AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2023 (11) TMI 1093
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....g the income surrendered during survey as being in the nature of business income and thus allowing deduction of interest and salary paid to partners against the same. 4. The facts of the case, it was pointed out to us, was that the assessee was engaged in the business retail trading in diamond and gold ornaments. During the impugned year survey action under section 133A of the Act was carried out on 20.11.2013 at the business premises of the assessee and during the course of survey, unexplained bullion, gold ornaments, cash and unaccounted expenditure to the tune of Rs. 2,00,90,073/- was found in the following manner: 1. Value of unexplained bullion found 3923 grams @ 3110 per gram Rs. 1,22,00,530/- 2. Value of unexplained gold ornaments found 380.148 grams @ Rs. 2950 per gram Rs. 70,21,437/- 3 Amount of unexplained cash found in shop Rs. 1,47,506/- 4. Amount of unaccounted expenses found incurred for shop renovation Rs. 7,20,600/- 5. The same was surrendered in entirety by the assessee. However in the return of income filed, the assessee declared total income of Rs. 80,14,612/- only. The discrepancy between the disclosed income and returned income related to ....
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....the unaccounted expenditure pertained to that incurred for renovation of shops where the business of the assessee was being run. Therefore, whatever was found and surrendered by the assessee had no separate identity but was found to be part of the business of the assessee only, and was also explained by the partners of the assessee firm in the statement recorded during the survey to have been made out of the undisclosed income of the business of the assessee firm. He thereafter pointed out that even the source of investment in bullion and gold ornaments and in unexplained expenditure was clarified by partners of the assessee-firm in the statement recorded which fact was duly noted by the ld.CIT(A). He pointed out that the ld.CIT(A) had rightly appreciated the fact that no counter question was asked by the Revenue to partners of the firm when they admitted to the said fact, and infact admission of the partners to the effect that the investment in excess stock of bullion ,jewellery etc was made out of unaccounted business income of the assessee, was accepted by the Revenue without any question. It was also pointed out to us that the assessee had not only declared the income on accoun....
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....t the appellant's premises on 20.11.2013. Such declaration has been made by the appellant in his statement before the survey party as well as by way of an affidavit prepared consequent to the survey on 29.11.2013. These facts are not disputed by the A.O. In the said affidavit, the appellant has given the back ground of the declaration as well as the break up the declaration as under:- "(Quote)" An action u/s. 133A of the Income tax Act, 1961 was carried on the firm situated at BBZ, Sec.8, Opp. Show room, Zanda Chowk, Gandhidham, Kachchh on 20.11.2013, where the officials of Income tax department had found excess stock of bullion and gold ornaments, excess cash on hand and a paper containing an account of expenses, incurred on shop renovation. During the course of proceedings I was asked to explain and clarify the particulars of such excess stock, cash and expenses incurred. After obtaining consent of all my partners and while explaining above stated differences/documents I had made disclosure of undisclosed income which has been earned by the firm from the business activities carried on during the financial year 2013-14 relevant to assessment year 204-15 and which has not been ....
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....igher amount of remuneration to partners u/s 40(b) of the Act. Appellant has shown that such claim is approved by the changed partnership deed(dated 13.03.2012), the clause 14 of this deed is concerned with payment of remuneration to the partners. This clause was inline with section 40(b) of the Act, the said computation was submitted to the AO during Assessment proceedings vide appellant's 13.11.2016. The AO has not disputed this computation, however he has noted in para 4.3 of his order that this claim of deduction is the real reason for returned income being much less than the disclosed income. According to the AO this deduction is not available in this case because the disclosure during survey is not the part of the business income, rather it is a deemed income u/s 69. 8.3 Facts of such declaration by way of affidavit and statement is not in the dispute The A.O. has disputed that part of the statement and subsequent submissions in which the declaration has been claimed falling under the head "Income from Business" and not u/s. 69. The appellant has continuously submitted that the said declaration was made as undisclosed income earned by the appellant from the business activit....
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....it nature and source of acquisition of the impugned asset. In the present case the appellant was asked about excess stock during the survey itself and in reply to question 13 put before him during statement recorded u/s 131 on 20.11.2013 the appellant has clearly stated that this excess stock of gold ornament was bought from the business income earned during the relevant previous year itself from the transactions which were not recorded in the books. Similar explanation was given in respect of unrecorded expenses on shop of the appellant. This explanation was not dismissed by the officer recording the statement; rather in question no. 15 the appellant was asked as to when it will pay the applicable tax on the undisclosed income of Rs. 2,00,90,073/- which was declared "undisclosed income of the current FY 2013-14". It is therefore apparent that the explanation about nature and source of the excess stock and expenses were given by the appellant even during the survey itself and which was implicitly accepted by the department. This explanation was further fortified by filing an affidavit just after survey which again was not rejected by the department. In this circumstances it is very....
