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Facts
The assessee, a partnership firm engaged in manufacturing sweets, initially declared income. Following a survey, a partner declared additional income based on excess cash, renovation costs, and excess stock found. The Assessing Officer (AO) accepted the return, but the Principal Commissioner (Pr. CIT) initiated revision proceedings, deeming the AO's order erroneous. The AO, following the Pr. CIT's directions, made additions under Sections 69, 69A, and 115BBE, which were confirmed by the CIT(A).
Held
The Tribunal held that the addition related to renovation and interior decoration of the shop was beyond the scope of the Pr. CIT's directions and should be deleted. The Tribunal also found that the excess stock represented income generated from business activities and directed its deletion from additions. However, the Tribunal found no merit in the assessee's explanations regarding excess cash and dismissed that ground of appeal.
Key Issues
Whether additions for renovation, excess cash, and excess stock are justified under Sections 69, 69A, and 115BBE, and whether the AO exceeded the directions given in revision proceedings.
Sections Cited
143(3), 263, 250, 142(1), 133A, 131, 69, 69A, 115BBE
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Income Tax Appellate Tribunal, PANAJI BENCH
Before: SHRI PAVAN KUMAR GADALE & SHRI GD PADMAHSHALI
Assessee by Shri.Saidappa Gadadi.AR Revenue by Shri. Kailash P. Gaikawad. CIT DR सुनवाईकीतारीख/Date of Hearing 24.03.2026 घोषणाकीतारीख/Date of Pronouncement 01.04.2026 ORDER PER PAVAN KUMAR GADALE: The assessee has filed the appeal against the order of the CIT (Appeals)-2, Panaji passed u/s 143(3) r.w.s 263 and 250 of the Income Tax Act. The assessee has raised the grounds of appeal challenging the order of the CIT(A) sustaining the additions made by the Assessing Officer.
At the time of hearing, the Ld.AR of the assessee submitted that there is a delay of 22 days in filing the appeal before the Hon’ble Tribunal and the assesse has filed the affidavit for condonation of delay. Whereas, the facts mentioned in the affidavit are reasonable and the M/s Sadanand Bhawan Ld. DR has no specific objections. Accordingly, we condone the delay and admit the appeal.
The brief facts of the case that, the assessee is a partnership firm engaged in business of manufacturing and sale of karadant/sweet. The assessee has filed the return of income for the A.Y. 2013-14 on 18-03-2014 disclosing a total income of Rs.14,64,500/- subsequently, the case was selected for scrutiny and notice u/s 142(1) of the Act was issued. There was survey operations u/s 133A of the Act on the business premises of the assessee on 06-09-2012 and a statement of the partner is recorded and made a declaration of offering of income for the A.Y. 2013-14 of Rs.44,50,279/-which includes(i) excess cash of Rs. 8,96,190/- (ii)renovation and interior decoration in the shop Rs. 6,70,000/- and (iii)excess stock of 28,84,089/-. Subsequently summons were issued u/s 131 of the Act and the statement of the partner is recorded and the partner has declared additional income of Rs. 56,00,000/- in the hands of the firm for the A.Y. 2013-14. The A.O dealt on the submissions, books of accounts, financial statements and the statement recorded u/s 131 of the Act including additional declaration of 56,00,000/- made in the assessment proceedings and the total aggregate declaration is of Rs. 1,00,50,279/-. The A.O. has accepted the return of income where the additional income was offered and allowed deduction of partner s remuneration and assessed the total income of Rs.49,64,500/- and M/s Sadanand Bhawan passed the order u/s 143(3) of the Act dated 28-08-2014. Subsequently, the Pr. CIT on perusal of the records and information found that the order passed by the A.O. u/s 143(3) of the Act is erroneous and prejudicial to the interest of the revenue and accordingly notice was issued in compliance the assessee has filed the submissions. The Pr. CIT on perusal of the submissions, information available on record observed that the assessee in the course of survey has offered additional income and also the statement was recorded u/s 131 of the Act. The Pr.CIT has dealt on the facts and observed that the assessee has offered lower income compared to the income declared during the course of survey and since the assessee was unable to explain the source of investment and additional income declared in the hands of the assessee and hence has to be taxed u/s 115BBE of the Act. Whereas the A.O. in the financial statements has accepted the same as normal business income and has allowed remuneration to the partners. The Pr. CIT has considered the facts that the income is generated out of the business and treated as normal business but the Pr.CIT is of the opinion that the provisions of Section69& 69A andSec115BBE of the Act are applicable. Accordingly, the Pr. CIT was not satisfied with the explanations and submissions and is of the opinion that the order passed by the A.O. is erroneous and prejudicial to the interest of the revenue and accordingly canceled the assessment order passed u/s 143(3) of the Act dated 28-08-2014 and directed the A,O. to examine the M/s Sadanand Bhawan details (i) the excess stock and(ii) excess cash found whether the same was related to the assessee business and the sources of investment and passed order vide u/sec 263 of the Act dated 20-03-2017. 