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TMI Blog2024 (4) TMI 921X X X X Extracts X X X X X X X X Extracts X X X X ..... That the various judgments which assessee has relied upon of the jurisdictional Chandigarh Bench of ITAT have been ignored and the order has been passed against the facts & circumstances of the case. 2. The Assessee in this case has also taken an additional Ground, which reads as under: "That the ld. CIT(Appeals), has erred in invoking section 69 read with section 115BBE of the Income Tax Act on the excess cash of Rs. 1,34,004/- and since the excess cash was related to same business of purchase and sale of jewellery and hence the normal rate of tax should be levied on excess cash." 3. Briefly the facts of the case are that a survey u/s 133A of the Income Tax Act was carried out at the business premises of the Assessee on 24.01.2019 and during the course of survey operations, certain discrepancies were noticed and Assessee came forward and surrendered a sum of Rs. 1,00,00,000/-. The Assessee filed its return of income, declaring total income of Rs. 1,08,37,187/- on 24.09.2019 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 cour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther, during the course of survey proceedings, the assessee has offered a sum of Rs. 1 Crore as business income on account of excess business stock of Gold, Silver & Diamond. Regarding your good self's query related to income offered by the Assessee amounting to Rs. 1 crore shown as Business Income in the Profit & Loss account already field with your good self, in this regard, it is submitted that in the case of assessee, sum of Rs. 1 crore offered during the course of survey relates to same business activity of the assessee and amount was offered merely to cover the discrepancies pointed out by department of stock arising out of the trading business transactions. It is also pertinent to note that during survey proceedings, no document/ paper was found which can prove that assessee has undertaken any unexplained business other than the activities carried on by it in regular course of business. The income offered by the assessee is out of the similar modus operandi. (v) Further, the income offered by assessee is trading income from the trading of gold items and arising out of sale/purchase of the gold and it is nothing which the assessee has earned out of non-business activities. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ieved, the Assessee carried the matter in appeal before the ld. CIT(A) who has sustained the said additions. As per the ld. CIT(A), surrender was made during the course of survey on account of excess stock and investment in construction of building of the Assessee. The AR in his submissions has tried to justify the same as business transactions of the Assessee. The AR has claimed that the Assessee was not having any other source of income. Further, the AR relied upon judgments as quoted in his submissions. The ld. CIT(A) observed as follows : "5.1 The judgments quoted by the AR have been gone through. It is important to emphasize here that in all the judgments quoted by the AR in his support, the ld. Tribunal Benches have very clearly held out that the AO shall give an opportunity to the Assessee to establish a linkage between the surrendered income under the business income, if any. If the Assessee is able to do that then the income can be considered as from business. In the case of the Assessee, the AO gave an opportunity to the Assessee to establish a linkage between the surrendered income under the head of excess stock & investment in construction of building and the business ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... along with the incomes computed under Chapter IV. The AR 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 be related to." 5A The ld. CIT(A) relied on - 1. 'Fakir Mohammed Haji Hasan Vs. CIT', [2001[ 247 ITR 290(Guj.) 2. 'PCIT vs. M/s. Khushi Ram & Sons Pvt. Ltd.', the Hon'ble 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). 6. Hon'ble Supreme Court in' CIT vs. M Ganpati Mudaliar', [1964] 53 ITR 623 and 'GovindrajuluMudaliar vs. CIT', [1958] 34 ITR 807. 7. 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 and 8. 'ITO vs. Dulari Digital Photo Services (P) Ltd.', [2012] 24 Taxman.com 31 (CHD). 5B It was held that these decisions also bring out a clear leg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d on the basis of audited report, the Assessee paid tax on the total income including the surrendered income at normal rate which was then accepted by the survey party; that the case of the Assessee was selected for compulsory scrutiny and notices u/s 143(2) and 142(1) along with detailed questionnaires were issued to the Assessee and the Assessee filed detailed response to the notices; and that no adverse material was found during the course which showed that the said excess stock was unexplained and hence, the excess stock found during the course of survey should be treated as business income of the Assessee and the provisions of section 115BBE of the Act are not applicable to the same. It is submitted that the A.O. without considering the replies filed by the Assessee made addition to the tune of Rs. 1,34,004/- to the total income on account of excess cash found and hence assessed the total income at Rs. 1,09,71,190/-. However, the Assessing Officer without appreciating the facts and reply submitted from time to time by invoking the provisions of section 69 of the Act treated the same as unexplained investments in the hands of the Assessee, which on appeal, was upheld by the ld. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... authoritatively a view taken by her and contrarily whatever the Assessee declared in the return of income. However, the income surrendered during survey was accepted by the AO at that time and the Assessee has also offered the same for taxes while filing its return of income. 7.4 In case, the investment is to be treated as unexplained, the Assessing Officer has to bring on record some conclusive evidence/ convincing finding as how the said investment is being treated as unexplained. In the circumstances, it is a bald allegation of the Assessing Officer to consider the income declared as an unexplained investment. Further, merely based on guess work of the Assessing officer, there should not be invocation of provisions of section 69 of the Act. During the course of survey, not even an iota of evidence was found which suggests any contradiction of mode of earning by the Assessee or that the Assessee was engaged/ indulged in some other activities to generate any unaccounted income/money. During the course of assessment proceedings, the Assessing Officer never tried to point out the source of investments otherwise than as claimed by the Assessee and which allegedly considered as unex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y adverse findings by the AO on the source of earning of the Assessee, the authorities below have wrongly treated the amount in question as undisclosed income u/s 68 of the Act and computed the Tax liability under the provisions of the section 115BBE of the Act." 7.7 As regards, the charging of income tax @ 60% invoking the provisions of section 115BBE on the income declared by the Assessee in its return of income. The Assessee has already made its detailed submissions with respect to the invocation of the provisions of section 69 above. In case the Bench is also of the view that the action of the Assessing Officer in invoking the provisions of section 69 of the Act is not warranted then this ground will consequently become inoperative as the charging of income at a higher rate does not arise when an income is a part of normal business income and the normal rate of tax is applicable. 7.8 It is more of strangulation situation as far as the Assessee is concerned in case he has been charged to tax as per the provisions of section 115 BBE. Further the provisions of section 69 of the Act apply to unexplained investments and not sum already offered to tax as income by the Assessee in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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 on the 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 A.O., and, 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. 1,00,00,000/- to tax u/s 115BBE of the Act merely for the reason that such income had been offered for taxation during the course of survey proceedings and thereafter, the said findings have since been confirmed by the ld. CIT(A). In view of the above, it was submitted that it is evident from the records that during the course of survey of the business premises, no other source of income except business being carried on in the name and style of M/s Riwaz Jeweller, Khanna w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was placed on the judgement of the Hon'ble Calcutta High Court in the cases of 'DaulatramRawatmull vs. CIT', 64 ITR 593, in 'Mansfeild and Sons vs. CIT', 48 ITR 254 (Cal.), and Coordinate Chandigarh Benches decision in cases of 'M/s Sham Jewellers Vs. The DCIT', (in ITA No. 375/Chd/2022, 'M/s Sham Fashion Mall' in ITA 315/Chd/2022, 'Bajaj Sons Ltd.', (ITA No. 1127/Chd/2019)', 'DCIT vs. M/s Khurana Rolling Pvt Ltd' (ITA No. 745/Chd/2017) and some other decisions of the other Benches of the Tribunal. 11. 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 the business income so offered by the Assessee as deemed income u/s 69 and 69A and bringing the same to tax under the amended section 115BBE deserve to be set aside and necessary relief be provided to the Assessee. 12. Per contra, the ld. DR has relied on "Yadu Hari Dalmia v. Commissioner of Income Tax, Delhi (Central)', 126 ITR 49 (Del.) wherein, it has been held ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ttracted in the instant case. 14. To appreciate the aforesaid rival positions, we refer to the provisions of Section 69A of the Act. Section 69A provides that where in any financial year the Assessee is found to be the owner of any money, bullion, jewellery or other valuable article and such money, bullion, jewellery or valuable article is 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 acquisition of the money, bullion, jewellery or other valuable article, or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the money and the value of the bullion, jewellery or other valuable