RAJIV KUMAR GOYAL,DHURI vs. DCIT, CC-2, LUDHIANA

The assessee is aggrieved by order of the Ld. CIT(A) dated 03/02/2023 in appeal no. 10850/2018-19/IT/CIT(A)-5/Ldh/2021-22 for A.Y. 2019-20 under section 250(6) of the Income Tax Act, 1961 which was dismissed. Therefore the present second appeal under section 253 of the Income Tax Act, 1961 before us against the aforesaid order dt. 03/02/2023 which is hereiafter referred to as the impugned order. Factual Matrix 3. The assessee had for the relevant year i.e; A.Y. 2019-20 was also engaged in the same business i.e; manufacturing of PVC pipes and had filed his return of income under section 139(1) of the Income Tax Act, 1961 on 01/11/2019, wherein total income of Rs. 19,03,840/- was declared by the Assessee. The copy of acknowledgment of filing of return of income and computation of income for the A.Y. 2019-20 is at page 1 of paper book. Copy of audited financial statement of the year ending 31/03/2019 is at page 5.7 of the paper book. Document perused by us.

4. The computation of income under the head income from business or profession the figure of Rs. 10,91,121/- is seen and disclosed besides and income from salary in family business concern is seen and disclosed of Rs. 9,60,000/-.

That a survey action under the section of 133A of the Income Tax Act, 1961 was carried out at the business premises of the assessee on 14/09/2018 relevant to A.Y. 2019-20. During the course of survey, certain discrepancies were found on account of physical verification of stock and excess stock of business of the assessee amounting to Rs. 9,08,100/-was found. The assessee brother on his behalf (duly authorised) surrendered an amount of Rs. 10,00,000/- on account of excess stock found at the business premises of the assessee on 17/09/2018 . The copy of the surrender letter of the assessee’s brother for and on behalf of the assessee is placed in the paper book at page number 21-22. Perused by us. The same is reproduced below: To, Dt. 17/09/2018 The Joint Commissioner of Income Tax, Range-IV, Ludhiana Subject: Authority Letter. Sir, I, Rajiv Kumar S/o Sh. Mehar Chand, (PAN ACJPK6710C) Resident of Dhuri and the Proprietor of the firm M/s S.Kumar Industries, , M.K. Road, DHURI do hereby authorize Sh. Sanjiv Kumar (my Brother) to give statement, to sign any document, to appear before the Income tax authorities on my behalf. The statement given, any commitment made on my behalf by my son Sh. Sanjiv Kumar shall be binding upon me and shall be treated as done by me. The Signature of Sh. Sanjiv Kumar duly attested by me are given below. Thanking you, Yours faithfully 3 (Rajiv Kumar) S/o Sh. Mehar Chand Prop. M/s S.Kumar Inds. M.K. Road, DHURI Specimen Signature of Shri Sanjiv Kumar Attested by (Rajiv Kumar)

The return of income as filed by the assessee was processed and the case of the assessee was manually selected for scrutiny. Thereafter, a notice u/s 143(2) of the Income Tax Act was issued to the assessee which is dt. 24/09/2020. Subsequently, notice under section 142(1) of the Act alongwith detail questionnaire dt. 23/01/2021 was also issued to the assessee. In response to the above captioned notice, the assessee has filed with the Income Tax Authorities detailed reply from time to time, wherein the assessee has duly stated that his nature of business is manufacturing PVC pipes and hence, it is evident that other than this, the assessee is not having other source of income. The assessee also furnished the monthly item wise and quantitative stock record alongwith the detail of purchases and sales etc during the assessment proceedings and no doubt had been raised by the Ld. AO on the same.

That on 19/09/2021, a show cause notice w.r.t application of the provision of 69B r.w.s 115BBE of the Act, on the amount surrendered by the assessee during the survey amounting to Rs. 10,00,000/- [ Rupees Ten Lakhs] was issued to the assessee. The copy of the said notice is placed in the paper book at page number 23. The said show cause notice is reproduced below: “During the course of survey a total of stock of Rs. 10,00,000/- was found however as per the trial balance/trading account as on date of survey stock no stock exists in the books was found. Please explain the reason for, excess stock on the day of survey. Also you are hereby show caused as to why not the excess stock may be considered as undisclosed investment u/s 69B of the Income Tax Act and tax on the said undisclosed investment is to be charged as per the provisions of section 115BBE of the Income Tax Act, 1961.”

