LATE SH. VIJAY KUMAR JOHARI (THROUGH L/H SMT. HEMA JOHARI, SH. VAIBHAV JOHARI & SH. VARUN JOHARI) ,63, OM NIVAS, MASJID WALI GALI, 22 GODAM, JAIPUR vs. ACIT, CIRCLE-2, JAIPUR

Income from House property (-) 9,05,676 Income from Business and Profession 29,07,723 Income from Other sources 46,751 Gross Total Income 20,48,798 Deductions (Chapter VI-A) 1,77,538 Total Income 18,71,260/- 2.1. AO issued show cause notice dated 24.12.2019 to show cause as to why income surrendered on account of excess stock found during the course of survey may not be taxed u/s 115BBE being the undisclosed income represented by investment in closing stock. In response to same assessee filed the reply which is reproduced at page 5 & 6 of the assessment order. The AO, however, rejected the same by holding that assessee admitted to the fact that excess stock found during the course of survey was result of undisclosed investment. Accordingly, he made addition of Rs. 28,69,830/- (correct amount is Rs.28,36,829/-) u/s 69 of IT Act and taxed the same u/s 115BBE of the Act. Aggrieved by the order of AO, the Ld. CIT (A) held that in the present case undisclosed income is offered to tax after the survey operation. Therefore, AO has rightly invoked sec. 69 and consequently section 115BBE is applicable. The case laws quoted by the appellant are not applicable in this case as these cases are factually different from the present case.

Accordingly, Ld. CIT(A) confirmed the addition made by AO by relying on the decision of Hon’ble ITAT, Indore Bench in case of Shri Rajesh Kumar Bajaj Vs. ACIT in dated 09.03.2020.

3. Now the assessee is in appeal before the Tribunal.

4. Before us, the ld. A/R of the assessee submitted the written submission as under :-

“ 1. From the above facts it can be noted that the only issue involved in this case is whether the amount of Rs.28,36,829/- offered by the assessee and incorporated in the books of account represents the income from business chargeable to tax at normal rate or investment in the excess stock u/s 69 of the Act chargeable to tax u/s 115BBE.

2. As stated above, assessee is engaged in the business of manufacturing and trading of precious/ semi-precious stones, ornaments, jewellery, etc. On the date of survey the book stock was determined by application of GP rate of last year whereas the physical stock was valued at market rate as against the cost at which the stock is valued. Still to end the litigation assessee after explaining that such difference is due to valuation of stock at market rate and due to fluctuation in the profit rate, offered the same to tax by crediting the exceptional business income and correspondingly increasing the value of stock(PB 19-22). Thus it is not a case that excess stock was found in survey. In survey no evidence was found to indicate that the assessee has purchased/sold any goods out of books. Therefore the amount offered for tax is clearly identifiable and relates to the regular business of the assessee which cannot be considered as a case of excess stock u/s 69 of the Act.