4.In compliance to the directions of the Pr. CIT, the A.O. has issued notice u/s 142(1) of the Act requesting the assessee to furnish the source of investments with the documentary evidences in respect of renovation, interior decoration of shop, excess cash found and unexplained investment in excess stock and also to explain that the same was recorded in the books of account and if no documentary evidences or explanations are filed the same will be treated unexplained investment u/s 69 and u/s 69A and provisions of Section 115BBE of the Act are applicable. The assessee has filed the letter dated 25-07- 2017 on these disputed issues. The assessee in the assessment proceedings has raised the contentions that investment in renovation and interior decoration of the shop, excess stock found and excess cash found during the course of survey are explained and provisions of Section 69 &69A and 115BBE of the Act are not applicable. Whereas the A.O. dealt on the provisions of the Act, submissions, judicial decisions, statement recorded and made addition u/sec69&69A of the Act and disallowed excess partner remuneration of partner s and assessed the total income of Rs.76,30,727/- and passed the order u/s 143(3) r.w.s. 263 of the Act dated 21-11-2017.
M/s Sadanand Bhawan 5. Aggrieved by the order of the A.O. the assessee has filed appeal with the CIT whereas the CIT (appeals) considered the grounds of appeal, statement of facts, finding of A.O. and submissions but confirmed the action of the A.O. and dismissed the assessee appeal. Aggrieved by the order of the CIT(A), the assessee has filed the appeal before the Hon'ble Tribunal.
6. At the time of hearing, the learned A.R. submitted that CIT(A) has erred in sustaining the action of the A.O. overlooking the facts, submissions and evidences filed in the course of proceedings. The learned A.R. contentions that the Pr. CIT vide his order dated 20-03-2017 has directed the assessee to examine in detail of the excess stock, excess cash found whether related to the assessee business and whether the source of investment was properly explained. Whereas the A,O. has issued notice as per the directions of the Pr. CIT, but the A.O. instead of restricting the calculation of verifying only the excess cash found and excess stock has also considered the renovation and interior decoration of shop amount in the assessment proceedings. Learned A.R. contentions are that the A,O. has exceeded more than the directions of the Pr. CIT which is restricted to two issues of excess cash found and excess stock found therefore, the order of the A.O. is bad in law and the CIT(A) has erred in confirming the action of the A.O. On the Second issue with respect to the nature and source of investments and also unexplained M/s Sadanand Bhawan cash and excess stock, the learned A.R. contentions are that the additional income disclosed by the assessee in the survey operations are from regular business income arise out of the business activities and the same is clearly identifiable and explained and provisions of Sections 69 and 69A and Section 115BBE of the Act are not applicable. Further, The learned A.R. submitted that the A.O. has not called for the source of the excess declaration made and therefore income declared during the survey cannot be automatically be treated as deemed income. The learned AR substantiated the submissions with the factual paper book and judicial decisions and prayed for allowing the appeal. Per contra, the learned D.R. supported the order of the CIT(A).
7. We heard the rival submissions and perused the material on record. The learned A.R. envisaged that the CIT(A) has erred in overlooking the submission, factual aspects and the directions issued in the revisionary proceedings and has wrongly confirm the action of the assessee. On the first disputed issue, with respect to directions in the revision order, the Pr.CIT observed that the A.O. has not properly examined whether the excess stock and excess cash was properly explained with the evidences to treat as business income and hence the order passed by the A.O. is erroneous and prejudicial to the interest of revenue and the Pr. CIT has issued directions to the A.O. to examine detail, the excess stock M/s Sadanand Bhawan and excess cash found whether related to the assessee business. In the consequential proceedings u/s 143(3) r.w.s 263 of the Act, the A.O. has in addition to the excess stock and excess cash found, directions issued by the Pr. CIT has also included the other additional income of renovation and interior decoration of shop which is not a subject matter but made addition and calculated the remuneration. The A.O. should not have included the said sum in the consequential proceedings passed u/sec143(3) r.w.s263 of the Act. Accordingly, we direct the A.O. to delete the addition of renovation and interior decoration amount of the shop for the purpose of the adjudication.
