TMI Blog2024 (2) TMI 326X X X X Extracts X X X X X X X X Extracts X X X X ..... e has to be given an opportunity and his explanation has to be sought and in a scenario, where the assessee offers no explanation about such excess amount or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the excess amount may be deemed to be the income of the assessee for such financial year. Therefore, we are unable to appreciate where the Assessing officer says that the condition for proving the source of such investment is the primary condition for applicability of provisions of section 69B of the Act which the assessee has not fulfilled. Onus to prove - There has to be some material/documentation in form of bills, invoices, payment receipts, etc which shows that there is outflow of funds from the assessee to certain third parties towards purchase or construction of the building or atleast an obligation on part of the assessee to pay certain sum to third parties towards purchase or construction of building. Therefore, the onus is clearly on the Assessing officer to discharge this burden and record a specific finding in this regard and once the same is done, the onus can be shifted to the assessee to explain the nature and sour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , there has to be some tangible material in possession of the Assessing officer which demonstrate that certain amount has been actually expended by the assessee during the year towards the purchase or construction of the building which is clearly absent in the instant case. Therefore, the statement of the one of the partners of the assessee firm without any corroborative evidence cannot come to the aid of the Assessing officer for the purposes of invoking the deeming provisions of Section 69B of the Act. Even if we look at the statement so recorded of the partner of the assessee firm, we find that there is clear affirmation that the land and building was purchased in the year 2014 and the same has been duly reflected in the books of accounts. Further, in order to buy piece of mind and to avoid litigation, an amount of Rs 45 lacs has been offered on account of addition made to factory building and the source thereof has been stated to be out of business income. Therefore, even taking into consideration the said statement on a standalone basis, we find that the source of investment has been stated to be out of business income and the surrender has been duly honored by the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3(2) and 142(1) were issued and served on the assessee. During the course of assessment proceedings, the AO observed that during the course of survey carried out at the business premises of the assessee on 27/03/2018, the assessee had surrendered a sum of Rs. 45,00,000/- by surrender letter dt. 27/03/2018 on account of addition to factory building. However the assessee has treated this surrender as normal business income in its P L Account and has paid tax at normal rate. Further the assessee has not given any explanation about the source of making the investment in the building. The head of surrender relates to the unexplained investment in building which is coverable under section 68/69/69A/69B/69C for which the provisions of Section 115BBE of the Income Tax Act are applicable. Therefore, by notice under section 142(1) dt. 15/01/2021, the assessee was asked to show cause as to why the surrendered amount of Rs. 45,00,000/- should not be taxed as per the provisions of Section 115BBE of the Act. 3.1 In response, the assessee filed its written submission dt. 23/02/2021 which were considered but not found acceptable to the AO and thereafter, the AO held that the amount surrendered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is involved in any other business activity other than the business of spinning mill carried on by it. 2.3 Further, the Ld. AO has not brought on record any evidence or material to establish that the assessee was involved in any other activities and as such the business income disclosed by the assessee is on accordance with law. It is also verifiable/evident from the fact that during the course of survey operations, certain loose papers and other documents were seized and same were explained to the AO vide letter dated 20.02.2021 as having being accounted for in the books of accounts. The copy of the said reply is forming part of paper book at Pg 28-34. From a perusal of reply your goodself would notice there was no discrepancy in the stock tally prepared by the department and cash count made by them which depicts that the assessee follows proper accounting practice and everything is on record before the OA. 2.4 It is further submitted that the surrender made by the assessee on account of building is merely on account of its valuation. As evident from the preliminary Survey Report u/s 133AH) of the Act (enclosed ta Pg 24-26 of PB). the main issue on the basis of which sur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er, we wish to bring your goodself's kind attention to the preliminary survey report u/s 133A(1) of the Act, wherein in column 10(g) it has been mentioned as under: Yes, the assessee has agreed to pay additional tax on the additional income of Rs. 45 Lakh offered as additional income during the course of survey. It depicts that the assessee has offered additional business income over and above the business income declared in the computation of income i.e. the additional income is business income in itself and therefore, the same is liable to be taxed at normal rates of tax only. Further, as per para 11(c) of the same report, it has been mentioned as under: The assessee has offered additional income amounting to Rs. 45,00,000/- to cover all the discrepancies found during the course of survey. It further depicts that the additional income is offered to cover the discrepancies of the running business only and therefore, the additional income offered is business income only and the same may please be taxed at normal rates of tax instead of higher rates of tax as defined in section 