KATH BROTHERS,JAIPUR vs. ACIT, CENTRAL CIRCLE-3, JAIPUR, JAIPUR

3. The ld. CIT(A) has grossly erred in law as well as on the facts of the case in confirming the action of the ld. AO in invoking the provisions of Sec. 115BBE and also erred in confirming the action of the ld. AO in taxing the income at the higher tax rate of 60%, 25% surcharge, and 3% cess in place of 30% tax rate, also erred in not considering the material and details in their true perspective and sense despite available on record. Hence the higher tax rate so applied or charged by the ld. AO and confirmed by the d. CIT(A) is also contrary to the real facts of the case and not according to the provision of law hence the same is illegal, bad in law, against the principle of natural justice. The same may kindly be deleted in full.

Subsequently statutory notices as required under the law were issued and served upon the assessee which were complied by the assessee. of stock of his business and noted that total stock valued at Rs.2,69,28,041/- was found as against total stock recorded in the books at Rs. 1,63,22,918/- for the year under consideration. Thus, the difference of Rs.1,06,05,123/- between recorded stock and physical verification was noted. Assessee was asked to explain reasons for the difference in stock. In reply to this question No. 21 of this statement recorded u/s 131 of the IT Act, 1961 the assessee confirmed to pay the tax. g) Ld. AO noted that since the assessee has not explained the source of the excess stock the same was considered as chargeable to tax as per section 69 of the Act for an amount of Rs. 1,00,79,698/-

4. The above finding of the assessing officer was challenged before the ld. CIT(A) by filling an appeal by the assessee. The said appeal was dismissed by the ld. CIT(A) by observing as under :

“4.2 I have considered the facts of the case and written submissions of the appellant as against the observations/findings of the AO in the assessment order for the year under consideration. The contentions/submissions of the appellant are being discussed and decided as under:-

The brief facts of the issue as per the assessment order are that survey action u/s 133A of the Income Tax Act, 1961 was carried out on 17.01.2019 at the business premises of M/s Kath Prothers, Toonga, Bassi, Jaipur. During the survey Kath Brothers vs. ACIT proceedings, physical verification was made for the stock of his business and noted that total stock valued at Rs.2,69,28,041/- was found as against total stock recorded in the books at Rs.1,63,22,918/- for the year under consideration. Thus, the difference of Rs. 1,06,05,123/- between recorded stock and physical verification was noted. The additional income in this regard was admitted by the appellant and admission has been confirmed by the assessee in his statement dt. 21.01.2019.

The assessee has disclosed income of Rs.1Cr. in the ITR as against total disclosures of income at Rs.1.06Cr. during the survery proceedings on account of excess stock. Further, the assessee stated that "due to some error in calculation in stock by IT Department amount deisclosed in ITR of M/s Kath Brothers of Rs. 1,00,00,000/- and Rs. 7,00,000/- in M/s Kath Pipe Trader but as per statement recorded which was late supplied to assessee in which surrendered income was Rs 10606123/- and Rs. 173575/- respectively and it is the matter of calculation and in total the difference is only of Rs. 79698/- only.". Addition of Rs. 79,698 has been made in the assessment order.

Regarding the applicability of section 115BBE of the Act, the appellant has made a detailed submission during the assessment proceedings. The appellant inter- alia submitted before the Id. AO that the assessee had started its business during the AY 2013-14 and till the survey during AY 2019-20, they had shown low gross profit due to non maintaining the quantity records as it was not possible. Hence the low gross profit against actual higher gross profit, it was accumulated and invested in stock.

However if that is the case the appellant was required to show and substantiate this statement of declaring low gross profit instead of actual gross profit which was high-with evidences and mere making a baseless statement is a self-serving statement liable to be rejected.

A party who relies on a recital has to establish the truth of those recitals, otherwise it will be very easy to make self-serving statements in documents either executed or taken by a party and rely on those recitals. If all that an assessee who wants to evade tax is to have some recitals made in a document either executed by him or executed in his favour then the door will be left wide open to evade tax Refer judgement of Hon'ble Supreme Court in CIT v. Durga Prasad More [1971] 82 ITR 540] Kath Brothers vs. ACIT Further, without accepting, even going by the statement of the appellant that less profit was declared in the earlier years in comparison to the actually earned profit, in that case, the additional income was required to be offered by the appellant in the earlier years and that would have also led to charge of interest and the levy of penalty etc. The approach of the appellant in offering the concealed income from the earlier years in the current year that too at normal tax rate is against the public policy and this approach rewards the dishonesty as if taxation at normal rate on such income in current year is accepted in the current year the appellant is saving on the interest, penalty and prosecution etc. and whereas the income has been offered to tax only after its detection in a survey action.

The appellant has also contended that show cause notice was not issued by the learned AO during the assessment proceedings. However from the perusal of the assessment order is seen that there submissions have been made by the appellant on the issue of applicability of section 115BBE during the assessment proceedings. Further in the first ground of appeal itself the appellant has stated that.... it was replied and proved itself from records that earlier before survey) assessee shown low GP and invested in stock now surrendered hence it should be considered as business income only and should be taxed at normal rate but Ld AO did not accept the reply of assessee and treated surrendered income as income of section 69 and applied special tax rate u/s 115BBE which is unlawful and illegal.......", which shows that the appellant furnished the reply during the assessment proceedings. The appellant has also not filed a copy of all the notices issued during the assessment proceedings and the copy of the order sheet etc. to support its contention that no opportunity was provided to the appellant on the issue. Further the powers of the CIT Appeal are co-terminus with that of the powers of the assessing authority and during the present appeal proceedings also the appellant has availed the opportunity in this regard and no grievance remains.

The appellant has also contended that Ld. AO has not passed any adverse opinion with respect to any other source of income of the assessee, neither the AO has brought on record any adverse material on record. Hence, the business income is the only source of income of the assessee and moreover, in the case of assessee unrecorded excess stock have been found during the course of survey which have been related to business of assessee partnership firm.

This interpretation approach of the appellant is contrary to the judgement of Hon'ble Supreme Court in the case of Commissioner of Income-tax v. Devi Prasad Vishwanath [1969] 72 ITR 194 (SC) [01-08-1968. This issue has been discussed in detail in the later paragraphs.

Further it is noted from the facts of the case as under-

• Income from excess stock" of Rs. 1,00,00,000 has been shownbelow the Trading Account.

• The appellant has not shown from which party and when such excess stock items were purchased and how the payments were made for the same.

The appellant has also placed reliance on the judgement in the case of Principal Commissioner of Income-tax v. Bajargan Traders [2017] 86 taxmann.com 295 (Rajasthan) (12-09-2017]. In this judgement, inter-alia, the following paras of the order of Hon'ble ITAT have been extracted:-

"2.7. It is further submitted that the real issue in this case is whether the excess stock surrendered should be made as a part of business income or not and if so, assessee can claim deduction on account of payment of remuneration to partners on account u/s 40b(v). In this regard, our reference was drawn to the decision of Co-ordinate Bench in case of Shri Ramnarayan Birla (in dated 30.09.2016). In that case, the question before the Coordinate Bench was "whether the CIT(A)-2, Udaipur has erred in directing the AO to assess the unexplained investment surrendered by the assessee under the head "income from Business" ignoring the decision of the Hon'ble Gujarat High Court in the case of Fakir Mohd. Hazi Hasan 247 ITR 290 that unaccounted income ought to be categorized under the residuary head of 'Income from other sources'. In respect to the said issue, the findings of the Coordinate Bench are as follows: "We have heard the 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 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 jewellery. The Coordinate Bench in the case of Choksi Hiralal Mangnlal v. 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 u/s 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 Kath Brothers vs. ACIT 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 observed that there is no conflict with the decision of Hon'ble Gujarat High Court in the case of Fakir Mohd. Jajihasan (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 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. 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 Id. CIT(A) directing the AO to treat the surrendered amount as excess stock qua the excess stock found."

2.10. We have heard the rival contentions and perused the material available on record. During the course of survey, the assessee has surrendered an amount of Rs. 70,04,814/- towards investment in stock of rice which had not been recorded in the books of accounts, Subsequently, in the books of accounts, the assessee has incorporated this transaction by debiting the purchase account and crediting the income from undisclosed sources. In the annual accounts, the purchases of Rs. 70,04,814/-were finally reflected as part of total purchases amounting to Rs. 33,47,19,658/- in the profit and loss account and the same also found included as part of the closing stock amount to Rs. 1,94,42,569/-in the profit/loss account since the said stock of rice was not sold out. In addition to the purchase and the closing stock, the amount of RS. 70,04,814/- also found credited in the profit and loss account as 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 Kath Brothers vs. ACIT 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 byway of investment in the unrecorded stock of rice has to be brought to tax under the head "business income" or "income from other sources". In the present case, the assessee is dealing in sale of foodgrains, rice and oil seeds, and the excess stock which has been found during the course of survey is 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."

(Emphasis supplied)

As per the above judgement (i) source of investment/expenditure is (should be) clearly identifiable and (ii) undisclosed asset has no independent existence of its own or (iii) there is no separate physical identity of such investment/expenditure Further, in the judgement of Hon'ble High Court in the case of Principal Commissioner of Income-tax v. Bajargan Traders [2017] 86 taxmann.com 295 (Rajasthan)[12-09-2017), the paras from the judgement of Hon'ble ITAT in the case of 'Bajargan Traders' have been extracted and in the judgement of the Hon'ble ITAT there is reference and reliance upon another judgement of Hon'ble ITAT in the case of Shri Ramnarayan Birla (in dated 30.09.2016).

Hon'ble ITAT in the case of Shri Ramnarayan Birla (in dated 30.09.2016) which is relied upon by the Hon'ble ITAT in the case of Bajrang Traders, it is held by the Hon'ble ITAT that 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. Hon'ble Supreme Court in Devi Prasad Vishwanath [1969] 72 ITR 194 (SC) has given a verdict upholding the Hon'ble ITAT in the case of Shri Ramnarayan Birla (in dated 30.09.2016) which is relied upon by the Hon'ble ITAT in the case of Bajrang Traders, it is held by the Hon'ble ITAT that "The revenue has not pointed out that the excess stock has any nexus with any other receipts". As as per judgement of Hon'ble Supreme Court there is no onus on the assessing authority to look for or identify the sources. As per the ratio of the judgement, it cannot be the case that if the AO has not proved the source from some other receipts then the source is to be treated as business income of the year.

Hon'ble Supreme Court in the case of Commissioner of Income-tax v. Devi Prasad Vishwanath [1969] 72 ITR 194 (SC) [01-08-1968, held that onus to identify the source cannot be shifted on the assessing authority. If the assesse claims so, the assesse is required to prove the same. This judgement has been referred in detail in the later part of this order.

Hon'ble ITAT in the case of Shri Ramnarayan Birla (in dated 30.09.2016) which is relied upon by the Hon'ble ITAT in the case of Bajrang Traders, also observed that the in the case of Choksi Hiralal Mangnlal v. DCIT 131, TTJ (Ahd.) 1 "has held that in a cases where source of investment/expenditure is clearly identifiable and ..........

Even as per the judgement of Hon'ble ITAT referred in the judgement of Bajarang Traders (supra), source of investment/expenditure must be clearly identifiable. The onus in this regard is on the assessee to prove the source The appellant has not referred to judgement of Hon'ble Supreme Court in the case of Commissioner of Income-tax v. Devi Prasad Vishwanath [1969] 72 ITR 194 (SC) [01-08-1968. Wherein the similar underlying legal principle as discussed in the judgement referred by the appellant has been discussed and decided in favour of the revenue. As per the judgement of Hon'ble Supreme Court, unexplained credit (or stock) cannot be presumed to be business income. Onus to identify the source cannot be shifted on the assessing authority. If the assesse claims so, the assesse is required to prove the same.

Further, in the case also it is held by the Hon'ble Supreme Court in the case of Roshan Di Hatti v. Commissioner of Income-tax [1977] 107 ITR 938 (SC)[08-03- 1977] that even after the items (stock in trade) were "introduced in the books of account of its business", the assessee was still required to "to prove satisfactorily the nature and source of these assets and in the event of failure to prove these, " the revenue could legitimately hold that these assets represented the undisclosed income of the assessee".

