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Facts
The assessee, an individual dealing in jewellery, underwent a survey operation where an excess stock of Rs. 96,23,685 was found. The assessee voluntarily surrendered Rs. 1,00,00,000 as business income, primarily attributing the difference to valuation methods (FIFO vs. current rates) and a minor portion to general discrepancies. The Assessing Officer (AO) treated this surrendered amount as unexplained investment and taxed it at a special rate under Section 69B read with Section 115BBE of the Income Tax Act.
Held
The Ld. CIT(A) and subsequently the Income Tax Appellate Tribunal (ITAT) held that the provisions of Section 69B and 115BBE were not applicable. The Tribunal noted that the assessee was engaged in a regular jewellery business, and the stock difference arose from valuation discrepancies rather than undisclosed activities. Citing various precedents, the Tribunal concluded that the surrendered amount constituted normal business income and should be taxed at regular rates.
Key Issues
Whether the amount surrendered due to excess stock found during a survey, primarily attributed to valuation differences, should be taxed as normal business income or at special rates under Section 69B read with Section 115BBE of the Income Tax Act.
Sections Cited
Section 69B, Section 115BBE
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Order PER KRINWANT SAHAY, A.M: This is an appeal filed by the Department against the order of the Ld. CIT(A)-5, Ludhiana dt. 09/04/2025 pertaining to Assessment Year 2019-20. 2. In the present appeal Revenue has raised the following grounds: "
1. 1. 1, Whether, upon facts and circumstances of the case, the Ld. CIT(A), has erred in treating the addition of Rs. 1,00,00.000/- as business income?
2. Whether upon facts and circumstances of the case and in law, the Ld. CIT(A) has failed to consider the decision of Hon'ble Punjab & Haryana High Court in the case of Khushi Ram & Sons of 2015 wherein Hon'ble High Court has held that merely because the assessee carries on certain business, it does not follow that amounts surrendered by him are on account of business transactions and also failed to appreciate that the assessee has not explained the source of Rs.1,00,00,000/- during assessment proceedings which was duly assessed under the provision of section 69B r.w.s 115BBE of the Act being the unexplained investment not fully disclosed in the books or account? The appellant craves leave to add, amend, modify, vary, omit OR substitute any 3. of the aforesaid grounds of appeal at any time before OR at the time of hearing of the appeal.
4. Whether upon facts and circumstances of the case and in law, the Ld. CIT(A) has failed to appreciate that the assessee has surrendered Rs. 1,00,00,000/- on account of excess stock of Rs. 96,23,685/- was found during the course of survey operation?"
3. Brief facts of the case are that the assessee is individual, carrying on the business of purchase and sale of jewellery items, maintaining proper books of 2 accounts and had filed the return of income for the above said year on the basis of audited books of accounts and copy of which has been placed before us. 3.1 There was a survey operations at the business premises of the assessee on 25.10.2018 and it was found that the stock as per physical verification of the gold jewellery was at Rs. 4,40,99,999/-, whereas the stock as per books of accounts was Rs. 3,44,74,314/- and, thus, there was excess stock to the tune of Rs. 96,23,685/-. 3.2 During the course of survey, the statement of the assessee was recorded, copy of which has been placed before us at pages 30 to 39 of PB. The assessee admitted that all the stock of Gold jewellery as had been lying at the business premises belongs to the assessee. Further with reference to excess stock of Rs. 96,23,685/-, he stated that the valuation has been made by the department Valuer at current rate, whereas, in the books of accounts, the purchases has been entered as per purchase bills'. However, he offered sum of Rs. 1,00,00,000/- as business income, including Rs. 3,00,000/- to cover any discrepancy in respect of stock. The relevant part of the statement is at pages 38 to 39 of the Paper Book submitted by the assessee. 3.3 The assessee while filing the return of income offered a sum of Rs. 1,00,00,000/- as business income and paid the normal taxes thereupon including the income as per regular audited books of accounts, but on the amount of Rs. 1,00,00,000/- surrendered by the assessee, the Assessing Officer invoked the provisions of section 69B r.w.s. 115BBE of the income Tax.