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....ch unexplained investment in the stock, which had to disclosure by the appellant during the survey. Now the A.O.'s argument is that the appellant had failed to submit documentary evidences and other details related to such alleged trading and therefore it cannot be said that such investment has been derived and hence part of the same business cannot be accepted. 8.8 This is very strange argument in which A.O. is refusing to accept the obvious and logical fact that a person involved in business of trading in ornaments is likely to derive even undisclosed part of his profit from the said trading activities. If A.O. had any doubt that impugned investment were earned from any other activities then he should have pointed out towards likely sources of such undisclosed income. The statement of appellant and subsequent confirmation of the said statement by way of affidavit has been totally disregarded by the A.O. without any reason or logic. There is not an iota of doubt that there was no other plausible source of income available to the appellant and source of excess stock, cash etc found during survey has to be considered having been generated from the only known business of the appell....
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....on'ble Coordinate Bench held 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. In the present case stock was part of the stock. The revenue has not pointed out that excess stock has any nexus with any other receipts. Therefore we do not fine any fault with the decision of the ld. CIT(A) directing to the AO to treat the surrendered amount as excess stock qua the excess stock." Here in the present case is also the same position. 1.2 Further the Hon'ble Bench has followed the above decision in the case of Bajrang Traders v/s ACIT Cir.2 Alwar in ITA No. 137/Jp/17 dt. 17.03.2017 vide page 6 para 2.7 of the order of Hon'ble ITAT and at page 10 para 2.11 it has been held that " 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. I....
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....(Quote)"........ 6. Regarding addition of Rs. 10,06,250/- under section 69 ld. AR submitted that this has to be considered as "business income" as what is found is "business stock". It cannot have a different character than the business income. He submitted that in any case, tax has to be levied on total income after clubbing income under different heads including income under section 69. Therefore, there is no separate identity of addition under section 69 even if one follows the decision of Hon. Gujarat High Court in the case of Fakir Mohmed Haji Hasan vs. CIT (supra). He then claimed that once investment in stock is considered as business outgoing then partners of the firm are entitled for higher remuneration as per section 40(b). Ld. AR referred to the decision of Hon. Supreme Court in Lakhmichand Baijnath vs. CIT 35 ITR 416(SC) for the proposition that if credits are found in the business account of the assessee then the Income-tax authorities are entitled to treat the receipts as business receipts chargeable to tax and further that when amount is found credited in books maintained for business then it is not unreasonable inference to draw that it is a receipt from busines....
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....When the income cannot be so classified under any one of the heads of income under section 14, it follows that the question of giving any deductions under the provisions which correspond to such heads of income will not arise. The provisions of sections 69, 69A, 69B and 69C, treat unexplained investments, unexplained money, bullion, etc., and unexplained expenditure as deemed income where the nature and source of investment, acquisition or expenditure, as the case may be, have not been explained or satisfactorily explained. Therefore, in these cases, the source not being known, such deemed income will not fall even under the head "Income from other sources". Therefore, the corresponding deductions which are applicable to the incomes under any of these various heads, will not be attracted in the case of deemed incomes which are covered under the provisions of sections 69, 69A, 69B and 69C of the Act in view of the scheme of those provisions : Held,_ on the facts, that it was clear that when the investment in or acquisition of gold, which was recovered from the assessee was not recorded in the books of account and the assessee offered no explanation about the nature and source of s....
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....ded in the books of account regularly maintained by the assessee. But for establishing nexus of such investment/expenditure with a head of income and to take the benefit of set off, assesseehas to necessarily explain the nature and source of such investment/expenditure and establish its nexus with any head of income. Hon. Gujarat High Court further held that for claiming trading loss in respect of an asset whose investment was found unexplained, it was necessary for the assessee to explain the nature and source of its acquisition and on its failure to do so the trading loss on the confiscation of the asset could not be set off. 10. We notice that the set off of any trading loss against deemed income assessed under sections 69, 69A, 69B & 69C is not directly discernible from sections 72 to 79 falling in Chapter-VI. To summarily refer to these provisions we note that in Chapter VI, section 70 provides set off of loss from one source against income from another source under the same head of income. In other words, if under the head 'business' there are two businesses -one is resulting in income and the other is resulting in loss, they are to be set off against each other. Si....
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....ent 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 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 unaccoun....
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....t 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 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 sect....
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....ed this admission of the partners of the assessee-firm and accepted it as such. 9. In the backdrop of these facts, we hold that the ld.CIT(A) has rightly applied the decision of the ITAT, Ahmedabad Bench in the case of Fashion World (supra) wherein in identical set of facts, the ITAT had analysed the provisions of section 69A, 69B, 69C etc. and held that for invoking the said provision, there are two conditions to be satisfied; (i) that investment or expenditure is not recorded in the books of the assessee, and (ii) nature &source of acquisition of assets or expenditure are not explained or are not explained satisfactorily. Thereafter the meaning of "nature" was elaborated upon stating that it would require the assessee to explain the description of the investment or the expenditure and to explain the corpus or funds from where investment or expenditure has been met. It further went on to explain that where the assessee is able to explain the nature and source of investment or expenditure, and if they are recorded in the books of accounts, then such investment or expenditure will not be treated as deemed income, but if these conditions are not fulfilled, the same would be treated ....