Roshan Di Hatti (supra) is case on the similar issue involving issue of stock in trade which was included by the assessee in the books of accounts and even then it was held in the judgement that assessee was still required to prove satisfactorily the nature and source of these assets and in the event of failure to prove these, the revenue could legitimately hold that these assets represented the undisclosed income of the assessee.

There is no presumption in favor of business income. Onus to prove is on assessee.

The Hon'ble Supreme Court in the case of Commissioner of Income-tax v. Devi Prasad Vishwanath [1969] 72 ITR 194 (SC)[01-08-1968] has held as under:-

"There is nothing in law which prevents the Income-tax Officer in an appropriate case in taxing both the cash credit, the source and nature of which is not satisfactorily explained, and the business income estimated by him under section 13 of the Income-tax Act, after rejecting the books of account of the assessee as unreliable. This was so decided in Kale Khan Mohammad Hanif v. Commissioner of Income-tax [1963] 50 ITR 1 (SC). Whether in a given case the Income-tax Officer may tax the cash credit entered in the books of account of the business, and at the same time estimate the profit must, however, depend upon the facts of each case. …………….

The High Court, in disposing of the application under section 66(2), application expressed the view that because the amount of Rs. 20,000 was entered in the books of account of the business, there was some material to hold that the amount was income of the assessee from the business and not from some other source. But it was not open to the High Court to direct the Tribunal to state a case on a question which was never raised before or decided by the Tribunal at the hearing of the appeal. The question again assumes that it was for the Income-tax Officer to indicate the source of the income before the income could be held taxable and unless he did so, the assessee was entitled to succeed. That is not, in our judgment, the correct legal position. Where there is an explained cash credit, it is open to the Income-tax Officer to hold that it is income of the assessee and no further burden lies on the Income-tax Officer to show that that income is from any particular source. It is for the assessee to prove that even if the cash As per the headnotes "Section 145 of the Income-tax Act, 1961 [Corresponding to section 13 of the Indian Income tax Act, 1922] Method of accounting System of accounting Assessment year 1946-47- Whether where there is an unexplained cash credit it is open to ITO to hold that it is income of assessee and no further burden lies on ITO to show that income is from any particular source - Held, yes".

As per the above judgement, the observations of the Hon'ble Allahabad High Court that because the amount was entered in the books of account of the business, there was some material to hold that the amount was income of the assessee from the business and not from some other source, were not approved by the Hon'ble Supreme Court and was reversed, as it was held by the Hon'ble Supreme Court that it assumed it was for the Income-tax Officer to indicate the source of the income which was not the correct legal position and that where there is an explained cash credit, it is open to the Income-tax Officer to hold that it is income of the assessee and no further burden lies on the Income-tax Officer to show that that income is from any particular source. It is for the assessee to prove that even if the cash credit represents income it is income from a source which has already been taxed.

In the case of Roshan Di Hatti v. Commissioner of Income-tax [1977] 107 ITR 938 (SC) [08-03-1977] it is held by the Hon'ble Supreme Court as under:-

"Now, the law is well settled that the onus of proving the source of a sum of money found to have been received by an assessee is on him. If he disputes the liability for tax, it is for him to show either that the receipt was not income or that if it was, it was exempt from taxation under the provisions of the Act. In the absence of such proof, the revenue is entitled to treat it as taxable income. This was laid down as far back as 1958 when this court pointed out in A. Govindarajulu Mudaliar v. Commisioner of Income-tax [1958] 34 ITR 807, 810 (SC) that:

"There is ample authority for the position that where an assessee fails to prove satisfactorily the source and nature of certain amount of cash received during the accounting year, the Income-tax Officer is entitled to draw the inference that the receipts are of an assessable nature."

Kath Brothers vs. ACIT To put it differently, where the nature and source of a receipt, whether it be of money or of other property, cannot be satisfactorily explained by the assessee, it is open to the revenue to hold that it is the income of the assessee and no further burden lies on the revenue to show that that income is from any particular source. vide Commissioner of Income-tax v. Devi Prasad Vishwanath Prasad [1969] 72 ITR 194 (SC). Here, in the present case, the assessee introduced in the books of account of its business on 30th March, 1948, capital of Rs. 3,33,414 which consisted of gold rawa, gold ornaments, stones and cash. The burden of accounting for the receipt of these assets was clearly on the assessee and if the assessee failed to prove satisfactorily the nature and source of these assets, the revenue could legitimately hold that these assets represented the undisclosed income of the assessee......”

(emphasis supplied)

In the case of Kale Khan Mohammad Hanif v. Commissioner of Income-tax [1963] 50 ITR 1 (SC)[08-02-1963] it is held by the Hon'ble Supreme Court as under.-

"It seems to us that the answer to this question must be in the affirmative and that is how it was answered by the High Court. It is well established that the onus of proving the source of a sum of money found to have been received by the assessee is on him. If he disputes liability for tax, it is for him to show either that the receipt was not income or that if it was, it was exempt from taxation under the provisions of the Act. In the absence of such proof, the Income-tax Officer is entitled to treat it as taxable income: see A. Govindarajulu Mudaliar v. Commissioner of Income-tax [1958] 34 ITR 807 (SC)".

As per judgements of Hon'ble Supreme Court in the case of CIT v. M.Ganapathi Mudaliar [1964] 53 ITR 623 (SC)/A. Govindarajulu Mudaliar v. CIT [1958] 34 ITR 807 (SC), where the assessee has failed to prove satisfactorily the source and nature of a credit entry in his books, and it is held that the relevant amount is the income of the assesse, it is not necessary for the department to locate its exact source.

Referring to the above judgements of Hon'ble Supreme Court, it is held by the Hon'ble ITAT in the case of Navin Shantilal Mehta v. Income-tax Officer, Ward-32 (2) (4), Mumbai [2018] 90 taxmann.com 16 (Mumbai - Trib.) as under-

"3.2 As per section 68 of the Act, onus is upon the assessee to discharge the burden so cast upon. First burden is upon the assessee to satisfactorily explain the credit entry contained in his books of accounts. The burden has to be discharged with positive material (Oceanic Products Exporting Co. v. CIT [2000] 241 ITR 497 (Ker.). The legislature had laid down that in the absence of satisfactory explanation, the unexplained cash credit may be charged u/s 68 of the Act. Our view is fortified by the ratio laid down in Hon'ble Apex Court in CIT v. P. Mohankala [2007] 291 ITR 278/161 Taxman 169. A close reading of section 68 and 69 of the Act makes it clear that in the case of section 68, there should be credit entry in the books of account whereas in the case of 69 there may not be an entry in such books of account. The law is wellsettled, the onus of proving the source of a sum, found to be received/transacted by the assessee, is on him and where it is not satisfactorily explained, it is open to the Revenue to hold that it is income of the assessee and no further burden lies on the Revenue to show that income is from any other particular source. Where the assessee failed to prove satisfactorily the source and nature of such credit, the Revenue is free to make the addition. The principle laid down in CIT v. M. Ganpati Mudaliar [1964] 53 ITR 623 (SC)A. Govinda Rajulu Mudaliar v. CIT [1958] 34 ITR 807 (SC) and also CIT v. Durga Prasad More [1969] 72 ITR 807 (SC) are the landmark decisions. The ratio laid down therein are that if the explanation of the assessee is unsatisfactory, the amount can be treated as income of the assessee. The ratio laid down in CIT v. Daulat Ram Rawatmal [1973] 87 ITR 349 (SC) further throws light on the issue. In the case of a cash entry, it is necessary for the assessee to prove not only the identity of the creditor but also the capacity of the creditor and genuineness of the transactions. The onus lies on the assessee, under the facts available on record. A harmonious construction of section 106 of the evidence Act and section 68 of the Income Tax Act will be that apart from establishing the identity of the creditor, the assessee must establish the genuineness of the transaction as well as the creditworthiness of the creditors. In CIT v. Korlay Trading Co. Ltd. [1998] 232 ITR 820 (Cal.), it was held that mere mention of file number of creditor will not suffice and each entry has to be explained separately by the assesseeCIT v. R.S. Rathaore [1995] 212 ITR 390/86 Taxman 20 (Raj.). The Hon'ble Guwahati High Court in Nemi Chandra Kothari v. CIT [2003] 264 ITR 254/[2004] 136 Taxman 213 held that transaction by cheques may not be always sacrosanct.

(Emphasis Supplied)

In the following cases the excess stock was upheld as taxable in the context of section 69/698 of the Act:-

In the case of Neeraj Agrawal v. Deputy Commissioner of Income-tax [2023] 152 taxmann.com 632 (Allahabad-Trib.) it is held by the Hon'ble ITAT as under-

Headnote extracts:-

INCOMETAX: Where during survey at premises of assessee manufacturing and trading silver ornaments certain excess stock of silver ornament was found to which assessee did not give any explanation at time of survey, explanation of assessee at time of assessment that it had purchased certain artificial silver jewellery which was not entered in stock register was merely an afterthought and therefore, Assessing Officer rightly made additions with respect to difference in physical stock of silver ornaments found during survey and stock as per stock register

INCOMETAX: Where during survey at premises of assessee, manufacturing and trading silver and gold ornaments, certain gold ornaments were found regarding which assessee did not give any explanation at time of survey but during assessment proceedings contended that same was purchased from 14 different persons who were not registered with VAT/Commercial Tax department, and purchases were claimed to be made by assessee just few days prior to date of survey, such explanation was not believable and, therefore, addition made by Assessing Officer in respect of same was to be upheld In the case of Suraj Bhan Oil (P.) Ltd. v. Deputy Commissioner of Income-tax [2022] 138 taxmann.com 19 (Madhya Pradesh)/[2022] 286 Taxman 680 (Madhya Pradesh)/[2022] 446 ITR 539 (Madhya Pradesh) [18-02-2022), it is held by the Hon'ble Madhya Pradesh High Court as under-

Headnote:-

Section 69B of the Income-tax Act, 1961 Undisclosed investments (Stock) - Assessment year 2005-06 Assessee was engaged in manufacturing and trading of edible oils and grains - Assessing Officer having found that value of stock shown by assessee in stock statement as on 28-3-2005 submitted to bank was far in excess to value of stock shown in audit report for period ending 31-3-2005 and difference was to extent of Rs. 2.71 crores and assessee despite opportunity afforded could not either reconcile difference or explain reasons therefor, treated difference amount as unexplained investment in stock from undisclosed sources and added same to total income of assessee under section 69B Commissioner (Appeals) deleted impugned addition by referring to a chart indicating stock position as on 28-3-2005 submitted to bank with stock position as per stock register on 28-3-2005 Tribunal held that assessee was bound to explain difference either before Assessing Officer or before Commissioner (Appeals) or before Tribunal and same was not done It taking view that excess stock represented income of assessee from undisclosed sources, set aside order of Commissioner (Appeals) and upheld order of Assessing Officer - It was noted that once it was found by Assessing Officer that there was excess stock, in absence of explanation by assessee, conclusion was inescapable that excess stock, if any, was from undisclosed sources - Further once assessee's explanation, if any, had not been accepted, resultant position was that there was excess stock undisclosed in books of account and non disclosure was only with a view to suppress income Whether order of Assessing Officer and that of Tribunal deserved to be affirmed - Held, yes [Para 10] [In favour of revenue]

(emphasis supplied)

SLP against the above judgement Suraj Bhan Oil (P.) Ltd. v. Deputy Commissioner of Income-tax [2022] 138 taxmann.com 19 (Madhya Pradesh) was dismissed by Hon'ble Supreme Court. Reported at [2022] 141 taxmann.com 477 (SC)/[2022] 288 Taxman 635 (SC)[25-07-2022]

