TaxTMI 
TaxTMI 
2025 (2) TMI 1557
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....opriate to take the brief facts which has given rise to these issues. 4. The brief facts of the case are that assessee firm was engaged in manufacturing of animal feeds. A search under Section 132 of the Income Tax Act was carried out upon AFI Group of companies and the assessee pertains to that group. Therefore, residence of partners were covered under search. A survey under Section 133A was carried out at the premises of the assessee. A notice under Section 153C of the Income Tax Act was issued on 19.09.2021. The assessee has filed its return of income on 25.10.2019 declaring total income of Rs. 3,69,86,500/-. A notice under Section 143(2) was issued and served upon the assessee. The AO has passed the assessment order on 30.09.2021. He has computed the income as under : Returned income Rs. 3,69,86,500/- Addition as per para 7.5 Rs. 1,79,82,726/- Addition u/s 69 as per para 8.2 Rs. 32,76,061/- Addition as per para 9 Rs. 82,85,851/- Addition u/s 69 as per para 10.7 Rs. 5,63,463/- Total assessed income Rs. 6,70,94,601/- 5. Reverting back to the grounds of appeal, we note that under Ground No.1 the revenue has been challenging the finding of ....
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.....Y. 2018-19 and 2019-20. Out of the said additional business income of Rs. 3 Crores, a sum of Rs. 2.8 Crores has been disclosed in the Assessment Year 2018-19. The additional business income stood invested in various Assets/used in withdrawals. However, no entries have been made in the books of account for the Financial Year 2017-18. Rs. 2,80,00,000/-. " 8. It further emerges out that during the course of survey, a diary was found which was inventorized as Annexure-A. A perusal of this diary would reveal that assessee has recorded unaccounted sales in this diary. The AO has computed the alleged unaccounted sales at Rs. 17,80,46,796/-. He estimated the income @ 10.10% on this undisclosed turnover and worked out an addition of Rs. 1,79,82,726/-. This issue has been discussed by the AO in paragraph No. 7.3 to 7.5. 8.1 Apart from this, the AO has observed that assessee has accounted sales of Rs. 63,53,23,579/- on which it has adopted a gross profit rate at 8.80% which gives a GP figure of Rs. 5,58,81,830/-. The AO was of the view that GP ought to be estimated at 10.10% instead of 8.80% adopted by the assessee because the ld. AO has rejected the book result on the basis o....
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.... The AR in the submissions has stated that the Assessing Officer while framing the assessment has made separate addition of Rs. 1,79,82,726/- on account of GP @10.10% on extrapolated sales and Rs. 82,85,851/- on account of rejection of books of accounts. The addition was made without giving the benefit of income already offered to the tune of Rs. 2.80 crores during the survey/search proceedings. As per the AR, the undisclosed income generated from the unaccounted sales as calculated by the Assessing Officer has been routed into the investments which have already been offered in the surrender and return of income has been filed for the same. The detail of the investments made has already been elaborated above. The AO was justified in rejecting the books of accounts as the assessee is deriving benefit of the installed plant & machinery and building in making both disclosed as well as undisclosed sales. Also, the electricity component/direct expenses as claimed in trading account are used both for making disclosed as well as undisclosed sales. Therefore, the AO was justified in rejecting the books of accounts as the profits declared in the regular books of accounts, were n....
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....s. 2,80,00,000 2. Difference in GP @1.3% as pointed by the AO in the assessment order para 9 8285851 Unaccounted additional Capital as per para 8.2 of the assessment order 813034 3. Opening cash available (B/F from last year) as per para 5.5 of Appeal No. 10867/2016-17/IT/CIT(A)- 5Ldh/2021-22 7061707 Excess valuation of Factory building as per para 10.7 of the assessment order 509141 Total funds available 33330284 Total application of funds 2,93,22,175 To understand the issue better, it is important to see that there may be a case where there is an unexplained income of an assessee in the first part of a year and also a corresponding unexplained investment of somewhat similar amount in the later part of the year, in such case unless there js evidence to the contrary, it may be treated that the unexplained investment has been made out of the unexplained income. Thus, in such case instead of adding both unexplained income as well as unexplained investment to the income of the assessee, it would be wise to add one of them, as both represent only one income. In simple words and as applied in the tax law, it means ide....
