TaxTMI 
TaxTMI 
2024 (2) TMI 326
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....al rate of tax. 3. That the various submissions and arguments/case laws as quoted before the Ld. CIT(A) have not been appreciated. 4. That the Ld. CIT(A) has failed to appreciate that during the course of survey, no other income was noticed by the department and, as such, taxing the amount offered as deemed income, is against the facts and circumstances of the case. 5. That the Ld. CIT(A) has also failed to appreciate that at the time of survey, it was agreed that the applicant shall pay the taxes on the amount offered during purvey at the normal rate of taxes, for which, the payment of advance tax was made within the stipulated time. 6. That the appellant craves, leave to add or amend the grounds of appeal before the appeal is finally heard or disposed-off. 3. Briefly the facts of the case are that the assessee is carrying on the business of Spinning Mills and has filed its return of income declaring total income of Rs. 72,77,610/- on 29/10/2018. The case of the assessee was selected for scrutiny and thereafter notices under section 143(2) and 142(1) were issued and served on the assessee. During the course of assessment proceedings, the AO o....
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...., 69B 69C 8t 69D of the Income Tax Act, 1961. It was also committed to the department that the tax shall be paid in three instalments i.e. on 31.03.2018, 30.04.2018 and 15.06.2018 and cheques were also handed over to the department computing the tax at normal rates. It depicts that the department agreed for taxing the said surrender of Rs. 45 Lacs at normal rates of tax. Therefore, the additional business income, as surrendered during the course of survey operations, was committed to be taxed at normal rates of tax as the department had not reserved any objection to charge tax on the said income at rates mentioned in section 115BBE of the Act as against the normal rates of tax. 2.2 Further, it is submitted that during the course of survey conducted at the premises of the assessee, no other source of income or any other discrepancy was noticed by the department and each fit every document found from the business premises was duly explained to the survey team as well as before the AO during the assessment proceedings. It is also not disputed by the department that the assessee is involved in any other business activity other than the business of spinning mill carried on by i....
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....well AO that how the excess investment made in building has been determined by them, however, the assessee did not want to indulge into any litigation and therefore, to co-operate with the department, it surrendered a sum of Rs. 45,00,000/- on account of investment made in building. Therefore, it is not the case that any unexplained investment has been made by the assessee out of books of accounts rather it is merely a valuation difference which nowhere leads to the applicability of Section 69B of the Income Tax Act, 1961. Accordingly, the surrender made on account of building is part of the business income of the assessee which is liable for taxation at normal rates of tax. 2.5 The above explanation proves that, though, no additional investment has been made by the assessee over and above the amount recorded in books, however, the amount surrendered during the course of survey proceedings is just to buy peace of mind and to avoid any litigations and therefore, the same may please be treated as business income of assessee which deserves to be taxed at normal rates of tax. 2.6 Further, we wish to bring your goodself's kind attention to the preliminary survey re....
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....ess income of the assessee. 2.9 Further, we wish to bring to your goodself's kind attention to the provisions of section 69B as under: "Where in any financial year the assessee has made investments or is found to be the owner of any bullion, jewellery or other valuable article, and the Assessing Officer finds that the amount expended on making such investments or in acquiring such bullion, jewellery or other valuable article exceeds the amount recorded in this behalf in the books of account maintained by the assessee for any source of income, and the assessee offers no explanation about such excess amount or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the excess amount may be deemed to be the income of the assessee for such financial year" Apparently, the provisions of section 69B cannot be made applicable in the case of assessee as primary condition for invoking the provisions of section 69B is that the assessee is found to be in possession of any investment, the source of which is not explainable by the assessee whereas in the case of the assessee, it has been duly explained that the addition has bee....