Headnote:-

Section 69B of the Income-tax Act. 1961 Undisclosed investments (Stock) - Assessment year 2005-06 Assessee was engaged in manufacturing and trading of edible oils and grains Assessing Officer found that value of stock shown by assessee in stock statement as on 28-3-2005 submitted to bank was far in excess to value of stock shown in audit report for period ending 31-3-2005 and despite opportunity afforded assessee could not either reconcile difference or explain reasons therefor Hence, Assessing Officer treated difference amount as unexplained investment in stock from undisclosed sources and added same to total income of assessee under section 69B Commissioner (Appeals) deleted impugned addition by referring to a chart indicating stock position as on 28-3- 2005 submitted to bank with stock position as per stock register on 28-3-2005 Tribunal observed that assessee was bound to explain difference either before Assessing Officer or before Commissioner (Appeals) or before Tribunal and since same was not done, Tribunal set aside order of Commissioner (Appeals) and remanded matter back to Assessing Officer for adjudication afresh High Court by impugned order upheld order of Assessing Officer and that of Tribunal taking view that excess stock represented income of assessee from undisclosed sources - Assessee filed Special Leave Petition against above impugned order, however, after arguing for sometime sought permission to withdraw SLP-Whether therefore, SLP was to be dismissed as withdrawn-Held, yes [Para 3) [In favour of revenue] In the case of Principal Commissioner of Income-tax v. Deccan Tobacco Company [2022] 137 taxmann.com 470 (SC)/[2022] 286 Taxman 558 (SC)[11-03- 2022] [Hon'ble Supreme Court), it is held by the Hon'ble Supreme Court as under- Section 69, read with section 263, of the Income-tax Act, 1961 Unexplained investments (Stock) Assessee was engaged in business of gold and diamond jewellery and silver articles Search and seizure operation under section 132 was conducted in case of assessee and group concern and excess stock was found to be declared and assessee submitted that excess stock was result of suppression of profit from business over years and had not been kept identifiable separately and, therefore, investment in excess stock had to be treated as business income - Assessing Officer duly considered and accepted such explanation and taxed additional income as 'business income at rate of 30 per cent, which was approved by Joint Commissioner However, Principal Commissioner invoked revisional powers under section 263 purportedly on ground that decision of Assessing Officer was erroneous and prejudicial to interest of revenue High Court by impugned order held that in view of consistent view of various judicial authorities that where excess stock found in course of search is neither separately identifiable nor has independent physical existence, it cannot be treated as 'undisclosed investment under section 69 and since explanations offered by assessee were fortifiable by said consistent view, no case of perversity or lack of enquiry on part of Assessing Officer was made out so as to render his decision erroneous under Explanation 2 to section 263 Whether notice was to be issued in SLP filed by revenue against impugned order of High Court - Held. yes [Para 3] [In favour of revenue] In the case of SVS Oil Mills v. Assistant Commissioner of Income-tax, Non Corporate Circle-6(1), Chennai [2020] 113 taxmann.com 388 (Madras)/[2020] 269 Taxman 508 (Madras)/[2019] 418 ITR 442 (Madras) [26-03-2019), it is held by the Hon'ble Madras High Court as under:-

8. In our opinion, Section 69B providing for amounts of investments in Bullion, Jewellery or other valuable articles (including excess Stocks as well) would have been more appropriate Section to be indicated in the orders passed by the Authorities below rather than Section 69C-Unexplained Expenditure.

Nonetheless, we are of the clear opinion that mentioning of wrong section would not upset the Additions made by the Assessing Authorities below in the present case. All these 5 provisions enumerated above have been enacted with a view to bring to tax the unexplained debit balances in the Balance Sheet of the Assessee either in the form of Unexplained Investments, Expenses or Stocks, etc., or unexplained Assets, Money, Bullion, Jewellery, etc., and therefore, such unexplained investments and expenses intended to be brought to tax as Undisclosed Income, these provisions are not only clearty worded but also indicated to plug the loopholes and check the menace of black money. Likewise, unexplained credits in the Balance Sheet are also brought to tax under Section 68 of the Act

9. In the light of the above, the contention raised by the learned counsel for the Assessee has essentially emanated from a misconception that the Additions made under Section 698/69C have to be reduced to some extent by giving leverage to the Assessee to claim some deductions from these Additions as well. If the contention of the learned counsel for the Assessee was to be accepted viz., by allowing the purchases corresponding to the alleged excess stock, the Assessee will have to now record verifiable purchases in his Books of Accounts and for that he will have valid purchase Invoices from genuine and existing Sellers which is not possible. When the excess stocks were found during the Survey, there is no question of allowing the Assessee to record any additional purchases because such purchases had already been recorded in the books of accounts of the Assessee. Therefore, the excess stock, per se, has to be naturally brought to tax as 'undisclosed income by itself and there is no question of any corresponding deduction from that in such cases,

10. In our opinion, the learned Tribunal as well as the Authorities below were justified in bringing to tax the Undisclosed Income under Section 698/69C of the Act and such findings of fact do not give rise to any substantial question of law. The order passed by the leamed Income Tax Appellate Tribunal, Ahmedabad Bench does not enure to the benefit of the arguments advanced by the learned Senior Counsel as there also the learned Tribunal has rightly held that the value of excess stock of Rs.58,02,095/-should suffer tax and by inclusion of those Stocks in the value of Closing Stock the Assessee has recognised income over and above recorded in its Books of Accounts. Such Additions of the excess Stocks declared by the Assessee during the course of search in the closing stock does not amount to double taxation as contended. Mere remand of the case by the Ahmedabad Bench of Income Tax Appellate Tribunal to the Assessing Authority for verifying the figures, does not lay down any principle as contended by the learned Senior Counsel for the Assessee. (Emphasis supplied)

No double taxation Such Additions of the excess stocks declared by the Assessee during the course of search/survey in the stock does not amount to double taxation as contended. [SVS Oil Mills v. Assistant Commissioner of Income-tax, Non Corporate Circle- 6(1), Chennai [2020] 113 taxmann.com 388 (Madras)] If the contention of the Assessee/Appellant was to be accepted viz., by allowing the purchases corresponding to the alleged excess stock, the Assessee will have to now record verifiable purchases in his Books of Accounts and for that he will have valid as well as back-dated purchase Invoices from genuine and existing Sellers which is not possible. When the excess stocks were found during the Survey, there is no question of allowing the Assessee to record any additional purchases because actual purchases had already taken place and already been recorded in the books of accounts of the Assessee.

[SVS Oil Mills v. Assistant Commissioner of Income-tax, Non Corporate Circle- 6(1). Chennai [2020] 113 taxmann.com 388 (Madras)]. Thus this is an impossible proposition of going back in time.

Head of Income Regarding the contention of the appellant regarding applicability of charge to tax under a particular head, the question arises whether the income subject matter of addition is chargeable to tax as per provisions of chapters on salary, profits and gains of business and profession Or capital gain Or income from house property Or income from other sources. If the same is chargeable to tax under these chapters as per specific provisions contained therein (even before application of provisions of section 68/69/69A etc.) then section 115BBE will not have application.

Section 28 is not an inclusive definition as the opening sentence of the section 28 reads as under:-

"The following income shall be chargeable to income-tax under the head "Profits and gains of business or profession",- Accordingly, in case the appellant claims that the income is chargeable under the head business income and nowhere else, the onus is on the appellant to show under which clause of section 28 the claimed income gets covered. Even as per judgement in the Principal Commissioner of Income-tax v. Bajargan Traders, the source of investment/expenditure is clearly identifiable ie. the source must be clearly identifiable.

Kath Brothers vs. ACIT In this regard, as per provisions of the Act, not only the source but the year of earning of income also needs to be shown for taxing in the current year under assessment/appeal as the law provides that income for each year be taxed in the ITR/assessment of that year only. This also has ramifications on the interest payable by the taxpayer because if the income was earned in earlier year and the same is being offered to tax now in that case the taxpayer is liable to pay interest for the intervening period. Sections 68/69/69A etc. also provides for year of taxation irrespective of the year of earning of income.

However in case the subject matter of addition is not expressly falling under the four chapters of income heads and for the year under assessment/appeal (before application of provisions of section 68/69/69A etc.) in that case applicability of section 68/69/69A etc. is to be seen. If the sources, genuineness etc. are explained satisfactorily i.e. sources are out of genuine disclosed/taxed income in that case and section 68/69/69A etc. are not applicable even in that case section 115BBE will not have application, However if the asset/credit/expenditure is treated as income because of the applicability of section 68/69/69A etc in that case section 115BBE will have application. The incomes mentioned under these sections are not specific to any head of income.

Section 69C even clearly mentions that such unexplained expenditure will not be deductible under any head of income. Loans given / stock in hand/loan received etc. are otherwise not taxable as these are in the nature of asset/liability/capital nature in the hands of the taxpayer and not in the nature of revenue income. However when these are unexplained in terms of sections 68/69/69A etc. these become income and become taxable.

Section 14 of the Income-tax Act, 1961 Heads of income Assessment year 1984- 85-Whether opening words of section 14, 'save as otherwise provided by this Act, clearly leave scope for 'deemed income' of nature covered under scheme of sections 69, 69A, 698 and 69C being treated separately, because such deemed income is not income from salary, house property, profits and gains of business or profession, or capital gains, nor is it income from 'other sources' Held, yes. [Fakir Mohmed Haji Hasan v. Commissioner of Income-tax [2002] 120 Taxman 11 (Gujarat)/[2001] 247 ITR 290 (Gujarat)/[2001] 165 CTR 111 (Gujarat)[10-08- 2000]] Kath Brothers vs. ACIT These are the special provisions dealing with the situation and the incomes which are the subject matter of the contention in the appeal and being the specific provisions they are preferred and override the general provisions.

Sections 68/69/69A etc. also provides for year of taxation of asset/credit/expenditure irrespective of the year of earning of the source revenue income (if any).

Year of earning:

If the undisclosed income earned and accumulated over the years is taxed in the year in which it is detected by the Revenue and the same is merely taxed as per normal provisions of the law such an interpretation will place a premium on dishonesty i.e., it tantamounts to rewarding the dishonesty. There is no interest burden on such taxpayer even if the income was earned over past years and there is no extra tax rate and deduction of expenses/losses will also be claimed by taxpayer if the same is taxed as per normal provisions of section 28 and onwards.

When the receipts do not pertain to the year under appeal the appellant should have declared these receipts in the appropriate year to which these receipts belong and the appellant would have paid the taxes on the same along with the penalty if any arising due to the reopening of the case of the earlier year. By offering these receipts as business receipts of the year under appeal the appellant has unfairly tried to save on these accounts. Legally as per section 28 only the income earned during the year can be taxed. The appellant has not disclosed or clarified under which subsection or clause of section 28 the income falls on this account offered by the appellant for the year. TAX DEP Only by the application of sections 68/69/69A etc. the income is even if earned in earlier year but detected during the year in the form of unexplained credit /unexplained investment etc. is to be taxed in the year in which the application of such income is found. Once sections 68/69/69A etc. are applicable, there is no dispute regarding the applicability of section 115BBE of the Act.

Complete code:

The opening words of section 14 'Save as otherwise provided by this Act clearly leave scope for 'deemed income' of the nature covered under the scheme of sections 69, 69A, 69B and 69C being treated separately, because such deemed income is not income from salary, house property, profits and gains of business or profession, or capital gains, nor is it income from other sources' because the provisions of sections 69, 69A, 69B, and 69C treat unexplained investments, unexplained money, bullion, etc., and unexplained expenditure as deemed income where the nature and source of investment, acquisition or expenditure, as the case may be, have not been explained or satisfactorily explained.

Section 69C even clearly mentions that such unexplained expenditure will not be deductible under any head of income. Loans given/stock in hand/loan received etc. are otherwise not taxable as these are in the nature of asset/liability/capital nature in the hands of the taxpayer and not in the nature of revenue income. However when these are unexplained in terms of sections 68/69/69A etc. these become income and become taxable.

These are the special provisions dealing with the situation and the incomes which are the subject matter of the contention in the appeal and being the specific provisions they are preferred and override the general provisions. Once the income is as per these sections, there cannot be any dispute regarding the applicability of section 155BBE of the Act. These sections 68/69/69A etc. along with section 115BBE are in the nature of complete code in itself. In this regard it is held by Hon'ble Gujarat High Court in Fakir Mohmed Haji Hasan v. Commissioner of Income-tax [2002] 120 Taxman 11 (Gujarat)/[2001] 247 ITR 290 (Gujarat)/[2001] 165 CTR 111 (Gujarat)[10-08-2000] that "6.2 The opening words of section 14 Save as otherwise provided by this Act' clearly leave scope for 'deemed income' of the nature covered under the scheme of sections 69, 69A, 69B and 69C being treated separately, because such deemed income is not income from salary, house property, profits and gains of business or profession, or capital gains, nor is it income from other sources' because the provisions of sections 69, 69A, 69B, and 69C treat unexplained investments, unexplained money, bullion, etc., and unexplained expenditure as deemed income where the nature and source of investment, acquisition or expenditure, as the case may be, have not been explained or satisfactorily explained. Therefore, in these cases, the source not being known, such deemed income will not fall even under the head, 'Income from other sources'. Therefore, the corresponding deductions, which are applicable to the incomes under any of these various heads, will not be attracted in case of deemed incomes which are covered under the provisions of sections 69, 69A, 69B and 69C in view of the scheme of those provisions."

