TaxTMI 
TaxTMI 
2025 (11) TMI 1761
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....d. CIT (A) has erred in law as much as in fact in not holding that valuation report obtained by the Survey Team during the course of survey was incorrect though the assessee has accepted the same and offered the amount of difference as business income of the assessment year under consideration? 3] Whether having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in confirming the action of Ld. AO in treating a sum of Rs. 69,37,859/- as undisclosed investment u/s 69B and further erred in charging tax as per provisions of section 115BBE and not considering the amount offered as income for the purpose of allowance of partners' remuneration ? 4] Whether on the facts and circumstances of the case, action of Ld. CIT (A) in treating Rs. 69,37,859/- as undisclosed income/investment u/s 69B of IT Act and not appreciating/considering the fact that income offered and assessed has got direct nexus with the business income of assessee and the basis of stock valuation was same as followed consistently in earlier years and accepted by the "Department" ? 3. Facts in Brief :- The assessee commenced its business on 01/06/2016 as partn....
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....ece 2607702 2600000 -7702 Diamond jewellery 16121848 24225424 8103576 D'damas jewellery and Hammer Plus 5474776 5524000 49224 Precious stones 2054512 2080521 26009 A D Jewellery 40268 42000 1732 Total 126056250 134314843 8258593 4. After comparing quantitative analysis of stock, the undisclosed investment in stock was arrived as under :- Undisclosed Investment in Silver Rs. 3,98,282 Undisclosed investment in precious stones Rs. 6,21,348 Undisclosed investment in diamond jewellery Rs. 58,55,236 Undisclosed investment in platinum jewellery Rs. 62,993 Total undisclosed investment Rs. 69,37,859 5. The learned CIT(A) partially allowed the appeal by holding as follows :- "Accordingly, the arguments of the appellant that the surrendered income is to be treated as its business income is not acceptable and the additions made u/s 69B is upheld. However, the AO is directed to restrict the addition to Rs. 69,37,859/- u/s 69B of the Act since the nature and source of this amount was not explained by the appellant either during the assessment proceedings or during the appellate s....
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....8. We find that the Co-ordinate Bench of the Tribunal, Chandigarh Bench, was in seisin of similar matter in Veer Enterprises v/s DCIT, 206 ITD 289, and had propounded their meticulous findings as narrated below vide their judgment dated 23/01/2024. "13. Heard. To appreciate the aforesaid rival positions, we refer to the provisions of Section 69A of the Act. Section 69A provides that 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 the 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. 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 ....
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....isclosed income and the reasonability of the explanation so offered by the Assessee keeping into account the facts and circumstances of the relevant case. In fact, if we look at the provisions of section 133A, clause (iii) of sub-section (3) provides that an income tax authority acting under this section shall record the statement of any person which may be useful for or relevant to any proceedings under this Act. Therefore, what explanation has been offered by the Assessee as part of his statement recorded u/s 133A needs to be analyzed and examined before drawing any conclusions in this regard. 16. We therefore find that through various questions raised during the course of survey, the Assessee has been asked about the nature and source of its income and various discrepancies so found during the course of survey. In response, Shri Veer Prakash, partner of the assessee 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 discr....
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....e nature and source thereof and it is clearly emerging that the source of such income is the business operations of the assessee. The assessee offered the amount of Rs. 9 lacs, thus amount being the difference between the amount of Rs. 23,19,000/-found at the premises and the amount of Rs. 14,90,000/-shown in the books of account as cash in hand. The assessee offered, for surrender, an amount of Rs. 10 lacs on account of stock not entered in the books of account, relating to debtors. The assessee further offered an amount of Rs. 21 lacs representing the amount entered in the books of account towards stock as against the excess stock found in the books of account towards stock as against the excess stock found in the physical verification during the survey. The statement of the Assessee 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 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....