115BBE of the Act. 2.7 Without prejudice to the above, as mentioned in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een duly explained that the addition has been made merely on the basis of difference of valuation of factory building as made by the survey team and it is not the case of any definite investment made out of books of accounts. Further, the valuation of any building can be a matter of opinion only which may vary from persons to person and even no valuation was got done from the approved valuer. Thus, no definite conclusion can be drawn about such investment and thus, it is proved that the assessee agreed to offer to buy peace of mind only. Therefore, the provision of Section 69B of the Act, are not applicable in the case of the assessee. Moreover, the excess investment in building has been disclosed by the assessee in the Building Account in the books of accounts of the assessee; accordingly, the excess investment in building could not have been treated as Undisclosed Investment u/s 69B r.w.s. 115BBE of the Act. 2.10 During the course of survey, the assessee was found to carrying on same business and thus, nay sum offered is out of the same business and thus, nature and source stands identified and nothing adverse has been found during the course of survey operations and th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and loss account prepared for the year ending 31.03.2018 and declared net profit amounting to Rs. 72,75,506.45 and hence, paid taxes on the said amount at normal rate of tax. Further, the assessee debited the said amount of Rs. 45,00,000/- to the building account and passed the journal entry as follows: Date Particulars Debit Credit 28.03.2018 Building Account 45,00,000 Addition made at survey 45,00,000/- 4.3 It was further submitted that the during the course of survey action as well as during the course of assessment proceedings later on, the Ld. AO had not passed any adverse remark with respect to any other source of income. Hence, it was submitted that the income from spinning mills business is the only source of income of the assessee and the assessee has made investment out of the income earned from such business only. Further, during the course of assessment proceedings as well, no other source of income has been identified by the Ld. AO from where the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Jewellers in ITA No. 375/CHD/2022, wherein, it has been held as under: 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 main thrust of the arguments of the Ld. AR has been that all the additions made or sustained relate only to the business income of the assessee and that nowhere in the assessment order has it been alleged that some other source of income had been detected which gave rise to additional income. It is seen that during the course of assessment proceedings, the various explanations submitted by the assessee have duly mentioned that the surrendered income was derived from the business. A perusal of the assessment order would also show that nowhere in the body of the assessment order, the AO has even contradicted this explanation of the assessee. The AO has not brought on record any iota of evidence to demonstrate that the assessee had any other source of income except income from business and, therefore, it is our considered view that deeming such income under the provisions of sections 68 or 69 would not hold good. In our view, in such a situation, the AO c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ceivables would be considered as business income and not as deemed income under section 69. In the case of Bajaj Sons. Ltd., the Hon'ble Chandigarh Bench of ITAT, ITA No. 1127/CHD/2019, has stated as under: The AO has not pointed out any unexplained credit in the books of account, any unexplained investment, any unexplained money, bullion or jewellery, any unexplained expenditure or any amount of loan repaid in the assessment order in this respect. Therefore, the provisions of Section 68, 69, 69A, 69B, 69C and 69D are not attracted on the surrendered amount of Rs. 15 lacs. The said amount of Rs. 15 lacs was offered in case any discrepancy is found in the books of account. However, in actual neither any unexplained investment nor any unexplained expenditure or otherwise any unexplained asset was found during the search action so far as the aforesaid surrender of Rs. 15 lacs was concerned. In these circumstances, the aforesaid surrender of Rs. 15 lacs can be said to have been offered to cover up the discrepancies in respect of likely disallowances of claims, if any, relating to its business income. 9. In view of this, since the aforesaid surrender is not covered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in this contention of the Id. counsel for the assessee, because the expenditure incurred for creating a business asset and it must have been generated through the business carried out by the assessee. It is pertinent to bear in mind that expenditure laid out for the purpose of business is to be allowed deduction either as expenditure or to be capitalized on which depreciation will be allowed. The assessee might have earned income from the business which has not been accounted and used for constructing the business asset, though specific details have not been discussed either in the impugned order about the nature of evidence found during the course of survey. We also need not to ponder on this aspect because the assessee has admitted this unexplained expenditure on construction of building. This admission has to be accepted as given by the assessee, wherein it was alleged that it is for the purpose of the business. Therefore, to the extent the expenditure incurred for construction of the building, out of unexplained source is concerned, it is to be construed as earned from the business and it will take character of the business income. Once this income is to be assessed under the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed reliance on the judgments in the cases of Fakir Mohamad Haji Hasan v CIT 247 IT 290 (Guj), Kim Pharma Pvt. Ltd. v CIT 216 Taxman 153 (P H), Famina Knit Fab v ACIT 176 ITD 246 (Chandigarh Trib.), Pr. CIT v. Khushi Ram Sons Foods (P) Ltd. In this regard, it was submitted that the said judgments are duly discussed in the judgment of the Hon'ble Chandigarh Bench of ITAT in the case of M/s Khurana Rolling Mills Pvt. Ltd. as reported in ITA No. 745/CHD/2016 as well as in the case of judgment of the Hon'ble Chandigarh Bench of ITAT in the case of M/s. Bindas Foods Pvt. Ltd. in ITA No. 409/CHD/2021. 