TaxTMI 
TaxTMI 
TaxTMI 
2024 (5) TMI 639
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....pplying double taxation on amount of Rs. 29,23,000/-, without considering the fact that the same amount has been already surrendered by the assessee on account of "excess stock" found during the course of survey and taxes were paid accordingly. 4. That the Ld. CIT(A)5, Ludhiana has erred in disallowing depreciation amounting to Rs. 70,000/- on the building. 5. Notwithstanding, the above said grounds of appeal, the Ld. CIT(Appeals) has wrongly confirmed the order passed u/s 143(3). 6. That the Ld. CIT(A), Ludhiana has erred in confirming the action of the Assessing Officer in invoking the provision of Section 68 of the Income Tax Act, 1961 on account of the additions has made by the Assessing Officer. 7. That the appellant craves leave to add, amend, alter any of the above grounds during the appellate proceedings have been considered. 3. Briefly the facts of case are that the assessee is engaged in the business of manufacturing of Fabrics and Readymade Garments under the name and style of M/s Ganesh Fabrics. A survey action under section 133A was conducted at the business premises of the assessee on 16/03/2018 wherein the assessee surrendered a sum of Rs. 50,53,000/- on acc....
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..... Against the said findings and the direction of the Ld. CIT(A), the assessee is in appeal before us. 6. During the course of hearing, the Ld. AR submitted that during the course of survey action at the business premises of the assessee on 16/03/2018, certain discrepancies were found on account of physical verification of stock vis-a-vis regular books of account and there was a difference of Rs. 28,53,000/- and in order to buy peace of mind, the assessee surrendered an amount of Rs. 28,53,000/- on account of excess stock over and above its normal business income. Besides that, the assessee surrendered a sum of Rs 14,00,000/- on account of discrepancy in cost of building and Rs 8,00,000/- on account of disallowance u/s 40A(3) of the Act. 6.1 It was submitted that during the course of survey action as well as during the course of assessment proceedings, no other source of income has been identified and all the income which accrues to assessee is on account of its regular business of manufacturing and selling of hosiery goods and fabrics which the assessee is carrying on for last so many years. It was accordingly submitted that the excess stock of Rs. 28,53,000/- pertains only to th....
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....uch an acquaintance cannot take away the right of a party to which he is otherwise entitled to, or in other words, to be assessed as business income. Law is also, well settled that, no tax can be collected without the authority of law as guaranteed by Article 265 of the Constitution of India. Therefore, even if the assessee has made some commitment but later on found wrong in law, it cannot work as an estoppel and the assessee, if still feels aggrieved in any manner, can pursue legal remedy. Hence, showing income under a wrong head in the return of income cannot be taken as an admission It is thus, held that the additional income was in the nature of business income and don't fall under Sec. 68 and/or Sec. 69 of the Act and consequently therefore, Sec. 115BBE could not have been invoked. In view of the above discussion, therefore, we are of the considered view that the Ld. Pr. CIT was not at all justified by invoking the provisions of Sec. 263 by wrongly/incorrectly holding that the subjected assessment order u/s 143(3) dated 25.02.2019, was passed without considering that the income declared under the head of other sources of Rs 28,95,300/-, being recovery of cash amount of ....
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....surrender on account of addition to the building, hence, disallowing the depreciation of such building would result in double taxation. 6.9 It was submitted that as the assessee has duly paid tax on all such amount of surrender made by the assessee, therefore, making additions of the same amount to the total income of the assessee are wholly invalid as it results 'double taxation and therefore, against the principles of natural justice. Further, the application of provisions of section 115BBE of the Act in the case of the assessee is wholly invalid as apart from the nominal interest incomes, the assessee has been earning income under the head Income from Business/ Profession only and no other source of income has been found by the Ld. AO during the course of assessment proceedings. Hence, the additions made by the Ld. AO deserve to be deleted and the application of provisions of section 115BBE in the case of assessee is uncalled for. 7. Per contra, the Ld. DR submitted that for the unaccounted stock found during the survey proceedings, there can be no presumption to treat the value representing such excess stock as application of business income in absence of any evidence of ....
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....onability of the explanation so offered by the assessee needs to be analysed and examined to draw necessary conclusions in this regard and discretion so vested in the AO for invocation of the deeming fiction so envisaged in the statute can accordingly be exercised. 8.2 For the purposes, we refer to the statement so recorded of the assessee during the course of survey on 16/03/2018. In Question no. 22, it was stated that during the course of survey proceedings u/s 133A, physical verification of stock lying in the business premises was done and after physical verification, it comes to Rs 67,42,240/- whereas as per profit/loss account, the stock is Rs 42,93,058/- and the assessee was asked to explain the difference. In response, the assessee submitted that as per last year gross profit, the value of closing stock should be Rs 42.93 lacs and the difference in stock value is due to gross margin increase in sale due to good season for the current financial year, however, to buy piece of mind, he declares the difference of Rs 28,53,182/- which also includes the value of stock sent for job work as his income for the current financial year subject to no penal action. We therefore find that....
