TaxTMI 
TaxTMI 
2024 (1) TMI 1271
X X X X Extracts X X X X
X X X X Extracts X X X X
.... of Rs.9,00,000/-, alleged unexplained debtors of Rs. 10,00,000/-and Rs.21,00,000/- on account of excess stock already stands declared in books as business income and as such treating Rs.40,00,000/- to be unexplained and as income from other sources is illegal, arbitrary and unjustified. 3. That the order of the Ld. Commissioner of Income Tax (Appeals) has further erred in upholding that charging of tax at 60% applying the provisions section 115BBE which are not attracted in the instant case. 2. The facts are that a Survey u/ s 133A of the Income Tax Act, 1961 was conducted at the business premises of assessee on 10.10.2018 and various documents were impounded during the course of the survey proceedings. During the course of survey, the assessee had surrendered Rs. 40,00,000 /- by surrender letter dated 11.10.2018 including Rs.21,00,000/- on account of excess stock found, Rs. 9,00,000 /- on account of excess cash found and Rs. 10,00,000/- on account of unexplained debtors, based on impounded slips. Thereafter, the assessee was asked to show cause as to why the surrendered amount of Rs. 40,00,000/- should not be taxed as per the provisions of Section 115BBE of the Income....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ad of 'excess cash, excess stock and receivables' 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 source is not explained, will still be classified as income under any head u/s 14. It would be, therefore, impermissible to attempt and classify such incomes under any of specific heads, even if there is any activity which can be remotely/indirectly linked to such deemed income. The word 'source' in the same context would refer to nexus of such income generating activity/transaction with name and identity, creditwo....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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 documentary evidence to establish the nexus between the surrendered income and business and no source for the surrendered income could not related to" 6. The CIT(A) relied on the following case laws : (1) Fakir Mohammed Haji Hasan Vs. CIT ( [2001] 247 ITR 290 (Guj.) (2) 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 (3) SVS Oil Mills vs. ACU, Chennai, the Hon'ble High Court of Madras in ITA No. 765 of 2015 dated 26.03.2019 (4) Kim Pharma Pvt. Ltd. vs. CIT in ITA No. 106 of 2011 dated 27.04.2011, (5) The Hon'ble Supreme Court in the cases of Roshan Di Hatti vs. CIT [1977] 107 ITR 938 (SC) (6) Hon'ble ITAT Cochin Bench, Cochin in the case of M/s. Bhima Jewellers vs. PCIT Kozhikode in ITA No. 208/Coch/2018, Assessment Year 2013-14 7. The ld. CIT(A) held that these decisions also bring ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... of pieces sold has been mentioned. The income tax department has not found any slip in which any other material has been sold in which the assessee was not dealing regularly. The assessee has arranged copies of Aadhaar Card of some of the persons to whom the hosiery goods has been sold, copies of which were furnished. These persons are not regular business men and mainly doing work on piece rate system in the factories but purchase goods from the assessee for selling the same to their friends & relatives and thus earn some profit out of it. As regards the difference of cash, has been submitted that the same was found in the premises of the assessee where the business was going on. The difference is from the business activities. Anything arising out of business activities is a business income and the same has been duly explained. 8.2. It has also been submitted that after the survey, the entries in the books of account has been passed and proof of the same has been submitted to the assessing officer in the form of ledger account. Cash has been increased in the books of account, slips have been entered in the books of account as due from debtors and entry relating to the stock ha....
X X X X Extracts X X X X
X X X X Extracts X X X X
....pts. But this claim is not acceptable, as the debtor represent receivables which were not recorded in the books of account. Cogent evidences regarding such receivables were found during the course of Survey. The assessee has submitted a ledger account of M/ S Miscellaneous debtors for F.Y. 2018-19 showing cash receipt of mostly Rs.10,000/- each from 11.10.2018 to 26.12.2018, from Grewal, Neelam, Surinder, Manish, Bhuvan, Santoshi, Hunni and Rohit. But no proof of the sale made to them or the identity of such claimed debtor has been provided. Even during the course of survey, the assessee was having the full opportunity to show the sources of the claimed sales made to such person, but the assessee has not given any explanation showing that such income was its business income. Further, the assessee has not provided the bills and vouchers which were not recorded in the regular books of account. Therefore in view of the facts of the case and the material available on record, it was found that the sources of the claimed debtors were unsubstantiated and remained unexplained and thus, the provisions of section 69B of the Income Tax Act, 1961 were applicable. 9.3.1. The ld. Counsel for ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rved and the same had been surrendered as additional business income. During the survey, no question had been asked as to from where the cash has been generated. At that time, as the survey was conducted on a business premises, everybody present there was aware of the fact that if any type of difference is there, whether it related to stock, or debtor, or cash, all related to the business and if any difference will be observed then the same is from the activity of the business only. So, nobody from the survey team asked any question regarding this. 10. The ld. Counsel for the assessee also submitted that in response to the ld. CIT(A)'s notice u/s 250, the assessee was submitting before the ld. CIT(A), copies of the slips of sundry creditors, against which, income had been surrendered during survey, the statement recorded during the survey and the Power of Attorney. It was submitted that regarding providing of any documents for the identification of the sundry debtors to whom the material had been sold, they were very small traders and neither the assessee was dealing regularly with them, nor were they regularly engaged in the trading of the hosiery goods; that the assessee w....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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/ss 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/ ss 68 to 69D to hold that income/investment, whose source is not explained, will still be classified as income under any head u/ s 14. It would be, therefore, impermissible to attempt and classify such incomes under any of the specific heads, even if there is any activity which can be remotely/indirectly linked to such deemed income. The word 'source' in the same context would refer to nexus of such income generating activity/transaction with name and identity, creditworthiness of person with whom such activity/ transaction was done along with proving the genuineness of transaction also. The requirement of proving these three essential ingredients to prove the source in order to escape the rigors of the deeming fiction has been upheld universally. The conjoint burden of proving the nature and source is, therefo....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e 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. As per Section 69B 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 AO 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 hands of the AO, satisfactory, the excess amount may be deemed to be the income of the assessee for such Financial Year. 14. In the instant case, for the deeming provisions of section 69 to be attracted, there has to be a finding that the Assessee has made investments during the financial year in the stock and by way of advances, such investments are not recorded in the books of account so maintained by the Assessee, and the Assessee offers no explanation about the nature and so....