article may be deemed to be the income of the Assessee for such financial year. 15. In the instant case, for the deeming provisions of section 69A to be attracted, there has to be a finding that the Assessee was found to be owner of cash so found at the time survey, such cash has not been recorded in the books of account so maintained by the Assessee, and the Assessee offers no explanation about the nature and source of the cash or the explanation so offe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce of such income or the AO does not get satisfied with the explanation offered by him. 15. The perusal of the above relevant part of the Audit Report proposal of the AO and Show Cause Notice issued by the ld. PCIT u/s 263 of the Act, would show that all the aforesaid authorities have been swayed by the notion that the income surrendered by the Assessee was undisclosed income of the Assessee and therefore, the same has to be assessed u/s 68 to 69D, as the case may be, of the Income Tax Act and thereby would be charged to higher rate of tax u/s 115BBE of the Act. However, as noted above, for an income to be taxed u/s 68 to 69D, as the case may be, it should not only be the undisclosed income but the essential condition is that the Assessee has failed to disclose the 'nature and source' of such undisclosed income or that the explanation offered by the Assessee is not found satisfactory by the AO. In the case in hand, as noted above, the AO duly made enquiries from the Assessee as to the nature and the source of the aforesaid surrendered income and has also show caused the Assessee as to why the same should not be charged at a higher rate of tax as per provisions of Section 115BBE o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Assessee has stated that he is running a sole proprietorship business concern in name of M/s Riwaz Jewellers, Khanna and allied products wherein he is engaged in the business of trading of various kind of jewellery, i.e., gold, silver and diamond and related products and all along, the same is his only source of income and thereafter, he has been confronted with discrepancies in terms of cash found excess as compared to what has been recorded in the books of account, certain advances relating to his business written in a rough diary and excess value of stock as compared to what has been recorded in the books of account. Therefore, we find that the Assessee has been confronted with not just the discrepancy so found during the course of survey but the nature and source thereof during the course of survey proceedings and it is clearly emerging that the source of such income is from his business operations. There is a clear statement of the Assessee that the advances are related to his business, however since the same have not been recorded in the books of account, he has offered the same to taxation. Similarly, the stock physically found has been valued and then, compared with stock ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rstly, how the ld PCIT has arrived at a conclusive finding that the discrepancies found, confronted and accepted by the Assessee during the course of survey attract the deeming provisions of section 68, 69, 69A, 69B & 69C is not apparent from the impugned order. Merely stating that excess cash is clearly covered u/s 68 or 69A, excess stock is covered u/s 69 or 69B, construction of Shed/Godown is covered u/s 69B or 69C and advances made to Sundry Parties is covered u/s 69, 69B or 69D is like an open ended hypothesis which is not supported by any specific finding that the matter shall fall under which of the specific sections and how the conditions stated therein are satisfied before the said provisions are invoked. It is like laying a general rule, which to our mind 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. The ld PCIT has to record his specific findings as to the applicability of the relevant provisions and how the explanation called for and offered by the Assessee is not acceptable in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Hon. Gujarat High Court is that source of acquisition of asset or expenditure should be clearly identifiable. In the case before Hon. Gujarat High Court the source of gold confiscated was not identifiable and hence adjustment was not permitted. 12. Thus the important aspect that emerges from the entire discussion is that for invoking deeming provisions under sections 69, 69A, 69B & 69C there should be clearly identifiable asset or expenditure. In the present case we find that entire physical stock of Rs. 25,14,306/- was part of the same business. Both kind of stock i.e. what is recorded in the books and what was found over and above the stock recorded in the books, were held and dealt uniformly by the Assessee. There was no physical distinction between the accounted stock or unaccounted stock. No such physical distinction was found by the Revenue either. The Assessee has repeatedly claimed that unaccounted business income is invested in stock and there is no amount separately taxable under section 69. The department has ignored this claim of the Assessee and sought to tax the difference between book-stock and physical-stock as unaccounted investment under section 69 without cons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nexus was established then with any head of income and thus was not available for set off against any loss under any other head. Therefore, we hold that where asset in which undeclared investment is sought to be taxed is not clearly identifiable or does not have independent identity but is integral and inseparable (mixed) part of declared asset, falling under a particular head, then the difference should be treated as undeclared business income explaining the investment. 