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....sessee. Therefore, one thing is pretty much clear here is that the excess investment is certainly a business income of the assessee and it is just that the said excess investment is a difference of opinion which nowhere leads to the applicability of Section 69B of the Act. Whether income can be classified under a particular head of income based on nature so as to demonstrate that it is flowing from one of the specific sources of income of the taxpayer Whether supporting circumstantial evidences of the above are available 4.2 It was further submitted that the case of the assessee was selected for scrutiny only on the issue of amount surrendered by the assessee during the course of survey action dated 27.03.2018. During the course of survey, the assessee has surrendered an amount of Rs. 45,00,000/- on account of investment in factory building. The assessee surrendered the said amount of Rs. 45,00,000/- vide surrender letter dated 27.03.2018 and thereafter, treating the surrender out of the business income of the assessee credited the said amount in the profit and loss account prepared for the year ending 31.03.2018 and declared net profit amounting to Rs. 72,75,506.45 and....
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....ness. There is nothing on record to show that the firm had any source of income other than business. Therefore, in our opinion, it is not unreasonable to hold that any amount representing secret income arose out of business of the firm." 4.5 It was submitted that the same view has been taken by Honble Calcutta High Court in case of Mansfield and Sons v. CIT [1963] 48 ITR 254 and in the case of the assessee also, there has been no other source of income identified, neither during the course of survey action nor during the assessment proceedings initiated later on. Hence, the income of the assessee is only on account of the business carried on by the assessee since past many years and in these circumstances, the provisions of section 69A of the Act are not applicable. Further, reliance is also placed on the following judgments: * Hon'ble Chandigarh (Jurisdictional) Bench of ITAT in the case of M/s. Sham Jewellers in ITA No. 375/CHD/2022, wherein, it has been held as under: "Ground Nos. 8 & 9 challenge the action of the lower authorities in applying the provisions of section 115BBE and thereby charging tax at the rate of 60%. The main thrust of the arguments o....
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....ady been incorporated in Para 10.17 to 10.23 of this order in the case of M/s Sham Jewellers wherein also we have rejected the action of the Income Tax Authorities in applying the provisions of section 115BBE of the Act. Likewise, on identical facts and on identical reasoning and law, we allow the grounds of the assessee in the present appeal also and hold that the application of provisions of section 115BBE of the Act in the case of M/s Sham Fashion Mall was bad in law and the same cannot be sustained. 13.0 In the result, ITA No. 315/Chd/2022 also stands allowed." * Hon'ble Chandigarh (Jurisdictional) Bench of ITAT in the case of Gaurish Steels Pvt. Ltd. as reported in 82 Taxmann.com 337, wherein, it has been held as under: "It has been held that income surrendered by the assessee during the survey on account of discrepancy in cost of construction of building, discrepancy in stock and discrepancy in advances and receivables would be considered as business income and not as deemed income under section 69." * In the case of Bajaj Sons. Ltd., the Hon'ble Chandigarh Bench of ITAT, ITA No. 1127/CHD/2019, has stated as under: "The AO ....
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....014, the Hon'ble Chandigarh (jurisdictional) ITAT Bench has held as under: "Since the facts of the present case are identical to that in Gaurish Steels Pvt. Ltd. (supra), the surrender having been made by the assessee on account of investment made in the BOT project which was the business of the assessee, the decision rendered by the I.T.A.T. in the said case will squarely apply in the present case, following which we hold that the income surrendered by the assessee of Rs. 1.75 crores is assessable under the head income from business and profession". * In the case of M/s. Arora Alloys vs. DCIT in ITA No. 1481/CHD/2017 the Hon'ble Chandigarh (jurisdictional) ITAT Bench has held as under: "In the light of the above, let us examine the facts of the present case. The stand of the assessee is that expenditure incurred for construction of building was from the routine business, and such addition of Rs. 32 lakhs ought to be treated as business income. We find force in this contention of the Id. counsel for the assessee, because the expenditure incurred for creating a business asset and it must have been generated through the business carried out by the a....
