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2023 (8) TMI 143
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.... surrendered income disclosed by the assessee at Rs. 5,47,515/- towards business stock applying provisions of Section 115BBE of the Income Tax Act in utter disregard of the explanations rendered which is illegal, arbitrary and unjustified. 2. That the Ld. Commissioner of Income Tax (Appeals) has failed to appreciate that the assessee had been carrying on the business of trading in "Plywood and Board, Hardware, etc." and 'excess stock' of Rs. 5,47,515/- as. found was of the same nature of stock and, thus, the same could not be charged to tax u/s 115BBE as the nature and source of such excess stock has clearly been demonstrated at the time of survey and the assessee was not found to be carrying out any other business activity. 3. That the Ld. Commissioner of Income Tax (Appeals) has erred in applying the judgment of Hon'ble Punjab & Haryana High Court in the case of Kim Pharma Private Limited and Dulari Digital Photo services, as well as other decisions which are not applicable in the facts of the instant case and as such the order passed is arbitrary and unjustified. 4. That the Ld. Commissioner of Income Tax (Appeals) has failed to consider th....
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.... any such contention in his statement recorded at the time of survey. It was accordingly, held that the assessee could not furnish any satisfactory explanation regarding the source of unexplained investment in stock at the time of survey and has voluntarily disclosed an additional income of Rs. 5,47,515/- on account of unrecorded and unexplained investment in stock by letter of voluntary disclosure dt. 02/05/2017. It was accordingly held that the unrecorded and unexplained excess stock of Rs. 5,47,515/- is deemed income within the meaning of Section 69 of the Act hence the same was brought to tax at special rate under section 115 BBE of the Act. 7. Being aggrieved, the assessee carried the matter in appeal before the Ld. CIT(A) who has since sustained the said addition and the findings of the AO have been confirmed. Against the order of the Ld. CIT(A), the assessee is in appeal before us. 8. During the course of hearing, the Ld. AR submitted that the survey at the business premises of the assessee were conducted by the tax authorities on 02.05.2017 and the statement of the one of the partners of assessee firm was recorded. It was submitted that no other activity, business or ....
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....dditional income so surrendered was offered for taxation at the rates applicable at the relevant point in time and which has also been accepted by the authorities while accepting the surrender letter. It was submitted that the AO has not denied this fact and has rather accepted that the discrepancies found/detected during the survey operations pertain to the business which is being carried on by the assessee. It was further submitted that Section 115BBE is a machinery provision enabling the AO to levy tax as per the specified tax rate, provided the income is assessable as deemed income under the deeming provisions. It was submitted that, however, in the instant case, the deeming provisions are clearly not attracted as the source of the income has been duly explained by the assessee during the course of survey proceedings. It was, accordingly, submitted that unless and until the deeming provisions are attracted, Section 115BBE cannot be invoked in the instant case. 9. In support, reliance was placed on various Co-ordinate Chandigarh Bench decisions such as Famina Knit Fabs Vs ACIT 176 ITD 246, Gaurish Steels Pvt. Ltd. Vs ACIT 43 ITR (Trib) 414 and Marshal Machines Pvt. Ltd. (ITA ....
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....ssee has been carrying its activities in this line of business for past number of years and has been filing its return of income which has been duly accepted by the Revenue authority. It was submitted that in the return so filed and accepted the assessee has disclosed income of Rs. 11,45,260/- for A.Y. 2017-18, Rs. 9,00,880/- for A.Y. 2016-17 and Rs. 5,35,040/- for A.Y. 2015-16. It was submitted that where the income as per the past years tax filing are considered, the source of investment in the purchase of excess stock and plywood is clearly explained as out of business income. It was submitted that there is no findings recorded by the AO that in any of the previous years that the assessee had any other undisclosed sources of income. It was accordingly submitted that neither during the course of survey nor during any of the preceding three years, there is any material on record that the assessee has any other source of income which is not disclosed to the Revenue other than the business being carried on in the name and style of M/s Jain Plywood. It was accordingly submitted that the source of investment is therefore clearly from the business of the assessee and which has been dul....
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....tions, 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 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 b....
