TaxTMI 
TaxTMI 
2023 (9) TMI 1769
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....account of loans and advances already stands declared in books as business income and as such treating Rs. 45,00,000/- to be unexplained and as income from other sources is illegal, arbitrary and unjustified. 3. That the order of the Ld. Commissioner of Income Tax (Appeals) has further erred in upholding that charging of tax at 60% applying the provisions section 115BBE which are not attracted in the instant case. That the appellant craves leave to add or amend the grounds of appeal before the appeal is finally heard or disposed off. 2. The facts are that the assessee is a firm and runs business under the name and style of M/s Sardar Finance Co. for providing small finance to individuals. A survey operation u/s 133A was conducted at business premises of the assessee. During the course of survey, a total excess cash of Rs. 7,65,000/- was found. The AO raised queries, in response to which, the assessee has contended that the source of excess cash found during the survey is from business receipts but the AO held that the assessee could not furnish any satisfactory explanation regarding the source of excess cash found at the time of survey. Therefore, keeping in view his in....
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....oved from the profit & loss account and added to income u/s 69 of the Income Tax Act, 1961. 3. Aggrieved, the assessee filed appeal before the ld. CIT(A) and submitted before the CIT(A) as follows : "Subject: Written Submissions in the case of SH. SARDAR FINANCE CO., CHOTTI BARADARI, PATIALA A.Y.: 2018-19 - Submission of - Regarding - This is with reference to the captioned appeal wherein the Ld. Assessing Officer as per its order dated 07.05.2021 has assessed the income at Rs.48,33,140/- after considering surrender income of Rs. 45,00,000/- u/s 69 and u/s 69A r.w.s. 115BBE of the Income Tax Act, 1961 instead of normal business income for the assessment year 2018-19. The followings are the grounds of appeal: 1. That the respected Assessing Officer has erred on both facts and in law for considering Rs.45 lakh as unexplained income of the assessee under section 69A. As the amount of Rs. 45 lakh has been shown in Profit and loss account and due tax has been paid as per the normal provisions of the Income Tax Act, 1961. 2. On the facts and circumstances of the case, the Ld. Assessing Officer has erred on both facts and in law that the ass....
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....presumptions without considering the established legal position and facts of the case. The assessee has submitted the appeal against the said additions. The detail discussion is as given below: Ground No. 1 & 2 In this connection, it is submitted that the order is bad, non-speaking and void-ab-initio. Further since beginning the appellant has contested that the additional income surrendered has source from the business carried by the appellant. It is a matter of fact that no other source of income was detected or observed by the departmental authorities at any point of time. The surrender was made to buy peace of mind and to end litigation. The appellant in all its correspondence has reiterated the same thing that additional income surrendered has source from the business carried by the appellant. The order records the assessee's contention that it had surrendered a sum of Rs. 45,00,000/- which includes Rs.7,65,000/- on account of difference in cash in hand Rs. 2,35,000/- on account of furniture and fixtures and Rs. 35,00,000/- on account of loan and advances which was claimed to be from business income and the Ld. Assessing officer has faile....
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....t is submitted that the assessee has already surrendered amounting to Rs.45,00,000/- which includes Rs.7,65,000/- under the head cash in hand Rs.2,35,000/- under the head furniture and fixture and Rs.35,00,000/-under the head loan and advances at the time of survey operation u/s 133A of I.T. Act, 1961. The appellant has repeatedly told in its correspondence with the assessing officer that this additional income was from his business income. This fact is evident from 1. It is shown as business income in its computation of income but not as from any other head of income 2. It is claimed from normal business activity 3. The assets such as advances are realized and used for its business operations. 4. It has finance business as only source of activity, the same is admitted by the assessing officer also. So it is prayed that the additional income surrendered during survey should be treated as earned from normal business source and section 69 or 69A has no application. LEGAL According to Section 115 BBE "115BBE. [(1) Where the total income of an assessee,- (a) includes any income referred to in sect....
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....the assessment year 2013-14 and subsequent assessment years." The real purpose of introducing this provision was to charge higher tax at the maximum marginal rate in respect of income/expenditure/investment on the assessee who fails to explain the nature and source of said income/expenditure/investment. Section 115BBE was amended as on 15/12/2016 during demonetization period through Taxation Laws (Second Amendment) Act, 2016 and the main motive to amend this section was to curb the black money deposited in bank accounts during this period. The partner in his statement recorded at the time of survey, and to buy peace of mind agreed to surrender the amount subject to no penal action and prosecution. The relevant sections which enable the AO to assess such income/expenditure/investment are contained in sections 68, 69, 69A, 69B, 69C, 69D. The sections in question are reproduced as under: 69. Unexplained investments. Where in the financial year immediately preceding the assessment year the assessee has made investments which are not recorded, in the books of account, if any, maintained by him for any source of income, and the assessee offers no expla....