5. Per contra, the Ld. DR has relied on the findings of the AO which are contained at para 4.3 to 4.7 of the assessment order which read as under: 4.3 The reply of the assessee has been perused and not found tenable as the claim of the assessee that the surrender of investment in building was duly recorded in the books of accounts and thus the provisions of section 115BBE are not applicable is found to be without any cogent documentary evidence. The assessee has claimed that the investment in the building was derived from the business but the assessee has not given any expl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... verification of the building in possession of the assessee was made. And neither the investment in building nor the sources of the same were disclosed in the books of accounts. 4.5 Further, the assessee has relied upon the judgements in case of M/s Gaurish Steel Pvt. Ltd. vs. ACIT, Circle-V, Ludhiana in ITA No.1080/Chd./2014 dated 17.09.2015 and M/s Marshel Machines Pvt. Ltd in ITA No.57/Chd/2017, M/s Khurana Mills Pvt. Ltd of the Chandigarh Bench and M/s Prashanti Surya Construction Co. Pvt. Ltd. in ITA No.315/Chd/2014/ITAT but has not attached the full copies of the judgments with its reply. Further, it has been found that the facts of the cases relied upon by the assessee are differentiable from the case of the assessee as the assessee has clearly mention in the surrender letter dated 27.03.2021 that the books of accounts of the assessee were not complete as the assessee's accountant was on leave for last few days and the assessee had made surrender on account of addition to factory building. The assessee in his reply has only reproduced the second para but not the first para of the surrender letter which is being reproduced below:- Quote During the course o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rces of the income which were not recorded in the books of accounts of the assessee, itself tantamount to having accepted that the sources are unexplained and thus the preponderance of probability is that such investment in building is considered as unexplained investment of the assessee firm u/s 69B of the Income Tax Act. And as the income is to be assessed u/s 69B of the Income-tax Act, 1961, it would be subject to tax as per the provisions of the section 115BBE of the Income-tax Act, 1961. A) The Hon'ble ITAT Chandigarh in case of Famina Knit Fab Vs ACIT 176 ITD 246 (Chandigarh rib.) has also held that as far as the income is surrendered and to be assessed u/s 69, 69A, 69B and 69C of the Act, the same is to be subjected to tax as per the provisions of section 115BBE of the Act. B) Pr. CIT vs. Khushi Ram and Sons Foods Pvt. Ltd. in ITA No. 126 of 2015, of the Hon'ble Punjab and Haryana High Court where it was held that the onus to establish the source of surrendered income lay entirely on the assessee. 4.7 In view of the above, the amount surrendered by the assessee of Rs. 45,00,0007- on account of investment in building found during the course of survey is not c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AO. Therefore, there can be no presumption against the deeming fiction u/s 68 to 69D to hold that income/investment, whose source is not explained, will still be classified as income under any head u/s 14. It would be, therefore, impermissible to attempt and classify such incomes under any of specific heads, even if there is any activity which can be remotely/indirectly linked to such deemed income. The word 'source' in the same context would refer to nexus of such income generating activity/transaction with name and identity, creditworthiness of person with whom such activity/transaction was done along with proving the genuineness of transaction also. The requirement of proving these 3 essential ingredients to prove the source in order to escape the rigors of the deeming fiction has been upheld universally. The conjoint burden of proving the 'nature and source' is therefore, not restricted to merely claiming the nexus of any activity/transaction to a particular credit/income/asset but also requires to establish with cogent evidence the nexus of such activity/transaction with source also by providing the name and identity, creditworthiness of person with whom t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9 of the order, as under: When the excess stocks were found during the Survey, there is no question of allowing the Assessee to record any additional purchases because such purchases had already been recorded in the books of accounts of the Assessee. Therefore, the excess stock, per se, has to be naturally brought to tax as 'undisclosed income' by itself and there is no question of any corresponding deduction from that in such cases. Similarly, in the case of Kim Pharma Pvt. Ltd. vs. CIT in ITA No. 106 of 2011 dated 27.04.2011, the Hon'ble High Court of Punjab Haryana held that, where the amount surrendered during the survey was not reflected in the books of accounts and the source from where it was derived was not declared, the same was assessable as deemed income u/s 69A of the Act. The Hon'ble Supreme Court in the cases of Roshan Di Hatti vs. CIT [1977] 107 ITR 938 (SC) and Kale Khan Mohammad Hanif vs. CIT [1963] 50 ITR 1 (SC) held that the law is well-settled that the onus of proving the source of a sum of money found to have been received by an assessee is on him. Where the nature and source of a receipt, whether it be of money or other prop ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... holding that the value of the gold was liable to be included in the income of the assessee as the source of investment in the gold or of its acquisition was not explained and that the assessee was not entitled to claim that the value of the gold would be allowed as a deduction from his income. Similarly in the case law of ITO Vs Dulari Digital Photo Services (P) Ltd. ([2012] 24 Taxman.com.