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.... 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 'undisclosed income' and the word 'unexplained income'. As per provisions of Section 68 to 69D are attracted in respect of the undisclosed income but the condition for assessing such income under the said provisions is that the assessee has either failed to disclose the nature and source 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....
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....f 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 before drawing any conclusions in this regard. 18. In the instant case, in the statement so recorded of the assessee during the course of survey, in Question No. 3 raised by the survey team, the assessee was asked about the source of his income and in response, the assessee submitted that he was sole Proprietor of M/s Singla Wire and Allied Products, Patiala and except the said business, he has no other source of income. Further, he stated that he was not partner/Director in any of the firm or company. In Question No. 4 raised by the ....
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....der letter dt. 0809/07/2016 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 assessee has been asked about the nature and source of his income and various discrepancies so found during the course of survey. In response, the assessee has stated that he is running a sole proprietorship business concern in name of M/s Singla wires and allied products since 2008 wherein he manufactures and sells aluminum and copper wires 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 accoun....
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....r 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 relevant findings read as under: 5. "Firstly, 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 o....
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.... 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 from other sources' - cannot at all be adjusted against unexplained investment or expenditure. What is necessary as per 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....
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....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 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, 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 ....
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....sed asset has no independent existence of its own or there is no separate physical identity of such investment/expenditure then first what is to be taxed is the undisclosed business receipt invested in unidentifiable unaccounted asset and only on failure it should be considered to be taxed under section 69 on the premises that such excess investment is not recorded in the books of account and its nature and source is not identifiable. Once such excess investment is taxed as undeclared business receipt then taxing it further as deemed income under section 69 would not be necessary. Therefore, the first attempt of the assessing authority should be to find out link of undeclared investment/expenditure with the known head, give opportunity to the assessee to establish nexus and if it is satisfactorily established then first such investment should be considered as undeclared receipt under that particular head. It is 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 availabl....
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.... 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 found during the course of survey is stock of rice. Therefore, the investment 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". ....
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....se 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 surrendered during the course of survey was not out of the business of the assessee. Also nowhere he has objected to the heads under which the assessee had surrendered these amounts, i.e. cash, construction of building, discrepancy in stock and discrepancy in advances and receivable. Further, even the survey team has 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 und....
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....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 debtors were sourced from the business of the assessee. Therefore, there is no question of treating it as deemed income from undisclosed sources u/s 69, 69A, 69B and 69C of the Act and the same is held to be in the nature of Business Income of the assessee. Having held so, the same was assessable under the head 'business and 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....
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....ting 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 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 ord....
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....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 failure can it be considered to be taxed u/s 69 of the Act and further where once such investment or expenditure is brought within the purview of tax as undeclared business receipt, then taxing it further as deemed income u/s 69 would be completely out of place. 10.21 Similar view was taken by the Coordinate Bench of ITAT Ahmedabad in the case of Chokshi Hiralal Maganlal Vs. DCIT 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 L....
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....me 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 from other sources. The Hon'ble Gujrat High Court in Fakir Mohmed Haj Hussain Vs C IT had held as under : "The scheme of sections 69, 69A, 69B, and 69C of the Income-tax Act, 1961, would show that in cases where 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 expendi....
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.... 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 said deemed income. The grounds of appeal raised by the assessee are dismissed." 32. Thereafter, the matter came up for consideration before the Hon'ble Punjab & Haryana High Court and the Hon'ble High Court has stated that the AO, the Ld. CIT(A) and the Tribunal after considering the factual aspect noticed that the amount surrendered during the survey was not reflected in the books of accounts and no source from where it was derived was declared by the assessee and therefore it was deemed income of the assessee under sect....
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....sessee has made investments in the current financial year in the stock and such investments are not recorded in the books of accounts so maintained by the assessee, and the assessee offers no explanation about the nature and source of the investments or the explanation so offered is not found satisfactory in the opinion of the AO. Therefore, the 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 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. 15. In the instant case, we find that through various questions raised during the course of survey, the partner of the assessee firm has been asked about the nature and source of partnership's income and various discrepancies so found during the course of survey. In response, the partner of the assessee firm has stated that he is a ....