TMI Blog2023 (8) TMI 289X X X X Extracts X X X X X X X X Extracts X X X X ..... tisfying 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, thus, it cannot be said that these are unexplained transactions thus, doesn t satisfy the second condition for invoking the deeming provisions of section 69 of the Act. Income surrendered during the course of survey cannot be brought to tax under the deeming provisions of section 69 of the Act and the same has been rightly offered to tax under the head business income and as a necessary corollary, in absence of deeming provisions, the question of application of section 115BBE doesn t arise for consideration. Decided in favour of assessee. - Shri. Aakash Deep Jain, VP And Shri. Vikram Singh Yadav, AM For the Assessee : Shri Ashwani Kumar, C.A For the Revenue : Smt. Amanpreet Kaur, Sr. DR ORDER PER VIKRAM SINGH YADAV, A.M. : This is an appeal filed by the Assessee against the order of the Ld. CIT(A)-5, Ludhiana dt. 04/01/2023 pertaining to Assessment Year 2019-20 wherein the sole ground of appeal read as under: That order passed u/s 250(6) of the Income Tax Act, 1961 by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he officers of the Department who were in-charge at the time of survey and the assessee paid the normal tax as was due which was also mentioned in the surrender letter and subsequently, the assessee included the same while filing his return of income under the head Profit and Gains of business and profession . It was submitted that it is settled proposition of law that the statement on oath has evidentiary value and the same therefore needs to be accepted. It was further submitted that the impounded documents depict the income earned from business transaction and the statement given at the time of survey confirmed the same, thus the correctness of these documents cannot be doubted. It was submitted that the Department cannot accept the quantum part of the income as correct and disbelieve the source of income explained therein. It was submitted that assessee never retracted his income offered during the course of survey which stands disclosed in the return subsequently filed. 4. It was further submitted that the provisions of Section 115BBE of the Act are applicable where the assessee offers no explanation or explanation offered by him is not satisfactory in the opinion of the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urrendered as income under the head business income while filing the return of income. It was stated by the AO that from the assessee s return of income as well as books of account which have been audited under section 44AB of the Act, the assessee himself has not shown requisite accounting entries and only resultant income have been shown on the credit side of the P L Account. It was held by the AO that the prerequisite condition for applicability of Section 69 are that during the financial year, the investments are not recorded in books of accounts if any maintained by the assessee for any source of income and the assessee had failed to offer satisfactory explanation about the nature and source thereof. It was held that in the instant case the material available on the record shows that the assessee has recorded financial entries in the books of account and it is natural that if any person has not recorded these transactions in his books of account, he would not have done so even subsequently had the search / survey or enquiry not been carried out by the Department. Therefore the benefit of recording entries in the books of account subsequent to the survey operation would not b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come which was detected by the authority at the time of survey and the only source of income was the business carried on by the assessee in the name of M/s Shivam Coir Foam Products and therefore where the nature and source of the amount so surrendered has been duly explained, there is no basis for invocation of provision of Section 69 of the Act and consequently, the provisions of section 115BBE doesn t apply. In support, reliance was placed on various Coordinate Benches decisions such as Shri Harish Sharma, Khanna Vs. ITO, W-5, Khanna (ITA No. 327/Chd/2020 dt. 11/05/2021) and Bajaj Sons Limited Vs. DCIT (ITA No. 1121/Chd/2019 dt. 24/05/2021). 7. The submissions so filed by the assessee were considered but not found acceptable to the Ld. CIT(A). It was held by the Ld. CIT(A) that in the instant case, the assessee has not able to establish linkage between the surrendered income and the business income. It was held that merely having a known business activity will no perse render any unexplained income as business income under section 14 unless the burden of proving the source is also discharged. It was held that onus of proving such receipts are from an activity other than discl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gard, reference was drawn to the response of the assessee in the context of various questions asked by the survey team. It was submitted that during the course of survey, a diary in the name of the assessee concern had been found containing names of certain individuals, date, amount etc and when the said diary was confronted to the assessee, he explained that the same relates to advances given during the course of his business dealings and thereafter, in order to avoid prolonged litigation and to buy peace of mind, offered the amount of Rs. 15,00,000/- as an additional business income, a fact which is also corroborated by the surrender letter dt. 05/09/2018 addressed to the JCIT, Khanna Range, Khanna wherein the assessee offered the additional income of Rs. 15,00,000/- which was earned by him out of the business transactions carried out by him during the current F.Y 2018-19. It was submitted that the said sum of Rs. 15,00,000/- was offered for tax as additional business income