TaxTMI 
TaxTMI 
TaxTMI 
2023 (11) TMI 786
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.... 70 lacs at the normal rate of tax since the same was derived out of business/professional income of the assessee. 3. That the Ld. PCIT has failed to appreciate that the assessment had been completed after due consideration of various replies by the Assessing Officer during the course of assessment proceedings and the Assessing Officer having taken a possible view and, therefore, the assumption of jurisdiction u/s 263 was not called for by the Ld. PCIT. 4. That the Ld. PCIT had failed to appreciate that at the time of survey, it was clearly stated that the nature of Income offered during survey was professional Income and the same was mentioned in the profit and loss account and even cheques had been given for normal rate of taxes, which proves that the Assessing Officer at the time of survey and lateron was of the view to tax the same at normal rate of tax and, thus, invoking of provisions of section 115BBE is out of context. 5. Notwithstanding the above said ground of appeal, the Ld. PCIT has erred in assuming the jurisdiction u/s 263 on the basis of audit objections, which is apparently wrong and incorrect in view of the judgment of Jurisdictional High Court in the case....
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....8/2016 wherein assessee surrender a sum of Rs. 70,00,000/- as part of his normal business income to buy peace of mind and to avoid litigation and tax was also paid at normal rate of tax. It was submitted that the said surrender includes a sum of Rs. 45,50,000/- on account of Misc. Advances, Rs. 9,50,000/- on account of cash in hand and Rs. 15,00,000/- on account of Furniture, Fixture and Equipment's and all these discrepancies were related to the business being carried on by the assessee. 3.2 It was submitted that subsequently, the assessee also submitted a surrender letter dt. 31/08/2016 and as evident from the said letter, the surrender was made by the assessee over and above the regular business income of the assessee and it has been clearly stated therein that the tax shall be paid on such additional business income at normal rate of tax. 3.3 It was submitted that thereafter the assessee filed his return of income disclosing income of Rs. 81,22,830/- which includes the income of Rs. 70,00,000/- surrendered during the course of survey proceedings. Thereafter the case of the assessee was selected for compulsory scrutiny and notice under section 143(2) and 142(1) were issued. 3....
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.... the income surrendered and the nature and source thereof and after considering the reply filed by the assessee, the AO took a possible view on the taxability of income surrendered by the assessee and accepted the sum surrendered as part of regular business income of the assessee. It was accordingly submitted that it is definitely not a case of lack of enquiry by the AO and in fact there is proper application of mind by the AO. 3.10 It was further submitted that the revision proceedings under section 263 have been initiated merely basis of difference of opinion which cannot be a ground to determine the order passed by the AO as erroneous and prejudicial to the interest of the revenue. It was submitted that where the AO after due application of mind took a possible view which is different from view taken by the Ld. PCIT and has accepted the additional income surrendered as business income, the action of the Ld. PCIT under section 263 cannot be sustained. 3.11 It was further submitted that the Ld. PCIT has not stated as to how the order passed by the AO is erroneous in so far as prejudicial to the interest of the Revenue specially where there is no further inquiry or investigation ....
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....enches in case of M/s Surya Hatchery Vs. Pr. CIT (in ITA No. 317/Chd/2022 dt. 07/12/2022), in case of Neelkanth Hatcheries Vs. Pr. CIT (in ITA No. 318/Chd/2022 dt. 07/12/2022), in case of Gandhi Ram Vs. Pr. CIT (in ITA No. 121/Chd/2021 dt. 04/08/2022), and decision of Coordinate Delhi Benches in case of Shri Balwinder Singh Vs. PCIT (in ITA No. 570/Del/2022.) 5. Per contra, the Ld. CIT/DR has relied on the findings of the Ld. PCIT. It was submitted that during the course of survey, the assessee had surrendered an amount of Rs. 70,00,000/- which is in the nature of undisclosed advances, investment in furniture, fixture and equipments and excess cash which was not accounted for in the books of accounts. It was submitted that assessee in his return of income has shown the surrendered income as business income and has paid taxes as per normal slab rate. It was submitted that during the course of assessment proceedings, the assessee failed to submit any explanation for showing the surrendered income as normal business income. It was submitted that the amount so surrendered represent the undisclosed income of the assessee which would have never come to light had there been no survey act....
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....l including the various authorities quoted at the Bar and it would be relevant to refer to the discussion therein which are equally relevant in the instant case and the same are reproduced as under: "13. We have heard the rival contentions and pursued the material available on record. The genesis of the present case lies in the survey operations u/s 133A conducted at the business premises of the assessee on 8/07/2016 wherein the assessee surrendered a sum of Rs 84.80 lacs, thereafter the return of income filed by the assessee on 23/03/2018 was selected for 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....