On the second disputed issue, the learned A.R. submitted that the excess cash found is generated from the business and has to be treated as business income and cannot be taxed at higher rate. Learned A.R. tried to establish that the cash has been generated due to the business with the financial statements, but the submissions of the Ld.A.R. cannot dismantle the observations of the CIT(A) and the A.O and we do not find merits in the explanations and this ground of appeal
is dismissed. On the third disputed issue, with respect to the excess stock, the learned A.R. contentions are that the excess stock amount pertaining to the business operations and they were part of the business operations and the excess stock found during the course of survey is related to the assessee business and same should be 8.
M/s Sadanand Bhawan assessed as business income and not under Sections 69 and 69A of the Act. Further the learned A.R. also relied on financial statements and the statement recorded and explained that the income is earned from the business activities of the assessee and the Income Tax Department has not relied on the any corroborative evidences to establish that income is from unexplained sources. The learned A.R relied on the fallowing judicial decisions.
(i) The Deputy Commissioner of Income Tax, Central circle – (3), Bengaluru versus M/s. Mangaldeep Chains. TaxCorp (A.T.) 122134 (ITAT- BANGALORE). (ii) Commissioner of Income-Tax & Anr.vs S.K. Srigiri And Bros. on 20 November, 2007. High Court of Karnataka. (iii) Shri Girishkumar Jamnadas … vs The Ito Ward - 2(2) (6), Rajkot on 11 February, 2025 ITAT Rajakot. (iv) M/S. Kiran Ship Breaking Company, … vs The Dcit, Circle-5, Bhavnagar on 18 August, 2021 ITAT B Bench AHMEDABAD ITA No. 844/Ahd/2017. (v) DEPUTY COMMISSIONER OF INCOME TAX vs. PREMSONS ITAT Mumbai B. Bench ITA No. 4698/Mum/2006. (vi) MAHESH OHRI vs. ASSISTANT COMMISSIONER OF INCOME TAX ITAT DELHI ITA NO. 4109/DEL/201. (vii) Income Tax Officer vs. Ajay Kumar Aggrawal, ITAT DELHI BENCHA ITA No. 2210/DEL/2011. (viii) RAVINDER KUMAR vs. DEPUTY COMMISSIONER OF INCOME TAX ITAT DELHI H BENCH ITA NO. 661/DEL/2009.
M/s Sadanand Bhawan (ix) DR. J. MOHAN vs. ASSISTANT COMMISSIONER OF INCOME TAX ITAT C Bench Chennai to 582/(Mds)/ 2011. (x) SATISH BUILDERS vs. ASSISTANT COMMISSIONER OF INCOME TAX ITAT, Delhi C Bench ITA No. 4095/Del/2005.
We considering the facts, circumstances, submissions and the ratio of the judicial decisions find that the assessee is engaged in the business of sweet mart and on perusal of the profit and loss account the assessee has disclosed sales and indirect incomes including income declared in survey and also closing stock. The contention of the learned A.R. that the excess stock represents the income generated in business activities and not from un disclosed sources and the revenue could not dismantle the submissions of the Ld.AR with evidences. Accordingly, we direct the Assessing Officer to delete the addition of excess stock in the adjudication of proceedings and this ground of appeal is allowed in favour of the assessee.
In the result, the appeal filed by the assessee is partly allowed.
Order pronounced in the open court on 01.04.2026.
Sd/- Sd/- (GD PADMAHSHALI) (PAVAN KUMAR GADALE) ACCOUNTANT MEMBER JUDICIAL MEMBER Panaji, Dated: 01/04/2026 Copy of the Order forwarded to: 1. The Appellant, 2. The Respondent 3. The CIT(A)- 4. CIT 5. DR, ITAT, 6. Guard file. //True copy/ BY ORDER, (Asstt. Registrar)ITAT, Panaji
Initial Date 1. Draft dictated on PS 2. Draft placed before author PS
Draft proposed & placed before PS the second member 4. Draft discussed/approved by PS Second Member. 5. Approved Draft comes to the PS Sr.PS/PS 6. Kept for pronouncement on 7. File sent to the Bench Clerk 8. Date on which file goes to the AR 9. Date on which file goes to the Head Clerk. 10. Date of dispatch of Order. 11. Dictation Pad is enclosed