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5 Late Shri Vijay Kumar Johari, Jaipur. ,oavkidsifjokjdhmifLFkfresavaluationfd;kx;kAjftLVMZvaluer}kjkvkidhशॉपdkdqyvaluationRs.1,41,17 ,113/-dkgqvkgSA,oaesjs }kjkt;iqjlstksToSyjhcksEcsysdjx;kFkkokfilt;iqjysdjvk;kFkkmldkHkhregistered Valuer}kjkesjscSxesa: 1]17]88]323@& dh ToSyjhdkvaluationfd;kx;kAblizdkjesjs‘kks:e ,oaesjscSxik;hxbZdqyToSyjhoSgiqje 2]59]05]436@&ewY;kafdrfd;kx;kgSAvkidhdEI;wVj dhTally account ,oavkidsvdkmUVsV }kjk dh xbZCalculationds }kjkfnukad 04&01&2017 ds vuqlkj ds vkids stockdk valuation 2]33]05]619@&fd;kx;kgSAblizdkjPhysicalfy;sx;sStockdk valuation ,oavkidhBooks ,oavkids }kjkfd;sx;sworkingesadqyStock esa :- 25]99]817@&dkLVkWdexcess ik;kx;kAd`I;kblvUrjdkdkj.kLi"VdjksA mrj&losZ dh dk;Zokgh ds nkSjkuesjs ‘kks:e ,oaeqEcbZlsvkrs le; esjscSxesaik;sax;sToSyjhdkjfTkLMZvaluation}kjkdqyoSY;qos’ku :- 25905436@&oSY;qos’kufad;kx;k A ;g oSY;qos’kuesjs o esjsifjokj ds lnL;ksa dh mifLFkfRkesafd;kx;kAjfTkLVMZoSY;qos’ku }kjkfd;sx;soSY;qos’kulsiw.kZrlgergSrFkkmlls}kjkfd;soSY;qos’kuijeq>s dksbZvkifr ugh gSAesa ;gkW ;g HkhLi"VdjukpkgwaxktksExihibit-4 esatksaworking Importdh tkjghgSosdetailsHkhblStockdh Sheet oSY;qos’kuesa‘kkfeygwbZgSAbudkTag No.odetail esa‘kkfeydjfy;kgSAvr%;g wise stock valuation leLrisijdksvkidsjftLVMZoSY;qos’ku }kjkfd;sx;soSY;qos’ku :-2]59]05]436@&esa ‘kkfeygSAvkids }kjkntZfd;kgqvkdifference :-25]99]817@&work out fd;kx;kgSesaLVkWddkvkt dh njlsvalue dj o Hkkoksa ds mrkj p<koesaprofit esa c<ksrjh ds dkj.kvk;kgS A blseSapkyq for o"kZ 2016&2017 dkvfrfjDrykHkekudjblijfu;ferdjvnkdjnwaxkA iz’u14 iz’u14vkidksmijksDr ds vykokvkSjdqNdgukgS iz’u14 iz’u14 mRRkj mRRkj&iz’u la[;k 12 ds mRRkjesaLVkWd dh v/khdjkf’ktksfd :- 25]99]817@&pkyqfOkRRko"kZ 2016&2017 mRRkj mRRkj dkO;olk; dkykHkgSAftlseSusdjpqdkus ds fy;svfrfjDrvk; ds :iesa /kksf"krfd;kA ;sajkf’kesausviusekufld “kkafr o djfooknlscpusgsrwfd;kgSAbl‘jkf”kijfu;fernjlsdjyxk;ktkos o eq>s “kkfURklseqDrfd;ktkos

From the above statement it is evident that AO has incorrectly stated that valuation difference in the stock found in survey represent excess stock and therefore addition made by him u/s 69 is incorrect and uncalled for in as much as such amount is already recorded by the assessee in its books of account and has been included in return of income(PB 23-25).

&Besan Mill. Survey action u/s 133A of the Act was carried out at the business premises of both the assessees. During the course of survey proceedings, excess stock and excess cash was found. The assessee submitted that thealleged excess stock and excess cash are part of the business income and have been shown in the P&L A/c. It was also submitted that the excess stock in hand has also been shown in the trading account on the debit side so as to bring the stock offered to tax in the regular books for subsequent sales.The AO, however, held that it is not a business income andshould be directly added to the total income of assessee as ‘Income from other sources’. TheLd. CIT(A) concluded that the AO has not rejected the books of accounts and the assessee has rightly disclosed the excess stock and excess cash in hand in the books as is generally done by other assessee's subsequent to survey operations. Accordingly, he accepted the book results of the assessee and deleted the addition made by AO. On further appeal, Hon’ble ITAT confirmed the order of CIT(A) by giving the following findings at Para 11& 14 of the order:-

11. On perusal of the above finding of Ld. CIT(A) and the decisions referred therein we observe that the revenue authorities have not disputed the fact that the assessee’s only source of income is from Dal &Basen Mill. No other incriminating material or document was found during the course of survey which could indicate that the assessee has any other source of income. It can thus be concluded that the alleged excess stock is part of the business income of the assessee. It is also discernable from the records that when the statement was taken during the course of survey, son of the assessee namely Mayur Kumar Surana gave reply to various questions asked by the survey team. …… The crux of the statement given during the course of survey on the facts that the alleged stock was not accepted to be undisclosed income from other sources but was a part of the business income which required some reconciliation as books of account were not completed

at the time of survey proceedings. We are of the view that since the income alleged excess stock and excess cash found during the course of survey is part of the business income, the provisions of section 115BBE of the Act would not be applicable as rightly held by the ld. CIT(A) and also in view of the facts that there was an amendment in the provisions of section 115BBE w.e.f. 1st April 2017 and the assessee’s case is pertaining to A.Y. 2015-16, thus, it is not be applicable on the case of assessee.

14. We, therefore, in the given facts and circumstances of the case, find no reason to interfere in the finding of Ld. CIT(A) deleting the impugned addition made by the ld. AO and also holding that the provisions of section 115BBE of the Act are not applicable on the assessee since the income declared during the course of survey is a ‘business income’.

