TaxTMI 
TaxTMI 
2024 (1) TMI 966
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....s declared during the course of survey without any basis and while doing so, he has failed to appreciate the judgment of Jurisdictional Bench of ITAT in the case of 'Arora Alloys in ITA No. 1481/Chd/2017', in which, it has been held that, if certain income has been declared as business income, the same has to be treated as the business income and the Assessing Officer cannot disturbed the same, without any cogent evidence. 3. Even during the course of survey, the assessee was found to be not carrying on any other business activities and, all such investment having been made from the same business income, and, therefore, taxing the surrendered income u/s 69A/69 r.w.s. 115BBE, is against the facts & circumstances of the case. 4. That the detailed written submission as submitted before the Ld. CIT(A) have not been considered appropriately. 5. Notwithstanding the above said grounds of appeal, the Ld. CIT(A) has erred in not allowing the recycling of a debt from one person to another and, thereby, not giving the benefit of adjustment of Rs. 70 lacs as claimed by the assessee while filing the return of income. 6. That the appellant craves leave to add, amend, any of t....
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.... him at the time of survey and there was no basis for the same. It was submitted that surrender was made on the basis of figures given by the Officers of the Tax Department and as per the surrender letter, the additional amount of Rs. 1,42,50,000/- was made up of following heads namely excess cash found of Rs. 9,96,000/-, unexplained advances of Rs. 1,05,00,000/- and stock difference of Rs. 27,54,000/-. It was submitted that out of the above three items, since the figure of cash in hand and stock was apparent, the surrender made was declared as such in the return of income, however in respect of advances of Rs. 1,05,00,000/- the same was based allegedly on some diary which was never put. However where the facts are taken at face value, the amount of advance goes on changing now and then and the same do not represent the advance at a particular day but over a period of 12 months and given the nature of assessee's business wherein the customers gave advance which was subsequently adjusted at the time of actual delivery of goods and the said process goes on with the result that in the year, the advances revolved more than 50 times. It was submitted that it is highly improbable that a ....
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....itted that in the earlier years, the returned income filed by the assessee disclosing business income has been accepted wherein the returned income amounting to Rs. 8,68,760/- for A.Y. 2017-18, Rs. 7,83,040/- for A.Y. 2016-17 and Rs. 6,41,290/- for A.Y 2015-16 has been accepted by the Revenue. 6. The AO thereafter issued another notice under section 142(1) dated 10/02/2021 wherein it was stated that in response to notice under section 142(1) dt. 02/12/2020, the assessee stated that the unexplained advances amounting to Rs. 1,05,00,000/- were received by him from various customers. However, on the perusal of statement recorded u/s 131 of the Act on 20/11/2017 during the course of survey, it is observed that the fact of discovery of pocket diary having a total number of 22 written pages containing the names of various persons with amount of advances, written against them was brought to his notice. At that time, the assessee didn't raise the contention that the said advances are the advances received from customers against sales. In fact, assessee was unable to explain the nature of advances and the source of money to make such advances. It is only because of the inability of the ass....
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....submitted that the disclosure comprises of surrender of cash, recoverable debts & stock, hence the disclosure concerns the business income of the assessee and for this reason provisions of section 69A and 69 are not applicable and so would be the provisions of section 115BBE. 8. As regards to the impounded documents, it was submitted that a diary was impounded at the time of survey and is part of the impounded records and a perusal of the same would reveal that it is in the nature of dumb document, containing no information as to nature of the document and the date of advancing the alleged amounts. It was submitted that it would also be noticed that no entry in this document contains any date so as to treat it as pertaining to the year under assessment. It is a fact that when advances against purchases or sales are made, a date has to be mentioned for the adjustment of same. The nature of amount was not known at the time of survey and even now the assessee is unable to make out about the nature of document. However if a colour is to be given to the nature of the document, the advances from one person is adjusted against the sale or purchase, the cash generated will form a fund for....