Summary:-

(a) Onus is upon the assessee to discharge the burden so cast upon. First burden is upon the assessee to satisfactorily explain the source of amount Invested/spent in his excess stock. The burden has to be discharged with positive material. [As per principles laid down in Roshan Di Hatti v. Commissioner of Income-tax [1977] 107 ITR 938 (SC)[08-03-1977). Kale Khan Mohammad Hanif v. Commissioner of Income-tax [1963] 50 ITR 1 (SC)[08-02-1963), CIT v. M.Ganapath Mudaliar [1964] 53 ITR 623 (SC)/A. Govindarajulu Mudaliar v. CIT [1958] 34 ITR 807 (SC)).

(b) As per section 69B of the Act, if the burden is not discharged satisfactorily, it is open to the Revenue to hold that it is income of the assessee and no further burden lies on the Revenue to show that income is from any other particular source. [As per principle laid down in CIT v. M.Ganapathi Mudaliar [1964] 53 ITR 623 (SC)/A. Govindarajulu Mudaliar v. CIT [1958] 34 ITR 807 (SC)).

(c) Unexplained stock cannot be presumed to be business income. If the assesse claims so, the assesse is required to prove the same. [Hon'ble Supreme Court in the case of Commissioner of Income-tax v. Devi Prasad Vishwanath [1969] 72 ITR 194 (SC)[01-08-1968] Making book entries regarding the excess / unexplained stock does not result into such stock to be treated as explained. The assessee is required to show and explain the source of the investment in such excess or unexplained stock. [Ratio of judgements of Hon'ble Supreme Court in the cases of Commissioner of income-tax v. Devi Prasad Vishwanath [1969] 72 ITR 194 (SC)[01-08-1968 and Roshan Di Hatti v. Commissioner of Income-tax [1977] 107 ITR 938 (SC)[08-03- 1977] (d) Once it was found by Assessing Officer that there was excess stock, in absence of explanation by assessee, conclusion was inescapable that excess stock, if any, was from undisclosed sources Further once assessee's explanation, if any, had not been accepted, resultant position was that there was excess stock undisclosed in books of account and non disclosure was only with a view to suppress income. [Suraj Bhan Oil (P.) Ltd. v. Deputy Commissioner of Income-tax [2022] 138 taxmann.com 19 (Madhya Pradesh)] [SLP against this judgement was dismissed reported at [2022] 141 taxmann.com 477 (SC)/[2022) 288 Taxman 635 (SC)[25-07-2022] Kath Brothers vs. ACIT (e) Undisclosed income or undisclosed investment cannot be explained through another unexplained income or unexplained source. That tantamounts to mere creation of an artificial layer. Verifiable purchases should be behind the undisclosed stock detected otherwise such excess stock is to be treated as unexplained. (f) Deemed income under sections 68/69/69A etc. is separate from any head of income. If the assessee claims that the undisclosed investment or undisclosed income falls under any particular head of income, the onus in this regard is on the assessee to show under which clause of with section of the respective head of income the undisclosed income of the appellant gets covered.

(g) Taxing the undisclosed investment or the undisclosed income at the normal rates of taxes in the year in which these undisclosed were detected rewards the dishonesty. The assessee is not only required to show the sources but also to show with positive evidence the year in which the respective amounts of undisclosed income was earned which were subsequently invested in the undisclosed investment.

Sections 68/69/69A etc. along with section 1158BE are in the nature of complete code in itself.

In view of the above the action of the Id. AO in the assessment order is upheld.

Accordingly the Grounds of appeal number 1 and 3 are hereby dismissed.

5. Ground of Appeal No. 2 is as under:

Ground No. 2: The appellant deserve the right to amend, alter, add, modify, and submit such further grounds of appeal or facts or supporting to meet the ends of Justice.

5.1 The appellant has not added or altered any of the above mentioned grounds of appeal. Accordingly such mention by the appellant in its ground is treated as general in nature, not needing any specific adjudication and is accordingly treated as disposed off.

6. In the result, the appeal of the appellant is dismissed. second appeal was preferred by the assessee before this tribunal. In support the various grounds raised by the assessee, ld. AR of the assessee, has filed the written submissions which reads as under :

FACTS: 1. The brief facts of the case are that the appellant asssessee is a partnership firm and engaged in the business of wholesale and retail trade of Agriculture Equipments and Implements, Hardware Items, Tubes and Pipe, Building Material and other related goods. Firm is having income from this business only and filing the I.T. Return regularly. In this case a survey action u/s 133A was carried out at the business premises of the assessee on dated 17.01.2019 where a alleged excess stocks found i.e During the survey proceedings, physical verification was made for the stock of his business and noted that total stock valued at Rs.2,69,28,041/- was found as against total stock recorded in the books at Rs.1,63,22,918/- for the year under consideration. Thus, the difference of Rs.1,06,05,123/- between recorded stock and physical verification was noted. Regarding to the above, the assessee was asked to explain in respect of excess stock detected during the survey proceedings. In reply to this query No. 21 of this statement recorded u/s 131 of the I T Act, 1961, the assessee has stated that “The stock of Rs.1,06,05,123/- was found excess I am unable to explain the source of this excess stock, this excess stock found is not entered in the books of accounts. Hence I surrendered this excess stock for the tax in the current F.Y. 2018-19 and will pay tax as per law.

3. The ld. AO i.e. ACIT Central Circle-3 Jaipur issued the notice u/s.142(1) on dt. 21.01.2021 with queries(PB62-65) . In response thereto the assessee has filed the reply(PB29-32) and details . The ld. AO also issued the notice u/s 142(1) on dt.08.09.2021(PB66) referring the notice dt.21.01.2021. In response thereto the Kath Brothers vs. ACIT assessee filed the detailed reply on dt.29.09.2021(PB3341) with details and affidavit (PB42-44). However the ld. AO has not considered the reply and details in their true perspective and sense and has only sated that the assessee has disclosed his surrendered income of Rs.1Cr. in the return of income at normal tax rate as specified in the provisions of section 115BBE of the Income tax Act, 1961. Since, the assessee has failed to explain the source of income and as per the provisions of section 69 of the I T Act, 1961. Therefore, the above income of Rs.1,00,79,698/- (Rs.1,00,00,000 plus Rs.79,698) is taxed @ 60% u/s 69A r.w.s. 115BBE of the I T Act, 1961. Without issuing any show cause notice.

In first appeal assessee filed the detailed WS, legal position, however the ld. AO CIT(A) confirmed the order of the AO. By stating that The appellant was required to show and substantiate this statement of declaring low gross profit instead of actual gross profit which was high – with evidences and mere making a baseless statement is a self –serving statement liable to be rejected. If less profit was declared in the earlier years in comparison to the actually earned profit, in that case, the additional income was required to be offered by the appellant in the earlier years and that would have also led to charge of interest and the levy of penalty etc. The approach of the appellant in offering the concealed income from the earlier years in the current year that too at normal tax rate is against the public policy and this approach rewards the dishonesty as if taxation at normal rate on such income in current year is accepted in the current year the appellant is saving on the interest, penalty and prosecution etc. and whereas the income has been offered to tax only after its detection in a survey action. (This argument of the ld. CIT(A) is baseless when the ld. AO and revenue have accepted the income of this year and if the contention of the ld. CIT(A) is accepted then there would have been lengthy exercise for the revenue and not approachable). The ld. CIT(A) has also alleged that the appellant has also not filed a copy of all the notices issued during the assessment proceedings and the copy of the order sheet etc. to support its contention that no opportunity was provided to the appellant on the issue. Further the powers of the CIT Appeal are co-terminus with that of the powers of the assessing authority and during the present appeal proceedings also the appellant has availed the opportunity in this regard and no grievance remains. ( In this regard it is submitted that the allegation of the ld. CIT(A) absolutely incorrect and wrong because the assessee had filed the copies of all the notices with e-proceedings sheet (vide PB40-48).

Kath Brothers vs. ACIT The ld. CIT(A)has tried to distinguishes some case referred by the assessee on wrong interpretation and the ld. CIT(A) has also referred some judgments which is not applicable in the present case and the facts are altogether are different. The ld. CIT(A) has also stated that there is no presumption in favor of business income onus to prove is on the assessee. The ld. CIT(A) has summarized his observation at page 44-45.

Hence this appeal SUBMISSIONS: 1.1 That the case of the assessee has been selected for scrutiny assessment and no issue(s) have been identified for examination except case pertaining to survey u/s 133A of the IT Act. 1.2 No notice u/s 143(2) by the assessing officer who made the assessment while the notice was issued by the ACIT- Cricle7, Jaipur. Hence the assessment is illegal invalid bad in law and liable to be quashed.

2. No any Show Cause Notice and no any query before making the addition: Further it is submitted that on the perusal of the assessment order notices issued by the ld. AO and record it is very clear that the ld. AO before invoking the provisions of Sec.69/69A and 115BBE has never confronted to the assessee. The assessee has produced all the details and books of accounts on being asked and also filed the affidavit(PB43-44). Thereafter she has also not asked any further information and he has also not given a show cause notice before invoking the provisions of Sec.69/69A and 115BBE, which is against the provision of law and against the legal position. The ld. CIT(A) has wrongly stated at page 27 of its order that the assessee has not filed the copy of all the notices. While we have filed the same vide PB 40-48. Also vide WS (PB119). If the ld. CIT(A) was having any doubt he could have asked to the assessee and could have also asked to the AO but he failed to do so and rather made wrong allegations. 2.1 In the case of CIT v/s Pramjit Sing 231 Taxman 0450(P&H) it has been held that when Assessee is not given opportunity to confront with material relied upon by AO during assessment proceedings and amount in question cannot be treated as loan given by Company to Assessee being deemed income as per provisions of S. 2(22)(e), no addition can be made on account of deemed dividend 2.2 ITO v/s Chitalia Builders 90 CCH 405(Guj) it has been held that Insofar as the deletion of addition is concerned, we find that the A.O was not confronted Kath Brothers vs. ACIT with any defects in the books of accounts maintained by the assessee. The A.O has not given any valid reasons for not accepting the cost shown by the assessee though he accepts that the method of accounting was mercantile. Hence, in our opinion, the deletion was justified.

2.3 In CIT v/s Oasis Hospitalities 333 ITR 119(Del) it has been held that In IT Appeal No. 2093 of 2010 and IT Appeal No. 2095 of 2010, the assessees filed copies of PAN, acknowledgement of filing IT returns of the share applicant companies and their bank account statements for the relevant period, i.e., for the period when the cheques were cleared. However, the parties were not produced in spite of specific direction of the AO instead of taking opportunities in this behalf. Since the so-called directors of these companies were not produced on this ground coupled with the outcome of the detailed inquiry made by the Investigation Wing of the Department, the AO made the addition. This addition could not be sustained as the primary onus was discharged by the assessee by producing PAN, bank account, copies of IT returns of the share applicants, etc. The AO was influenced by the information received by the Investigation Wing and on that basis generally modus operandi by such entry operators is discussed in detail. However, whether such modus operandi existed in the present case or not was not investigated by the AO. The assessee was not confronted with the investigation carried out by the Investigation Wing or was given an opportunity to cross-examine the persons whose statements were recorded by the Investigation Wing. As regards discrepancies found by the AO in the bank statement, suffice is to mention that the bank statements that were filed by the assessee were provided by the shareholders and were computer printed on the bank stationery. The same were filed by the assessee during the assessment proceedings without any suspicion of their being incorrect. During the assessment proceedings, the assessee was never confronted by the AO that there are discrepancies between the bank statements filed and the statements directly called by the AO. However, even after considering the alleged discrepancies, it does not follow that the amount of share capital was the undisclosed income of the assessee. Even the correct bank statements as claimed by the AO reveal that the assessee has received cheques from the shareholders. Therefore, there is no merit in these two appeals, which are accordingly dismissed at the admission stage itself.—CIT vs. K.C. Fibres Ltd. (2010) 187 Taxman 53 (Del) followed.