It is a settled law that when there are two decisions on an issue by the same court taking divergent views, later pronouncements by a bench of co-equal strength should be followed even if earlier decisions was not considered in later decision. Further Hon’ble Supreme Court in case of CIT Vs. Vegetable Products Ltd. 88 ITR 192 has held that where two reasonable constructions of a taxing provision are possible, then the construction which favours the assessee must be adopted.

5. In various cases similar issue has been decided in favour of the assessee for which reliance isplaced on the following cases:-

ACIT Vs. Mangaldeep (2022) 211 DTR 7 (Surat) (Trib.) (PB 26- 36)

In view of the fact that assessee is engaged only in the business of trading of cloth, the unaccounted stock found during the survey is related to its business and therefore, the undisclosed income declared during the survey is assessable under the head 'Business income' and not u/s 69A. PCIT Vs. Deccan Jewellers Pvt. Ltd. (2021) 438 ITR 131 (AP) (HC)

The head note of the decision reads as under:-

Income from undisclosed sources—Vis-a-vis business income—Excess stock found during search—Explanations have been offered by the assessees that excess stock was a result of suppression of profits from business over the years and is a part of the overall stock found and therefore excess stock could not have been treated as ‘undisclosed investment’ under s. 69 but assessable as business income—No contrary view either of any High Court or the apex Court has been placed to demonstrate that the explanations offered by the assessees in the course of assessment were either perverse or contrary to law— Tribunal was correct in law in holding that unaccounted and excess stock found during the course of search shall be assessed as business income.

PCIT Vs. Bajargan Traders DBITA No.258/2017 order dt.12.09.2017(Raj.) (HC) (PB 43-47)

In this case the assessee is a partnership firm dealing in sale of food grain, rice and oil seeds. A survey u/s 133A was conducted on the business premises. During the survey, assessee surrendered excess stock of rice. The assessee submitted that the investment in procurement of such stock of rice is clearly identifiable and related to the regular business stock of the assessee. AO taxed the amount surrendered by way of investment in unrecorded stock of rice under the head Income from other sources. In appeal, the Hon’ble ITAT allowed the claim of assessee by holding 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 amounting 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 in its books of accounts and the accounting treatment thereof so as to regularise its books of accounts. In fact, the same provides a credible base for Revenue to bring to tax subsequent profit/loss on sale of such stock of rice in future. 2.11. Having said that, the next issue that arises for consideration is whether the amount surrendered by way of investment in the unrecorded stock of rice has to 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 ShriRamnarayan 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.”

On further appeal by department, the Hon’ble Rajasthan High Court upheld the above findings of ITAT dismissed the appeal filed by department.

DCIT Vs. Sh. Ram Narayan Birla order dt. 30.09.2016 (Jaipur) (Trib.) (PB 48-55)

In this case it was held that the excess stock is to be assessed as part of the normal stock and to be taxed under the head income from business. The relevant finding of ITAT at Para 4.3 reads as under:-

“4.3 We have heard rival contentions and perused the material available on record. Undisputed facts emerged from the record that at the time of survey excess stock was found. It is also not disputed that the assessee is engaged in the business of jewellery. During the course of survey excess stock valuing Rs. 77,66,887/- was found in respect of gold and silver jewellery. The Coordinate Bench in the case of ChokshiHiralalMaganlal vs. DCIT, 131 TTJ (Ahd.) 1 has held that in a cases where source of investment/expenditure is clearly identifiable and alleged undisclosed asset has no independent existence of its own or there is no separate physical identity of such investment/expenditure then first what is to be taxed is the undisclosed business receipt invested in unidentifiable unaccounted asset and only on failure it should be considered to be taxed under section 69 on the premises that such excess investment is not recorded in the books of account and its nature and source is not identifiable. Once such excess investment is taxed as undeclared business receipt then 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. HajiHasan (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.”