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.... a pocket diary belonging to the assessee and having a total number of twenty two pages was found which contained details of advances made by the assessee to various persons on unknown dates. The same was confronted to the assessee who being unable to furnish any explanation regarding the source of money used to make such advances vide letter dated 20/11/2017 voluntarily disclosed additional income of Rs. 1,05,00,000/ on account of such unrecorded and unexplained advances. However, in the return of income, the assessee has only disclosed a sum of Rs. 35,00,000/- and that too under the wrong head of "business income". Regarding the contention of the assessee that total advance of Rs. 1,05,00,000/- does not represent the advance outstanding on the day of survey but it represents the advances made over a period of 12 months, it was stated by the AO that the assessee has not furnished any details or documentary evidence with respect to the quantum and date of making such advances. Hence, the contention of the assessee is not acceptable. Regarding the contention of the assessee that the advances constitute the sums of money which has revolved between various persons for more than 50 tim....
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....to furnish any details and documentary evidence. It was thus held by the AO that the transactions mentioned in the pocket diary impounded during the survey constitute the advances made by the assessee to various persons which have not been recorded in the books of account. Further the assessee has not able to furnish the source of money used to make such advances. Keeping in view his inability to explain the source of money used to make such advances, the assessee himself voluntarily disclosed an additional income of Rs. 1,05,00,000/- by way of voluntary disclosure letter dt. 20/11/2017. It was accordingly held by the AO that such unrecorded and unexplained advances constitute an unexplained investment which is deemed income within the meaning of Section 69 of the Act. Accordingly, Rs. 1,05,00,000/-was brought to tax under section 69 of the Act. 11. Being aggrieved, the assessee carried the matter in appeal before the Ld. CIT(A). 12. During the course of appellate proceedings before the ld CIT(A), the Ld. AR on behalf of the assessee submitted that during the course of survey, various anomalies were found which include excess cash, unexplained advances and excess stock, not shown....
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....render' was made as certain loose papers were found from the business premises on which certain amounts receivable as belonging to the assessee were mentioned. As per the AR, these facts have never been controverted by the Assessing Authority and the Assessing Officer has not made any investigation to find the exact source of this surrender and has accepted the same as such. The AR argued that there being no basis for the amounts allegedly surrendered, the income could have been estimated only on the basis of strict accounting methods and for this reason, keeping the figures of 'difference in cash' and 'difference in stock' intact, the variable amount of 'recoverable debt is not such which is created in a day, but pile up, by circulation which may be five times, ten times, twenty times or as many as 365 days in the year and therefore, the amount of debt has been taken at thirty percent, which is justified on the facts of the case. As per the AR, the surrendered amount comprises of surrender of cash, recoverable debts and stock, hence the disclosure concerns the business income of the assessee and for this reason provisions of Section 69 and 69A are not appli....
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....purchases or sales are made a date has to be mentioned for the adjustment of same. The AR submitted that the basis of addition was a diary which is neither book of accounts nor a document in fact it is a dump document and no adverse view should have been taken by the department because it contains name of the persons and the amount without any date mentioned in the document annexure A/6 of the impounded document. The AR argued that the identity of the persons was not established in this case and merely because some figures are mentioned in the diary without any head or tail thereof, the addition of the same, as income in the hands of the assessee could not be made. In view of above facts and circumstances of the case, the AR contended that the provision of Section 69 of the Income Tax Act 1961 read with section 115BBE is not applicable to the case of the assessee. The AR also argued that during the survey, certain assets or incriminating documents are found which are not disclosed in the books of accounts and resultantly the assessee offer the same for taxation under the Income Tax Act as an additional income over and above the normal income of the assessee and the offer is made wi....
