TaxTMI 
TaxTMI 
2025 (4) TMI 1784
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....render income as normal business income instead of unexplained income under the deeming provisions of 69 of the Income Tax Act 1961 and to be taxed as per provisions of section 115BBE of the Act by the AO, ignoring the facts involved in this case ? 2. Whether upon the facts and circumstances of the case, the Ld. CIT(A) was justified in treating the surrender income as normal business income instead of unexplained income under the deeming provisions of 69 of the Income Tax Act 1961 and ignoring the decision of Hon'ble Punjab & Haryana High Court in the case of Khushi Ram & Sons ITA No. 126 of 2015 wherein Hon'ble High Court has held that merely the assessee carries on certain business, it does not necessarily follow that amounts surrendered by assessee are on account of business transaction and onus on assessee to establish the source of surrendered income ? 3. Whether upon the facts and circumstances of the case, the Ld. CIT(A) was justified in treating surrender income of Rs. 2,00,00,000/- is a normal business income as the assessee has failed to establish its claim with supporting evidence by ignoring the facts otherwise arbitrary unreasonable and perver....
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....nd undisclosed capital employed in unaccounted business activities. 5. Feeling aggrieved by the order of Ld. AO, the assessee preferred an appeal before the CIT(A), where several submissions had been advanced. It was submitted that the assessee was engaged exclusively in manufacturing and trading cattle feed, and that all business activities were being duly carried out with the maintenance of statutory records. It was contended that the excess stock represented normal business operations, and the surrender had been made voluntarily to avoid protracted litigation. It was argued that the surrendered income had been duly recorded in the audited accounts and offered to tax as part of business profits. Reliance was placed on the assertion that no independent source of income had been found during the survey proceedings. The assessee submitted that the surrender letter clearly mentioned that the disclosure was out of normal business transactions and that taxes at normal rates would be paid. It was also submitted that there was no intention to conceal income and that penalty provisions were not attracted. 5.1 Further, it had been contended that the impounded documents, including the....
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....n of income filed, maintained the same instance. Fourthly, neither the survey team nor the AO has brought any other material on record to show that there was some other business activity. Fifthly, evidence of unaccounted sales of the same business products has been found during survey and addition has been made by the AO on the issue of unaccounted sale. Thus, it leads to a logical conclusion that investment in excess stock was on account of same business only. Hence, the action of AO in charging tax at the rate prescribed u/s 115BBE in this case on the surrendered income of Rs. 2,00,00,000/-, in respect of inventory, is not found sustainable and therefore deleted. 5.2.18 Therefore, the AO is directed to treat this income of Rs. 2,00,00,000/- pertaining to inventory as business income. Therefore, these grounds of appeal are allowed. 5.3 Ground of Appeal No. 4 In this ground, the appellant has contested that books of accounts have been wrongly rejected u/s 145(3) and addition of Rs. 6,70,875/- made on account of enhancement of GP rate on declared turnover. 5.3.1 The contentions of the AR are that there is no reason to enhance the declared gross profit as t....
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.... and the surrendered amount of Rs. 2 crore pertained only to the same business activity. It was stated that the excess stock discovered during the survey had no separate or independent identity but was part of the regular business stock already dealt with by the assessee. The surrendered stock was claimed to be integral to the business operations and not a new source of income. In the surrender letter, the assessee had clearly disclosed that the additional income of Rs. 2,00,00,000/- was out of the same business activities and not from any other unexplained source. It was contended that the difference in inventory arose only due to pending reconciliations with creditors, debtors, and banks at the time of the survey. Hence, the discrepancy was purely like a stock difference, not an unexplained investment. The assessee further emphasized that the surrender was voluntary, made without coercion or pressure from the survey team, and accompanied by an undertaking to pay taxes at standard rates. The assessee cited various ITAT Chandigarh Bench rulings, such as DDK Spinning Mills, Montu Shallu Knitwears, and Jaswinder Singh, where surrendered stock had been treated as business income taxab....