X X X X Extracts X X X X
X X X X Extracts X X X X
....see firm, on behalf of the, the assessee, has stated that he is a partner in the Assessee firm, which is engaged in the business of manufacture of clothes for small children, like suits, knickers, pyjamas, etc. 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 account, 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 account. 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 its business operations. There is a clear statement of the partner of the assessee that the advances are related to its business, however since the same have not been recorded in the books of account, 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 account, thus, ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....o 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. 18. In our view, what is relevant before invoking the deeming provisions is not just the factum of survey action but besides that, what is the explanation so offered by the Assessee explaining the nature and source of income so found during the course of survey proceedings and which has not been recorded in the books of account and the same is the essence of the statutory provisions as duly recognized by the Courts and various Benches of the Tribunal and which has been reiterated from time to time. The statement of the Assessee has to be read as a whole and not in piecemeal especially where the Revenue is relying on the same statement and in such circumstances, the defence available to the Assesse....
X X X X Extracts X X X X
X X X X Extracts X X X X
....essing 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." 20. 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 AO and thereafter on further appeal, the Coordinate Ahmedabad Bench held that the excess stock found during the survey is not separately and clearly identifiable but is part of mix lot of stock found at the premises which included declared stock as per books and also the excess stock as computed by the Survey Officers and therefore the provisions of Section 69B can....
X X X X Extracts X X X X
X X X X Extracts X X X X
....uch 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 business receipt invested in unidentifiable unaccounted asset and only on failure it should be considered to be taxed under section 69 on the premises that such excess investment is not recorded in the books of account and its nature and source is not identifiable. Once such excess investment is taxed....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d that in the present case, the difference in stock found by the authorities has no independent identity and it is part and parcel of the entire stock. Therefore, it cannot be said that there is an undisclosed asset which existed independently and thus, what has been declared before the Department is received from business and it is not any investment, since it cannot be co-related with any specific assets. The difference, therefore, should be treated as the undeclared business income of the assessee. 22. Following the said decision of the Coordinate Ahmedabad Bench, the Jaipur Bench of the Tribunal in case of DCIT Vs. Shri Ram Narayan Birla( Supra) has taken a similar view holding that the excess stock so found during the course of survey was part of the stock and the Revenue has not pointed out the excess stock has any nexus with any other receipts other than the business being carried on by the Assessee. The relevant findings are contained at para 4.3 which read as under: "4.3. We have heard rival contentions and perused the material available on record. Undisputed facts emerged from the record that at the time of survey excess stock was found. It is also not dispute....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ave 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 stock of rice has been brought on the books and now forms part of the recorded stock which can be subsequently sold out and the profit/loss therefrom would be subject to tax as any....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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 2005-06 on account of sundry credits, repairs to building and advances to staff, which being relatable to business carried o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....y 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 subject to no penalty and prosecution under the I.T. Act, 1961. Since the company is incurring losses....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... (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 income. Therefore, the set....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e, 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 recorded in the books of the Assessee but the source of the same stood duly explained by the Assessee as being from the business of the Assessee and even otherwise no other source of income of the Assessee was on record either disclosed by the Assessee or unearthed by the Revenue. The Bench further held that the preponderance of probability, therefore, is that the debtors were sourced from the busines....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ions 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." 28. Now, coming to the decision of Kim Pharma ( P) Ltd. Vs. CIT [2013] 35 taxmann.com 456 (P&H). Briefly the facts of the case were that the survey under section 133A was conducted at the business premises of the Assessee and during the course of survey, cash amounting to Rs. 5,00,000/- was found which was surrendered by the Assessee for A.Y 2006-07 and another amount of Rs. 10, 00,000/- was surrendered for A. Y. 2005- 06 on account of sundry credits, repair to building and advances to staff. The matter pertaining to A.Y 2006-07 came up for consideration before the Coordinate Chandigarh Benches and taking note of the statement of the General Manager of the Assessee company recorded during the course of survey wherein he had admitted the said cash has been generated out of income from other sources and in the absence of nature of source of cash being proved, it uphold the order of the CIT( A) in including the additional income as deemed income u/....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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 only and not from other sources. The said conclusion of the Tribunal was upheld by the Hon'ble Karnataka High Court in CIT & another vs. S.K.Srigiri& Bros. (supra) and the remuneration paid to the partners was held allowable against the additional income form business. The said precedent has been taken note of by the Hon'ble Gujrat High Court. 10. In the facts of the present case, we find that Assessee during the course of survey had surrendered the income as income from other sources though a plea has been raised by the Assessee that the income was surrendered as income from job work but no evidence to prove the stand of the Assessee has been brought on record. The Assessee had also surrendered additional income of Rs. ....