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....ound satisfactory in the opinion of the AO. Similarly, 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 accounts so maintained by the assessee, and the assessee offers no explanation about the nature and source of the cash or the explanation so offered is not found satisfactory in the opinion of the AO. 16. Recently, in case of Surender Kumar & others (ITA No. 398/Chd/2022), the Coordinate Chandigarh 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 o....
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....ource' 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 of the Act. The ld. AO after considering the submissions and explanations of the assessee accepted the contention of the assessee that the surrendered income 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 t....
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....ication, Rs. 10,46,000/- is found from your business premises thus there is excess cash of Rs. 9,80,000/- and the assessee was asked to explain the discrepancy. In response, the assessee submitted that at this point in time, he was not in a position to explain the said discrepancy found in cash and offered the difference of Rs. 9,80,000/- for taxation. In Question No. 11, the survey team noted that one note pad (katcha) was found during the course of survey and advance to various persons to the tune of Rs. 55,00,000/- has been found noted therein and the assessee 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 ....
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.... however since the same have not been recorded in the books of accounts, he has offered the same to taxation. Similarly, the stock physically found has been valued and then, compared with stock as recorded in the books of accounts, thus, there is clear nexus of stock with the assessee's business. The statement of the assessee is available on record and related documents so found during the course of survey are stated to be in possession of the Revenue authorities. Apparently, the AO has failed to take into consideration the statement of the assessee recorded during 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 h....
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.... 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 the facts of the present case which is clearly absent in the instant case. Therefore, where the ld PCIT himself is not clear about the applicability of relevant provisions and in the same breath holding the Assessing officer to task by not invoking the said provisions is clearly shooting in the dark which cannot be sustained in the eyes of law and the order so passed therefore cannot be held as erroneous in the eyes of law." 22. In case of Chokshi Hiralal Maganlal 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 ....
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....as 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 considering the claim of the assessee that first the business receipt has to be considered and then investment should be treated as coming out of such unaccounted income. The difference in stock so worked out by the authorities below had no independent identity of its own and it is part and parcel of entire lot of stock. The difference between declared stock in the books and what is physically found would 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 bus....
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....er 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 of income in view of our above observations, we restore the matter to the file of AO. 23. In the instant case as well, we find that the difference in stock so found out by the authorities has no independent identity and is part and parcel of entire stock, therefore, it cannot be said that there is an undisclosed asset which existed independently and thus, 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 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 ....
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....mount as excess stock qua the excess stock found." 25. Thereafter, the Coordinate Jaipur Benches in case of Bajargan Traders Vs. ACIT (Supra) has similarly held as under: "2.10. We have heard the rival contentions and perused the material available on record. During the course of survey, the assessee has surrendered an amount of Rs. 70,04,814/- towards investment in stock of rice which had not been recorded in the books of accounts. Subsequently, in the books of accounts, the assessee has incorporated this transaction by debiting the purchase account and crediting 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....
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....llowing 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 Rs. 10 lacs (iv) Discrepancy in advances and receivable Rs. 30 lacs 11. These facts have not been disputed by any one at any stage. The only issue to be considered by us is whether the income of Rs. 70 lacs surrendered is to be taxable as business income or income from other sources or as deemed income under sections 69A, 69B and 69C of the Act as held by the Assessing Officer. A number of judicial 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....
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....r books of the assessee and were subsequently surrendered stating that these entries were unaccounted sundry receivables being surrendered as income under the head business, to buy piece of mind and subjected to no penalty and further that the losses incurred by the assessee in the impugned year will be adjusted against this surrendered income. The relevant facts as stated by the CIT(A) in para 9 of his order and which are not disputed, are reproduced hereunder: "9. Adverting now to the facts of the instant case, it is seen that when survey proceedings were conducted 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 s....
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....mani 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 books amounting to Rs. 198 lacs and; (iv) surrender to cover miscellaneous discrepancies in loose papers etc. amounting to Rs. 10 lacs. 24. As far as the surrender made on account of investment in Kothi of Rs. 60 lacs, neither is the same disclosed in the books of the assessee nor source of the same disclosed. Therefore, the same is to be assessed as deemed income u/s 69 of the Act. The same 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 ....