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..../- on 29.10.2018 including the surrendered income of Rs 200.00 Lacs. The surrendered income was declared as business income. 5. That the assessment in the said was completed on 30.09.2021. During the assessment proceedings the surrendered business stock was assessed as undisclosed income u/s 69 of the IT Act and taxing the same u/s 115BBE of the IT Act 1961 and made further addition of Rs 65,32,201/- to the returned income. The summary of additions is given as under: Addition on account of Gross Profit Rs. 6,70,875/- Addition on account of GP on sales Rs. 4,10,874/- Addition on account of GP on sales Rs. 37,59,718/- Addition on account of Investment Rs. 16,90,734/- 6. The appeal of the assessee has been partially allowed by the CIT (Appeals)-5 Ludhiana and the same is explained as under: Assessment of surrendered stock Rs 200.00 Lacs Allowed as normal income Addition on account of Gross Profit Rs. 6,70,875/- Confirmed by the CIT(A) Addition on account of GP on sales Rs. 4,10,874/- Allowed by the CIT(A) Addition on account of GP on sales Rs. 37,59,718/- Allowed by the CIT(A) Addition on account of Inves....
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....red income as deemed income and not as business income- CIT(A) held that AO was fully justified in treating income surrendered during course of survey amounting to Rs. 70 lacs as deemed income and was right in not giving benefit of set off of business losses from this income-Held, as 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 assessee was already included as income from business-AO nowhere disputed business losses incurred by assessee and books had not been rejected- It was stated at Bar that even at time of survey, in the trading account prepared by survey team, there were losses incurred by assessee- All these facts had not been disputed by AO -. Further, surrender made by assessee was on account of cash found during course of survey, discrepancy in 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 could be considered as income under any head other that 'business income'- Nowhere in his order. AO had be....
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....u/s 69, 69A and 69B during the assessment proceedings. Reliance was placed on the decision in the case of Gaurish Steels Pvt. Ltd. vs. ACIT ITA no. 1080/CHD/2014, wherein it was held that the surrender on account of discrepancy in cost of construction of building, discrepancy in stock, discrepancy in advances and receivables could not be considered under any other head other than business income. Further, reliance was placed on the decision of Hon'ble ITAT, Chandigarh in the case of Kumar Enterprises vs. DCIT Chandigarh ITA no. 525/CHD/2014 wherein it was held that the only issue in the case of M/s Kim Pharma Pvt. Ltd. of the Hon'ble Punjab & Haryana High Court was relating to the cash surrendered as the other incomes were already treated by the Assessing Officer himself as business income. Reliance was also placed on the judgment of ITAT Ahmadabad in the case of DCIT vs. Shah Khodidas & Co. ITA no. 531/ Ahd/2008 wherein it was held that it is only where no nexus is established with any head that it should be considered as deemed income u/s 69, 69A, 69B and 69C as the case may be." * The Hon'ble Bench further relied upon the Judgment of Khurana Mills Pvt. Ltd. ....
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.... in ITA No. 319/Chd/2022 dated 29.11.2023 * ITAT Chandigarh Bench in the case of Jaswinder Singh Vs. DCIT in ITA No. 530/Chd/2022 dated 01.12.2023 * The ITAT Chandigarh Bench in the case of Bajaj Sons Ltd., Ludhiana vs DCIT, Central Circle- III, on 24 May, 2021 ITA No. 1127/CHD/2019 has held as under: The above are short notes only Thanking You sd/- Vishal Puri Director 11. The Tribunal has heard the rival contentions and perused the material available on record. It is not in dispute that the assessee was engaged in the business of manufacturing cattle feed, and that a sum of Rs. 2,00,00,000/- was surrendered during the course of survey on account of excess stock found. During the survey, though the Director of the assessee was examined, no specific question was posed regarding the source of investment for the purchase of such excess stock. The inventory of stock was prepared on 25.04.2018 and is referred to by the Ld. CIT(A) at pages 35 and 36 of the appellate order. 12. Upon perusal of the inventory, it is evident that the excess stock found was inseparable from the stock recorded in the regular books of account....
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.... contention of the parties and perused the material available on the record. In the present case, the assessee has separately surrendered the discrepancy relating to excess stock, which has already been taxed. In such circumstances, the rejection of books of accounts and the consequential enhancement of gross profit by applying a rate of 16.50%, leading to an addition of Rs. 6,70,875/-, is not sustainable and stands deleted. 19. With respect to the alleged unaccounted sales and investment in capital, the assessee has submitted that these amounts have been telescoped into the surrendered stock. It is a settled principle that when unaccounted transactions are part of the same business and are duly surrendered, separate additions would amount to double taxation. 20. We find merit in the plea of telescoping. The unaccounted transactions were directly linked to the same business activity, and their surrender through disclosure of excess stock covers the entire alleged discrepancy. Therefore, the separate additions of Rs. 41,70,592/- is rightly deleted by the Ld.CIT(A) and we concur the findings given by him. Accordingly Ground No. 4&5 of Revenue appeal are dismissed. Cross Obje....