TaxTMI 
TaxTMI 
2023 (8) TMI 525
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....erred in law as well as on facts in upholding the charging of tax @ 60% applying the provisions of Section 115BBE which are not applicable in the facts of the case and as such the order is arbitrary and unjustified. 4. That the appellant craves leave to add or amend the grounds of appeal before the appeal is finally heard or disposed off. 5. That the order of the Ld. CIT (A) is erroneous, arbitrary, opposed to the facts of the case and thus untenable. 2. 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 08.07.2016 and during the course of survey operations, certain discrepancies were noticed and assessee came forward and surrendered a sum of Rs.84,80,000/-. Thereafter, the assessee filed his return of income, declaring total income of Rs.92,39,690/- on 23.03.2018 including the surrendered income, which was processed u/s 143(1) and thereafter, the case of the assessee was selected for compulsory scrutiny and notices u/s 143(2) and 142(1) were issued. During the course of assessment proceedings, the AO also issued a Show Cause Notice dated 30.11.2019 stating that as per the Surrender Lett....
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....vey proceedings had disclosed the source of income in relation to the above income and this disclosure forms part of the statement recorded by the authorities during the course of survey and also the fact that the assessee had only source of income that is, from his business activity. It was submitted that during the course of survey so conducted, no other source was noticed/detected/brought on record by the Revenue Authorities. It was, accordingly, submitted that the source of income so surrendered was not unexplained rather the business of the assessee being carried on in the name and style of M/s Singla Wire & Allied products is the only source of income and as such, provisions of Section 69 and 69A are not attracted. It was further submitted that the tax rate u/s 115BBE has been enhanced from 30% to 60% by the Taxation Laws (Second Amendment) Act, 2016 and same cannot be applied in the instant case wherein at the time of survey, tax rate as applicable was 30% and accordingly, the tax liability has been rightly discharged as per the law, as was in existence at the time of survey. 5. The submissions so filed by the assessee were considered but not found acceptable to the AO. It ....
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....tax @ 60% was computed u/s 115BBE of the Act. 6. Being aggrieved, the assessee carried the matter in appeal before the ld. CIT(A) who has since sustained the said additions. As per the ld. CIT(A), the advances and unaccounted stock was added u/s 69 by the AO on the basis of discrepancies noticed, statement of the assessee and the surrender which followed. It was further held by Ld. CIT(A) that while the advances were admitted as being related to business activity, however, these were not explained. Similarly, recorded stock as per books was Rs.17,38,400/-, however, on physical verification, the same was found to be worth Rs.37,38,210/- and accordingly, the excess stock was added as unexplained investment u/s 69 of the Act. Similarly, cash in hand as per books was Rs.66,400/- whereas the Survey Team discovered Rs.10,46,000/- from the business premises of the assessee and since the assessee failed to explain the difference on account of cash in hand, the AO added the same u/s 69A of the Act. The findings of the AO were, accordingly, confirmed and against the said findings and directions of the ld. CIT(A), the assessee is in appeal before us. 7. During the course of hearing, ld. AR ....
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.... time. It was submitted that the Revenue authorities who had conducted the survey were satisfied about the source of the said transactions which had been carried on by the assessee under the name and style of M/s Singla Wire & Allied Products and no questions or objections were raised during the course of survey proceedings and therefore, the onus cast on the assessee was duly discharged. It was submitted that the AO has not been able to controvert the aforesaid submissions which were also made during the course of assessment proceedings. It was further submitted that the books of account were maintained in the normal course of the assessee's business which were duly audited and in the Tax Audit Report, the auditors have also mentioned that there is no change in the nature of the business so carried on by the assessee as compared to earlier years. It was submitted that the additional income so offered was duly recorded in the books of account and basis thereof, was offered to tax by the assessee while filing his return of income. It was submitted that during the course of assessment proceedings, the submissions were filed from time to time which were duly accepted by the AO and....