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....ditional income of Rs. 35 lacs has been declared for the Assessment Year 2018-19, the burden was on the assessee to show why the whole of the amount mentioned as advances in the diary was not declared and what was the basis for declaring only 1/3 amount as additional income based upon the entries in the diary specially when the assessee at the time of survey himself surrendered income of Rs. 1,05,00,000/- on this account. The AR has argued that the advance is rotated throughout the year which may be five times, ten times, twenty times or as many as 365 days in the year, if it was so, then why only 1/3rd was declared, because the rotation as claimed by the AR will not give the figure of 1/3, which shows that the claim of the assessee is just a hollow statement and the assessee is also not aware about the basis on which this ratio of 1:3 have been applied. The argument that the diary is neither the books of accounts nor documents is also out of context because the entries in the diary were never considered as recorded in the books and in fact, this document was never considered to be part of books of accounts of the assessee. It was not for the department to identify the persons but ....
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....without any basis and the heads of the surrendered income was also changed. Under the facts & circumstances of the case, the action of the AO in making addition of whole of the amount of unexplained advances mentioned in the seized diary at Rs. 1,05,00,000/- and taxing the same as deemed income at the rates specified u/s 115BBE is found sustainable and hence upheld. 14. It was further held by the ld CIT(A) that the argument of the AR that the excess cash and excess stock are the business income of the assessee and not deemed income u/s 69/69A is also not found convincing. The above argument of the AR is in contrast to the facts found during the course of survey and in fact, the full stock & cash present at the premise of the assessee was not recorded in the books of accounts and the stock & cash recorded was in fact less than the stock and cash physically found during the survey by the amount of Rs. 27.54 lacs and Rs. 9.96 lacs respectively. In case, where the stock or cash found is in excess i.e. the cash/stock physically found during the search/survey, is more than the cash or stock as per the books of accounts, the income determined will be deemed income u/s 68 to 69D because t....
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....ness activity, is either not at all recorded incorrectly in a camouflaged manner in books maintained for any business activity, then the assessee cannot be said to have fulfilled this statutory obligation. Hence, subsequent claim that even the undisclosed receipts are also presumed to be from his known business activity only, merely because the assessee is having that particular activity only as its known business activity, would tantamount to claiming benefit from its own wrong-doings, when the assessee itself does not record the receipt/expenses in its books of accounts, for which it was under statutory obligation to do so. The assessee has no vested right to attribute such incomes/expenses under any of the heads of income, as the same will be contrary to the above principle. On the other hand, deeming fiction deems such unrecorded incomes or expenses as a separate class of deemed income from unknown sources. Merely having a known business activity will not, per se, render any unexplained asset/ income as business/profession income u/s 14, unless the burden of proving the source u/s 68 to 69D is also discharged. The onus of proving that such receipts are from an activity other th....
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....treated separately and it would not be possible to classify such deemed income falling under Chapter-VI, under any of the heads including 'income from other sources' but they will be aggregated along with the incomes computed under Chapter IV. Hence, the action of the AO in applying the rate as prescribed u/s 115BBE on the surrendered income included in the ITR as well as the addition made by the AO during the assessment proceedings, treated by the AO as income u/s 69A/69 in the assessment order, was found sustainable where in view the above facts and discussion, the AO has rightly treated the surrender of Rs. 1,42,50,000/- on account of excess cash, excess stock and unexplained advances found during the survey as deemed income u/s 69A/69 and to be taxed as per provisions of Section 115BBE of the Income Tax Act, 1961. 17. Against the aforesaid findings and direction of the Ld. CIT(A), the assessee is now in appeal before us. 18. During the course of hearing, the Ld. AR submitted that this is a case of individual who is a proprietor of M/s Duggal Chicken Corner and carrying on the business of supplying of Chicken, Fish and Goat and for that, he has been purchasing live sto....
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....he comparison was made with the cash and stock available in the books of accounts of the assessee meaning thereby that the excess stock was business stock and hence the additional income was business income. The same is the case with the excess cash which was offered as additional income over and above the regular business income while making the surrender. It was submitted that the same was part and parcel of the same business being carried on by the assessee. It was accordingly, submitted that the amount surrendered is part and parcel of business income and cannot be treated as deemed income. 21. Regarding unexplained advances, it was submitted that during the course of survey, one diary was seized where there is no date but only nickname against the amount has been mentioned and on the basis of which the assessee was made to surrender a sum of Rs. 1,05,00,000/- on account of advances. It was submitted that the assessee just to buy peace of mind had offered a sum of 1/3rd of the said amount to tax in the return of income. It was submitted that from the bare look of the pocket diary, it can be observed that there is no date, though certain nick name in respect of amount has been ....