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....epted by the officers at the time of survey and there was neither any change in the business nor was any such evidence found by the department to the contrary. Moreover the department has also never rebutted such facts in any manner. 3. The documents reflecting advances, furniture and fixtures and cash in hand etc. represents our business income from the normal transactions and source was our business and these were derived by the same business carried by the firm and the same was acknowledged by the authorities at the time of survey. In the light of above facts it is very much clear that taxation @ 60% u/s 115BBE is arbitrary and unjustified so amount surrendered was a business income to be taxed at normal business income only. You are prayed to pass the order accordingly. 4. In short, the submission of the assessee before the ld. CIT(A) was that none of the three additions made by the assessee were sustainable since the amounts of Rs. 7,65,000/- under the head "cash in hand" u/s 69A of the Income Tax Act, that of Rs. 2,35,000/- on account of furniture and fixtures, i.e. renovation by the assessee to its office and that of Rs. 35,00,000/- on account of loans a....
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....ving the source u/s 68 to 69D is also discharged. The onus of proving that such receipts are from an activity other than disclosed business activities is not upon the AO. Therefore, there can be no presumption against the deeming fiction u/s 68 to 69D to hold that income/investment, whose source is not explained, will still be classified as income under any head u/s 14. It would be, therefore, impermissible to attempt and classify such incomes under any of specific heads, even if there is any activity which can be remotely/indirectly linked to such deemed income. The word 'source' in the same context would refer to nexus of such income generating activity/transaction with name and identity, creditworthiness of person with whom such activity/transaction was done along with proving the genuineness of transaction also. The requirement of proving these 3 essential ingredients to prove the source in order to escape the rigors of the deeming fiction has been upheld universally. The conjoint burden of proving the 'nature and source' is therefore, not restricted to merely claiming the nexus of any activity/transaction to a particular credit/income/asset but also re....
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.... (6) The Hon'ble Supreme Court in the cases of Roshan Di Hatti vs. CIT [1977] 107 ITR 938 (SC) (7) Hon'ble ITAT Cochin Bench, Cochin in the case of M/s. Bhima Jewellers vs. PCIT Kozhikode in ITA No. 208/Coch/2018, Assessment Year 2013-14 7. Before us, the ld. counsel for the assessee has broadly reiterated the stand taken by the assessee before the ld. CIT(A). It has been stressed that both the taxing authorities have failed to take into consideration that there is nothing on record to show that the assessee, during the year, had no other source of income, but for its business income from the business of financing. Attention has been drawn to the Surrender Letter, copy at page 5 of the assessee's Paper Book ("APB" for short); copy of Income Tax Return for assessment year 2018-19, APB-6, copy of Balance Sheet and Profit & Loss Account, etc., as on 31.03.2018, APB 7-11, copy of Notice dated 01.12.2020 issued under section 142(1) of the Act alongwith questionnaire, APB 12-15, Copy of the reply dated 10.12.2020 filed before the AO, APB 16-19, Copy of the notice dated 16.01.2021 issued under section 142(1) of the Act alongwith questionnaire, APB 20-27, Copy ....
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.... has honoured the surrender of income so made but at the same time, the income so offered in the return of income falls under the deeming provisions of section 69 and 69A of the Act and thus, the tax liability thereon has to be determined in terms of section 115BBE of the Act. As per the ld AR, the assessee has honoured the surrender so made at the time of survey not just in terms of the quantum of income so surrendered but also in terms of nature of income so surrendered, and the rate of tax at which the surrender has been made and surrender so made has been accepted by the survey team and thus, the deeming provisions of section 69 and 69A r/w section 115BBE are not attracted in the instant case. 14. To appreciate the aforesaid rival positions, we refer to the provisions of section 69 and 69A of the Act. Section 69 provides that where in the financial year immediately preceding the assessment year, the assessee has made investments which are 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 the investments or the explanation offered by him is not, in the opinion o....
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....me tax on income referred to in Section 68 or Section 69 or Section 69A or Section 69B or Section 69C or Section 69D are chargeable to tax at a higher rate. Now a perusal of the provisions of Section 68, 69, 69A, 69B, 69C and 69D would reveal that those provisions are attracted in respect of the credits, cash, expenditure, investment etc. regarding which the assessee offers no explanation about the nature and source thereof. It is to be pointed out that the income is to be assessed u/s 68 wherein any sum is found credited in the books, of which the assessee offers no explanation about the 'nature and source thereof' or the explanation offered by him is not found satisfactory by the AO. Section 69 is attracted to the unexplained investments of which the assessee offers no explanation about the 'nature and source' thereof or the explanation is not found satisfactory. Similarly, Section 69A is attracted in case of money, bullion, jewellery or other valuable articles, Section 69B refers to the investments, Section 69C refers to the expenditure and Section 69D refers to the amount borrowed or repaid on hundi. The provisions of these Sections are attracted and the income is assessed unde....