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.... for the purpose of Section 69A automatically or its characters to be determined on the basis of facts and circumstances of a particular case. The ITAT Chandigarh Bench in the case of Veer Enterprises Vs DCIT reported in 158 taxmann.com 655/206 ITD 289 has examined this issue very lucidly and we cannot do better than taking note of the extensive discussion made by the Tribunal on the position of law as well as test required to be applied for determining this transaction. Therefore, for facility of reference, we take note of the finding of the Tribunal from this judgement from para 13 onwards : "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 n....
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....133A and some undisclosed income has been detected and surrendered by the Assessee and thus, the deeming provisions are automatically attracted. Rather the foundational requirement is whether the Assessee has made the investment/has been found to be owner of cash and the explanation offered by the Assessee explaining the nature and source of such undisclosed 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, ....
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....at their firm manufactures garments for small children, like suits, knickers, pyajama, etc.; that there was no other source of income. He was confronted with the discrepancies found in terms of excess cash, excess stock and receivables. We find that rather, the assessee was confronted with not just the discrepancies so found during the survey, but the 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 f....
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....ey attract the deeming provisions of section 68, 69, 69A, 69B & 69C is not apparent from the impugned order. Merely stating that excess cash is clearly covered u/s 68 or 69A, excess stock is covered u/s 69 or 69B, construction of Shed/Godown is covered u/s 69B or 69C and advances made to 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 ld 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 re....
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....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 Assessee that first the business receipt has to be considered and....
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....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 above observations, we res....
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....ablish nexus and if it 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." 23. Thereafter, the Coordinate Jaipur Benches in the case of Bajargan Traders Vs. AC....
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....stock of rice. Therefore, 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." 24. The said decision of Coordinate Jaipur Benches has since been confirmed by the Hon'ble Rajasthan High Court in case of PCIT vs Bajarang Traders (DB Appeal No. 258/2017 dt. 12/09/2017). 25. Similarly, the Coordinate Chandigarh Bench in case of M/s Gaurish Steels Pvt. Ltd. Vs. ACIT (Supra) 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) Discrepanc....
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....nstruction of building, discrepancy in stock and discrepancy in advances and receivable. Further, 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." 26. Similarly, the Coordinate Chandigarh Bench in case of Famina Knit Fabs Vs. ACIT(Supra) 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 sub....
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....e Act and the same is held to be in the nature of Business Income of the Assessee. Having held 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....
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....ould 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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....n'ble Punjab & Haryana High 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 followin....
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....icles not recorded in the books of account or the unexplained expenditure may be deemed to be the income of such 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 Gujrat High Court in Fakir Mohmed Haji Hasan Vs. C IT (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 Gujrat High Court in Fakir Mohmed Haji Hasan Vs. 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 ....
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....y the Assessee and therefore it was deemed income of the Assessee under section 69A of the Act and accordingly the findings 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 herein above, 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 wi....
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....463/- and added this amount as unexplained investment by the assessee in the factory building. 15. Dissatisfied with this addition, assessee carried the matter in appeal before the CIT(A). It has pointed out the source of funds available with it vis-à-vis application of funds. The ld. CIT(A) has reproduced source of funds and where such funds have been applied in Table No. 4 at page 28 of the impugned order. This table reads as under : Sr. No. Sources of Funds Amount Application of Funds Amount 1. GP @10.10% as per para 7.5 of the assessment order 17982726 Building, Land, Gold/ Withdrawal by partner, Stock, Miscellaneous fixed assets (surrendered by the assessee) Rs. 2,80,00,000 2. Difference in GP @1.3% as pointed by the AO in the assessment order para 9 8285851 Unaccounted additional Capital as per para 8.2 of the assessment order 813034 3. Opening cash available (B/F from last year) as per para 5.5 of Appeal No. 10867/2016- 17/IT/CIT(A)- 5/Ldh/2021-22 7061707 Excess valuation of Factory building as per para 10.7 of the assessment order 509141 4. Total funds available 33330284 Total application of f....