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....ld be noted in the pocket diary because, these are not the regular books of accounts and also the person concerned is not much literate and looking into the nature of trade, in which the assessee is engaged and the items being dealt with, this is a valid explanation and, as such, whole of the amount cannot be added to the income of the assessee and the applicant considered only Rs. 35 lacs which was offered to tax to earn peace of mind. 24. It was submitted that in his statement recorded during survey, the assessee had stated that he has been supplying the items to the Hotels, shop Keepers and also purchasing and selling live stock and, as such, some advances, both on account of purchases and sales from the representative of such person is normal phenomenon and 1/3 of the total amount was considered and the said amount was rotated over a period of time. The explanation so submitted was however not accepted by the Ld. Assessing Officer and Ld. CIT(A). 25. It was submitted that the Ld. CIT(A) has stated that the assessee had mentioned in survey letter that taxation at 77.25% against the normal rate of tax and, held that it has rightly been taxed as per the provisions of 115BBE. It ....
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....eme Court in case of Shelly Products reported in [2003] 129 taxman 271 (SC) and it was submitted that even as per law, the assessee is not expected to pay any penny more than as per provisions of law and in so far as applicability of section 115BBE on cash is concerned, our submissions are as under: (i) The total cash found during the course of survey was to the tune of Rs. 19,96,000/- and after comparing the 'cash in hand' as per the books of accounts, which was to the tune of Rs. 10,00,000/-, the balance cash was offered to tax and, thus, it is not that it was an independent or separate cash as offered and rather the department itself had accepted that the total cash of Rs. 19,96,000/- was belonging to the same business, which the assessee is carrying on and no other activity of the assessee was noticed. (ii) The offer has been made as 'additional income' i.e. income from same business, as already declared therefore, the judgment of the Arora Alloys and others are fully applicable to the facts of the case. (iii) The AO has himself mentioned in para 3 of order that the sales, if any, was not recorded by the assessee in his books of accounts, meaning thereb....
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....hat there are total 77 entries in the seized diary and against none of the entry, there are any signatures of the persons to whom so called advances have been given and neither there are signatures of the assessee and it has been admitted by the Ld. AO in his order that seven names appear twice as per para 5.3, out of the total 77 entries and further, the AO had stated in para 5.3, that names are unique and no nature has been mentioned therein and, thus, the said document has no income repercussion as per the findings of the Ld. AO itself. f. It is submitted that reference may be made to the statement of the assessee recorded during survey wherein, at question no. 10 of paper book-l1 page 63. the assessee was only asked that there are certain financial transactions and which the assessee has stated that he is unable to explain at page 64 of the paper book-ll and no further questions were asked and, therefore, the contention of the Ld. Assessing Officer that no such contention was raised that these are advances received from customers against sales as mentioned in para 5.2 page 8, of the order of the Ld. Assessing Officer and after these questions, there was no query raised till ....
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....made during survey and, thus, since no other business have been found to be carried out by the assessee, the same cannot be taxed u/s 115BBE of the Income Tax Act, 1961. Regarding the source of the amount, use for the advances, the Ld. Assessing Officer himself at page 6 para 3 & 4 has conceded that sales have not been recorded in the books of accounts and, thus, the source from the same business stands accepted by the Ld. Assessing Officer and thus provisions of Section 115BBE is not applicable. j. It is a fact that the assessee had given a surrender letter during survey but later on, from the facts during survey, it was found that surrender on account of the diary was not correctly made and neither it was required to be made as per the facts stated above and the assessee has proved from the business of the assessee and the nature of the document that the surrender of Rs. 1,05,00,000/- was not required to be made, looking into the facts of the case and reliance is being placed in the judgment in the case of Pullangode Rubber Produce Co. Ltd. vs. State of Kerala in which it has been held as under: "An admission is an extremely important piece of evidence but it cannot be said....
