TMI Blog2023 (11) TMI 786X X X X Extracts X X X X X X X X Extracts X X X X ..... source of such unrecorded transactions and the necessary nexus with assessee s business has been established, thus, it cannot be said that these are unexplained transactions thus, doesn t satisfy the second condition for invoking the deeming provisions of section 69-69D - AO has duly taken cognizance of the findings of the survey team, the documents found during the course of survey, the statement of the assessee, the surrender letter and the return of income and after examination thereof and due application of mind, the income has been rightly assessed under the head business income. The order so passed by the AO cannot be held as erroneous due to lack of inquiry or for that matter requisite inquiry on the part of the AO. As we have held above, there is no findings recorded by the Ld. Pr. CIT as to how the deeming provisions are applicable in the instant case and the order so passed by the AO is erroneous. We therefore find that merely stating that there was survey operation at the business premises of the assessee and provisions of Section 115BBE of the Act are attracted, the same can be a basis for exercise of jurisdiction under section 263 of the Act. In view of the same ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Chandigarh Bench, Chandigarh in the case of M/s Ganga Acrowools Ltd. in ITA No.196/Chd/2021 and in the case of Sh. Surinder Pal Singh in ITA No. 576/Chd/2021 vide orders, dated 31.01.2022 and also that 263 proceedings have been initiated at the best of proposal sent by the Assessing Officer/Addl.CIT and, thus, the proceedings are void ab-initio. 2. Briefly the facts of the case are that a survey operation under section 133A was carried out at the business premises of the assessee on 30/08/2016. During the course of survey operation, certain discrepancies were noticed and as a result, the assessee offered a sum of Rs. 70,00,000/- apart from his normal business income. Subsequently, the assessee filed his return of income on 30/10/2017 showing total income of Rs. 81,22,830/- including the surrendered income of Rs. 70,00,000/-. The case of the assessee was taken up under compulsory scrutiny and notice under section 143(2) and 142(1) were issued alongwith detailed questionnaire. After taking into consideration, the submissions of the assessee, the returned income was accepted by the AO and assessment order dt. 28/06/2019 was passed by the AO under section 143(3) of the Act. 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proceedings, the AO issued questionnaire dt. 22/05/2019 asking the assessee to furnish details of income surrendered during the course of survey proceedings and in response, the assessee filed his submission stating that Rs. 45,50,000/- surrender was made on account of certain loans and advances and person-wise detail of the same were also filed before the AO and Rs. 15,00,000/- was surrendered on account of Furniture, Fixture and equipment and Rs. 9,50,000/- on account of cash and in support cash book, ledger and receipts books of the assessee were produced before the AO. 3.5 It was submitted that after verification of details filed by the assessee, the AO took a possible view based on the due application of mind and based on verification made by the AO, the assessment order was passed under section 143(3) wherein the returned income of the assessee was accepted and surrendered income was accepted as part of regular business income chargeable at normal rate of tax. 3.6 It was submitted that thereafter, the assessee received a show cause issued by the Ld. PCIT under section 263 dt. 22/02/2022 and in response to show cause, the assessee filed detailed submissions which were no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s further submitted that the survey was conducted at the business premises of the assessee and discrepancy has also been found at the business premises of the assessee and related to the one and only medical profession carried on by the assessee. It was submitted that the advances given during the course of the profession, fixed assets purchased for his professional activity and cash related to the receipts from the profession only. It was submitted that the assessee does not have any other source of income and the income surrendered was purely part of professional receipts and liable to be taxed at normal rate instead of tax rates mentioned in Section 115BBE of the Act. In support, reliance was placed on the Coordinate Chandigarh Benches decision in the case of Arora Alloys Ltd. Vs. DCIT (in ITA No. 1481/Chd/2017) and in case of Khurana Mills Pvt. Ltd. (in ITA No. 745/Chd/2016). 4. Regarding the findings of the Ld. PCIT in para 4 of the impugned order, it was submitted that the contention of the Ld. Pr. CIT that no further submissions have been filed in response to the show cause dt. 21/02/2022 is totally incorrect, as the necessary submissions have been filed which is submitte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Act and the same could not be treated as normal business income and have to be considered as unexplained income under section 69, 69A and 69B of the Act and the tax rate @ 77.25% should have been applied as per the provisions of Section 115BBE of the Act in terms of amendment to Section 115BBE by taxation laws 2nd Amendment Act, 2016. It was accordingly submitted that in this case, the AO should have considered the amount so surrendered as unexplained income under section 69A to 69B and the tax should have been charged under section 115BBE of the Act. 5.1. It was further submitted that this was the only possible view in the facts and circumstances of the present case wherein the provision of Section 115BBE are applicable on surrendered income after taking cognizance of prevalent provisions of law and therefore the contention of the ld AR that the AO has taken a possible view cannot be accepted. It was accordingly submitted that there is no infirmity in the order of the Ld. Pr. CIT wherein the order so passed by the AO has been held as erroneous in so far as prejudicial to the interest of the Revenue. 