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....r 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 from business over the years and the same had not been kept identified separately and the AO had duly considered and accepted the assessee's explanation that investment in excess stock was to be treated as business income, the revisional powers invoked by the Principal Commissioner u/s 263 of the Act were not correct in the eyes of law. 10.19 The ITAT Chandigarh Bench in the case of Famina 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 carrying on the business of the assessee which was not recorded in the books of the assessee. The Coordinate Bench of the ITAT went on to further hold that though the said income was not rec....
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.... 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. 10.23 Accordingly, keeping in view the various judicial precedents as cited above and respectfully following the same, we hold that the AO could not have legally invoked the provisions of section 115BBE of the Act in the present case and further the Ld. CIT(A) was also not legally correct in upholding of the application of provisions of section 115BBE of the Act. Accordingly, ground Nos. 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....
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.... 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 the income under the head income from other sources and allowing set off of losses u/s 71 of the Act also fail in view of the above. 9. The learned AR for the assessee had placed reliance in CIT & Another Vs. S.K.Srigiri & Bros. (supra) for the proposition that even in cases of survey, the additional income surrendered is includible as income from business. In the facts of that 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 ....
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....ed 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 accounts, 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 accounts. 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. Thus, the decision of the Hon'ble High Court, being rendered in the specific facts and circumstances of the said case, doesn't support the case of the Revenue in the instant case. 33. In light of aforesaid discussion and in the entirety of facts and circumstances of the case and following the decisions supra, the income of Rs 84,80,000/- surrendered during the course of survey cannot be brought to tax under the deeming provisions of section 69 and 69A of the A....
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....he assessee was also asked to justify as to why the tax have not been paid as per the provisions of Section 115BBE of the Act. Basis the above it was stated by the Ld. Pr. CIT that the AO has failed to verify during the course of assessment proceedings, the nature and source of income offered by the assessee during the course of survey and bringing it to tax under the correct head of income as per the provisions of the Income Tax Act. 10. We therefore find that the show cause u/s 263 has been issued for the reason that there was a survey operation at the business premises of the assessee and assessee has offered a sum of Rs. 70,00,000/- during the course of survey and since the assessee has not paid taxes as per the provisions of Section 115BBE of the Act, the Ld. Pr. CIT deemed it appropriate to invoke his jurisdiction under section 263 of the Act. In our view, the very basis of invocation of jurisdiction under section 263 suffers from serious fallacies in the sense that the unexplained income found and surrendered during the course of survey proceedings have been sought to be brought to tax straightway under section 115BBE of the Act. And if we look at the provisions of Se....
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....he Revenue. The Ld. Pr. CIT has stated that survey under section 133A of the Act was conducted at the business premises of the assessee on 30/08/2016 and certain discrepancy were found, confronted and accepted by the assessee during the course of survey proceedings in terms of unexplained misc. advances of Rs 45,50,000/-, unexplained cash in hand of Rs. 9,50,000/-, and Furniture, fixtures and equipments of Rs. 15,00,000/- and the case of the assessee is squarely covered under the deeming provision as advances are covered u/s 69, 69B or 69D, excess cash is clearly covered under section 68 or 69A and Furniture & Fixtures is covered under section 69B or 69C and thereafter the discrepancy found during the survey proceedings attracted the provision of Section 115BBE of the Act. As we have noted above, there is no findings recorded by the Ld. Pr. CIT as to whether any explanation was called for from the assessee in terms of these undisclosed transactions either during the course of survey proceedings or during the course of assessment proceedings and how the explanation so offered was not found acceptable to the Ld. Pr. CIT. 12. As we have held in case of Gandhi Ram Vs. Pr. CIT(supra), ....
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.... the assessee was asked to explain the entries in a diary found during the course of survey amounting to Rs 45,50,000/- and in response, the assessee submitted that these entries are related to advances to certain persons of professional nature, however, these entries are not reflected in the books of accounts and to buy piece of mind, he voluntarily surrender the same. Similarly, another question was asked about the excess stock of furniture and medical equipments installed at the hospital premises, and in response, he submitted that these relates to his hospital business and it appears that some of the items are not reflected in the books of accounts and in order to buy peace of mind, he voluntarily surrender a sum of Rs. 15,00,000/- for taxation. Subsequently, in the surrender letter dt. 31/08/2016, the assessee has reiterated the surrender of Rs. 70,00,000/- on account of excess cash, Furniture, fixtures and equipments and loans and advances and has stated that the surrender is made out of his free will, to buy piece of mind and over and above his normal business income subject to no penalty under the Income Tax Act. Thereafter the assessee filed his return of income disclosing....