TaxTMI 
TaxTMI 
2024 (5) TMI 637
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....reciated. 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 survey 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 during the financial year relevant to impugned assessment year, the assessee was engaged in the business of manufacturing and selling of Knitted Cloths, hosiery garments and dyed yarn under the name and style of M/s A.P. Knit Fab, Ludhiana. A survey action under Section 133A was carried out at the business premises of the assessee on 26/10/2017 wherein the assessee had surrendered a sum of Rs. 1,00,24,282/- on account of excess stock. Subsequently, the assessee filed its return of income on 21/09/2....
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....idered 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 stock in possession of the assessee was made. 3.5 It was held by the AO that even in the surrender letter, the assessee has specifically admitted that it was unable to explain the difference of Rs 1,00,24,282 on account of excess stock found which shows that the investment was out of unexplained sources. The surrender was made by the assessee without any coercion or pressure and the assessee has not retracted from the findings of the survey and the surrender made in consequence to it. Further, the assessee was provided multiple opportunities to provide the sources of investment in stock and link the sources of investments with ....
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....ing on for last so many years. It was accordingly submitted that the excess stock of Rs. 1,00,24,282/- pertains only to the regular business of the assessee and be therefore be assessed under the head "business income". 6.2 It was further submitted that the excess stock so found was the only stock in which the assessee was regularly dealing and the department has itself compared the said stock with the stock as per books of account which ample makes it clear the department itself accepted that the stock pertains to the regular books of the assessee. It was submitted that after the surrender, the assessee has recorded the said stock in its books of account maintained for the regular business. 6.3 It was further submitted that at the relevant point in time when the survey action was carried on the assessee, similar survey action was carried out in case of partner of the assessee firm, Shri Anil Kumar Jain wherein he also surrendered excess sock and which has been accepted by the AO as business income while passing the assessment order for A.Y. 2018-19. It was accordingly submitted that where the stock itself pertains to the regular business of the assessee and has been acquired by ....
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....as deemed income under section 69B of the Act and which has been brought to tax as per the provisions of Section 115BBE of the Act. It was accordingly submitted that the order so passed by the Ld. CIT(A) be confirmed and the appeal so filed by the Assessee be dismissed. 8. We have heard the rival contentions and purused the material available on record. The AO has invoked the deeming provisions of section 69B and brought to tax excess stock found during the course of survey which is under challenge before us. It is a settled legal proposition that there is difference between the undisclosed income and unexplained income and the deeming provisions are attracted in respect of undisclosed income however, the condition before invoking the same is that the assessee has either failed to explain the nature and source of such income or the AO doesn't get satisfied with the explanation so offered by him. 8.1 In particular, for the deeming provisions of Section 69B to be attracted in the instant case, there has to be a finding that the assessee has made investments in the stock during the financial year and such investments are not fully recorded in the books of accounts so maintained by t....
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.... income. The statement of the partner of the assessee firm is available on record and related documents so found during the course of survey are stated to be in possession of the Revenue authorities. Apparently, the AO has failed to appreciate the statement of the assessee recorded during the course of survey and other documents and findings of the survey team which are very much part of the records. Further, in the surrender letter dated 27/10/2017, the assessee through its partner has stated that during the course of survey operations, certain discrepancy out of excess stock of Rs 1,00,24,282 has been found and to purchase piece of mind and to avoid litigation, the additional income of Rs 1,00,00,000/- is voluntarily surrendered on account of excess stock found out of their normal business income for the current financial year 2018-19 over and above normal business income. 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 asse....
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....t 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 unaccounted investment under section 69 without considering the claim of the assess....
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....h 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 section 40(b) has to be considered accordingly. For calculation of income in view of our abov....
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....t is satisfactorily established then first such investment should be considered as undeclared receipt under that particular head. It is observed that there is no conflict with the decision of Hon'ble Gujarat High Court in the case of Fakir Mohd. HajiHasan (supra) where investment in an asset 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, the Hon'ble Coordinate Bench held that where asset in which undeclared 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 the excess stock was part of the stock. The revenue has not pointed out that the excess stock has any nexus with any other receipts. Therefore, we do not find any fault with the decision of the ld. CIT (A) directing the AO to treat the surrendered amount as excess stock qua the excess stock found." 8.6 Thereafter, the Coordinate Jaipur Benches in case of Bajargan Traders Vs. ACIT (in ITA No. 137/JP/2017 dt. 17/03/201....