at normal rate applicable for the period under reference and which was accepted by the survey team at the relevant point in time. It was submitted that the survey team who had conducted the survey were satisf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... instant case. 11. In support, reliance was placed on various Co-ordinate Chandigarh Bench decisions such as Famina Knit Fabs Vs ACIT 176 ITD 246, Gaurish Steels Pvt. Ltd. Vs ACIT 43 ITR (Trib) 414 and Marshal Machines Pvt. Ltd. (ITA No. 57/CHD/2017). It was submitted that in the said decisions, the Co-ordinate Chandigarh Benches have adequately discussed the judgement of the Hon'ble Punjab Haryana High Court in case of M/s Kim Pharma Pvt. Ltd. and the facts of the said case are clearly distinguishable on facts as in that case, the issue under consideration was surrender of cash and the source thereof as per statement recorded was from other sources unlike the instant case, where the surrender is of business receivables, thus, the necessary nexus and source of such business receivable is clearly identifiable as from the assessee s business operations. 12. It was, accordingly, submitted that in light of the aforesaid submissions, the amounts so surrendered during the course of survey proceedings is clearly in the nature of business income and it has been duly offered to tax under the head income from business profession . Therefore, the action of the AO in treating th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the assessment order. As per the AO, the amount so surrendered by the assessee during the course of survey though has been offered in the return of income and thus, the assessee has honoured the surrender of income so made but at the same time, the income so offered in the return of income falls under the deeming provisions of section 69 and 69A of the Act and thus, the tax liability thereon has to be determined in terms of section 115BBE of the Act. As per the ld AR, the assessee has honoured the surrender so made at the time of survey not just in terms of the quantum of income so surrendered but also in terms of nature of income so surrendered, and the rate of tax at which the surrender has been made and surrender so made has been accepted by the survey team and thus, the deeming provisions of section 69 and 69A r/w section 115BBE are not attracted in the instant case. 14. To appreciate the aforesaid rival positions, we refer to the provisions of section 69 and 69A of the Act. Section 69 provides that 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 h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d as under: 10. We have considered the rival contentions and have gone through the record. As per the provisions of Section 115BBE of the Act, the income tax on income referred to in Section 68 or Section 69 or Section 69A or Section 69B or Section 69C or Section 69D are chargeable to tax at a higher rate. Now a perusal of the provisions of Section 68, 69, 69A, 69B, 69C and 69D would reveal that those provisions are attracted in respect of the credits, cash, expenditure, investment etc. regarding which the assessee offers no explanation about the nature and source thereof. It is to be pointed out that the income is to be assessed u/s 68 wherein any sum is found credited in the books, of which the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not found satisfactory by the AO. Section 69 is attracted to the unexplained investments of which the assessee offers no explanation about the nature and source thereof or the explanation is not found satisfactory. Similarly, Section 69A is attracted in case of money, bullion, jewellery or other valuable articles, Section 69B refers to the investments, Section 69C refers to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Objections/Report as pointed out even in the Audit Report that since the same was undisclosed income of the assessee which was surrendered by the assessee during the survey action and therefore, the same was to be assessed under the provisions of Section 68 to 69D of the Act. The above reasoning of the survey party is not in accordance with the relevant provisions of the Act. Therefore, we do not find any justification on the part of the ld. PCIT in invoking the Revisionary jurisdiction in this case. 17. Therefore, the foundational requirement before invoking the deeming provisions is not that there were certain survey operations u/s 133A and some undisclosed income has been detected and surrendered by the assessee and thus, the deeming provisions are automatically attracted. Rather the foundational requirement is whether the assessee has made the investment/has been found to be owner of cash and the explanation offered by the assessee explaining the nature and source of such undisclosed income and the reasonability of the explanation so offered by the assessee keeping into account the facts and circumstances of the relevant case. In fact, if we look at the provisions of sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... k to the tune of Rs. 17,38,400/- has been found as per the books of account maintained by the assessee, however on physical verification, stock to the tune of Rs. 37,38,210/- has been determined and the assessee was asked to explain the difference of excess stock valued at Rs. 20,00,000/-. In response, the assessee submitted that at this moment of time, he is not in a position to explain the said difference of Rs. 20,00,000/- however to buy peace of mind, he offered this amount of Rs. 20,00,000/- for taxation for the F.Y. 2016-17 pertaining to A.Y. 2017-18. Thereafter, in the statement so recorded, it is mentioned that taxes on total additional income of Rs. 84,80,000/- so surrendered by the assessee were worked out and three post dated cheques were given by the assessee to the survey team for securing the payment of due taxes amounting to Rs. 