as to whether immovable property would be covered within the expression other value article or thing within the meaning of Section 132(1) of the Act. The Court held: 4. A word in a statue is quite often judged by the company its keeps. The preceding words of Section 132(1), cannot be ignored or overlooked. Money, bullion, jewellery, which precede other valuable article or thing forge a genus and, consequently, the words other valuable article or thing assume a constricted meaning and interpretation in that context. The general principles of interpretation of a restricted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... seful or important. 70. The word money has been described in Black s Law Dictionary as follows: - money. 1. The medium of exchange authorized or adopted by a government as part of its currency; esp. domestic currency coins and currency are money .2. Assets that can be easily converted to cash demand deposits are money . 3. Capital that is invested or traded as a commodity the money market . 4. Funds; sums of money investment moneys . Also spelled (in sense4) monies. See Medium of Exchange; Legal Tender. 71. The word article has been defined in Black s Law Dictionary as Generally, a particular item or thing article of clothing. 72. The Word bullion has been defined in the Concise Oxford Dictionary as gold or silver in bulk before coining, or valued by weight M.PRINCIPLE OF EJUSDEM GENERIS; NOSCITUR A SOCIIS 73. Section 69A provides for unexplained money, bullion, jewellery . It is thereafter followed by the words or other valuable articles . Does this mean that the words other valuable articles must be read ejusdem generis? The principle applies when the following conditions are present [Principles of Statutory Interpretation by J ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rd is to be judged by the company it keeps. Gajendragadkar, J. explained the scope of the rule in State of Bombay v. Hosptial Mazdoor Sabha [(1960) 2 SCR 866 : AIR 1960 SC 610 : (1960) 1 LLJ 251] in the following words: (SCR pp. 873-74) This rule, according to Maxwell, means that, when two or more words which are susceptible of analogous meaning are coupled together they are understood to be used in their cognate sense. They take as it were their colour from each other, that is, the more general is restricted to a sense analogous to a less general. The same rule is thus interpreted in Words and Phrases (Vol. XIV, p. 207): Associated words take their meaning from one another under the doctrine of noscitur a sociis, (1990) 3 SCC 447 the philosophy of which is that the meaning of a doubtful word may be ascertained by reference to the meaning of words associated with it; such doctrine is broader than the maxim ejusdem generis . In fact the latter maxim is only an illustration or specific application of the broader maxim noscitur a sociis . The argument is that certain essential features of attributes are invariably associated with the words business and trade as understood in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... N. WHETHER BITUMEN IS OTHER VALUABLE ARTICLE 77. This Court has referred to the Principles of Ejusdem Generis and Noscitur a Sociis, which undoubtedly are rules of construction the latter being described as having treacherous underpinnings and the former requiring the existence of a genus which is not exhausted by the categories catalogued in the statute. This Court has also referred to the definition of the words, money, bullion valuable and article. The Court approves the view taken by the High Court of Gujarat in Bhagwandas Narayandas (supra) that a document of title to immovable property or a fixed deposit receipt would not qualify as other valuable article. The reasons which have been given appear to us to be sound. A document of title or a fixed deposit receipt would not be articles which can be bought and sold in a market. An article, would also not encompass an item of immovable property. This Court can safely conclude that an article must be movable property. One strong indication that the Principle of Ejusdem Generis may not apply is a decision of this Court in Chuharmal (supra), where the articles involved were watches. Watches by no stretch of imagination can ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... used for road surfacing and roofing . Bitumen appears to be a residual product in the petroleum refineries and it is usually used in road construction which is also probabalised by the fact that the appellant was to deliver the bitumen to the Road Construction Department of the State. Bitumen is sold in bulk ordinarily. In the Assessment Order, the Officer has proceeded to take Rs. 4999.58 per metric ton as taken in the AG Report on bitumen scam. Thus, it is that the cost of bitumen for 2094.52 metric ton has been arrived at as Rs. 1,04,71,720.30. This would mean that for a kilogram of bitumen, the price would be only Rs.5 in 1995-1996 (F.Y). 79. Bitumen may be found in small quantities or large quantities. If the article is to be found valuable , then in small quantity it must not just have some value but it must be worth a good price {See Black s Law Dictionary (supra)} or worth a great deal of money {See Concise Oxford Dictionary (supra)} and not that it has value . Section 69A would then stand attracted. But if to treat it as valuable article , it requires ownership in large quantity, in the sense that by multiplying the value in large quantity, a good price or ..... X X X X Extracts X X X X X X X X Extracts X X X X
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