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....y source of income of the assessee. And, hence, all the income earned by the assessee is only on account of such business and therefore, needs to be taxed under the business head only. And, the case of the assessee is squarely covered by the judgment in the case of M/s. Arora Alloys vs. DCIT in ITA No. 1481/CHD/2017 the Hon'ble Chandigarh (jurisdictional) ITAT Bench has held as under: "the assessee, wherein it was alleged that it is for the purpose of the business. Therefore, to the extent the expenditure incurred for construction of the building, out of unexplained source is concerned, it is to be construed as earned from the business and it will take character of the business income. Once this income is to be assessed under the "business income", then all incidental benefits for set off from brought forward loss or any other expenditure is to be given to the assessee." 4.8 It was further submitted that in the order passed by the ld CIT(A) dated 02.12.2022, the ld CIT(A) has placed reliance on the judgments in the cases of Fakir Mohamad Haji Hasan v CIT 247 IT 290 (Guj), Kim Pharma Pvt. Ltd. v CIT 216 Taxman 153 (P&H), Famina Knit Fab v ACIT 176 ITD 246 (Chandigarh....
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....& sources of investment in such building either during the course of survey or post survey or during the assessment proceedings by presenting the documents related to those entries due to which the income was earned for investment in building. The condition of proving the source of such investment in building is the primary condition for applicability of provisions of Section 69B of the Income Tax Act which the assessee has not fulfilled and thus such income cannot be considered as income from business and profession as claimed by the assessee. Section 69B creates a fiction to deem certain unrecorded investments as income of the assessee for the financial year. Hence, even if the assessee offers the same as income in the Return of Income, it does not take away such income out of category of deemed incomes u/s 69B for the financial year in which it was found. The offer to surrender had been made by the assessee only after a Survey u/s 133A was conducted at the premises of the assessee and detailed physical verification of the building in possession of the assessee was made. And neither the investment in building nor the sources of the same were disclosed in the books of accounts. ....
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....rough which such unexplained investment in building had reached the assessee's business premises. The building and the capital for investment in such building cannot come from vacuum and there ought to be some source. The assessee it did not submit any material evidences that the investment in building was out of the unaccounted sales made by the business or the capital was introduced from some hidden source of the firm which the assessee do not want to disclose. The onus to prove the sources of the surrendered income lies entirely on the assessee and just because the assessee is carrying on certain business, it does not necessarily follow that the amount surrendered is earned by it through genuine business transactions. But the assessee has not disclosed any of such transactions. Thus the sources of such investment in building remains unexplained and the unaccounted investment cannot be treated as income from regular business income. Moreover, the offering of such income without any supporting evidences to the nature and sources of the income which were not recorded in the books of accounts of the assessee, itself tantamount to having accepted that the sources are unexplained ....
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.... the Hon'ble High Courts/Ld. Tribunal Benches have very clearly held out that the AO shall give an opportunity to the assessee to establish a linkage between the surrendered income with the business income, if any. If the assessee is able to do that then the income can be considered as from business. In the case of the assessee, the AO gave an opportunity to the assessee to establish a linkage between the surrendered income under the head of 'investment in building' and the business income. Hence, from above discussion, it is clear that in all the cases, the settled position of law is that the nexus between the surrendered income and business needs to be established before the same can be treated as income from business. 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 than disclosed business activities is not upon the AO. Therefore, there can be no presumption against the deeming fiction u/s 68 to 69D to hold that income/investment, whose s....
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....ntary evidence, bills, vouchers, purchase & sale, documents to justify the additional income of Rs. 45 lacs which has been surrendered as investment in building. If the AR is sure about the business nature of the receipts necessary documentary evidence should have been adduced. In the case of PCIT vs. M/s. Khushi Ram & Sons Pvt. Ltd., the Hon'ble High Court of Punjab & Haryana in ITA No. 126 of 2015 dated 21.07.2016 held as under: "It is not necessary that the surrendered amount is from business income, It could be on account of any other transaction legal or otherwise. Merely because an assessee carries on certain business, it does not necessarily follow that the amounts surrendered by him are on account of its business transactions. There is no presumption that absent anything else an amount surrendered by an assessee is his business income. It is for the assessee to establish the source of such surrendered amount." In the case of SVS Oil Mills vs. ACIT, Chennai, the Hon'ble High Court of Madrasin ITA No. 765 of 2018 dated 26.03.2019. held in para 9 of the order, as under: "When the excess stocks were found during the Survey, there is n....