We have perused the AO order No ITBA/AST/S/143(3)/2021- 22/1035914362(1)dt27/09/2021 and we observe that AO has given the following findings: The reply of the assessee has been considered but is not acceptable as 5.5 the claim of the assessee that the sources of investment have been duly explained by the assessee and thus the provisions of section 69B does not arise is found to be without any cogent documentary evidence. The assessee has claimed that the investment in the excess stock was derived from the business but the assessee has not given any explanation regarding the sales and purchases on account of which such business income was earned. Further, the assessee has not given details of the persons from whom the excess stock, which was found at its premises on the date of survey, was purchased. Even during the course of survey the assessee was having the full opportunity to show the sources of the income from where the investment was made in the excess stock but the assessee had not given any explanation showing that such income was its business income. Further, the assessee had not provided the bills and vouchers which were not recorded in the regular books of accounts and which the assessee did not wanted to update in his books of accounts and because of which the assessee had generated unaccounted business income as claimed by him. Therefore, in view of the facts of the case and the material available on record, it has been found that the sources of investment in the excess stock are unsubstantiated and the remains unexplained and thus, the provisions of section 69B of the Income-tax Act, 1961 are applicable. 5.6 The facts of the case are that excess stock was found not recorded in books of accounts of the assessee on the date of survey and the assessee had not explained the nature & sources of investment in such stock either during the course of survey or post survey or during the assessment proceedings by presenting the documents related to those entries due to which the income was earned for investment in stock. The condition of proving the source of such investment in stock is the primary condition for applicability of provisions of Section 69B of the Income Tax Act which the assessee has not fulfilled and thus such income cannot be considered as income from business as claimed by the assessee. The offer to surrender had been made by the assessee only after a Survey u/s 133A was conducted at the premises of the assessee and detailed physical verification of the stock in possession of the assessee was made. The assessee has neither recorded the investment in stock in the books nor the assessee has explained the sources of the same during the survey and assessment proceedings. 5.7 Further, the assessee failed to provide the sources of investment in excess stock found during survey. The assessee could able to explain and failed to furnish any bills and source of payment of such excess stock found during survey. The stock and the capital for investment in such stock cannot come from vacuum and there ought to be some source. The assessee failed to submit any material evidences that the investment in stock was out of the unaccounted sales made by the business or the capital was introduced from some hidden source of the firm which the assessee do not want to disclose. The onus to prove the sources of the surrendered income lies entirely on the assessee and just because the assessee is carrying on certain business. Thus the sources of such investment in excess stock remains unexplained and the unaccounted investment cannot be treated as income from regular business income. Moreover, the offering of such income without any supporting evidences to the nature and sources of the income which were not recorded in the books of accounts of the assessee, itself tantamount to having accepted that the sources are unexplained and thus the preponderance of probability is that such investment in excess stock is considered as unexplained investment of the assessee u/s 69B of the Income Tax Act. And as the income is to be assessed u/s 69B of the Income-tax Act, 1961, it would be subject to tax as per the provisions of the section 115BBE of the Income-tax Act, 1961. 5.8 Further the reliance is placed on following case laws: A) The Madras HC in M/s. SVS Oils Mills, Vs. The Assistant Commissioner of Income Tax in of 2018, while dismissing the appeal of the assessee decided the following question of law whtle confirming the order of ITAT: - "Whether the provisions of section 69B/69C of the Act would justify the separate addition for the value of the excess stock despite inclusion of such excess stock by posting necessary entries in the stock register and further despite the undisputed reporting of the sales effected in relation thereto in its entirety by the Appellant? The relevant findings of the Tribunal are quoted below for ready reference: - Quote "There is a clear admission by the assessee that the difference in stock as on date of survey was added in its stock register but no corresponding entry was passed in the books of accounts. Stock cannot come in from vacuum. When stock is introduced in the stock register, there has to be a corresponding entry in the financial books of accounts. Either it has to be a purchase or shown as paid out of explained or unexplained source. Once stock to the extent of the surplus found at the date of survey, is included in the stock register, assessee has to give an explanation for the source from which it acquired such stock. ........... Assessee having not passed any entry in financial books, addition of stock made by it, in its stock register, can only be considered as made out of undisclosed source. The addition in our opinion was rightly done by the lower authorities. Coming to the decision of Ahmedabad Bench of the Tribunal in the case of Chokshi Hiralal Manganlal (supra), there is a clear finding that excess stock found during the survey was not separated or clearly identified, but, was part of mixed stock which was included in the declared stock, as per books of accounts. Facts here are entirely different. There is no case for the assessee that surplus stock was clearly identified at the time of surveyor entries passed in its cash book, journal or ledger for the value of such stock. In the circumstances, we do not find any reason to interfere with the order of the learned Commissioner of Income Tax (Appeals). Appeal of the assessee stands dismissed." Unquote B) The Hon'ble ITAT Chandigarh in case of Famina Knit Fab Vs ACIT 176 ITD 246 (Chandigarh Trib.) has also held that as far as the income is surrendered and to be assessed u/s 69, 69A, 69B and 69C of the Act, the same is to be subjected to tax as per the provisions of section 115BBE of the Act.