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....nt case. It was submitted that on perusal of the Show Cause Notice, it is evident that there was no positive material with the AO to prima-facie form a view that the income so surrendered was in the nature of deemed income and the provisions of Section 115BBE are applicable. It was submitted that the Show Cause was issued at the fag end of the limitation period which was expiring on 31.12.2019 and it clearly shows that the AO has already drawn up his conclusion to invoke provisions of Section 115BBE for the simple reason that the income had been unearthed during the course of survey at the business premises of the assessee. It was submitted that Section 115BBE is only a machinery provision specifying a special tax rate for bringing deemed income as specified in Section 69, 69A to tax and not for bringing each and every income merely for the reason that the same has been disclosed during the course of survey of the business premises of the assessee. 9. It was further submitted that the AO has referred to the decision of the Hon'ble Punjab & Haryana High Court in case of M/s Kim Pharma Pvt. Ltd. Vs CIT. However, the said case is clearly distinguishable on facts in the present ca....
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....r compulsory manual scrutiny as per CBDT guidelines presumably to examine whether the assessee has honoured the surrender so made at the time of survey while filing his return of income, as also evident from the conduct of the assessment proceedings by the AO in terms of issuing the show-cause and seeking comments of the assessee on the amount so surrendered during the course of survey and subsequent passing of the assessment order. As per the AO, the amount so surrendered by the assessee during the course of survey though has been offered in the return of income and thus, the assessee has honoured the surrender of income so made but at the same time, 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 ....
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.... Benches has held that there is difference between the undisclosed income and unexplained income and the deeming provisions are attracted in respect of undisclosed income however, the condition before invoking the same is that the assessee has either failed to disclose the nature and source of such income or the AO doesn't get satisfied with the explanation so offered by him and the relevant findings read as under: "10. We have considered the rival contentions and have gone through the record. As per the provisions of Section 115BBE of the Act, the income tax on income referred to in Section 68 or Section 69 or Section 69A or Section 69B 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 explanat....
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....was out of the business income of the assessee. The perusal of the impugned order of the ld. PCIT would show that the ld. PCIT has not pointed out as to why the explanation offered by the assessee to the AO was not satisfactory and further what more enquiries are required to be conducted in this case, which the AO had failed to conduct. The ld. PCIT has simply based his opinion and order on the Audit Objections/Report as pointed out even in the Audit Report that since the same was undisclosed income of the assessee which was surrendered by the assessee during the survey action and therefore, the same was to be assessed under the provisions 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....
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....e was asked to explain the nature of these advances. In response, the assessee submitted that these advances relates to his business activity, however he is not in a position to explain the same at this moment of time and to buy peace of mind, he offered this amount of Rs. 55,00,000/- for taxation for the F.Y. 2016-17 pertaining to A.Y 2017-18. In Question No. 12, the survey team stated that stock to the tune of Rs. 17,38,400/- has been found as per the books of account maintained by the assessee, however on physical verification, stock to the tune of Rs. 37,38,210/- has been determined and the assessee was asked to explain the difference 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 ....
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....ng the course of survey holistically, and other documents and findings of the survey team which are very much part of the records. Following the surrender so made during the course of survey, the assessee has honored the surrender so made and offered the additional income as business income in his return of income and paid due taxes thereon. 20. In our view, what is relevant before invoking the deeming provisions is not just the factum of survey action but besides that, what is the explanation so offered by the assessee explaining the nature and source of income so found during the course of survey proceedings and which has not 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 ini....
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....e eyes of law." 22. In case of Chokshi Hirala l Magan la l Vs. DCIT (Supra), briefly the facts of the case were that during the course of survey under section 133A which was carried out at the premises of the assessee, excess stock of gold and silver ornaments were found and in the return of income subsequently filed by the assessee, he had included the value of excess stock as part of closing stock inventory. However the AO observed that the said disclosure was not consistent with the provisions of Section 69B of the Act and same was accordingly brought to tax under section 69B. The Ld. CIT(A) confirmed the order of the AO 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 exc....
