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Facts
A survey under Section 133A was conducted on the assessee, a building material trader, where excess stock and cash of Rs. 4,76,484/- were found. The assessee surrendered this amount as business income and incorporated it in the books of accounts and return of income. The AO treated the excess cash as unexplained money under Section 69A, taxable under Section 115BBE, a decision upheld by the CIT(A).
Held
The tribunal held that the excess cash, surrendered during the survey and declared in the return, was in the nature of business income and not unexplained money under Section 69A. Consequently, the provisions of Section 115BBE were not attracted, and the Assessing Officer was directed to assess the income under the head "Income from Business and Profession" under normal provisions.
Key Issues
Whether excess cash found during a survey, declared as business income, should be assessed as unexplained money under Section 69A and taxed under Section 115BBE, or as business income under normal provisions.
Sections Cited
250, 133A, 69, 69A, 115BBE, 68, 139
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Income Tax Appellate Tribunal, JAIPUR BENCH “B”, JAIPUR
Before: Dr. S. SEETHALAKSHMI & SHRI GAGAN GOYAL
This appeal by the assessee is directed against the order of the Ld. CIT(A), Jaipur-5 dated 11.04.2025 passed u/s. 250 of the Income Tax Act, 1961 (in short ‘the Act’). The assessee has raised the following grounds of appeal:
The Ld. CIT (A) has erred on facts and in law in upholding the finding of AO that excess cash of Rs. 4, 76,484/- found in survey which has been offered by the assessee in his return of income is unexplained income u/s. 69 of the Act taxable u/s. 115BBE of the Act by not properly appreciating the statement recorded during survey and the fact that same is duly incorporated in the books of accounts.
2. The appellant craves to alter, amend and modify any ground of appeal.
3. Necessary cost be awarded to the assessee.
The assessee is engaged in the business of trading of building material such as tiles, pipes, pipe fittings, sanitary ware, etc., through his proprietary concern M/s. Bajrang Pipe Store. The assessee filed his return of income on 22.01.2021 declaring a total income of Rs. 80, 34,470 /-. A survey under section 133A of the Act was carried out on 06.02.2020. During the survey, excess stock of Rs. 60, 28,182/- and excess cash of Rs. 4, 76,484/- were found. The assessee surrendered the said amount of Rs. 65, 04,666/- as his business income. This surrendered income was incorporated in the Profit & Loss Account and a net profit of Rs. 79, 32,082/- was offered to tax under the head “Income from Business and Profession”.
The Assessing Officer, by order dated 31.03.2022, held that merely showing the surrendered income in the Profit & Loss Account does not preclude application of the deeming provisions. According to him, the excess stock was assessable under section 69 of the Act and the excess cash was assessable under section 69A of the Act, both chargeable to tax under section 115BBE of the Act.
On appeal, the Ld. CIT (A) in his order dated 11.04.2025 held that the excess stock was clearly linked to the business activity of the assessee and accordingly treated it as business income. However, with regard to the excess cash, the Ld. CIT (A) observed that the assessee had failed to establish a direct nexus with business activities. Accordingly, the addition of Rs. 4, 76,484/- under section 69A of the Act and its taxability under section 115BBE of the Act was confirmed. Aggrieved by the order of Ld. CIT(A) the assessee is before us. The solitary issue for adjudication is whether the excess cash of Rs. 4, 76,484/- found during the survey, already declared in the return of income, is assessable as unexplained money under section 69A of the Act and chargeable to tax under section 115BBE of the Act.
For invoking the deeming provisions of sections 69 and 69A of the Act, it is a prerequisite that the income should emanate from a source other than the assessee’s regular business activity. What is material is not the mere discovery during survey, but the explanation offered by the assessee regarding the source of the asset or money. Only if such explanation is unsatisfactory, then the deeming provisions can be applied. The statement of the assessee recorded during the survey categorically stated that both the excess stock and excess cash were derived from the business. The Assessing Officer himself accepted this statement in respect of stock. It is a settled principle that a statement must be read in entirety and not in piecemeal. The Assessing Officer has not brought on record any contrary material to show that the excess cash emanated from non- business sources.