14. To conclude sum of Rs. 8,10,011/- being difference in stock is represented by undeclared business income. It does not have a separate physical identity. It is to be only taxed under the head 'business'. Other assets have separate physical identity being furniture and fixtures, air conditioners etc. They cannot have a direct nexus with business and therefore investment therein has to be considered under section 69 only." 15. In view of the above, AO is directed to consider the sum of Rs. 8,10,011/- as undisclosed business income assessable under the head 'business' and other two sums under section 69. The business income including application of section 40(b) has to be considered accordingly. For calculation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nexus and if it is satisfactorily established then first such investment should be considered as undeclared receipt under that particular head. It is observed that there is no conflict with the decision of Hon'ble Gujarat High Court in the case of Fakir Mohd. HajiHasan (supra) where investment in an asset or expenditure is not identifiable and no nexus was established then with any head of income and thus was not available for set off against any loss under any other head. Therefore, the Hon'ble Coordinate Bench held that where asset in which undeclared independent identity but is integral and inseparable (mixed) part of declared asset, falling under a particular head, then the difference should be treated as undeclared business income explaining the investment. In the present case the excess stock was part of the stock. The revenue has not pointed out that the excess stock has any nexus with any other receipts. Therefore, we do not find any fault with the decision of the ld. CIT (A) directing the AO to treat the surrendered amount as excess stock qua the excess stock found." 24. Thereafter, the Coordinate Jaipur Benches in the case of Bajargan Traders Vs. ACIT(Supra) has similarl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in procurement of such stock of rice is clearly identifiable and related to the regular business stock of the Assessee. The decision of the Co-ordinate Bench in case of Shri Ramnarayan Birla (supra) supports the case of the Assessee in this regard. Therefore, the investment in the excess stock has to be brought to tax under the head "business income" and not under the head income from other sources". In the result, ground No. 1 of the Assessee is allowed." 25. The said decision of Coordinate Jaipur Benches has since been confirmed by the Hon'ble Rajasthan High Court in case of PCIT vs Bajarang Traders (DB Appeal No. 258/2017 dt. 12/09/2017). 26. Similarly, the Coordinate Chandigarh Bench in case of M/s Gaurish Steels Pvt. Ltd. Vs. ACIT (Supra) has held as under: "10. We have heard the rival contentions and perused the material available on record. This is a fact on record that the Assessee surrendered an amount of Rs. 70 lacs as additional income during the course of survey conducted at its premises on account of following heads: (i) Discrepancy on account of cash found Rs. 9 lacs (ii) Discrepancy on cost of construction of building Rs. 21 lacs (iii) Discrepancy in stock ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as not found any source of income except the business income. Now, following the judgment of Jurisdictional High Court, in the background of the facts of the present case, we can safely infer that apart from cash all other income surrendered may be brought to tax under the head 'business income' while the cash has to be taxed under the head deemed income under section 69A of the Act." 27. Similarly, the Coordinate Chandigarh Bench in case of Famina Knit Fabs Vs. ACIT(Supra) has held as under: "19. In the facts of the case in ITA No.408/Chd/2018, the income surrendered was on account of unaccounted receivables of the business of the Assessee amounting to Rs. 1.25 crores. The Ld.CIT(A) in para 9 of the order has outlined the facts relating to the surrender made by the Assessee stating that during survey a pocket diary was found from the account section of the Assessee company which contained entry of receivables amounting to Rs. 1.25 crores on pages 27, 28, 31 and 33, which were not recorded in the regular books of the Assessee and were subsequently surrendered stating that these entries were unaccounted sundry receivables being surrendered as income under the head busines ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd profession' and as stated above, the benefit of set off of losses both current and brought forward was allowable to the Assessee in accordance with law. 21. The contention of the Revenue therefore that the income be treated as deemed income u/s 69,69A/B/C of the Act is accordingly rejected and as a consequence thereto the plea that no set off of losses be allowed against the same u/s 115BBE of the Act also is rejected. 