2.4 Thus the AO has taxed the income at higher rate without providing any opportunity of being heard to the assessee nor he issued any show cause notice before invoking the sec. 115BBE. During the course of assessment proceeding the ld. AO only required the assessee to file the details as per query letter. In Kath Brothers vs. ACIT response thereto the assessee admittedly filed the details and produced the books of accounts. After receiving details of she did not ask the assessee any further details. And directly invoked the provisions of Sec. 115BBE and 69/69A which is illegal, invalid and liable to be deleted. In support we are enclosing herewith the all the notices issued by the ld. AO and order sheet(PB 40-48 ). The ld. AO has not brought any allegation in the notice of the assessee before invoking the same and it was mandatory on the part of the ld. AO to issue the specific show cause notice to this effect asking to the assessee as to why the income should not be taxed as above before doing so. It is very settled legal position that a person (assessee) is entitled to opportunity to show cause as to why not the income of the assessee is determined and charged or taxed in the manner as proposed by the Assessing Officer but in the instant case no such type of opportunity had been provided hence the addition so made may kindly be deleted. But the ld. AO has failed to do so, which is against the principal of natural justice and against the law. Thus how the ld. AO can make the addition of alleged unexplained income and also cannot invoke the provisions of Sec. 69/69A and 115BBE. Hence the entire additions are liable to be deleted. in full kindly refer Sanghi Brothers (Indore)Limited v/s Inspecting ACIT 122 CTR 19(MP), Malik Packaging v/s CIT 284 ITR 374 (All), T.C.N. Menon v/s ITO 96 ITR 148(Ker).

Thus it is the settled law that higher taxed rate can be made without issuing the show cause notice or without confronting to the assessee.

2.5 In the case of Shreyas Builders &Anr. vs. M.d.Kodnani&ors.* (2000) 161 CTR 0527 : (2000) 242 ITR 0320 it has been held that A perusal of the show-cause notice shows that it neither discloses the material nor the reasons. It is a cryptic notice. It does not indicate the material on the basis of which the Appropriate Authority reached the tentative conclusion that the transaction is undervalued. It also does not disclose any reason why the Appropriate Authority has reached the tentative conclusion that the transaction has been undervalued. It is further to be seen here that in ground (b) of the petition a grievance in this regard has been made by the petitioners and in the affidavit in reply filed by the respondent/ competent authority, the competent authority does not state the reasons for non- disclosure of the material as also the reasons in the show-cause notice. The basic approach of the authority is erroneous. Unless the Appropriate Authority discloses the reasons why it prima facie finds that the transaction is under valued, the person to whom the show-cause notice is issued would not be able to put up a defence. Thus issuance of such show-cause notice would defeat the very purpose for which the show-cause notice is required to be issued. A show- Kath Brothers vs. ACIT cause notice which does not disclose the material on the basis of which the Appropriate Authority has reached the tentative conclusion that the transaction has been undervalued and the reasons for reaching that tentative conclusion is a defective show-cause notice and, therefore, an order made on the basis of that show-cause notice would be an incompetent order and, therefore, liable to be set aside.—Mrs. Nirmal Laxminarayan Grover vs. Appropriate Authority (1997) 139 CTR (Bom) 40 : 1995(2) Mh. L.J. 755 : TC S3.267 followed;C.B. Gautam vs. Union of India (1992) 108 CTR (SC) 304 r/w (1993) 110 CTR (SC) 179 : (1993) 199 ITR 530 (SC) : TC S3.142 relied on.

Also refer recent decision of this honble Tribunal in the case of M/s Motisons Jewellers Ltd in & 178/Jp/2022 dt. 29.09.2022. Copy enclosed.

2.6. This sec. 115BBE is charging of tax at the higher rate and it cannot be applied directly without giving any show cause notice when the issue are disputed that whether the higher rate of tax applicable or not on the alleged income or the nature of income falls u/s 69A and 115BBE. Hence it was mandatory on the part of the ld. AO to issue show cause before invoking the provisions u/s 115BBE, in absence of the same the rate cannot be charged more than to normal rate of tax, if the addition if any sustained. 2.7 Recently the Honble ITAT Jodhpur Bench Jodhpur in the case of Smt. Suraj Kanwar Devraa v/s ITO Ward 2(2) Udaipur in dt.23.11.2021, It has been held that “the AO has not issued any show cause notice before invoking the provision of Sec. 115BBE for taxing the income on higher rate. It was mandatory on the part of the AO to issue the specific show cause notice to this effect asking to the assessee as to why the income should not be taxed under sec. 115BBE before doing so. It is very settled legal position that a person (assessee) is entitled to opportunity to show cause as to why not the income of the assessee is determined and charged or taxed in the manner as proposed by the A.O. but in the instant case no such type of opportunity had been provided but the AO has failed to do so, which is against the principal of natural justice and against the law. This sec. 115BBE is charging of tax on a higher rate and it cannot be applied directly without giving any show cause notice when the issue are disputed that whether the higher rate of tax applicable or not on the alleged income or the nature of income falls u/s 68/69 and 115BBE. Hence it was mandatory on the part of the AO to issue show cause before invoking the provisions u/s 115BBE, in absence of the same the rate cannot be charged more than to normal rate of tax, if the addition if any sustained. The same has also followed recently by the Honble Jodhpur ITAT in the case of M/s Bharti Construction Co. in to 134/Jodh/2024 dt.29.10.2024.

Kath Brothers vs. ACIT Thus the order of the ld. AO is liable to be quashed on this grounds. 3. As after seeing the statements during the course of assessment proceedings the assessee filed it affidavit that he surrendered the income during the survey as business income and stated that no other income in the firm except business and the ld. AO has ignored this affidavit and Affidavit filed by assessee cannot be discarded without corroborative material evidences:

3.1 The contention made in the letter of affidavit should be accepted as truth unless rebutted. Because these affidavits have not been rebutted by lower authority by bring any contrary evidence or without examining. It is very settled legal position that in the cases where affidavit has been filed yet the contents thereof have not been rebutted by the AO/authority, the facts mentioned therein have to be read as the facts binding upon the Income Tax authorities. Kindly refer Mehta Pareek& Co. 30 ITR 181 (SC), ITO v. Dr.TejgopalBhatnagar 20 TW 368 (Jp)Paras Cotton Company vs. CIT (2003) 30 TW 168 (JD)., CIT v/s LunardDimond Ltd. 281 ITR 1 (Del). In CIT v/s Bhawani Oil Mills (P) Ltd 239 CTR 445/49 DTR 212(Raj.)- It has been held that contents of affidavit could not be treated as of a lesser importance than the statement given by the creditor before the AO. And in the present case in support the assessee had filed his affidavit and the ld. AO has not rebutted the contents of the affidavit even he not examined to the person it mean either she was satisfied or he has no material to disprove the same. Further the ld. CIT(A) has also not speak a single word on the same/affidavit. If the AO/CIT(A) have failed to give any comments thereon, then in-absence of the same how the income head can be changed and how the higher tax can be charged. An affidavit is the important piece of evidence, should not be taken in light and if there is any wrong affidavit is given by any of the party or person the same is an offence and may be punished under the law. In absence of the same the same cannot be discarded but is the evidence of the acceptance. The affidavits are evidence until and unless not disproved by the authority who alleging the same. Thus the observations made by the ld. CIT(A) has wrong incorrect and without rebutting the contents of the affidavit and hence all the observation of the ld. CIT(A) liable to be ignored. As Section 191 of the Indian Penal Code stipulates: “Whoever being legally bound by an oath or by an express provision of law to state the truth, or being bound by law to make a declaration upon any subject, makes a statement which is false, and which he either knows or believes to be false or does not believe it to be true, is said to give a false affidavit”

Kath Brothers vs. ACIT Section 193 of the Indian Penal Code, 1860 lays down the punishment for false evidence- whosoever intentionally gives a false evidence for the purpose of being used in a judicial proceeding, shall be punished with imprisonment which may extend up to 7 years and shall also be liable for payment of fine. In light of the above, it can be concluded that an affidavit is a document of extreme importance and value. Although, it can be signed by Principal Officers as well as their authorized representatives, it is expected that it is signed only by persons who are fully aware of the facts and circumstances of the case.Affidavit is treated as “evidence” within the meaning of Section 3 of The Evidence Act. In the case of Prashant Vs. Muncipal Council Bhadravat AIR 2009 BOM 144 it has been held The provisions of Civil Manual, Chapter XXVI, para 506 read thus -506. The person who may administer oaths to deponents must be dulyauthorised under Section 139 of the Civil Procedure Code to do so.It would thus mean that the persons who may administer oath to the deponents are to be the persons who are authorized under Section 139 of C.P.C. to do so. Therefore, the result is obvious that the Notaries are authorized to administer oath to the deponents.11The affidavits which are to be under the Code, can besworn by on administering the oath to the deponents by any Notary appointed under the Notaries Act and under Order 18, Rule 4 of the C.P.C., there is no barrequiring to exclude the affidavits sworn before the Notaries for taking them on record as an examination in chief. Thus, such affidavits sworn before Notaries can be accepted as evidence by the Civil Court. The cumulative sequel would render the impugned order tobe incorrect and illegal at law. As such liable to be quashed and set aside. 3.2 The ld. AO has not rebutted the affidavit filed by the assessee and the contention made in the letter of affidavit should be accepted as truth unless rebutted. Because these affidavits have not been rebutted by lower authority by bring any contrary evidence or without examining. It is very settled legal position that in the cases where affidavit has been filed yet the contents thereof have not been rebutted by the AO/authority, the facts mentioned therein have to be read as the facts binding upon the Income Tax authorities. Kindly refer Mehta Pareek& Co. 30 ITR 181 (SC), ITO v. Dr. Tejgopal Bhatnagar 20 TW 368 (Jp) Paras Cotton Company vs. CIT (2003) 30 TW 168 (JD)., CIT v/s Lunard Dimond Ltd. 281 ITR 1 (Del). Recently in CIT v/s Bhawani Oil Mills (P) Ltd 239 CTR 445/49 DTR 212(Raj.)- It has been held that contents of affidavit could not be treated as of a lesser importance than the statement given by the creditor before the AO. 3.3 Recently this Honble ITAT in the case of Narayani Bai Dangi v/s ITO Ward 2(1), Udaipur in dt.13.10.2023 it has been held that we Kath Brothers vs. ACIT respectfully relied on the order Mehta Parikh & Co, (supra). The revenue has not acted in proper manner to verify the nature of land and had not confronted the affidavit filed by assessee. The ld. DR was unable to submit any contrary judgment against the submission of the assessee. In our considered view, the revenue has not taken any pain to complete the verification or has not confronted the affidavit of the assessee during the appeal stages. So, the ground of the assessee is accepted by the bench. We set aside the appeal order and the addition amount to Rs. 15,53,112/- is quashed. Also refer the decision in the case of Also refer the decision of Vimal Chatur v/s ITO Ward 2(2), Udaipur 351/Jodh/2023 dt. 26.04.2024. Here is the same position.

4. The requisite detail with evidences has been submitted during the course of assessment proceeding in compliance of notice u/s 142(1) and the ld. AO has not found any unexplained investment which are not recorded in the books of account maintained by the assessee.

(ii) SAB Industries Limited V DCIT (ITA No. 848/CGL/2017) A.Y. 2013-14 order dated 28-03-2018.

(iii) Gavrish Steels (P) ltd V ACIT (2017) 82 Taxman Com 337 Chandigarh Tribunal.

(iv) Shri Ram Swarrop Sighal V ACIT Circle, Shri Ganga Nagar V Income Tax Officer (ITAT Jodhpur) ITA no. 143/Jodh/2018.

(v) Rajasthan High Court in the case of Bajargan Traders in Income Tax Appeal No. 258/2017 dated 12/09/2017 has held that excess stock found during the course of survey and surrender made thereof in taxable under the head of business and profession.