6. The Ld. D/R has relied on certain decision but these decisions are either distinguishable on facts or not applicable to the assessee. The decision of Gujarat High Court in case of Fakir Mohmed Haji Hasan 120 taxman 11 pertaining to AY 1984-85 is that the value of gold confiscated was liable to be included in income u/s 69A of the Act as source of investment was not explained and that assessee has no right to claim that its value should be allowed as deduction from the income. The decision of P &H High Court in case of Kim Pharma Pvt. Ltd. 216 Taxman 153 was on the issue that where amount surrendered in survey is not reflected in books of accounts and no source declared, it was held to be assessable as deemed income u/s 69A and not the business income. However, this decision is contrary to the decision of Rajasthan High Court in case of Bajargan Traders (PB 46-47) and thus, not applicable. The decision of Madras High Court in case of SVS Oil Mills 269 Taxman 508 was on the issue that excess stock admitted in survey added in the stock register without passing corresponding entry in the books of accounts was held to be taxable u/s 69B of the Act which is not the fact of assessee’s case. The decision of Agra Tribunal and Cochin Tribunal was on the issue that when the source of cash could not be explained the same is to be treated income u/s 68 under the head income from other sources. These cases are not on the issue of excess stock. So far as decision of ITAT, Indore Bench in case of Rajesh Kumar Bajaj is concerned, the same is separately explained at Pg 3 of the written synopsis. Thus, none of the case relied by Ld. D/R is applicable on the facts of assessee’s case.

In view of above, action of lower authorities in taxing the business profit of Rs.28,69,830/- declared by the assessee as undisclosed investment u/s 69 is uncalled for and the AO be directed to tax the correct amount of Rs.28,36,829/- under the normal provisions of the Act instead of taxing the same u/s 115BBE of the Act. ”

iz’u 12 iz’u 12&vkids ‘kks:e eS- Jhgjh ToSylZ ,.M vkVZ] शॉप u- 108] ekWy 21]jktefUnj ds lkeus]Hkxokunkl iz’u 12 iz’u 12 jksM]t;iqj ds losZ dh dk;Zokgh ds nkSjku jftLVMZ oSY;qos”u }kjk ‘kks:e esa ikbZ xbZ ToSyjh dk vkidh ,oa vkids ifjokjdh mifLFkfr esa valuation fd;k x;Ka jftLVMZ valuer }kjk vkidh शॉप dk dqy valuation Rs.1,41,17,113/- dk gqvk gSA ,oa esjs }kjk t;iqj ls tks ToSyjh cksEcs ysdj x;k Fkk okfil t;iqj ysdj vk;kFkk mldk Hkh registered Valuer }kjk esjs cSxesa : 1]17]88]323@& dh ToSyjh dk valuation fd;k x;kA bl izdkj esjs ‘kks:e ,oa esjs cSx ik;h xbZ dqy ToSyjh oSg iqje 2]59]05]436@&ewY;kafdr fd;k x;k gSA vkidh dEI;wVj dh Tally account ,oa vkids vdkmUVsV }kjk dh xbZ Calculation ds }kjk fnukad 04&01&2017 ds vuqlkj ds vkids stock dk valuation 2]33]05]619@&fd;k x;k gSA bl izdkj Physical fy;s x;s Stock dk valuation ,oa vkidh Books ,oa vkids }kjk fd;s x;s working esa dqy Stock esa :- 25]99]817@&dk LVkWd excess ik;k x;kA d`I;k bl vUrj dk dkj.k Li"V djksA mrj&losZ dh dk;Zokgh ds nkSjku esjs ‘kks:e ,o aeqEcbZ ls vkrs le; esjs cSx esa ik;sa x;s ToSyjh dk jfTkLMZ valuation }kjk dqy oSY;qos’ku :- 25905436@&oSY;qos’ku fad;k x;k A ;g oSY;qos’ku esjs o esjs ifjokj ds

14 Late Shri Vijay Kumar Johari, Jaipur. lnL;ksa dh mifLFkfRk e safd;k x;kA jfTkLVMZ oSY;qos’ku }kjk fd;s x;s oSY;qos’ku ls iw.kZr lger gS rFkk mlls }kjk fd;s oSY;qos’ku ij eq>s dksbZ vkifr ugh gSA esa ;gkW ;g Hkh Li"V djuk pkgwaxk tk sExihibit-4 esatksa working Sheet Import dh tk jgh gS os detailsHkh bl Stockdh oSY;qos’ku esa ‘kkfey gwbZ gSA budk Tag No. o detail wise stock valuation esa ‘kkfey dj fy;k gSAv r% ;g leLr isij dks vkids jftLVMZ oSY;qos’ku }kjk fd;s x;s oSY;qos’ku :-2]59]05]436@&esa ‘kkfey gSAvkids }kjk ntZ fd;k gqvk difference :- 25]99]817@&work out fd;k x;k gS e saLVkWddk vkt dh njls value dj o Hkkoksa ds mrkj p<ko esa profit esa c<ksrjh ds dkj.k vk;k gS A blseSa pkyq for o"kZ 2016&2017 dk vfrfjDr ykHk eku dj bl ijf u;fer dj vnk dj nwaxkA iz’u14 iz’u14 vkidks mijksDr ds vykok vkSj dqN dguk gS iz’u14 iz’u14 mRRkj mRRkj&iz’u la[;k 12 ds mRRkj esa LVkWd dh v/khd jkf’k tksfd :- 25]99]817@&pkyq fOkRRko"kZ 2016&2017 dk mRRkj mRRkj O;olk; dk ykHk gSA ftls eSus dj pqdkus ds fy;s vfrfjDr vk; ds :I esa /kksf"kr fd;kA ;sa jkf’k esaus vius ekufld “kkafr o dj fookn ls cpus gsrw fd;k gSAbl ‘jkf”k ij fu;fer nj ls dj yxk;k tkos o eq>s “kkfURk ls eqDr fd;k tkos