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....er Khan" reported in 352 ITR 480 that no sanctity be recorded to the statement recorded during the survey. The Hon'ble Bench has referred to even the "Board Circular", while giving a finding and on the basis of all the facts & circumstances has given a finding that retraction made by the assessee is valid and that finding has been given at page 383 of the said judgment, wherein it has been held as under: "On considering the entirety of facts available on record and the submissions of the parties, we find that we are left with no option but to delete the entire addition on account of each of the heads which have been elaborated at length in the earlier part of this order. We have also gone through the statement of the Director on which heavy reliance has been placed by the Revenue and find ourselves in agreement with the submissions of the Id. AR that the surrender was made on the basis of mistaken belief of fact and law is borne from the record." m. Further, in the said judgment at page 386, the relevant finding is as under: "So these facts lead to forming of belief for making the surrender no doubt voluntarily, but admittedly was based on confusion and mis-appreciatio....
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....that basis statement of one of the partner's of the assessee firm, it cannot be held that disclosed income was assessable as lawful income of the assessee firm since there was no material on record to prove the existence of such disclosed income or earning of such income in the hands of the assessee and it cannot be held that Revenue has lost lawful tax payable by the assessee and the legal position has been summarized as under: (i) An admission is extremely an important piece of evidence but it cannot be said that it is conclusive and it is open to the person who made the admission to show that it is incorrect and that the assessee should be given a proper opportunity to show that the books of accounts do not correctly disclose the correct state of facts, vide decision of the Apex Court in Pullangode Rubber Produce Co. Ltd. v. State of Kerala, [1973] 91 ITR 18; (ii) In contradistinction to the power under Section 133A, Section 132(4) of the Income Tax Act enables the authorised officer to examine a person on oath and any statement made by such person during such examination can also be used in evidence under the Income Tax Act. On the other hand, whatever statement is recorde....
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....ey operation under Section 133A may be a relevant material. But in the absence of further materials to substantiate the same, such statement recorded under Section 133A can hardly be the basis for assessment. During the survey, 900 gms of gold was found in the premises of the assessee and the statement of the assessee was supported only to the extent of actual seizure of 900 gms. Since the statement of assessee in respect of the remaining gold was not substantiated, the Tribunal rightly set aside the addition in respect of the gold. 32. Therefore, in the instant case, the statement of the assessee recorded u/s 131 during the course of survey could be considered as a relevant material but in absence of further material to substantiate the same, the statement on a standalone basis and without any corroborative evidence cannot be a basis for assessment. 33. Even looking at from the perspective of applicability of deeming provisions, the statute itself requires fulfillment of such conditions before invocation of said provisions by the AO. For the deeming provisions of Section 69 to be applied, firstly, there has to be a finding by the Assessing officer that the assessee has made inv....
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....position reiterated by the Courts and the Coordinate Benches of the Tribunal from time to time, in the instant case, in order to appreciate the rival contentions, we now proceed to examine the statement of the assessee recorded during the course of survey, any tangible material/documentation found during the course of survey to corroborate the statement so recorded, the contents of the surrender letter, subsequent disclosure in the return of the income and findings of the AO as well as the ld CIT(A) and the basis and the reasoning adopted therein. 35. In the statement so recorded of the assessee during the course of survey on 20/11/2017, various questions have been asked about the nature and source of income in the hands of the assessee, the business activities of purchase and sale of chicken, fish and goat, the customers from whom the purchases have been made, the persons to whom the sales have been made, the status of stock in books and as physically found, cash as per books and physically found and the advances as recorded in a diary, etc. In particular, in Question no. 9, it was stated by the survey team that during the course of examination, on examination of profit/loss acco....