4. Aggrieved by the action of the AO in invoking the provisions of Section 115BBE of the Income Tax Act, 1961, the assessee preferred an appeal before the Ld. CIT(A). However, since none appeared before the Ld. CIT(A) originally, the Ld. CIT(A) passed an ex-parte order against the assessee for which, the assessee came in appeal before the Tribunal. The Tribunal in vide order, dated 04.04.2024 set aside the matter to the Ld. CIT(A) with a direction to decide the appeal of the assessee afresh after giving proper and adequate opportunity to the assessee. The present appeal before us is against the order, dated 09.04.2025 by the Revenue in consequence to the earlier order of the ITAT, vide order, dated 04.04.2024. 4.1 The CIT (A) after considering the assessment order, submissions of the assessee and by taking into consideration various judgments as per Page 17 of his order of 3 Chandigarh Bench and Other Co-ordinate Benches, did not approve the action of the Assessing Officer in charging to tax at rate prescribed u/s 115BBE on the amount of Rs. 1,00,00,000/- and it was held to be as normal business income to be taxed at the normal rate of taxes.
5. Against the order of the Ld. CIT(A) the Department has come in appeal before us.
During the course of hearing the Ld. DR relied upon the order of the Assessing Officer and argued that the provisions of section 115BBE are applicable on the amount of Rs. 1,00,00,000/- surrendered by the assessee, since the onus was upon the assessee to explain that the excess stock was acquired from the normal business income. 6.1 The Ld. Counsel for the Assessee argued that during the course of survey, the assessee was found to be carrying on the same business of resale of jewellery and his only source of income was trading in jewellery items. Further in his statement, he has clearly stated that the surrender was made on account of value of difference in jewellery. The AR submitted his Brief Synopsis, which are being reproduced as under;- "1. At the outset, it is hereby submitted that the assessee is engaged in the business of trading of gold/ diamond jewellery and in addition to this, the assessee is earning rental income. The said fact is evident from the copies of the replies filed by the assessee during the course of assessment proceedings and attached in Paper Book from Pages 55-65 and moreover, no documents were found by the Ld. AO during the course of survey action and later during the course of assessment proceedings which could prove that the assessee is engaged in a business other than his regular business also, that the Worthy CIT(A) was satisfied by the replies filed by the assessee during the appellate proceedings. Therefore, no adverse opinion has been passed by the Ld. AO with regard to the contention of the assessee of not being engaged in any business other than the regular business of the assessee. Hence,-it is hereby submitted that regular trading business is the only source of business income of the assessee and all the income of the assessee are earned_ through same source of income. In this regard, it is hereby submitted that when the assessee does not have any 2. other source of income, then the income earned by the assessee is only on account of the regular business of the assessee and the investment made the assessee on the said stock is only from the regular business income of the assessee therefore, the application of provisions of section 115BBE of the Act on the amount of surrender made by the assessee is INVALID particularly when the department itself has compared the physical stock as found at the business premises of the assessee with the stock as per regular books of account of the assessee. Moreover, it is hereby also pertinent to mention here that the case of the assessee is not of the excess stock found but merely of the difference in valuation of the stock as conducted by the department during the course of survey action vis-a-vis the valuation of stock as per the books of the assessee. 3. It is also hereby pertinent to mention here that during the course of survey action, statement of the assessee was recorded, the copy of which is placed at page no. 30-39 of the paper book, wherein, vide Q-3, the assessee has explained all his sources of income and further, in response to Q-1, the assessee has stated that in his individual capacity, the assessee is acting as prop, of M/s. Neeta Jewellers. Further, vide response to Q-17, the assessee surrendered an amount of Rs. 1,00,00,000/- wherein, it has duly been mentioned by the assessee that the said amount is only on account of valuation 4 difference of jewellery wherein, the assessee values his stock as per FIFO method whereas, as oh the date of survey, the valuation of stock was made on the basis of current date rate and the assessee has surrendered an amount of Rs. 97,00,000/- on account of such difference. Further, w.r.t. the surrender of Rs, 3,00,000/- the assessee has duly submitted that the surrender of Rs. 3,00,000/- is made to cover general discrepancies and the surrender was made by the assessee only in order to buy peace of mind. It is noteworthy to mention here that although the discrepancies observed by the 4. department during the course of survey action were duly explainable in the later stage of proceedings, and were not substantiated to any other source of income of the assessee whether explained or unexplained, but the assessee only to buy peace of mind and to avoid any litigation has made surrender before the department and the said surrendered has duly been accepted by the department without any deviation to the explanation of the assessee, Hence, it is hereby submitted that as the surrender made by the assessee is only on account of difference in valuation of stock which is on account of adopting of a different valuation method i.e. FIFO vs current date rate and no stock was found during the course of survey action which could be termed as excess stock and therefore, application of provisions of section 115BBE of the Act are not applicable in the case of the assessee. Further, that the assessee is wholly involved in business of gold/diamond jewellery 5. for past many years, with no other business activities undertaken. Hence, the regular business income of the assessee is the only source of income with no additional sources, whether accounted or unaccounted. Thus, the total amount surrendered by the assessee is directly related to the regular business operations and not derived from any alternate income sources. It is well-established principle that in the absence of any identified income sources other than the regular business declared by the assessee during the survey or subsequent assessment proceedings, any income generated by the assessee deserves to be treated as arising from their normal business activities. Therefore, the surrendered amount of Rs. 1,00,00,000/- should be recognized as the regular business income of the^ssessee and the deeming provision of section 68,69, 69A of the Act r.w.s 115BBE of the Act should not be applied in the case of assessee."