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...., the investment in procurement of such stock of rice is clearly identifiable and related to the regular business stock of the assessee. The decision of the Co-ordinate Bench in case of Shri Ramnarayan Birla (supra) supports the case of the assessee in this regard. Therefore, the investment in the excess stock has to be brought to tax under the head "business income" and not under the head income from other sources". In the result, ground No. 1 of the assessee is allowed." 8.7 The said decision of Coordinate Jaipur Benches has since been confirmed by the Hon'ble Rajasthan High Court in case of PCIT vs Bajargan Traders (DB Appeal No. 258/2017 dt. 12/09/2017). 8.8 Similarly, the Coordinate Chandigarh Benches in case of Gaurish Steels Pvt. Ltd. Vs ACIT 43 ITR (Trib) 414 has held as under: "10. We have heard the rival contentions and perused the material available on record. This is a fact on record that the assessee surrendered an amount of Rs. 70 lacs as additional income during the course of survey conducted at its premises on account of following heads: (i) Discrepancy on account of cash found Rs. 9 lacs (ii) Discrepancy on cost of construction of building Rs. 21 lacs (i....
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...., even the survey team has not found any source of income except the business income. Now, following the judgment of Jurisdictional High Court, in the background of the facts of the present case, we can safely infer that apart from cash all other income surrendered may be brought to tax under the head 'business income' while the cash has to be taxed under the head deemed income under section 69A of the Act." 8.9 Similarly, the Coordinate Chandigarh Bench in case of Famina Knit Fabs Vs. ACIT reported in (2019) 176 ITD 246 (Chd-Trib) has held as under: "19. In the facts of the case in ITA No.408/Chd/2018, the income surrendered was on account of unaccounted receivables of the business of the assessee amounting to Rs. 1.25 crores. The Ld.CIT(A) in para 9 of the order has outlined the facts relating to the surrender made by the assessee stating that during survey a pocket diary was found from the account section of the assessee company which contained entry of receivables amounting to Rs. 1.25 crores on pages 27, 28, 31 and 33, which were not recorded in the regular books of the assessee and were subsequently surrendered stating that these entries were unaccounted sundry rec....
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....ld so, the same was assessable under the head 'business and profession' and as stated above, the benefit of set off of losses both current and brought forward was allowable to the assessee in accordance with law. 21. The contention of the Revenue therefore that the income be treated as deemed income u/s 69,69A/B/C of the Act is accordingly rejected and as a consequence thereto the plea that no set off of losses be allowed against the same u/s 115BBE of the Act also is rejected. 22. Therefore, as per the facts of the case in ITA No.408/Chd/2018 and as per the provisions of law relating to the issue, the surrendered income, we hold, was assessable as business income of the assessee and set off of losses was to be allowed against the same as rightly claimed by the assessee. The appeal of the Revenue, therefore, in ITA No.408/Chd/2018 is dismissed. 23. Now coming to the facts of the case in ITA No/1494/Chd/2017, the income surrendered was on account of the following as narrated above in earlier part of our order: (i) investment of Rs. 60 lacs in Kothi at Sukhmani Enclave in the name of Smt. Rekha Miglani; (ii) Sundry creditors and advances received from customers amounting ....
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....ent order would also show that nowhere in the body of the assessment order, the AO has even contradicted this explanation of the assessee. The AO has not brought on record any iota of evidence to demonstrate that the assessee had any other source of income except income from business and, therefore, it is our considered view that deeming such income under the provisions of sections 68 or 69 would not hold good. In our view, in such a situation, the AO could not have legally and validly resorted to taxing the income of the assessee at the rate of 60% in terms of provisions of section 115BBE of the Act. 10.18 The Hon'ble Andhra Pradesh High Court in the case of Principal Commissioner of Income Tax Vs. Deccan Jewellers Ltd. reported in (2021) 438 ITR 131 (AP) held that where the assessee was engaged in the business of Gold and Diamond jewellery and Silver articles and during the search and seizure operation u/s 132, excess stock was found to be declared and the assessee had submitted that excess stock was result of suppression of profit from business over the years and the same had not been kept identified separately and the AO had duly considered and accepted the assessee's exp....
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....igh Court in the case of Kim Pharma Ltd. Vs. CIT in ITA No. 106 of 2011 (O&M) and the Ld. CIT DR has also quoted the same in his arguments before us. However, after going through the aforesaid judgement of the Hon'ble Punjab & Haryana High Court, it is seen that in that particular case, the only issue was with regard to the cash surrendered at the time of survey and no other income. The cash found could not be related to the already disclosed and accepted source of income of the assessee and, therefore, the Hon'ble Punjab & Haryana High Court held that such surrendered cash was to be treated as deemed income u/s 69 of the Act. However, in the present case before us, the assessee has only one source of income i.e. business income and nowhere has it been brought on record that the assessee had any other source of income except business income and, therefore, we respectfully state that judgement of the Hon'ble Punjab and Haryana High Court in the case of Kim Pharma Pvt. Ltd (supra) would not apply on the facts of the present case. 10.23 Accordingly, keeping in view the various judicial precedents as cited above and respectfully following the same, we hold that the AO could n....