22. Therefore, as per the facts of the case in ITA No.408/Chd/2018 and as per the provisions of law relating to the issue, the surrendered income, we hold, was assessable as business income of the Assessee and set off of losses was to be allowed against the same as rightly claimed by the Assessee. The appeal of the Revenue, therefore, in ITA No.408/Chd/2018 is dismissed. 23. Now coming to the facts of the case in ITA No/1494/Chd/2017, the income surrendered was on account of the following as narrated above in earlier part of our order: (i) investment of Rs. 60 lacs in Kothi at Sukhmani Enclave in the name of Smt. Rekha Miglani; (ii) Sundry creditors and advances received from customers amounting to Rs. 132 lacs; (iii) Gross profit on sale out of book ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 could not have legally and validly resorted to taxing the income of the Assessee at the rate of 60% in terms of provisions of section 115BBE of the Act. 10.18 The Hon'ble Andhra Pradesh High Court in the case of Principal Commissioner of Income Tax Vs. Deccan Jewellers Ltd. reported in (2021) 438 ITR 131 (AP) held that where the Assessee was engaged in the business of Gold and Diamond jewellery and Silver articles and during the search and seizure operation u/s 132, excess stock was found to be declared and the Assessee had submitted that excess stock was result of suppression of profit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT reported in 131 TTJ 1 (Ahd.) 10.22 It is also seen that the Ld. CIT(A) has relied on the judgement of the Hon'ble Punjab & Haryana High Court in the case of Kim Pharma Ltd. Vs. CIT in ITA No. 106 of 2011 (O&M) and the Ld. CIT DR has also quoted the same in his arguments before us. However, after going through the aforesaid judgement of the Hon'ble Punjab & Haryana High Court, it is seen that in that particular case, the only issue was with regard to the cash surrendered at the time of survey and no other income. The cash found could not be related to the already disclosed and accepted source of income of the Assessee and, therefore, the Hon'ble Punjab & Haryana High Court held that such surrendered cash was to be treated as deemed income u/s 69 of the Act. However, in the present case before us, the Assessee has only one source of income i.e. business income and nowhere has it been brought on record that the Assessee had any other source of income except business income and, therefore, we respectfully state that judgement of the Hon'ble Punjab and Haryana High Court in the case of Kim Pharma Pvt. Ltd (supra) would not apply on the facts of the present case. 10.2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orily 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 such Assessee." In the absence of the explanation / evidence regarding the sources of the additional income being satisfactorily explained by the Assessee and applying the ratio of the Hon'ble Gujrat High Court in Fakir Mohmed Haji Hasan Vs. C IT (supra), we hold that the additional income offered is deemed income assessable u/s 69A of the Act and no deduction is allowable against such deemed income assessed u/s 69A of the Act in the hands of the Assessee. Following the ratio laid down by the Gujrat High Court in Fakir Mohmed Haji Hasan Vs. CIT (supra), once the Assessee has failed to explain the nature and source of cash found available with it and the same is assessed as deemed income u/s 69A of the Act, therefore, the corresponding deductions under the head Profits and gains are not available to the Assessee. The business loss determined for the year is not allowed to be setoff against such deemed income included in the books of account. The alternative plea of the Assessee of assessing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from where it was derived was declared by the Assessee and therefore it was deemed income of the Assessee under section 69A of the Act and accordingly the findings of the Tribunal were affirmed and it was held that no substantial question of law arose and the appeal of the Assessee was dismissed. We therefore find that the statement of the General Manager as recorded during the course of survey played a decisive role and was taken into consideration by the Tribunal wherein he had admitted that 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) and thereafter, on further appeal, the order of the Tribunal was upheld by the Hon'ble High Court. Unlike the said case, in the instant case, as we have noted above, the Assessee in his statement recorded during the course of survey has clearly stated that he is running a sole proprietorship business concern in name of M/s Riwaz Jeweller, Khanna and is engaged in the business of trading of various kind of jewellery, i.e., gold, silver and diamond and related products and all along, the same is his only source of income and thereafter, he has ..... X X X X Extracts X X X X X X X X Extracts X X X X
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