(vi) Kindly refer a direct decision on this issue in the case of Sh. Baljinder Kumar v/s DCIT Circle-1 Ludhiana in dt. 02.08.2023 where it has been held that “16. In the instant case, we find that through various questions raised during the course of survey, the assessee has been asked about the nature and source of his income and discrepancies so found during the course of survey. In response, the assessee has stated that he is a partner along with his wife in M/s Supreme Petro Foam Industry, a partnership firm engaged in manufacturing of Foam products and sole proprietor in M/s Shivam Coir Foam Products which is selling Foam products on wholesale and retail basis, and besides that, they have no other source of income/interest in any other business / concern. There were certain discrepancies noticed in respect of M/s Supreme Petro Foam Industry wherein the assessee surrendered a sum of Rs 90 lacs in terms of discrepancy in stock and construction expenses. Further, in respect of M/s Shivam Coir Foam Products, the assessee was asked about the hand-written particulars in terms of certain names and amounts recorded in a diary found during the course of survey and in response, the assessee has submitted that these entries pertain to his proprietorship concern M/s Shivam Coir Foam products, Khanna. It was further stated that these entries are advances/receivables from various persons in respect of his business dealings and were recorded for the purpose of memory. It was further stated that to buy piece of mind, he offers a sum of Rs 15 lacs as additional income for the current financial year subject to no penal action. The same was subsequently reiterated in the surrender letter dated 5/09/2018 wherein the assessee has stated that he offers the additional income for current financial year at normal rate of tax as the said income has been earned by him out of business transactions in the current year. We therefore find that it is a case where there are unrecorded sales made by the assessee during the current financial year and receivables arising out of such unrecorded sales have been offered to tax as additional business income by the assessee. The source of such unrecorded receivables is thus the unrecorded sales which have been explained by the assessee and thus, the necessary nexus with the business of the assessee has been established. The name of the person, the amount receivables, date, etc has been duly recorded in the diary, thus, the statement of the assessee duly stand corroborated by the contents of the diary so found during the course of survey. No doubts, these transactions were not recorded at the time of survey thus qualify as unrecorded transactions satisfying one of the essential conditions, at the same time, the assessee has provided the necessary explanation about the nature and source of such unrecorded transactions, thus, it cannot be said that these are unexplained transactions thus, doesn’t satisfy the second condition for invoking the deeming provisions of section 69 of the Act.

(vii) In the case of Montu Shallu Knitwers vs. DCIT In December 1, 2023 (2023) 69 CCH 0249 Chd Trib It has been held that “22. In the instant case as well, there is no physical distinction between the accounted stock and unaccounted stock. No such physical distinction was found by the Revenue either. We therefore find that the difference in stock so found out by the authorities has no independent identity and is in terms of value terms only and thus part and parcel of entire stock, therefore, it cannot be said that there is an undisclosed asset which existed independently and thus, what is not declared to the department is receipt from business and not any investment as it cannot be co-related with any specific asset and the difference should thus be treated as business income.

Kath Brothers vs. ACIT The same has been recently followed by the honble ITAT Jaipur bench Jaipur in the case of Silver Wings Life Spaces v/s DCIT Central Circle- Kota dt.31.07.2024 where it has been held that

The same has also been recently followed by the honble ITAT Jaipur bench Jaipur in the case of Jagdish Kumar Arora v/s DCIT Central Circle Kota in dt. 11.02.2025.

Reliance in this regard is placed on the judgment in the case of Daulat Ram Rawatmull vs. CIT [1967] 64 ITR 593, wherein Calcutta High Court held as under:

59/61. In the instant case the assessee is a firm formed for the purpose of carrying on business. There is nothing on record to show that the firm had any source of income other than business. Therefore, in our opinion, it is not unreasonable to hold that any amount representing secret income arose out of business of the firm.

(viii) Reliance in this regard is placed on the judgment dated 18.02.2021 in the case of Shri Harish Sharma vs. The ITO in wherein it was held that that Section 68 not applies when assessee explained nature & source of Income. Hence, when all the incomes earned by the assessee/ assets in the possession of the assessee are only from the business income of the assessee, there do not arise any question as to application of provisions of section 69B of the Act and hence taxing such income at special rate as per section 115BBE of the Act is invalid. In the case of the assessee also, there has been no other source of income identified, neither during the course of survey action nor during the revision assessment proceedings initiated later on. Hence, the income of the assessee is only on account of the business of the assessee carried on by the assessee since past many years and in these circumstances, the provisions of section 69B of the Act are not applicable. (ix) Further, reliance is also placed on the following judgments:

• Hon’ble Chandigarh Bench of ITAT in the case of M/s. Sham Jewellers in wherein, it has been held as under:

Ground Nos. 8 & 9 challenge the action of the lower authorities in applying the provisions of section 115BBE and thereby charging tax at the rate of 60%. The main thrust of the arguments of the Ld. AR has been that all the additions made or sustained relate only to the business income of the assessee and that nowhere in the assessment order has it been alleged that some other source of income had been detected which gave rise to additional income. It is seen that during the course of assessment proceedings, the various explanations submitted by the assessee have duly mentioned that the surrendered income was derived from the business. A perusal of the assessment order would 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.

• In the case of M/s. Sham Fashion Mall in the Hon’ble Chandigarh Bench of ITAT has held as under: in the case of Sham Fashion Mall, the only issue before us is the challenge to the provisions of section 115BBE by the AO and its sustenance by the Ld. CIT-(A). In this case the returned income has been accepted by the AO. We have also gone through the assessment order as well as the order of the Ld. CIT-(A) and it is seen that nowhere in the orders of both the lower authorities is there any fact brought on record or even a whisper of any allegation against the assessee that the assessee had any other source of income except income from business and income from other source. There is no iota of evidence to even suggest that the lower authorities had unearthed any other source of income of the assessee except under the heads of income declared by the assessee in the return of income. Therefore, in absence of any such evidence of any other undisclosed source of income of the assessee having been detected by the tax authorities, we are afraid that the invocation of provisions of section 115BBE will not hold good in the present case as well. The detailed reasons and observations in this regard have already been incorporated in Para 10.17 to 10.23 of this order in the case of M/s Sham Jewellers wherein also we have rejected the action of the Income Tax Authorities in applying the provisions of section 115BBE of the Act. Likewise, on identical facts and on identical reasoning and law, we allow the grounds of the assessee in the present appeal also and hold that the application of provisions of section 115BBE of the Act in the case of M/s Sham Fashion Mall was bad in law and the same cannot be sustained.”

• Hon’ble Chandigarh Bench of ITAT in the case of Gaurish Steels Pvt. Ltd. as reported in 82 Taxmann.com 337 wherein it has been held as under:

It has been held that income surrendered by the assessee during the survey on account of discrepancy in cost of construction of building, discrepancy in stock and discrepancy in advances and receivables would be considered as business income and not as deemed income under section 69.

• In the case of Bajaj Sons. Ltd., the Hon’ble Chandigarh Bench of ITAT, has stated as under:

“The AO has not pointed out any unexplained credit in the books of account, any unexplained investment, any unexplained money, bullion or jewellery, any unexplained expenditure or any amount of loan repaid in the assessment order in this respect. Therefore, the provisions of Section 68, 69, 69A, 69B, 69C and 69D are not attracted on the surrendered amount of Rs. 15 lacs. The said amount of Rs. 15 lacs was offered in case any discrepancy is found in the books of account. However, in actual neither any unexplained investment nor any unexplained expenditure or otherwise any unexplained asset was found during the search action so far as the aforesaid surrender of Rs. 15 lacs was concerned. In these circumstances, the aforesaid surrender of Rs. 15 lacs can be said to have been offered to cover up the discrepancies in respect of likely disallowances of claims, if any, relating to its business income.

9. In view of this, since the aforesaid surrender is not covered under the provisions of Section 68, 69, 69A, 69B, 69C and 69D, the provisions of Section 115BBE are not attracted in this case.

10. In view of the above, the action of the lower authorities in invoking provisions of Section 115BBE on the surrender income of Rs. 15 lacs is set aside and the AO is directed to compute the said surrendered income under normal provisions as applicable to the business income of the assessee.

• The Hon’ble Chandigarh Bench in the case of The DCIT vs M/s Khurana Rolling Mills Pvt. Ltd. as reported in ITA No. 745/CHD/2016:

9. In the facts of the present case, it is not disputed that the surrender had been made on account of undisclosed debtors. Since the facts are identical to that in the case of Famina Knit Fabs (supra), and no distinguishing facts have been brought to our notice by the Ld. DR, the decision rendered in that case will also apply to the present case, following which we hold that the Ld. CIT(A) had rightly treated the surrendered income as in the nature of business income of the assessee and accordingly, allowed the benefit of set off of losses against the same. The order of the Ld.CIT(A) is accordingly, upheld. The ground raised by the Revenue is dismissed.

Ratio is also applicable in the present case • In the case of Prashanti Surya Contruction Co. Pvt. Ltd. in the Hon’ble Chandigarh ITAT Bench has held as under:

Since the facts of the present case are identical to that in Gaurish Steels Pvt. Ltd. (supra), the surrender having been made by the assessee on account of investment made in the BOT project which was the business of the assessee, the decision rendered by the I.T.A.T. in the said case will squarely apply in the present case, following which we hold that the income surrendered by the assessee of Rs. 1.75 crores is assessable under the head 'income from business and profession • In the case of M/s. Arora Alloys vs. DCIT in the Hon’ble Chandigarh Bench has held as under:

In the light of the above, let us examine the facts of the present case. The stand of the assessee is that expenditure incurred for construction of building was from the routine business, and such addition of Rs.32 lakhs ought to be treated as business income. We find force in this contention of the ld. counsel for the assessee, because the expenditure incurred for creating a business asset and it must have been generated through the business carried out by the assessee. It is pertinent to bear in mind that expenditure laid out for the purpose of business is to be allowed deduction either as expenditure or to be capitalized on which depreciation will be allowed. The assessee might have earned income from the business which has not been accounted and used for constructing the business asset, though specific details have not been discussed either in the impugned order about the nature of evidence found during the course of survey. We also need not to ponder on this aspect because the assessee has admitted this unexplained expenditure on construction of building. This admission has to be accepted as given by the assessee, wherein it was alleged that it is for the purpose of the business. Therefore, to the extent the expenditure incurred for construction of the building, out of unexplained source is concerned, it is to be construed as earned from the business and it will take character of the business income. Once this income is to be assessed under the “business income , then all incidental benefits for set off from brought forward loss or any other expenditure is to be given to the assessee.”

Ratio are also applicable in the present case 5.3 During the course of assessment proceedings the assessee filed the detailed reply and legal position abut the ld. AO has not spoken a single word on theses issue and submission and no contrary judgments have been brought by her, this reply was also filed before the ld. CIT(A) and not considered by him, which show she(AO) either has satisfied with our plea or she is not having anything to rebut our contention. Hence the income so surrendered is to held as business income on which provisions of Sec. 115BBE is not applicable.

The ld. has wrongly invoked the provisions of Sec.69 and 69A on the income surrendered and declared in the ITR.

6.1 Further during the course of survey action at the business premises of the assessee on 17.01.2016 as well as during the course of assessment proceedings, the Ld. AO has not passed any adverse opinion with respect to any other source of income of the assessee, neither the AO has brought on record any adverse material on record. Hence, the business income is the only source of income of the assessee and moreover, in the case of assessee unrecorded excess stock have been found during the course of survey which have been related to business of assessee partnership firm, hence in the first instance, the department itself has accepted that the said stock was of the business of the assessee and not arose in a single day, hence, it means that these stocks are only from the business income of the assessee. And, hence, all the income earned by the assessee is only on account of such business of the assessee and therefore, needs to be taxed under the business head only. The ld. AO have not disputed these contentions nor brought on record to disprove the same. If so than how the ld. CIT(A) can give the baseless observation finding on the issues on which the ld. AO has not speak any things 6.2 That during the F.Y. 2018-19, a survey u/s 133A was conducted on the premises of the assessee on dated 17.01.2019. The assessee declared an amount of Rs. 1,06,05,123/- on account of excess stock found during the course of survey. Since the survey team could not found any other investment made by the assessee which were not recorded in the books of account, any documents/ information/records which showed that assessee was found to be the owner of any money, bullion, jewellery or any other valuable article which were not recorded in the books of account but which showed that the assessee has incurred any expenditure for which it had offered no explanation about the sources of such expenditure or part thereof. Therefore since no evidence was found to show that declared income represented any undisclosed income, the sources of which had not been disclosed by the assessee so it could not be regarded as deemed income under the provision of Sec.69 of the income Tax Act, 1961. The same was also decided in the case of DCIT vs. Khurana Rolling Mills (P) Ltd (ITAT Chandigarh).