26,20,000/-. Thereafter, in terms of surrender letter dt. 08- 09/07/2016 addressed to the Additional CIT, Patiala Range, Patiala, the assessee has reiterated the amount surrendered of Rs. 84,80,000/- which were offered as additional income at the time of survey on account of certain discrepancies noticed in terms of advances to various person ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the deeming provisions is not just the factum of survey action but besides that, what is the explanation so offered by the assessee explaining the nature and source of income so found during the course of survey proceedings and which has not been recorded in the books of accounts and the same is the essence of the statutory provisions as duly recognized by the Courts and various Benches of the Tribunal and which has been reiterated from time to time. The statement of the assessee has to be read as a whole and not in piecemeal especially where the Revenue is relying on the same statement and in such circumstances, the defence available to the assessee in terms of part of the statement not been considered by the Revenue cannot be ignored. The mere fact that survey/search proceedings have been initiated at the business premises of the assessee doesn t mandate the Assessing officer to automatically invoke the deeming provisions and before invoking the deeming provisions, he has to call for the explanation of the assessee and only where the explanation so offered is not found satisfactory, he can proceed and invoke the deeming provisions. 21. In case of Gandhi Ram (ITA No. 121/CHD/20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... losing stock inventory. However the AO observed that the said disclosure was not consistent with the provisions of Section 69B of the Act and same was accordingly brought to tax under section 69B. The Ld. CIT(A) confirmed the order of the AO and thereafter on further appeal, the Coordinate Ahmedabad Bench held that the excess stock found during the survey is not separately and clearly identifiable but is part of mix lot of stock found at the premises which included declared stock as per books and also the excess stock as computed by the Survey Officers and therefore the provisions 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) where ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f 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 satisfactoril ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the course of survey was part of the stock and the Revenue has not pointed out the excess stock has any nexus with any other receipts other than the business being carried on by the assessee. The relevant findings are contained at para 4.3 which read 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 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 recor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In addition to the purchase and the closing stock, the amount of Rs. 70,04,814/- also found credited in the profit and loss account as income from undisclosed sources. The net effect of this double entry accounting treatment is that firstly the unrecorded stock of rice has been brought on the books and now forms part of the recorded stock which can be subsequently sold out and the profit/loss therefrom would be subject to tax as any other normal business transaction. Secondly, the unrecorded investment which has gone in purchase of such 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 ne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Haryana High Court in the case of M/s Kim Pharma Pvt. Ltd.(supra) since this is the only judgment of the Jurisdictional High Court which were brought to our notice. 12. On perusal of the said judgment, we find ourselves in agreement with the submission of the learned counsel for the assessee, that the only issue in that case was the taxability of cash surrendered during the course of survey, as the assessee had also surrendered income of Rs. 10 lacs in assessment year 2005-06 on account of sundry credits, repairs to building and advances to staff, which being relatable to business carried on by the assessee was already included as income from business. 13. In the present case, we see that the Assessing Officer has nowhere disputed the business 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 buil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bles amounting to Rs. 1.25 crores on page nos. 27, 28, 31 and 33, which were not recorded in the regular books of accounts. When these entries were confronted to the appellant company while recording the statement on 15/09/2012, it was stated: that these entries are sundry receivables which has not been accounted for in the books of accounts and in order to buy peace of mind, the same is surrendered as income under the head business for F.Y.2012-13 relevant to asstt. Year 2013-14 subject to no penalty and prosecution under the I.T. Act, 1961. Since the company is incurring losses in current F.Y.2012-13, the surrendered income will be adjusted against these losses. [Extracted from the impugned assessment order; pages 5 6]. 