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.... income for the financial year 2017-18. We therefore find that the nature and source of such unaccounted stock is nothing but arising out of assessee's business operations. No doubt, these transactions were not recorded at the time of survey thus qualify as unrecorded transactions satisfying one of the essential conditions, at the same time, the assessee has provided the necessary explanation about the nature and source of such unrecorded transactions and the necessary nexus with assessee's business has been established, thus, it cannot be said that these are unexplained transactions thus, doesn't satisfy the second condition for invoking the deeming provisions of section 69A of the Act. 37. In case of Fashion Fashion World Vs. ACIT (IT Appeal No. 1634(Ahd.) of 2006, dt. 12/02/2010), the Coordinate Ahmedabad Benches has held 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 neces....
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....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 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 identif....
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....lication of section 115BBE doesn't arise and normal tax rate shall apply. The AO is thus directed to assess the income of Rs 27.54 lacs under the head "Income from Business/profession" and apply the normal rate of tax. 40. Regarding excess cash of Rs 9,96,000/- found physically during the course of survey, in response to question no. 8 raised, the assessee has expressed his inability to explain the same and offered the same over and above the normal business income. In the return of income, the same has been offered to tax under the head "business income" and it has been explained during the course of assessment proceedings that the excess cash is out of his business transactions. The AO has however not accepted the explanation so furnished holding that the sales were not recorded in the books of accounts at the time of survey. We therefore find that the explanation of the assessee that excess cash so found is out of unrecorded sales transaction has not been disputed by the AO. There is a difference between the unrecorded transactions and the unexplained transactions. Once the assessee has explained that the unrecorded cash is out of unrecorded sale transactions, in absence of any....
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....ten against their names are received by the assessee or paid by the assessee and date of such receipt/payment and falling under which financial year. No other document/material has been found during the course of survey which corroborates such entries or contains complete identity particulars of these persons so found mention in the said dairy and the nature of transaction so referred therein. We are therefore of the considered view that there is no tangible material in possession of the Revenue which demonstrate that the assessee has undertaken any such transactions with the so called persons so mentioned in the diary seized during the course of survey. The nature of transactions, the identity of the persons and the date of entering into such transactions are completely absent in the instant case. Even during the course of assessment proceedings, the AO vide show-cause dated 10/02/2021 has asked the assessee to furnish specific particulars of the transactions in terms of particulars of the persons, the date, the amount and mode of making such advances which demonstrate that the AO was not in possession of any tangible material in his possession found either during the course of su....
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....relevant findings read as under: 3. We have heard learned Counsel for the Revenue. Section 69A of the Act at the relevant assessment year reads thus: 69A. 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 money, bullion, jewellery or other valuable article, or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the money and the value of the bullion, jewellery or other valuable article may be deemed to be the income of the assessee for such financial year. 6. A Division Bench of the Calcutta High Court in Kantilal Chandulal and Co. v. CIT , while interpreting the provisions of Section 69A of the Act had laid down that two conditions need to be fulfilled before the provisions of Section 69A are applied. The first condition for applying the provisions of Section 69A is that the assessee should be found to be owner of any money, b....
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....t under Section 143(3) of the Act has drawn different inference without pointing out why the inference drawn by his predecessor was wrong. In fact the Assessing Officer framing the assessment under Section 143(3} of the Act and the Commissioner of Income-tax (Appeals) have upheld the addition on the ground that the assessee had been unable to prove the contents of the documents by invoking the provisions of Section 69A of the Act. We have already mentioned that, firstly, the provisions of Section 69A of the Act are not applicable to such documents and further that even if the assessee had failed to explain the contents of the slips, it was for the Revenue to prove on the basis of material on record that the same represented transactions of sales or stock-in-hand before making any addition on this score. The assessee had duly explained that these were rough calculations and the assessee's explanation has not been rebutted by any material evidence. Thus, for the assessee it has been correctly pointed out that even if the inference drawn in the order under Section 132(5) of the Act .are held to be correct, the proposed addition on that score amounting to Rs. 3,00,000 would be cove....