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....only be a mathematical expression in terms of value and not a separate independent identifiable asset. Therefore, it cannot be said that there is an undisclosed asset existed independently. Once this is so then what is not declared to the department is receipt from business and not any investment as it cannot be co- related with any specific asset. 13. Thus in a case where source of investment/expenditure is clearly identifiable and alleged undisclosed asset has no independent existence of its own or there is no separate physical identity of such investment/expenditure then first what is to be taxed is the undisclosed business receipt invested in unidentifiable unaccounted asset and only on failure it should be considered to be taxed under section 69 on the premises that such excess investment is not recorded in the books of account and its nature and source is not identifiable. Once such excess investment is taxed as undeclared business receipt then taxing it further as deemed income under section 69 would not be necessary. Therefore, the first attempt of the assessing authority should be to find out link of undeclared investment/expenditure with the known head, give opportunit....
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.... receipt from business and not any investment as it cannot be co-related with any specific asset and the difference should thus be treated as undeclared business income. 24. Following the said decision of the Coordinate Ahmedabad Bench, the Jaipur Bench in case of DCIT Vs . Shri Ram Narayan Birla (Supra) has taken a similar view holding that the excess stock so found during the course of survey was part of the stock and the Revenue has not pointed out the excess stock has any nexus with any other receipts other than the business being carried on by the assessee. The relevant findings are contained at para 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 alle....
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....ting the income from undisclosed sources. In the annual accounts, the purchases of Rs. 70,04,814/- were finally reflected as part of total purchases amounting to Rs. 33,47,19,658/- in the profit and loss account and the same also found included as part of the closing stock amount to Rs. 1,94,42,569/-in the profit/loss account since the said stock of rice was not sold out. In addition to the purchase and the closing stock, the amount of RS. 70,04,814/- also found credited in the profit and loss account as income from undisclosed sources. The net effect of this double entry accounting treatment is that 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....
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....dicial pronouncements have been cited during the course of hearing, however, we have to bow down to the proposition laid down by the Jurisdictional Punjab & Haryana High Court in the case of M/s Kim Pharma Pvt. Ltd.(supra) since this is the only judgment of the Jurisdictional High Court which were brought to our notice. 12. On perusal of the said judgment, we find ourselves in agreement 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....
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....ducted at the business premises of the appellant company, a pocket diary was found from the accounts section which contained entries of receivables amounting to Rs.1.25 crores on page nos. 27, 28, 31 and 33, which were not recorded in the regular books of accounts. When these entries were confronted to the appellant company while recording the statement on 15/09/2012, 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....
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....applies to the surrender of Rs.10 lacs made to cover the miscellaneous discrepancies in loose paper of Rs.10 lacs. Neither the nature of the discrepancies, nor any source relating to the same has been disclosed and, therefore, the same is also to be assessed as deemed income u/ss 69, 69A, 69B and 69C of the Act. 25. As far as 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 cur rent and brought forward are to be allowed as per the provisions of law. As far as the income surrendered and to be assessed u/s 69, 69A, 69B and 69C of the Act, as held above before us, the same is to be subjected to tax as per the provisions of section 115BBE of the Act." 29. In the instant case as well, the surrender on account of advances were relating to the business being carried on by the assessee. The ld CIT(A) has also returned a finding that the advances were admitted as being related to business activ....
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....mina Knit Fabs Vs. ACIT reported in (2019) 176 ITD 246 (Chd-Trib) has held that, wherein during the course of survey, a surrender was made by the assessee on account of debtors / receivables which was based on a diary found during the course of survey and the Revenue had accepted that the surrender was on account of receivables, it followed that the debtors were generated from the sales made by the assessee during the course of car rying 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 ....
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....os. 8 and 9 are also allowed." 31. Now, coming to the decision of Kim Pharma (P ) Ltd. Vs. CIT [2013] 35 taxmann.com 456 (P&H). Briefly the facts of the case were that the survey under section 133A was conducted at the business premises of the assessee and during the course of survey, cash amounting to 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 asses....
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....t case, we find that the Tribunal after considering the records and statement given by the partners of the assessee firm, on facts, came to the conclusion that assessee had received additional income from business onl y and not from other sources. The said conclusion of the Tribunal was upheld by the 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....