6.3 In the above matter there are two issue (i) whether the surrender income fall u/s 69/69A or under the head income from other sources or business income, (ii)

Kath Brothers vs. ACIT whether the tax on the surrender income should be charged at the rate of 30% +cess or the rate of 60% and Surcharge @25% +3% cess. 6.4 As from the surrender, it is cleared that the surrender was made on account of Stock. As during the course of statements the assessee firm in Answer to Question No. 21 has submitted that in firm unrecorded stock found which are not recorded in the books of accounts, the amount of total unrecorded stock are Rs.1,06,05,123/- which is being surrendered as undisclosed income for the current year. As the assessee firm was/is engaged in the business of wholesale and retail trade of Agriculture Equipments and Implements, Hardware Items, Tubes and Pipe , Building Material and other related goods and as the stock are used in the firm or business entity as business transaction. And the lower authority has not disputed the same.

6.5 Thus, the surrender was on account of stock relating to the business of the assessee firm only and the ld. AO no-where disputed these facts. The Revenue has accepted the surrender as such, as being on account of stock. It follows that the stock were generated from the sales/receipts made by the assessee firm during the course of carrying on the business of the assessee firm, which was not recorded in the books of the assessee firm. Though the said income was not recorded in the books of the assessee firm but the source of the same stood duly as being from the business of the assessee firm, the survey team after question 21 no other question has asked from the partner of the firm, to remove any doubt and partner of the firm has signed the statements as recorded in the mental pressure. Even other-wise no other source of income of the assessee firm is found there on record either disclosed by the assessee firm or unearthed by the Revenue. The preponderance of probability therefore is that the stock was sourced from the business of the assessee firm. Therefore, there is no question of treating it as deemed income from undisclosed sources u/s 69/69Aof the Act and the same is in the nature of Business Income of the assessee firm and assessable under the head 'business and profession' and as stated above, hence the observation of the ld. CIT(A) are from the actual facts. Thus excess stock found are related to the undisclosed income of the firm as mentioned in the reply of question no. 21 of the statement recorded. And no provisions of 115BBE of the Act is also applicable.

The survey team at the time of recording the statements has also not referred the provisions of 115BBE/69 and 69A nor stated surrendered income shall be taken u/s 69/69A.Then how the department can take the same u/s 69 and 69A. It was the duty of survey team to bring its intention at the time of taking the surrender from the assessee firm. As it was the duty of department to explain the same to Kath Brothers vs. ACIT the assessee. A general persons cannot understand the technicalities of the complex law of the income tax . And it is also the settled legal position of the law the Income tax Authorities cannot take advantage of ignorance of assessee toward of law. That is why after the getting of the statements assessee filed the affidavit during the course of assessment proceedings which have not been rebutted neither by the ld. AO nor by the ld. CIT(A) as submitted in above para. As per statements it is clear that there is cutting or torn on the rate(PB20).

It is principal of law that right income should be taxed in right hand and right head. Only for burden of tax on innocent assessee head of income cannot be changed. It is the duty of Income tax authority who know the law to bring the correct facts and correct law and correct head of income before the assessee.

• Hon'ble ITAT, Indore Bench in the case of ACIT v. Anoop Neema vide its order in ITA 05/Ind/2020 dated 06.01.2022 has held: 7. We have heard rival contentions and perused the records placed before us. Revenue’s sole grievance is that Ld. CIT(A) erred in not treating the income of Rs. 1,41,75,568/ declared during the course of search carried out on 15.12.2016 as unexplained investment u/s 69 r.w.r.t. 115BBE of the Act. We notice that during the course of search excess stock of gold weighing 6433.812 gms was found amounting to Rs. 1,41,75,568/-. Mr. Anoop Neema in his statement recorded or oath on 16,12.2016 u/s 132(4} of the Act accepted the value of excess stock as additional business income for financial year 2016-17. So far as, admission of undisclosed income of Rs. 1.41, 75,569/- is concerned there is no dispute at the end of both the parties. The bone of contention is that whether the provision of section 115BBE of the Act are applicable on the surrendered income of Rs. 1,41,75,568/- we find that Ld. CIT(A) on examination of the fact, settled judicial precedence, also appreciating that the alleged income is business income earned by the assessee during the normal course of its business and was part of the total business stock available at the business premises The above matter is directly covered by the recent decision of this Hon’ble bench in the case of DCIT v/s Sh. Ram Narayan Birla in dt. 30.09.2016, where the Hon’ble Bench at page 4 in para 4.3 held that “Undisputed facts emerged from the record that at the time of survey excess stock was found. It is also not disputed 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 v/s DCIT 131 TTJ (Ahd)1 has held that in a case where source of investment/ expenditure is clearly identifiable and alleged undisclosed assets has no independent existence of its own or there is no separate physical identity of such investment/expenditure then first was to be taxed is the undisclosed business receipts invested in unidentifiable unaccounted assets and only on failure it should be considered to be taxed u/s 69 on the premises that such excess investment is not in the books of account and its nature and sources is not identifiable. Once such excess investment is taxed as undeclared business receipts then taxing it further as deemed income u/s 69 would not be necessary. Therefore, the first attempt of the AO 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 receipts under the particular head. It is observed that there is no conflict with the decision of Hon'ble Gujrat High Court in the case of Fakir Mohd. Hajihasan(Supra) wherein investment in an assets 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 head. Therefore, the Hon’ble Coordinate Bench held 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. In the present case stock was part of the stock. The revenue has not pointed out that excess stock has any nexus with any other receipts. Therefore we do not fine any fault with the decision of the ld. CIT(A) directing to the AO to treat the surrendered amount as excess stock qua the excess stock.”

The principal of the above judgment is also applicable in the present case.

6.7 Further, in the present case after considering the true and correct fact of the case, the provisions of section 69 cannot be invoked and the excess stock has to be treated as business income of the assessee firm. Admittedly, in the present case, no existence of evidence in relation to any unaccounted independent identifiable other investment which was found during the course of survey.

Once stock is treated as business income (although not denied by the AO and no comments thereon) then provision of Sec. 115BE is not applicable. Hence the provisions of Sec. 115BBE so applied by the Ld. AO is not justified hence deserves to be deleted.

The Hon’ble Chandigarh Tribunal in case of M/s Bajaj Sons Ltd vs DCIT [ITA No.1127/CHD/2019 AY 2017-18 dated 25 May 2021] was concerned with the question of invoking the provision of section 115BBE of the Act on the surrendered income to cover any discrepancy and thereby accessing such income at higher rate of tax as against the normal rate of tax applicable to the business income. Given that no discrepancy was pointed by the AO, it was held that the provisions of sections 68, 69, 69A, 69B, 69C or 69D are not attracted to levy tax under section 115BBE.

Before the Hon’ble Jaipur Tribunal in case of ACIT vs Shri Sudesh Kumar Gupta [ITA No 976/JP/2019 AY 2014-15 dated 9 July 2020] issue under consideration was whether rectificationproceedings u/s 154 were permissible when at the first place while passing assessment order u/s143(3) provisions of section 69 were not invoked for charging higher rate of tax u/s 115BBE. The Hon’ble Tribunal held that the assessing officer has not invoked the provisions of section 69 at the first place while passing assessment order u/s 143(3) and therefore, the provisions of section 115BBE which are contingent on satisfaction of requirement of section 69 cannot be independently applied by invoking the provisions of section 154 of the Act.

In case of Oberoi Motors vs ACIT [ITA No. 3512/Del/2018 AY 2012-13 dated 16 July 2021], the taxpayer had declared surrendered income after set-off of business loss. The lower authorities did not accept the above treatment and held that the surrendered amount is deemed income and does not fall under any of the head of income and therefore no set off of business losses could be allowed. The Hon’ble Tribunal held that as the assessee had already introduced the transactions in books of accounts, it would not be reasonable to say that such income does not fall under any of the head of income or that such deemed income does not allow any set off of business losses. Accordingly, the Tribunal accepted that the surrendered income amounts to business income. It is to be noted that this decision is related to AY prior to amendment made by the Finance Kath Brothers vs. ACIT Act, 2016 w.e.f. 1 April 2017 andaccordingly, set off of business loss is allowed by placing reliance on CBDT Circular No. 11 of 2019 dated 19 June 2019 and decision of Kirtiman Cement and Packaging Pvt Ltd (ITA No. 2777 and2778/Del/2017 for AY 2012-13 and AY 2013-14 dated 15 May 2018).

In case of M/s Shree Abharana vs. ITO (ITA No. 931 & 932/Bang/2019 for AY 2014-15 dated 20 September 2019), the Bangalore Tribunal held that the direction issued by the CIT u/s 263 to make addition u/s 115BBE to the AO without inquiry into sources of funds may not be proper. Hence, the Hon’ble Tribunal remitted the matter back to the files of AO. In this case, income offered during survey was credited in the P&L account and certain routine expenses were claimed. However, as declaration was made during survey, it was stated that income so offered should be taxed u/s 69 of the Act. However, before invoking section 69, the AO ought to have made investigation regarding whether income declared is assessable u/s 69 or under the head of business income or income from other sources In the below judicial precedents, it was also held that if excess stock found during the course of survey or search and does not have any independent identity as an asset but as mixed part of overall stock found in the survey/search then such excess stock would represent business income - Fashion World vs. ACIT (ITA No. 1634/Ahd/2006) - DCIT vs. Ramnarayan Birla 482/JP/2015 dated 30.09.2016 Reliance was placed on the decisions of Hon'ble Rajasthan High Court in the case of CIT of CIT v/s Bajargan Traders D.B. I.T. No. 258/2017 dated 12/09/2017 the Hon'ble Rajasthan High Court held as under:- "2.10. We have heard the rival contentions and perused the material available on record. During the course of survey, the assessee has surrendered an amount of Rs. 70,04,814/- towards investment in stock of rice which had not been recorded in the books of accounts. Subsequently, in the books of accounts, the assessee has incorporated this transaction by debiting the purchase account and crediting the income from undisclosed sources. In the annual accounts, the purchases of Rs. 70,04,814/- were finally reflected as part of total purchases amounting to Rs. 33,47,19,658/- in the profit and loss account and the same also found included as part of the closing stock amount to Rs. 1,94,42,569/- in the profit/ loss account since the said stock of rice was not sold out. In addition to the purchase and the closing stock, the amount of Rs. 70,04,814/- also found credited in the profit and loss account as income from undisclosed sources. The Kath Brothers vs. ACIT 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 there from 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 regularize 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 be brought to tax under the head "business income" or "income from other sources". In the present case, the assessee is dealing in sale of food grains, rice and oil seeds, and the excess stock which has been found during the course of survey is 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.

9. Further we submits the observations of the ld. CIT(A) and our submissions thereon as as under a) Onus is upon the assessee to discharge the burden so cast upon. First burden is upon the assessee to satisfactorily explain the source of amount invested / spent in his excess stock. The burden has to be discharged with positive material.:- In this regard it is submitted that the assessee firm is doing the business and the stock itself come under the trading head which denote the business and arisen from business either accounted or unaccounted business. If this were recorded then there was no need to surrender. Thus the ld. CIT(A) has tried to confuse which is not permissible in law. Hence the observation is baseless.

(b) As per section 69B of the Act, if the burden is not discharged satisfactorily, it is open to the Revenue to hold that it is income of the assessee and no further burden lies on the Revenue to show that income is from any other particular Kath Brothers vs. ACIT source. :- In this regard it is submitted that we have already stated that the assessee firm is doing the business and purchasing the goods from the income earned from this business itself and there was no proof is found that the assessee is involved in other activities other than to this business, if not found than how the wrong presumption can be made against the assessee without any evidence. Thus the ld. CIT(A) has again tried to confuse which is not permissible in law. Hence the observation is baseless. (c) Unexplained stock cannot be presumed to be business income. If the assesse claims so, the assesse is required to prove the same. :- In this regard it is submitted that the presence of stock itself the proof of business, because if there were any other activities then the same could have been brought on record by the ld. AO. Thus the observation of the ld. CIT(A) shows that these are based his own assumption , presumption and guess work which liable to be ignored.