Reliance was placed on the following judgments:-
i). Judgement of Hon'ble Chandigarh Bench of the ITAT in the case of Veer Enterprises, reported in [2024] 158 taxmann.com 655 (Chandigarh-Trib.) if), M/s. DDK Spinning Mills vs. Deputy Commissioner of Income Tax as reported in (2024) 109 ITR (Trib.) 619 (Chd.) iii). Judgment of Hon'ble Chandigarh (Jurisdictional) Bench of ITAT in the case of Sh. Gurinder Makkar as reported in (2024] 162 taxmann.com 731 (Chandigarh - Trib.) iv). ITAT CHANDIGARH BENCH DECISION IN ASWINDER SINGH VS DC/T DT. 01.12.2023 (2023)37 NYPTT J 1599 (CHD) v). Chandigarh Bench of/TAT in the case of M/s. Sham Jewellers in ITA No. 375/CHD/2022. vi). Judgment of the Hon'ble Chandigarh Bench of ITAT in the case of Shri Gurdeep Singh Ubhi, in ITANO.551/CHD/2022. 7.1 Thus, on the strength of above said judgments, it was argued by the Ld. Counsel that the provisions of section 69B r.w. section 115BBE are not applicable to the facts and circumstances of the case.
5 8. We have heard the rival contentions of both the parties and perused the material available on record. In the present case we find that the facts are not disputed in, as much as, the assessee is carrying on the business of resale of jewellery. During the course of survey, it was found that there was difference of Rs. 96, 23,685/- on account of value of stock of jewellery and it was stated by the assessee to be on account of valuation difference and surrendered the amount of Rs. 97,00,000/- on account of stock and Rs. 3,00,000/-, totaling to Rs. 1,00,00,000/- as normal business income and disclosed the same in his audited books of accounts. The assessee paid the taxes on the same as per normal provisions of Income Tax. However, the AO invoked the section 69B r.w.s. 115BBE and charged at special rate of tax. The Ld. CIT(A) in subsequent proceedings by relying upon various judgments of Chandigarh Bench & Other Coordinated Benches held that the provisions of 69B r.w.s 115BBE were not applicable, since the assessee was carrying on the same business of resale of gold jewellery and during the course of survey, no other activity was noticed, thus, allowed the appeal of the assessee.
8.1 Before us, a detailed submissions have been made by the Ld. Counsel by relying upon the various judgments. We have also gone through the statement of the assessee, which was recorded during survey. In his statement, the assessee has clearly stated that the difference in respect of stock is only on account of the valuation made by the Valuer as per the current rates and, thus, following the various judgments of the Chandigarh Bench of the as cited above and for the sake of reference, the finding in the case of M/s Om Processors Pvt. Ltd, in of Chandigarh Bench is being reproduced as under:
"8. We have gone through the order of Ld. Assessing Officer and CIT(A) and arguments of both sides and have also gone through the Brief Synopsis, Paper Books, judgement set filed by the Ld. Counsel of the assessee during the course of proceedings before us and arguments of Ld. DR, We have also gone through the statement of one of the directors as recorded during survey, in which, he has explained the nature of business of the assessee. As no other activity was noticed either during the course of survey or during the course of assessment proceedings by the department. We find that all the judgments as cited by the Ld. CIT(A) have been considered by the Chandigarh Bench of the ITAT in the case of M/s Khurana Rolling Mills Pvt. Ltd. and M/s Bindas Foods Pvt. Ltd. as quoted supra. Under similar facts and circumstances, the amount surrendered was spent on the factory building in the case of M/s DDK Spinning Mills as cited above. We find that issue is also squarely covered by the judgment of Sh. Gandhi Ram in Ilk 121 IChdl2021. 8.1 Thus, as per the findings given in the above cases and in the case of Sh. Gandhi Ram as cited supra, we hold that the amount surrendered to the tune of Rs. 25 lacs during survey were to be taxed as per the normal business income of the assessee."
6 8.2 Therefore, after considering the above said arguments and case laws, we have no hesitation in dismissing the appeal of the Revenue. 9. In the result, appeal filed by the Revenue is dismissed.