Several judicial pronouncements have held that where income surrendered during survey/search proceedings is linked with business activity, it cannot
be treated as unexplained income under section 69A, nor can it be taxed under section 115BBE. • SMT. REKHA SHEKHAWAT [ITA No. 7/JP/2021] “It is thus, held that the additional income was in the nature of business income and don’t fall under Sec. 68 and/or Sec. 69 of the Act and consequently therefore, Sec.115BBE could not have been invoked…” • Bajrang Traders [ITA No. 258/2017 Rajasthan High Court] “…it can be said that investment in procurement of such stock of rice is clearly identifiable and related to the regular business stock of the assessee. Therefore, the investment in the excess stock is to be brought to tax under head ‘business income’ and not under the head income from other sources.” • [2023] 155 taxmann.com 293 (Amritsar - Trib.) / [2023] 106 ITR (T) 125 (Amritsar - Trib.) [17-07-2023] • [2023] 157 taxmann.com 817 (Chandigarh - Trib.) [29-11-2023] • Sandeep Sethi [ITA No. 155/JP/2022] These decisions reiterate that surrendered income found during survey at business premises, when explained to be out of business activities, must be assessed under the head Income from Business or Profession.
It is pertinent to note that the powers of survey under section 133A of the Act have been clarified by the CBDT from time to time. Vide Circular No. 7- D (LXIII-7 of 1967), dated 03.05.1967; it was clarified that the place of survey must be one where the business or profession of an assessee is carried on, though it need not necessarily be the principal place of business. The entry cannot be made at premises where no business of the assessee is carried on. Business or residential premises of third parties, including a Chartered Accountant, pleader, or income-tax practitioner, are not permissible places for entry under section 133A of the Act. It would
therefore be improper for an Assessing Officer or Inspector to enter such offices for the purpose of inspecting the books of their clients. Further, entry is to be made at the business premises of the assessee, during business or office hours only.
By virtue of the Explanation to section 133A (1) of the Act, it is further clarified that a place where business or profession is carried on shall also include any other place, whether or not any business or profession is actually carried on there, if the assessee states that his books of account, documents, cash, stock or other valuable articles relating to his business are kept at such place. Based on these statutory clarifications, the primary objectives of survey may be categorized as follows:
• To broaden the country’s tax base by discovering new taxpayers. • To gather information to verify whether existing taxpayers are discharging their obligations correctly and truthfully, and to detect tax evasion. • To undertake spot checking to ensure that books and records are being maintained on a day-to-day basis and not manipulated later. • To verify the correctness of cash and stock as per books of account maintained in the ordinary course of business or trading.
In nutshell, proceedings under section 133A of the Act are intended as a check and balance on the business/professional conduct of the assessee. The survey is conducted solely to verify business affairs; if found correct, no consequences follow. If discrepancies are found, the assessee is required to incorporate the same in his books of account and rectify the computation
of total income. Importantly, nowhere in the scheme is it contemplated that the head of income should be altered. Rather, undisclosed income, if discovered during survey proceedings, has to be treated as income under the head “Profits and Gains of Business or Profession”. This is particularly relevant where the survey is carried out at business premises, and the verification relates to business employees, documents, cash, and stock only.
Since, the assessee had incorporated the excess cash in his books and disclosed it in his return of income filed under section 139 of the Act before the due date. • Once disclosed, it cannot be said to be “unexplained” within the meaning of section 69A of the Act. • The Ld. CIT (A), while accepting the business nexus in respect of excess stock, erred in ignoring the identical explanation with respect to excess cash.
Supporting Precedents Relied Upon by Assessee a. Smt. Rekha Shekhawat Vs. PCIT (2022) 218 DTR 161 (Jaipur) (Trib.) b. PCIT Vs. Krishna Kumar Verma (2024) 8 NYPCTR 331 / 237 DTR 258 (MP) (HC) In both cases, it was held that surrendered income emanating from business activities, later incorporated in the books and return, is taxable under normal provisions and not under section 115BBE of the Act.
In view of the facts of the case, the explanation offered by the assessee, and the judicial precedents relied upon, we hold that the excess cash of Rs. 4,76,484/- surrendered during survey is in the nature of business income and not unexplained money under section 69A. Consequently, the provisions of section 115BBE are not attracted. The Assessing Officer is directed to assess the said income under the head “Income from Business and Profession” and tax the same under the normal provisions of the Act. Accordingly, the ground raised by the assessee is allowed.
In the result, the appeal of the assessee is allowed with above directions.
The Order is pronounced in the open court on the 14th Day of August 2025.