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TMI Blog2023 (7) TMI 1086X X X X Extracts X X X X X X X X Extracts X X X X ..... treating the excess cash found during the survey proceedings as unexplained money u/s 69A r.w.s. 115BBE of the Act. 3. On facts and circumstances of the case and in law, the Ld. CIT(A) erred in upholding the action of the Ld. AO by taxing both the surrendered income offered during the survey proceedings which was earned from business activities u/s 115BBE of the Act. 4. On facts and circumstances of the case and in law, the Ld. CIT(A) erred in upholding the action of the Ld. AO by taxing both the surrendered income offered during the survey proceedings u/s 115BBE of the Act based on presumption, suspicion, conjectures and surmises. 5. On facts and circumstances of the case and in law, the Ld. CIT(A) erred in upholding the action of the Ld. AO by taxing both the surrendered income offered during the survey proceedings u/s 115BBE of the Act ignoring the submissions filed and case laws relied upon by the appellant." 2. Heard the learned Representatives of both sides at length and caserecords perused. 3. Brief facts leading to present appeal are such that the assessee is a partnership firm engaged in the retail business of gold and silver items. A survey u/s 133A was condu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lls, etc. to prove that the excess stock and excess cash was suppressed profit of business. While deciding first-appeal, Ld. CIT(A), vide Para No. 3.1.4 to 3.1.5 of his order, accorded preference to the submission of AO. Further,replying upon decision of M/s SVS Oil Mills, Tax Appeal No. 765/2018 (Madras High Court), the CIT(A) accepted the excess-stock as undisclosed income u/s 69/69B and relying upon the decision in Shri Shyam Lal Goyal and Others, ITA No. 245-247/Ind/2021, order dated 29.06.2022 (ITAT Indore Bench), he accepted excess stock as undisclosed income u/s 69A. This way, he upheld the invocation of section 115BBE as correct approach of AO and did not grant any relief to assessee. 5. Still aggrieved, the assessee has come in this appeal before us assailing the orders of lower-authorities. 6. During hearing before us, Ld. AR for the assessee made several submissions and raised vehement contentions as under: (i) Ld. AR straightaway carried us to the relevant pages of statement recorded by survey-team and submitted that Q.No. 6 and 7 relates to excess-stock and Q.No. 8 relates to excess-cash. We re-produce below these questions and replies made by assessee's partner fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e surrender made by it's partner and accordingly credited the "additional undeclared income" in its P&L A/c in addition to regular income (Page No. 18 of Paper-Book); disclosed the same as forming part of "Income from Business" u/s 28 in the return of income and paid tax to department without disputing the same. Therefore, the department must accept the assessee's disclosure as admitted. (ii) Then, Ld. AR re-iterated and emphasized the same submission as made by assessee before CIT(A) contending that the assessee is a partnership firm and its sole source is the business of gold and silver jewellery; that no piece of evidence whatsoever had been found during the course of survey indicating any other source of income. He submitted that the assessee has been in this line of business for about 30 years and the excess-stock as well as excess-cash were the outcome of suppressed business income over the years. (iii) With regard to excess-stock, it is further submitted that the assessee is engaged in the business of jewellery and the excess-stock found during survey was a part of overall physical stock lying with the assessee; there was no separate identity, identification, existence ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere 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 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 s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reliance on Shri Shyam Lal Goyal and others (supra) is totally mis-placed. Ld. AR submitted that in reply to Q.No. 8, the assessee has nowhere stated that the excess cash was earned from undisclosed sources; the assessee has simply admitted the excess-cash as "undeclared additional income" in addition to regular income. (v) Lastly, Ld. AR relied upon the decision of Hon'ble Rajasthan High Court in Pr. CIT vs. Bajarang Traders (2017) 86 Taxmann.com 295 and Co-ordinate Bench of ITAT, Indore in ACIT vs. Shri Anoop Neema, ITA No. 05/Ind/2020 order dated 06.01.2022. 7. Per contra, Ld. DR for the Revenue supported the orders of lowerauthorities and made following submissions: (i) It is submitted that in the statement records during survey, assessee's partner has not stated that the excess stock and excess cash represented income earned from business. (ii) It is further submitted that the assessee has not filed any reply to AO during assessment-proceeding. That the section 69/69A/69B are deeming provisions and unless the assessee satisfies the AO, the AO can very well invoke section 69/69A/69B and consequently section 115BBE. 8. We have considered rival submissions of both side ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n physical verification was found to be excess in comparison to the stock recorded in books of accounts. Thus, there is no separable identifiable stock found during survey then the stock regularly held by assessee in the normal course of business of jewellery. Once the stock found during survey is part of total stock of business, then the said excess stock cannot be given a separate identity than the other stock of assessee. Further, even if excess stock found during survey was not recorded in the books of account but when the survey was conducted before closure of financial year then the assessee was at liberty to incorporate excess stock in books of account at the time of finalizing accounts, which also the present assessee has done which is evident from a separate credit entry made in Profit & Loss A/c. The Hon'ble Rajasthan High Court in case of Pr. CIT vs. Bajarang Traders (supra) has upheld the finding of the Tribunal that excess stock found during the survey is not separable and identifiable but it is part of mixed stock found at the premises which including declared stock as per books as computed by the survey team. Therefore, it is held that the provision of section 69B of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... excess stock of gold as additional income for FY 2016-17 (AY 2017-18). The relevant extract of statement is also scanned on page no 4 & 5 in the body of assessment order. The AO during the course of assessment proceedings observed that the assessee has declared 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 Rs. 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 Rs. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e not recorded in the books of account, if any, maintained by the assessee; (iii) the assessee offers no explanation about the nature and source of such investments; and finally, (iv) even if any explanation is offered 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 previous 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 food grains, 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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t that emerges from the entire discussion is that for invoking deeming provisions under sections 69, 69A, 69B & 69C there should be clearly identifiable asset or expenditure. In the present case we find that entire physical stock of Rs.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 i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... result, this ground -of assessee is allowed. (e) Shri Lovish Singhal Vs. ITO, Ward-2, Sriganganagar (ITA No. 143/Jodh/2018 dated 25.05.2018) In 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 surrendered 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'. Si ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssors, investors, wholesalers, distributors, retailers, dealers and indenting agent of diamonds, synthetic stones, gems and 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 ref ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t case all three conditions as required under section 69 are not fulfilled because the appellant has offered explanation 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 SurekhJewellers 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 appe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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