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....e 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 cannot be made applicable as primary condition for invoking the said provision is that the asset should be separately identifiable and it should have independent physical existence of its own and since excess stock as a result of suppression of profit from business over the years and has not kept identifiable separately but as part of overall physical stock found, the investment in the excess stock has to be treated as business income and thereafter has referred to the decision of the Tribunal in case of Fashion Fashion World Vs. ACIT (IT Appeal No. 1634(Ahd.) of 2006, dt. 12/02/2010) wherein the Tribunal had observed as un....
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....fiable 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 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 sh....
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.... 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 disputed that the assessee is engaged in the business of jewellery. During the course of survey excess stock valuing Rs. 77,66,887/- was found in respect of gold and silver jewellery. The Coordinate Bench in the case of Chokshi Hiralal Maganlal vs. DCIT, 131 TTJ (Ahd.) 1 has held that in a cases 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 accoun....
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..... 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 other normal business transaction. Secondly, the unrecorded investment which has gone in purchase of such unrecorded stock of rice has been recorded in the books of accounts and offered to tax by crediting the said amount in the profit and loss account. Had this investment been made out of known source, there was no necessity for assessee to credit the profit/loss account and offer the same to tax. Accordingly, we do not see any infirmity in assessee's bringing such transaction in its books of accounts and the accounting treatment thereof so as to regularise its books of accounts. In fact, the same provides a credible base for Revenue to bring to tax subsequent profit/loss on sale of such stock of rice in future. 2.11. Having said that, the next....
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....nd 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 on by the assessee was already included as income from business. 13. In the present case, we see that the Assessing Officer has nowhere disputed the business losses incurred by the assessee. The books have not been rejected. It was stated at the Bar that even at the time of survey, in the trading account prepared by the survey team, there were losses incurred by the assessee. All these facts have not been disputed by the Assessing Officer. Further, the surrender made by the assessee was on account of cash found during the course of survey, discrepancy in the cost of construction of building, discrepancy in stock and discrepancy in advances and receivables. By no stretch of imagination, any of these incomes apart from cash can be considered as income under any head other that the 'business incom....
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....ording 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 in current F.Y. 2012-13, the surrendered income will be adjusted against these losses." [Extracted from the impugned assessment order; pages 5 &6]." 20. Clearly, it is evident from the above that the surrender was on account of debtors/receivables relating to the business of the assessee only. The Revenue has accepted the surrender as such, as being on account of receivables. It follows 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. 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. Even otherwise no other source of income of the ass....
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....render 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 off of business losses, both current and brought forward are to be allowed as per the provisions of law. As far as the income surrendered and to be assessed u/s 69, 69A, 69B and 69C of the Act, as held above before us, the same is to be subjected to tax as per the provisions of section 115BBE of the Act." 8.10 In the instant case as well, the surrender on account of excess stock, being the regular stock in which assessee deals in and thus related to the business being carried on by the assessee. 8.11 Similarly, the Coordinate Chandigarh Bench in case of M/s Sham Jewellers Vs. The DCIT (Supra) has held as under: "10.17 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 of the Ld. AR has been that all the additions made or sustained relate ....
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....h 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 business of the assessee. Therefore, there was no question of treating it as deemed income from undisclosed sources u/s 69, 69A, 69B, or 69C of the Act and the same was held to be in the nature of business income of the assessee. 10.20 Thus, as in the present case, where the source of investment or expenditure is clearly identifiable and the alleged undisclosed asset has no independent existence of its own or there is no separate physical identity of such investment or expenditure, then, first, what is to be taxed is the undisclosed business receipt invested in unidentifiable unaccounted asset and only on failure can it be considered to be taxed u/s 69 of the Act and further where once such investment or expenditure i....
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....from business and not any investment as it cannot be co-related with any specific asset and the difference should thus be treated as business income. 8.13. In light of aforesaid discussion and in the entirety of facts and circumstances of the case, the income so surrendered on account of investment in excess stock during the course of survey cannot be brought to tax under the deeming provisions of section 69B of the Act and the same has to be assessed to tax under the head "business income". In absence of deeming provisions, the question of application of section 115BBE doesn't arise and normal tax rate shall apply. The AO is thus directed to assess the income under the head "Income from Business/profession" and apply the normal rate of tax. 8.14. Coming to the matter relating to surrender on account of cost of building amounting to Rs 14,00,000/-, from the perusal of the statement of the assessee recorded during the course of survey, it is noted that the building was constructed way back in the year 2014-15 and during the year under consideration, certain renovation and extension work has been undertaken by the assessee. In terms of cost of such renovation and extension, no bill....