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....o Sundry Parties is covered u/s 69, 69B or 69D is like an open ended hypothesis which is not supported by any specific finding that the matter shall fall under which of the specific sections and how the conditions stated therein are satisfied before the said provisions are invoked. It is like laying a general rule, which to our mind is beyond the mandate of law, that wherever there is a survey and some income is detected or surrendered by the Assessee, the deeming provisions are attracted by default and by virtue of the same, provisions of section 115BBE are attracted. The Id. PCIT has to record his specific findings as to the applicability of the relevant provisions and how the explanation called for and offered by the Assessee is not acceptable in the facts of the present case which is clearly absent in the instant case. Therefore, where the ld. PCIT himself is not clear about the applicability of relevant provisions and in the same breath holding the Assessing 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." 2....
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....ing 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 Le. 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 Assessee that first the business receipt has to be considered and then investment should be treated as coming out of such 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 be....
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....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 above observations, we restore the matter to the file of AO." 21. We find 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 t....
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.... of Hon'ble Gujarat High Court in the case of Fakir Mohd. Haji Hasan (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 Id. CIT(A) directing the AO to treat the surrendered amount as excess stock qua the excess stock found." 23. Thereafter, the Coordinate Jaipur Benches in the case of Bajargan Traders v. ACIT [IT Appeal No. 137 (JP) of 2017, dated 17-3-2017] has similarly held as under: 2.10. We have heard the rival contentions and perused the material available on record. During the course of survey, the Ass....
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....e 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.' 24. The said decision of Coordinate Jaipur Benches has since been confirmed by the Hon'ble Rajasthan High Court in case of Pr. CIT v. Bajargan Traders c/o. Kalani & Co. DB [IT Appeal No. 258 of 2017, dated 12-9-2017]. 25. Similarly, the Coordinate Chandigarh Bench in case of Gaurish Steels (P.) Ltd. v. Asstt. CIT [2017] 82 taxmann.com 337 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 lakh (ii) Discrepancy on account of construction of building Rs. 21 lakh (iii) Discrepancy in stock Rs. 10 lakh (iv) Discrepancy in advance a....
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....y 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." 26. Similarly, the Coordinate Chandigarh Bench in case of Famina Knit Fabs v. Asstt. CIT [2019] 104 taxmann.com 306/176 ITD 246 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 receivables being surrendered as i....
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....s 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 con-sequence 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 advance....
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....he 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 section 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 v. Deccan Jewellers Ltd. reported in (2021) 438 ITR 131 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 explanation that investment in excess stock was to be treated as business i....
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....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 judgment 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 judgment 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 not have legally invoked the provisions ....
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.... Assessee." In the absence of the explanation/evidence regarding the sources of the additional income being satisfactorily explained by the Assessee and applying the ratio of the Hon'ble Gujarat High Court in Fakir Mohmed Haji Hasan v. CIT (supra), we hold that the additional income offered is deemed income assessable u/s 69A of the Act and no deduction is allowable against such deemed income assessed u/s 69A of the Act in the hands of the Assessee. Following the ratio laid down by the Gujarat High Court in Fakir Mohmed Haji Hasan v. CIT (supra), once the Assessee has failed to explain the nature and source of cash found available with it and the same is assessed as deemed income u/s 69A of the Act, therefore, the corresponding deductions under the head Profits and gains are not available to the Assessee. The business loss determined for the year is not allowed to be set off against such deemed income included in the books of account. The alternative plea of the Assessee of assessing the income under the head income from other sources and allowing set off of losses u/s 71 of the Act also fail in view of the above. 10. The learned AR for the Assessee had placed reliance....
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....ndings of the Tribunal were affirmed and it was held that no substantial question of law arose and the appeal of the Assessee was dismissed. We therefore find that the statement of the General Manager as recorded during the course of survey played a decisive role and was taken into consideration by the Tribunal wherein he had admitted that 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) and thereafter, on further appeal, the order of the Tribunal was upheld by the Hon'ble High Court. Unlike the said case, in the present case, as noted hereinabove, the partner of the assessee firm, in his statement recorded during the survey, had clearly stated that he was one of the two partners of the assessee firm, that the business of the assessee firm, i.e., manufacturing clothes of small children was the only source of income of the assessee firm. When he was confronted with discrepancies as found by the Department in the survey, the assessee was so confronted not only with the discrepancies found but also the nature and source thereof and it has emerged that the source of income of the ....