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....see during the survey action and therefore, the same was to be assessed under the provisions of Section 68 to 69D of the Act. The above reasoning of the survey party is not in accordance with the relevant provisions of the Act. Therefore, we do not find any justification on the part of the ld. PCIT in invoking the Revisionary jurisdiction in this case." 17. Therefore, the foundational requirement before invoking the deeming provisions is not that there were certain survey operations u/s 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 ....
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....k to the tune of Rs. 37,38,210/- has been determined and the assessee was asked to explain the difference of excess stock valued at Rs. 20,00,000/-. In response, the assessee submitted that at this moment of time, he is not in a position to explain the said difference of Rs. 20,00,000/- however to buy peace of mind, he offered this amount of Rs. 20,00,000/- for taxation for the F.Y. 2016-17 pertaining to A.Y. 2017-18. Thereafter, in the statement so recorded, it is mentioned that taxes on total additional income of Rs. 84,80,000/- so surrendered by the assessee were worked out and three post dated cheques were given by the assessee to the survey team for securing the payment of due taxes amounting to Rs. 26,20,000/-. Thereafter, in terms of surrender letter dt. 08- 09/07/2016 addressed to the Additional CIT, Patiala Range, Patiala, the assessee has reiterated the amount surrendered of Rs. 84,80,000/- which were offered as additional income at the time of survey on account of certain discrepancies noticed in terms of advances to various persons amounting to Rs. 55,00,000/-, cash in hand of Rs. 9,80,000/-, excess stock of Rs. 20,00,000/- and the tax liability of Rs. 26,20,000/- which....
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....e explaining the nature and source of income so found during the course of survey proceedings and which has not been recorded in the books of accounts and the same is the essence of the statutory provisions as duly recognized by the Courts and various Benches of the Tribunal and which has been reiterated from time to time. The statement of the assessee has to be read as a whole and not in piecemeal especially where the Revenue is relying on the same statement and in such circumstances, the defence available to the assessee in terms of part of the statement not been considered by the Revenue cannot be ignored. The mere fact that survey/search proceedings have been initiated at the business premises of the assessee doesn't mandate the Assessing officer to automatically invoke the deeming provisions and before invoking the deeming provisions, he has to call for the explanation of the assessee and only where the explanation so offered is not found satisfactory, he can proceed and invoke the deeming provisions. 21. In case of Gandhi Ram (ITA No. 121/CHD/2021 dated 04/08/2022), speaking through one of us, it was held that it is like laying a general rule which is beyond the mand....
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.... 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 under: "11. But this does not mean that loss computed under any of the fi....
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....estment/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 should be taxed under section 69, 69A, 69B & 69C as the case may be. It should not be done at the first instance without giving oppo....
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....ness 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 account and its nature and source is not identifiable. Once such excess investment is taxed as undeclared business receipt then ....
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....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 issue that arises for consideration is whether the amount surrendered by way of investment in the unrecorded stock of rice has to....
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....ee, 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 income'. 14. Nowhere in his order the Assessing Officer has been able....
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....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 assessee is there on record either disclosed by the assessee or unearthed by th....
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....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 pe r 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." 29. In the instant case as well, the surrender on account of advances were relating to the business being carried on by the assessee. The ld CIT(A) has also returned a finding that the advances were admitted as being related to business activity of the assessee. Where the same has been found unrecorded in the books of accounts, the same has to be brought to tax under the head "business income". 30. 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 lowe....
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....vables, it followed 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. The Coordinate Bench 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....
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....mounting to Rs. 5,00,000/- was found which was surrendered by the assessee for A.Y 2006-07 and another amount of Rs. 10,00,000/- was surrendered for A.Y. 2005-06 on account of sundry credits, repair to building and advances to staff. The matter pertaining to A.Y 2006-07 came up for consideration before the Coordinate Chandigarh Benches and taking note of the statement of the General Manager of the assessee company recorded during the course of survey wherein he had admitted the said 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) in including the additional income as deemed income u/s 69A of the Act and relevant findings read as under: "9. In the facts of the present case before us, we find that unaccounted cash was found during the course of survey operation in the possession of the assessee company and the same was surrendered as additional income for the year under appeal. The assessee has failed to explain the nature and source of the said cash found which was not recorded in the books of account, though while surrendering the additional income it was admitted by the....
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....n of the Tribunal was upheld by the Hon'ble Karnataka High Court in CIT & another vs. S.K. Srigiri & Bros. (supra) and the remuneration paid to the partners was held allowable against the additional income form business. The said precedent has been taken note of by the Hon'ble Gujrat High Court. 10. In the facts of the present case, we find that assessee during the course of survey had surrendered the income as income from other sources though a plea has been raised by the assessee that the income was surrendered as income from job work but no evidence to prove the stand of the assessee has been brought on record. The assessee had also surrendered additional 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 included as income from business. However, in respect of cash found during survey, which was not reflected in the books of account, no source was declared by the assessee and in the absence of nature of source of cash being proved, the same is not assessable as income from business. In the circumstances, we uphold the order of the ....