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 rec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... either the nature of the discrepancies, nor any source relating to the same has been disclosed and, therefore, the same is also to be assessed as deemed income u/ss 69, 69A, 69B and 69C of the Act. 25. As far as the surrender of Rs. 132 lacs made on account of sundry creditors and advances received from customers and Rs. 198 lacs on account of gross profit on sale out of the books, both of them clearly are in relation to the business carried on by the assessee and are thus in the nature of business income. Therefore, the set off of business losses, both current and brought forward are to be allowed as per the provisions of law. As far as the income surrendered and to be assessed u/s 69, 69A, 69B and 69C of the Act, as held above before us, the same is to be subjected to tax as per the provisions of section 115BBE of the Act. 29. In the instant case as well, the surrender on account of advances were relating to the business being carried on by the assessee. The ld CIT(A) has also returned a finding that the advances were admitted as being related to business activity of the assessee. Where the same has been found unrecorded in the books of accounts, the same has to be bro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourse 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 carrying on the business of the assessee which was not recorded in the books of the assessee. The Coordinate Bench of the ITAT went on to further hold that 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 and even otherwise no other source of income of the assessee was on record either disclosed by the assessee or unearthed by the Revenue. The Bench further held that the preponderance of probability, therefore, is that the debtors were sourced from the business of the assessee. Therefore, there was no question of treating 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 sour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT [2013] 35 taxmann.com 456 (P H). Briefly the facts of the case were that the survey under section 133A was conducted at the business premises of the assessee and during the course of survey, cash amounting to Rs. 5,00,000/- was found which was surrendered by the assessee for A.Y 2006-07 and another amount of Rs. 10,00,000/- was surrendered for A.Y. 2005-06 on account of sundry credits, repair to building and advances to staff. The matter pertaining to A.Y 2006-07 came up for consideration before the Coordinate Chandigarh Benches and taking note of the statement of the General Manager of the assessee company recorded during the course of survey wherein he had admitted the said cash has been generated out of income from other sources and in the absence of nature of source of cash being proved, it uphold the order of the CIT(A) in including the additional income as deemed income u/s 69A of the Act and relevant findings read as under: 9. In the facts of the present case before us, we find that unaccounted cash was found during the course of survey operation in the possession of the assessee company and the same was surrendered as additional income for the year under appeal. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n by the partners of the assessee firm, on facts, came to the conclusion that assessee had received additional income from business onl y and not from other sources. The said conclusion of the Tribunal was upheld by the Hon'ble Karnataka High Court in CIT another vs. S.K.Srigiri Bros. (supra) and the remuneration paid to the partners was held allowable against the additional income form business. The said precedent has been taken note of by the Hon'ble Gujrat High Court. 10. In the facts of the present case, we find that assessee during the course of survey had surrendered the income as income from other sources though a plea has been raised by the assessee that the income was surrendered as income from job work but no evidence to prove the stand of the assessee has been brought on record. The assessee had also surrendered additional income of Rs. 10 lacs in Assessment Year 2005-06 on account of sundry credits, repairs to building and advances to staff, which being relatable to business carried on by assessee was included as income from business. However, in respect of cash found during survey, which was not reflected in the books of account, no source was declared ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... learly emerging that the source of such income is from his business operations. Thus, the decision of the Hon ble High Court, being rendered in the specific facts and circumstances of the said case, doesn t support the case of the Revenue in the instant case. 33. In light of aforesaid discussion and in the entirety of facts and circumstances of the case and following the decisions supra, the income of Rs 84,80,000/- surrendered during the course of survey cannot be brought to tax under the deeming provisions of section 69 and 69A of the Act and the same has been rightly offered to tax under the head business income . In absence of deeming provisions, the question of application of section 115BBE doesn t arise for consideration. 15. In the instant case, for the deeming provisions of section 69 to apply, there has to be a finding that the assessee has made investments in the current financial year and such investments are not 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. Therefore, the founda ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ear and receivables arising out of such unrecorded sales have been offered to tax as additional business income by the assessee. The source of such unrecorded receivables is thus the unrecorded sales which have been explained by the assessee and thus, the necessary nexus with the business of the assessee has been established. The name of the person, the amount receivables, date, etc has been duly recorded in the diary, thus, the statement of the assessee duly stand corroborated by the contents of the diary so found during the course of survey. No doubts, 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, thus, it cannot be said that these are unexplained transactions thus, doesn t satisfy the second condition for invoking the deeming provisions of section 69 of the Act. 17. In light of aforesaid discussions and in the entirety of facts and circumstances of the case and following the decisions referred supra, the income of Rs 15,00,000/- surrendered during the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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