Thus we find that it is not a case that excess stock was found in survey. In survey also no evidence was found to indicate that the assessee has purchased/sold any goods out of books. Therefore the amount offered for tax is clearly identifiable and relates to the regular business of the assessee which cannot be considered as a case of excess stock u/s 69 of the Act. The Ld.

CIT(A) by relying on the decision of Hon’ble ITAT, Indore Bench in case of Shri

Rajesh Kumar Bajaj Vs. ACIT in dated 09.03.2020 confirmed the addition made by AO but in the subsequent decision dated

30.09.2021 in case of ACIT Vs. Vijay Kumar Surana and Rajendra Kumar Surana & 645/Ind/2019, it deleted the similar addition made by AO. The finding given at Para 11 & 14 of the order is as under:-

The crux of the statement given during the course of survey on the facts that the alleged stock was not accepted to be undisclosed income from other sources but was a part of the business income which required some reconciliation as books of account were not completed at the time of survey proceedings. We are of the view that since the income alleged excess stock and excess cash found during the course of survey is part of the business income, the provisions of section 115BBE of the Act would not be applicable as rightly held by the ld. CIT(A) and also in view of the facts that there was an amendment in the provisions of section 115BBE w.e.f. 1st April 2017 and the assessee’s case is pertaining to A.Y. 2015- 16, thus, it is not be applicable on the case of assessee.

We also find that on similar facts the income offered on account of the excess stock has been considered as business income in the following cases:-

ACIT Vs. Mangaldeep (2022) 211 DTR 7 (Surat) (Trib.) PCIT Vs. Deccan Jewellers Pvt. Ltd. (2021) 438 ITR 131 (AP) (HC) PCIT Vs. Bajargan Traders DBITA No.258/2017 order dt.12.09.2017 (Raj.) (HC) DCIT Vs. Sh. Ram Narayan Birla order dt.30.09.2016 (Jaipur) (Trib.)

We also note that the decisions relied by Ld. D/R are distinguishable. The decision of Gujarat High Court in case of Fakir Mohmed Haji Hasan 120 taxman 11 pertaining to AY 1984-85 is that the value of gold confiscated was liable to be included in income u/s 69A of the Act as source of investment was not explained and that assessee has no right to claim that its value should be allowed as deduction from the income. The decision of P&H High Court in case of Kim Pharma Pvt. Ltd. 216 Taxman 153 was on the issue that where amount surrendered in survey is not reflected in books of accounts and no source declared, it was held to be assessable as deemed income u/s 69A and not the business income. However, this decision is contrary to the decision of Rajasthan High Court in case of Bajargan Traders and thus, not applicable. The decision of Madras High Court in case of SVS Oil Mills 269 Taxman 508 was on the issue that excess stock admitted in survey added in the stock register without passing corresponding entry in the books of accounts was held to be taxable u/s 69B of the Act which is not the fact of assessee’s case. The decision of Agra Tribunal and Cochin Tribunal was on the issue that when the source of cash could not be explained the same is to be treated income u/s 68 under the head income from other sources. These cases are not on the issue of excess stock. So far as decision of ITAT, Indore Bench in case of Rajesh Kumar Bajaj is concerned, the same is separately explained at Pg 3 of the written synopsis. Thus, none of the case relied by Ld. D/R is applicable on the facts of assessee’s case.

17 Late Shri Vijay Kumar Johari, Jaipur. 6.1. In view of above, AO is directed to tax the valuation difference in stock of Rs.28,36,829/- under the normal provisions of the Act and not u/s 115BBE of the Act. The appeal of assessee is thus allowed. 7. In the result, appeal of the assessee is allowed.

Order pronounced in the open court on 4/05/2023.