(d) Once it was found by Assessing Officer that there was excess stock, in absence of explanation by assessee, conclusion was inescapable that excess stock, if any, was from undisclosed sources - Further once assessee's explanation, if any, had not been accepted, resultant position was that there was excess stock undisclosed in books of account and non disclosure was only with a view to suppress income. :- In this regard it is submitted that here is only to see that whether the excess stock found were generated from business or other activities and in the present case no other activities have been found by the revenue except to this business, hence there was no question to be deemed it from other activities in absence of any evidence. And the revenue has not asked that the assessee is doing any other activities. Thus the ld. CIT(A) has again tried to confuse which is not permissible in law. Hence the observation is baseless.

(e) Undisclosed income or undisclosed investment cannot be explained through another unexplained income or unexplained source. That tantamounts to mere creation of an artificial layer. Verifiable purchases should be behind the undisclosed stock detected otherwise such excess stock is to be treated as unexplained.:- In this regard it is submitted that when the same has been surrendered and paid the tax thereon under business and the observation of the ld.CIT(A) are bales and not applicable in the present case , if the purchase are verifiable and from the the disclosed sources then there was no need of survey, no need of surrender etc. Thus the ld. CIT(A) has again tried to confuse which is not permissible in law. Hence the observation is baseless. (f) Deemed income under sections 68/69/69A etc. is separate from any ‘head of income’. If the assessee claims that the undisclosed investment or undisclosed income falls under any particular head of income, the onus in this regard is on the assessee to show under which clause of with section of the respective head of income the undisclosed income of the appellant gets covered. :- In this regard it is submitted assessee had not sated that the income falls under section 68/69/69A and assessee has already taken this income in the P&L account and there was no evidence of other income except business income found nor proved. Thus the ld. CIT(A) has again tried to confuse which is not permissible in law. Hence the observation is baseless.

(g) Taxing the undisclosed investment or the undisclosed income at the normal rates of taxes in the year in which these undisclosed were detected rewards the dishonesty. The assessee is not only required to show the sources but also to show with positive evidence the year in which the respective amounts of undisclosed income was earned which were subsequently invested in the undisclosed investment.:- In this regard it is submitted the observation of the ld. CIT(A) are his own not as per law and not having any materialized value in the present case. Hence the observation is baseless and liable to be ignored.

On perusal of the observations of the ld. CIT(A) it is clear that he has not considered our WS, affidavit and documents in totoo, properly in their true perspective and sense, otherwise could not have made these observations.

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". Prayer: In view of the above facts, circumstances of the case and legal position of law the higher rate of tax so charged i.e the excess demand so raised may kindly be deleted, the provisions of sec. 115BBE and 69/69A may kindly be held not to applicable in this case and the assessment order may kindly be quashed and oblige.”

S. Particulars. Page No. No.

1. Copy of IT Return with computation of total income 1-4 2. Copy of Audited b/S Trading and P&L account. 5-7 3. Copy of statement of partner recorded during survey on dt. 17.01.2019 and u/s 8-23 131 on dt. 231.01.2019.

4. Copy of letter to AO dt. and 29.09.2021 24-36 5. Copy of Affidavit of the partner 37-39 Kath Brothers vs. ACIT 6. Copy of Notice u/s 143(2) dt. 29.09.2020 and notice u/s 142 dt. 21.01.2021 and 40-48 08.09.2021.

7. Copy of valuation report of excess stock found. 49-103 8. Copy of Copy of judgments 104-115 9. Copy of WS to CIT(A) 116-142

7. The ld. AR of the assessee in addition to the above written submission so filed vehemently argued that the assessee has surrendered the business income. The rate of tax mentioned in the statement has been changed afterwards therefore, the same is manipulated and in support of that contention he filed an affidavit. Ld. Ao made addition u/s. 69 whereas ld. CIT(A) hold it as taxable u/s. 69B of the Act and therefore, even the officers of the revenue are not on the same page as to which provision will apply. Section 69 talk about unexplained investment whereas 69B talk about the amount of investment not fully disclosed. The stock is not investment it is stock in trade and therefore, considering the decision of Rajasthan High Court in the case of Bajarang Traders (supra) the income is required to be taxed under the head business or profession. The assessee has passed the necessary entry in the books of account assessee has no other income except the business income. While charging the income at special rate no income asking the assessee was issued by the ld. AO.

Based on that argument he relied upon the detailed written submission placed on record. and more particularly advanced the similar contentions as stated in the order of the ld. CIT(A). Ld. DR vehemently argued that it is clear cut case wherein the excess stock was found the assessee could not support the same with supporting evidence and have not justified the source of income from this investment was made. Question no. 21 deals with all the aspect that the assessee dispute here, so the contention of the assessee now when it is established beyond doubt on the out of books purchased. The assessee has not substantiated from whom he purchased the excess stock and how the source of money earned is also not disclosed and therefore, the tax is required to be charged at a special rate.

Unexplained investments.

Amount of investments, etc., not fully disclosed in books of account. 69B. Where in any financial year the assessee has made investments or is found to be the owner of any bullion, jewellery or other valuable article, and the Assessing Officer finds that the amount expended on making such investments or in acquiring such bullion, jewellery or other valuable article exceeds the amount recorded in this behalf in the books of account maintained by the assessee for any source of Kath Brothers vs. ACIT income, and the assessee offers no explanation about such excess amount or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the excess amount may be deemed to be the income of the assessee for such financial year.

The facts of the case shows that there was not case of the revenue that the assessee has undervalued the stock it was case of excess stock physically found then in the books. Thus, provision of section 69B will not apply. Now coming to the issue of excess stock whether the same is subjected to the provision of section 69A of the Act or not. The provision of section 69A says that when the assessee has made investments which are not recorded in the books of account and the assessee unable to explain the source of the same and that income to be taxed as other income. Here in this case as ld.

AR of the assessee relied upon the decision of our own Jurisdictional High Court in the case of Principal Commissioner of Income-tax v. Bajargan Traders [2017] 86 taxmann.com 295 (Rajasthan) (12-09-2017] our high court held that ; 3. The Tribunal while considering the matter has observed as under :— '2.7. It is further submitted that the real issue in this case is whether the excess stock surrendered should be made as a part of business income or not and if so, assessee can claim deduction on account of payment of remuneration to partners on account u/s 40b(v). In this regard, our reference was drawn to the decision of Co-ordinate Bench in case of Shri Ramnarayan Birla (in dated 30.09.2016). In that case, the question before the Coordinate Bench was "whether the CIT(A)-2, Udaipur has erred in directing the AO to assess the unexplained investment surrendered by the assessee under the head "income from Business" ignoring the decision of the Hon'ble Gujarat High Court in the case of Fakir Mohd. Hazi Hasan 247 ITR 290 that unaccounted income ought to be Kath Brothers vs. ACIT categorized under the residuary head of 'Income from other sources'. In respect to the said issue, the findings of the Coordinate Bench are as follows: "We have heard the 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 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 jewellery. The Coordinate Bench in the case of Choksi Hiralal Mangnlal v. 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 u/s 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 observed that there is no conflict with the decision of Hon'ble Gujarat High Court in the case of Fakir Mohd. Jajihasan (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 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. 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." 2.10. We have heard the rival contentions and perused the material available on record. During the course of survey, the assessee has surrendered an amount of Rs. 70,04,814/- towards investment in stock of rice which had not been recorded in the books of accounts. Subsequently, in the books of accounts, the assessee has incorporated this transaction by debiting the purchase account and crediting the income from undisclosed sources. In the annual accounts, the purchases of Rs. 70,04,814/-were finally reflected as part of total purchases amounting to Rs. 33,47,19,658/- in the profit and loss account and the same also found included as part of the closing stock amount to Rs. 1,94,42,569/-in the profit/loss account since the said stock of rice was not sold out. In addition to the purchase and the closing stock, the Kath Brothers vs. ACIT amount of RS. 70,04,814/- also found credited in the profit and loss account as 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 byway of investment in the unrecorded stock of rice has to be brought to tax under the head "business income" or "income from other sources". In the present case, the assessee is dealing in sale of foodgrains, rice and oil seeds, and the excess stock which has been found during the course of survey is 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. 3.2. The ld. AR of the assessee submitted that at the outset, it may be noted that the AO has made addition on account of notional interest of Rs. 1,39,366/-. There cannot be any addition on account of notional income as held by the Hon'ble Supreme Court in case of E.D. Sassoon & Co. & Ors. v. CIT [1954] 26 ITR 27 and Godhra Electricity Co. Ltd. v. CIT [1997] 225 ITR 746 where it was held that only real income can be taxed, hypothetical income cannot be taxed nor income can be taxed in vacuum. Therefore, the addition made by the AO is not as per law and the same be deleted. The ld. CIT(A) has confirmed the addition by stating that it is the disallowance of interest. It is submitted that the lower authorities have not disputed about the commercial expediency about the advance given to Smt. Rita Gupta. In fact, the advance was given to Smt. Rita Gupta in earlier years for construction of godown and the same was given on rent by the assessee. Therefore once commercial expediency for giving the advance is established, no part of the interest expenditure can be disallowed in view of the decision of Hon'ble Supreme Court in case of S.A. Builders 288 ITR 1 and Hero Cycles Pvt. Ltd. v. CIT 379 ITR 347 where it was held that the Revenue cannot justifiably claim to put itself in the arm-chair of the businessman or in the position of the Board of Directors and assume the role to decide how much is reasonable expenditure having regard to the circumstances of the case. If further held that no businessman can be compelled to maximize his profit and that the income tax Kath Brothers vs. ACIT authorities must put themselves in the shoes of the assessee and see how a prudent businessman would act. The authorities must not look at the matter from their own viewpoint but that of a prudent businessman. Further, in past, no such disallowance/addition was made. Therefore, neither the addition of notional interest made by the AO or disallowance of interest as held by the ld. CIT(A) is Rs. 1,96,73,637/-. Partners are paid interest @ 12% the balance in the partners account is much more than the amount advanced to Smt. Rita Gupta who is a wife of one of the partner. Therefore, even the disallowance made @ 4% is not justified and the same should be restricted @ 2% only. Reliance is also placed on the following cases. CIT v. Ram Kishan Verma [2016] 132 DTR 107/132 Taxman 107 (Raj.)(HC) CIT v. Vijay Solvex Ltd. [2015] 113 DTR 382 (Raj.) (HC)' 4. We are in complete agreement with the view taken by the Tribunal. No substantial question of law arises.

Respectfully following the view taken by our Jurisdictional High Court that the excess stock found with the assessee be taxed as business income of the assessee and therefore, we direct the ld. AO tax the said income as business income of the assessee. Based on these observation ground no. 1 to 4 are allowed.

Vide Ground no. 5 the assessee challenges the charge of interest under section 234A/B/C which are consequential in nature and ground no. 6 being general does not require any specific adjudication.

In the result, the appeal of the assessee is allowed.

Sd/- Sd/- ¼ Mk0 ,l- lhrky{eh ½ ¼ jkBksM deys'k t;UrHkkbZ ½ (Dr. S. Seethalakshmi) (Rathod Kamlesh Jayantbhai) U;kf;d lnL;@Judicial Member ys[kk lnL;@Accountant Member Tk;iqj@Jaipur fnukad@Dated:- 28/ 04/2025 *Ganesh Kumar, Sr. PS आदेश की प्रतिलिपि अग्रेf’ात@ब्वचल वf जीम वतकमत वितूंतकमक जवरू 1. The Appellant- Kath Brothers, Jaipur izR;FkhZ@ The Respondent- ACIT, Central Circle-03, Jaipur 2. vk;dj vk;qDr@ The ld CIT 3. 4. vk;dj vk;qDr¼vihy½@The ld CIT(A) 5. विभागीय प्रतिनिधि] आयकर अपीलीय अधिकरण] जयपुर@क्त्ए प्ज्Aज्ए Jंपचनत xkMZ QkbZy@ Guard File (ITA No. 77/JP/2025) 6. vkns'kkuqlkj@ By order,

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