TMI Blog2023 (8) TMI 525X X X X Extracts X X X X X X X X Extracts X X X X ..... visions, 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. In the instant case as well, we find that the difference in stock so found out by the authorities has no independent identity and is part and parcel of entire stock, therefore, it cannot be said that there is an undisclosed asset which existed independently and thus, what is not declared to the department is receipt from business and not any investment as it cannot be co-related with any specific asset and the difference should thus be treated as undeclared business income. Following the said decision of DCIT Vs . Shri Ram Narayan Birla [ 2016 (9) TMI 1354 - ITAT JAIPUR] has taken a similar view holding that the excess stock so found during 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 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 admi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his return of income, declaring total income of Rs.92,39,690/- on 23.03.2018 including the surrendered income, which was processed u/s 143(1) and thereafter, the case of the assessee was selected for compulsory scrutiny and notices u/s 143(2) and 142(1) were issued. During the course of assessment proceedings, the AO also issued a Show Cause Notice dated 30.11.2019 stating that as per the Surrender Letter, the assessee made a surrender for a sum of Rs.55 lacs as advances, Rs.20 lacs towards unaccounted stock and Rs.9,80,000/- towards cash in hand and the same has been offered in the return of income @ 30%, however, as per the provisions of Section 115BBE read with Section 69 and 69A, the amount so surrendered is taxable @ 60%. 3. In response to the show-cause, the assessee filed his submissions stating that the tax authorities during the course of survey proceedings had provisionally evaluated the stock which were physically found at the business premises and compared the same with the values worked out provisionally as per the books of account, that the cash available at the business premises was also counted and compared with the cash as per books of account and that details ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been enhanced from 30% to 60% by the Taxation Laws (Second Amendment) Act, 2016 and same cannot be applied in the instant case wherein at the time of survey, tax rate as applicable was 30% and accordingly, the tax liability has been rightly discharged as per the law, as was in existence at the time of survey. 5. The submissions so filed by the assessee were considered but not found acceptable to the AO. It was held by the AO that during the course of survey, the assessee was directed to explain the discrepancy of excess stock not recorded in the books of account and as the assessee was not able to explain the discrepancy, he voluntarily came forward with the surrender of Rs.20 lacs on account of unexplained stock. Regarding provisional valuation of stock, it was held by the AO that the said contention of the assessee cannot be accepted for the reason that the valuation of stock was arrived at by physically counting each and every item of stock and by applying purchase price of each and every item as described by the assessee and it is a matter of record that the assessee has appended his signatures to the inventory of stock prepared at the time of survey and as such, the valuati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - whereas the Survey Team discovered Rs.10,46,000/- from the business premises of the assessee and since the assessee failed to explain the difference on account of cash in hand, the AO added the same u/s 69A of the Act. The findings of the AO were, accordingly, confirmed and against the said findings and directions of the ld. CIT(A), the assessee is in appeal before us. 7. During the course of hearing, ld. AR submitted that assessee is running a manufacturing unit wherein aluminum and copper wires are manufactured and the business is carried on in the name of M/s Singla Wire Allied Products at the business premises located at B-9, Industrial Estate, Patiala. It was submitted that the survey at the business premises were conducted by the tax authorities on 08.07.2016 and the statement of the assessee was recorded. It was submitted that no other activity, business or otherwise to establish any other source of income was detected during the course of survey at the business premises of the assessee and in this regard, reference was drawn to the response of the assessee in the context of Question No.3 of the statement so recorded. It was further submitted that cash available at th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nature of the business so carried on by the assessee as compared to earlier years. It was submitted that the additional income so offered was duly recorded in the books of account and basis thereof, was offered to tax by the assessee while filing his return of income. It was submitted that during the course of assessment proceedings, the submissions were filed from time to time which were duly accepted by the AO and towards the closure of the limitation period, the assessee received a Show Cause dated 30.11.2019 wherein the AO had proposed to invoke Section 115BBE and seek to levy tax @ 60%. It was submitted that the said Show Cause came to the notice of the assessee on 02.12.2019 and in response, the assessee filed his submission on 07.12.2019 wherein it was submitted that none of the income offered for taxation at the conclusion of survey proceedings was in the nature of deemed income and therefore, the deeming provisions as well as provisions of Section 115BBE were not applicable. It was submitted that the AO, however, brought these transactions amounting to Rs.84,80,000/- to tax u/s 115BBE of the Act merely for the reason that such income had been offered for taxation during th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9, 69A to tax and not for bringing each and every income merely for the reason that the same has been disclosed during the course of survey of the business premises of the assessee. 9. It was further submitted that the AO has referred to the decision of the Hon'ble Punjab Haryana High Court in case of M/s Kim Pharma Pvt. Ltd. Vs CIT. However, the said case is clearly distinguishable on facts in the present case. It was submitted that the said decision has been considered in 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. as well as Gujarat High Court in case of Fakir Mohmed Haji Hasan Vs CIT. 10. Further reliance was placed on the Co-ordinate Jaipur Benches decision in case of DCIT Vs. Shri Ram Narayan Birla (ITA No. 482/JP/2015 dt. 30/09/2016), and Bajargan Traders Vs. ACIT (in ITA No. 137/JP/2017 dt. 17/03/2017) which has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct 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 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, satisfactory, the value of the investments may be deemed to be the income of the assessee of such financial year. Section 69A provides that where in any financi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 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 expenditure and Section 69D refers to the amount borrowed or repaid on hundi. The provisions of these Sections are attracted and the income is assessed under these Sections, if, the assessee fails to give the explanation about the nature and source of such undisclosed income. The ld. PCIT in our view, in this case has confused himself between the undisc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 section 133A, clause (iii) of sub-section (3) provides that an income tax authority acting under this section shall record the statement of any person which may be useful for or relevant to any proceedings under this Act. Therefore, what explanation has been offered by the assessee as part of his statement recorded u/s 133A needs to be analysed and examined ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 persons amounting to Rs. 55,00,000/-, cash in hand of Rs. 9,80,000/-, excess stock of Rs. 20,00,000/- and the tax liability of Rs. 26,20,000/- which has been worked out at the time of survey and the details and particulars of the cheque issued were mentioned. 19. We therefore find that through various questions raised during the course of survey, the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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/2021 dated 04/08/2022), speaking through one of us, it was held that it is like laying a general rule which 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 and the rel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urvey 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) 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 f rom other sources cannot at all be adjusted against unexplain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o 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 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 inv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 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 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 wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich 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 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 fou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... axability 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 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 surrend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unts 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 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 deb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 cur rent 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 brought to tax under the head business income . 30. Similarly, the Coordinate Chandigarh Bench in case of M/s Sham Jewe l lers 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 ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng 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 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 fai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as 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. The assessee has failed to explain the nature and source of the said cash found which was not recorded in the books of account, though while surrendering the additional income it was admitted by the Manager of the assessee company, in the statement recorded during the course of survey that the said additional income is its income f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 by the assessee and in the absence of nature of source of cash being proved, the same is not assessable as income from business. In the circumstances, we uphold the order of the CIT(A) in including the additional income as deemed income u/s 69A of the Act and not allowing the benefit of the business losses determined against the s ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