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....ng 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 case of deemed incomes which are covered under the provisions of sections 69, 69A, 69B & 69C in view of the scheme of those provisions. 7. It is therefore, 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 such investment or acquisition and the value of such gold was not recorded in the books of account, nor the nature and source of its acquisition explained, there could arise no question of treating the value of such gold, which was deemed to be the income of the assessee, as a deductible trading loss on its confiscation, because such deemed income did not fall under the head of income 'Profits and gains of business or profession'. 8. In our opinion, therefore, the Tribunal was perfectly right in holding that the value of the gold was liable to be included in the inco....
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....ic head of income as enumerated in section 14 only when if is possible to peg the same to a know source/head of income. If the nature and source of a particular receipt is not known, it cannot then be pegged to a known source/head of income. Chapter IV contemplates computation of income arising from known sources/heads of income whereas Chapter VI, on the other hand, contemplates aggregation of the entire sum the nature and sources of which are not known. The aforesaid two Chapters are completely different in their nature, scope and effect. Though the income assessable under them are part of total income as defined in sections 2(45)/4/5 of the IT. Act yet that does not mean that income assessable under section 68 has to be assessed under section 56. In the case before us, source of unexplained cash credits is not known and hence they cannot be linked to any known source/head of income including income from other sources. In order to constitute 'income from 'other sources', the source, namely, the "other sources", has to be identified. Income from unexplained or unknown sources cannot therefore be considered or taxed as income from other sources. The aforesaid v....
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....visions of sections 69,69A, 69B and 69C treat unexplained investment, 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,69A and 69C of the Act in view of the scheme of those provisions. " Accordingly, the arguments of the AR that the surrendered income is to be treated as business income of the assessee is not acceptable and the additions made u/s 69B, are to be 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. The AR has not been able to adduce docu....
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....to be applied, firstly, there has to be a finding by the Assessing officer that the assessee has made investments during the financial year in the construction/purchase of the building. Thereafter, the Assessing Officer is also required to record a finding that the amount expended on making such investments in the building exceeds the amount recorded in this behalf in the books of account so maintained by the assessee for any source of income. Thereafter, the assessee has to be given an opportunity and his explanation has to be sought and in a scenario, where the assessee offers no explanation about such excess amount or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the excess amount may be deemed to be the income of the assessee for such financial year. Therefore, we are unable to appreciate where the Assessing officer says that the condition for proving the source of such investment is the primary condition for applicability of provisions of section 69B of the Act which the assessee has not fulfilled. The explanation of the assessee explaining the source of investment will arise once the Assessing officer records a finding that the ....
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.... that the whole case of the Revenue rests on the statement of one of the Partners of the assessee's firm recorded u/s 131 at the close of the survey proceedings conducted on 27/03/2018 at the business premises of the assessee. In response to question no. 9, he has stated that the land and building was purchased by the assessee firm in year 2014 and in response to question no. 10, he has stated that the investment in the immoveable property is duly reflected and accounted for in balance sheet and the account books are kept at the business premises only. Thereafter, in question no. 18, he has stated that "in order to (buy) peace of mind and to avoid litigation, we humbly surrender before your goodself an amount of Rs 45 lacs subject to no penal action on account of addition made to factory building only having no relation whatsoever to the nature of any income referred to in section 68, 69, 69A, 69B, 69C or 69D of the Act. The income tax return for A.Y 2018-19 shall be filed incorporating Rs 45 lacs as the same has been out of business income during the year towards cost of factory building and the tax due on the amount surrendered shall be paid in three installments i.e, on 31/03/20....