5.2 Further reference was drawn to the decision of Hon ble Gujarat High Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me, 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 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 ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns 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 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 explana ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erence 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 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 wer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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/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 pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... O 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) 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 profe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reement 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 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'. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 brought to tax under the head business income . 30. Similarly, the Coordinate Chandigarh Bench in case of M/s Sham Jewellers Vs. The DCIT (Supra) has held as under: 10.17 Ground Nos. 8 9 challenge the action ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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, fir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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. 8. As we have held above, 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, rather the requirement is whether the assessee has made any investment or has incurred certain expenditure and what is the explanation offered by the assessee explaining the nature and source of such undisclosed transaction and the reasonability of the explanation so offered by the assessee keeping into account the facts and circumstances of the relevant case. Once the deeming provisions are held applicable, the provisions of section 115BBE ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r view, the very basis of invocation of jurisdiction under section 263 suffers from serious fallacies in the sense that the unexplained income found and surrendered during the course of survey proceedings have been sought to be brought to tax straightway under section 115BBE of the Act. And if we look at the provisions of Section 115BBE of the Act, it provides that where the total income of the assessee includes any income refer to in section 68, 69, 69A, 69B, 69C and 69D which is either reflected in the return of income furnished by the assessee or determined by the AO, the income tax payable shall be at the rate specified therein. Therefore, for section 115BBE, which talks about specified rate of tax, to be applicable in the instant case, the deeming provision of Section 68 to 69D needs to be satisfied at first instance and only in those cases where the deeming provisions are applicable, the tax rate as specified in Section 115BBE of the Act can be applied. Further if we look at the deeming provisions, which apparently does not found mention in the show cause notice issued by the Ld. Pr. CIT, it provides that where the assessee has made investments which are not recorded in the b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny explanation was called for from the assessee in terms of these undisclosed transactions either during the course of survey proceedings or during the course of assessment proceedings and how the explanation so offered was not found acceptable to the Ld. Pr. CIT. 12. As we have held in case of Gandhi Ram Vs. Pr. CIT(supra), the Ld. Pr. CIT has to record specific findings as to the applicability of the relevant deeming provision and how the explanation called for and filed by the assessee is not acceptable in the facts of the present case and which is clearly absent in the instant case. There is no inquiry or investigation which has been conducted by the Ld. Pr. CIT and there is no positive evidence brought on record as to why the deeming provision read with section 115BBE of the Act are applicable in the instant case. Therefore in absence of clear cut findings recorded by the Ld. Pr. CIT as to how the order passed by the AO is erroneous in so far as prejudicial to the interest of the Revenue, the findings of the Ld. Pr. CIT deserves to be set aside. 13. Having said that, let s look at the nature and source of income surrendered and the explanation submitted by the assessee d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 00,000/- on account of excess cash, Furniture, fixtures and equipments and loans and advances and has stated that the surrender is made out of his free will, to buy piece of mind and over and above his normal business income subject to no penalty under the Income Tax Act. Thereafter the assessee filed his return of income disclosing the amount so surrender in the P L Account and the same was offered to tax under the head business income at the normal rate of tax. During the course of assessment proceedings, the AO in the notice issued under section 142(1) dt. 22/05/2019 has asked the assessee to explain the details about the business income amounting to Rs. 70,00,000/- shown in the P L Account. In response to the notice so issued, the assessee has filed his submission reiterating the nature and source of the surrendered income during the course of survey operation. 15. We therefore find that the assessee has been asked specific questions not just regarding the discrepancy found during the course of survey but the nature and source thereof during the course of survey and it is clearly emerging that the source of such income so surrendered is from the assessee s business of runnin ..... X X X X Extracts X X X X X X X X Extracts X X X X
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