(CHD). the question before the Co-ordinate Bench was whether unexplained cash credit under section 68 of the Act can be considered for set-off against losses under various heads of income. After examining the relevant provisions in detail, Co-ordinate Bench has clearly outlined that for income to be considered even from other sources, the sources have to be established. The relevant observations read as follows: 14 Section 2(45) defines 'total income' as 'the total income referred to in section 5. computed in the manner laid down in this Act . It is relevant to note that the principal charging section 4 makes the total income referred to in the principal charging section. Section 14 classifies the heads of income while sections 15 to 59 provide for its quantificatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income from other sources. The aforesaid view is fortified by the judgement of the Hon'ble Gujarat High Court in Fakir Mohamed Haji Hasan V. CIT [2001] 247 ITR 290/[2002] 120 Taxman 11 in which the Hon'ble High Court has held as under:- The scheme of sections 69,69A, 69D and 69C of the Income-tax Act 1961, would show that in cases where the nature and source of investments made by the assessee or the nature and source, of acquisition of money, bullion etc. owned by the assessee or the source of expenditure incurred by the assessee are not explained at all, or not satisfactorily explained, then, the value of such investments and money or the value of articles not recorded in the books of account or the unexplained expenditure may be deemed to be the income of the assessed. It follows that the moment a satisfactory explanation is given about such nature and source by the assessee, then the source would stand disclosed and will, therefore, be known and the income would be treated under the appropriate head of income for assessment as per the provisions oj the Act. However, when these provisions apply because no source is disclosed at all on the basis of which the inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... R has not been able to adduce documentary evidence to establish the nexus between the surrendered' income and business and no source for the surrendered income could not related to. The judgments cited supra i.e.: (1) Fakir Mohammed Haji Hasan Vs. CIT ( [2001] 247 ITR 290 (Guj.) (2) PCIT vs. M/s. Khushi Ram Sons Pvt. Ltd., the Hon'b.le High Court of Punjab . Haryana in ITA No. 126 of 2015 dated 21.07.2016 (3) SVS Oil Mills vs. ACIT, Chennai, the Hon'ble High Court of Madras in ITA No. 765 of 2018 dated 26.03.2019 (4) Kim Pharma Pvt. Ltd. vs.CIT in ITA No. 106 of 2011 dated 27.04.2011, (5) The Hon'ble Supreme Court in the cases of Roshan Di Hatti vs. CIT [1977] 107 ITR 938 (SC) 1 (6) Hon'ble ITAT Cochin Bench, Cochin in the case of M/s. Bhima Jewellers vs. PCIT Kozhikode in ITA No. 208/Coch/2018, Assessment Year 2013-14 also bring out a clear legal position that for any income to be treated as business income, the nexus/the source, has to be established. Hence, the action of the AO in. applying the rate as prescribed u/s 115BBE on the surrendered income included in the ITR, treated by the AO as income u/s 69 in the assessment ord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g that the assessee has made investments during the financial year in the construction/purchase of the building and the amount expended on making such investments in the building exceeds the amount recorded in this behalf in the books of account maintained by the assessee. There has to be a finding by the Assessing officer and thereafter, the explanation of the assessee has to be sought and not vice-versa. Further, these are cumulative conditions which have to be individually satisfied and only in a situation, where all these conditions are satisfied, the deeming provisions of section 69B are attracted and not otherwise. 8. Moving further, for the Assessing officer to record a finding that the assessee has made investments during the financial year in the construction/purchase of the building, there has to be some tangible material in possession of the Assessing officer which demonstrate that certain amount has been actually expended by the assessee during the year towards the purchase or construction of the building and which is in excess of the amount recorded in the books of accounts. There has to be some material/documentation in form of bills, invoices, payment receipts, et ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 31/03/2018, 30/04/2018 and by 15/06/2018. On similar lines, the assessee thereafter has submitted a surrender letter of even date i.e, 27/03/2018 addressed to the Additional CIT, Range 1, Ludhiana. 10. It is a settled proposition of law that the statement recorded u/s 131 during the course of survey has no evidentiary value in absence of any corroborative evidence on record and in this regard, useful reference can be drawn to the decision of Hon ble Madras High Court in case of CIT vs Khader Khan Son reported in 300 ITR 157 wherein it was held that statement recorded during the course of survey u/s 133A has no evidentiary value as the officer is not authorized to administer the oath and to take any sworn statement which alone has evidentiary value as contemplated under law and reference was drawn to provisions of section 132(4) which enables the authorized officer to examine person on oath and where any such statement so recorded can be used in evidence under the Act. In that case, it was held by the Hon ble High Court that basis statement of one of the partner s of the assessee firm, it cannot be held that disclosed income was assessable as lawful income of the assessee fir ..... 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