We have perused the impugned order dt. 03/02/2023 of CIT(A) and in particular we have noted the following paragraphs in light of facts of the case: In this case, the assessee had surrendered an amount of Rs. 10 lacs on account of excess stock during the course of survey proceedings. The AO treated the said amount as unexplained investment u/s 69B of the Income Tax Act, 1961. In the return of income, the assessee showed only Rs. 7 lacs as surrendered income in the Profit & Loss account. The AO made an addition of Rs. 3 lacs on account of difference in the amount offered in surrender during the survey on account of excess stock i.e. Rs. 10 lacs and the amount actually shown in the return i.e. Rs. 7 lacs. The AO treated the total sum of surrender of Rs. 10 lacs as unexplained investment in stock u/s 69B of the Income Tax Act, 1961. The said surrender was made during the course of survey on account of discrepancies noticed in the cost of excess stock of the assessee. The AR in his submissions has tried to justify the same as unexplained investment out of the business income of the assessee. The AR has claimed that the appellant is not having any other source of income, but income arising from business. Further, the AR has relied upon judgments as quoted in his submissions. The contentions of the assessee have been examined. The judgments quoted by the AR have been gone through. It is important to emphasize here that in all the judgments quoted by the AR in his support, the Hon'ble High Courts/Ld. Tribunal Benches have very clearly held out that the AO shall give an opportunity to the assessee to establish a linkage between the surrendered income with the business income, if any. If the assessee is able to do that then the income can be considered as from business. In the case of the assessee, the AO gave an opportunity to the assessee to establish a linkage between the surrendered income under the head of 'excess stock' and the business income. Hence, from above discussion, it is clear that in all the cases, the settled position of law is that the nexus between the surrendered income and business needs to be established before the same can be treated as income from business. Merely having a known business activity will not, per se, render any unexplained asset/ income as business/profession income u/s 14, unless the burden of proving the source u/s 68 to 69D is also discharged. The onus of proving that such receipts are from an activity other than disclosed business activities is not upon the AO. Therefore, there can be no presumption against the deeming fiction u/s 68 to 69D to hold that income/investment, whose source is not explained, will still be classified as income under any head u/s 14. It would be, therefore, impermissible to attempt and classify such incomes under any of specific heads, even if there is any activity which can be remotely/indirectly linked to such deemed income. The word 'source' in the same context would refer to nexus of such income generating activity/transaction with name and identity, creditworthiness of person with whom such activity/transaction was done along with proving the genuineness of transaction also. The requirement of proving these 3 essential ingredients to prove the source in order to escape the rigors of the deeming fiction has been upheld universally. The conjoint burden of proving the 'nature and source' is therefore, not restricted to merely claiming the nexus of any activity/transaction to a particular credit/income/asset but also requires to establish with cogent evidence the nexus of such activity/transaction with source also by providing the name and identity, creditworthiness of person with whom the activity/ transaction was done along with proving the genuineness of transaction. Thus, for the unrecorded excess stock found during survey proceedings, there can be no presumption to treat the value representing such excess stock as application of business income in absence of any evidence of earning that income or details as to when, how and from whom such income was derived which has been excess stock. The AR has contended that the nature of the income has been duly explained during the course of survey as well as assessment proceedings. This contention of the AR is not found correct as nowhere during the assessment proceedings, the AR has been able to establish nexus between the excess stock and normal business income. Further, the AR has contended that the assessee has carried out no activity other than business so there is no question of the stock being related to unexplained sources. In above context, it is important to allude to the findings in the assessment order that the assessee has not been able to produce any documentary evidence, bills, vouchers, purchase & sale, documents to justify the additional income of Rs. 10 lacs which has been surrendered as excess stock. If the AR is sure about the business nature of the receipts necessary documentary evidence should have been adduced. 19.1 The Ld. DR has averred as under in his said written submissions which are as follows:

In the present case, the source of income on account of unexplained investment in stock to the extent of Rs. 10,00,000/- has remained unidentified, unknown, unexplained and undisclosed. Therefore, such income on account of such undisclosed capital/ assets, will be covered as income from other sources u/s 56 of the Act under the residuary head r.w.s. 14 of the Act. As per the provisions of the Act, any income, whose source is not known, would not be classified under the head income from other sources to be covered u/s 56 of the Act. Therefore only the incomes, which flow from known sources, and which are not falling under the head salary, house property, business/profession or capital gain will fall under the head income from other sources. Thus, it is inferred that the income, whose source is not known, identified or explained will not be covered under the head income from other sources. The assessee has claimed in the return of income that income of Rs. 10,00,000/- on account of unexplained investment in stock, was in the nature of income from business. Therefore, the onus was upon the assessee to substantiate the source and nature of such income to be classifieds income from Business. It has been held by Hon'ble Supreme Court in the case of Chuharmal vs CIT [1988] 38 Taxman 190 (SC) that the onus is upon the person, who makes a claim to prove the correctness of the claim. The assessee had failed to offer any such explanation regarding the source and nature of such income of Rs. 10,00,000/-. Therefore, in the given facts of the case, such income cannot be put under the head income from other sources. 15. Thus, in the given facts of the case, provision of the Act and following the ration laid by Hon'ble Jurisdictional High court and Hon'ble Madras High Court, it is submitted that the AO has rightly assessed the amount of Rs. 10,00,000/- as deemed income the assessee u/s 69B of the Ac and not as income from business. Once the income as been assessed u/s 69B of the Act, the same is to be subjected to tax rates as provided under amended provision of section 115BBE of the Act, as amended w.e.f. 1.4.2017. Provisions of section 115BBE state that where total income of the assessee includes any income referred in section 68 to 69D and reflected in the return of income furnished u/s 139 of the Act, income tax payable shall be calculated @ 60% in respect of income reflected in the ITR covered u/s 68 to 69D of the Act. The said provision is applicable for A.Y. 2017-18 as amended by the Taxation Laws (Second Amendment) Act, 2016 applicable w.e.f. 1.4.2017. The amended provisions of section 115BBE of the Act are applicable to the A.Y. under consideration. 16. The Ld. DR placed reliance on following judgments : (i) M/s Kim Pharma (P) Ltd Vs. ClT, Panchkula [106 of 2011](O&M)in the High Court of Punjab & Haryana at Chandigarh) Wherein the amount surrendered during the survey was not reflected in the books of account and no source from where it was derived was declared by the assessee and, therefore, it was deemed income of the assessee u/s 69A of the Act, as no source was declared by the assessee and in the absence of nature of source of cash being proved, the same is not assessable as income from business. ii) Fakir Mohmed Haji HasanVs. CIT [2001] 247 ITR 290 in the Gujarat High Court Wherein it is stated that the "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 as it income from "other sources" because the provisions of section 69, 69A, 69B and 69C treat unexplained investments, unexplained money, bullion etc. and unexplained expenditure as deemed income where the nature and sources of investment, acquisition or expenditure, as the case may be, have not been explained or satisfactorily explained. The source not being known, such deemed income will not fall even under the head "income from other sources". iii) Pr. CIT-3, Ludhiana Vs. M/s Khushi Ram & Sons, Foods (P) Ltd, Ludhiana [126 of 2015] (O&M) in the High Court of Punjab & Haryana at Chandigarh Wherein it is stated that it is not necessary that the surrendered amount is from business income. It could be on account of any other transaction legal or otherwise. Merely because an assessee carries on certain business, it does not necessarily follow that the amounts surrendered by him are on account of its business transactions. There is no presumption that absent anything else an amount surrendered by an assessee is his business income. It is for the assessee to establish the source of such surrendered amount. (iv) Dulari Digital Photo Services (P) Ltd Vs. CIT, Ludhiana [189 of 2012] in the High Court of Punjab & Haryana at Chandigarh The expression "income from other sources" would come into play only where income is relatable to a known source. Where the income is not relatable to any known or any bona fide source, it would necessarily be brought to tax or considered as income of the assessee, u/s 68 of the Act. Section 68 of the Act clearly provides that where a sum is credited in the books of assessee and the assessee is unable to offer any explanation about the nature and source thereof, or the explanation offered is not satisfactory, the sum so credited may be charged to income tax as the income of the assessee of that previous year. What is brought to tax under Chapter IV of the Act is an income from a known source, i.e. a particular source from which the income flows but the source of a particular revenue receipt cannot be pegged down to any particular source, provisions of Section 14 of the Act, particularly "income from other sources", would not apply and such income would necessarily fall u/s 68 of the Act, being unexplained cash receipts that do not fall within the definition of "income from other sources". (v) M/s SVS Oils Mills Vs The ACIT on 26.3.2019 in the High court of Judicature at Madras Wherein it is stated that there is a series of five provisions viz.. Section 69-Unexplained investments, Section 69A-Unexplained money, etc., Section 69B-Amoutn of investments, etc., not fully disclosed in books of account 69C-Unexplained expenditure, etc. and 69D-Amount borrowed or repaid on hundi which have been enacted in the Income Tax Act, 1961. Mentioning of wrong section would not upset the Additions made by the Assessing Authorities below. All these five 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, Jewelry etc. and therefore, such unexplained investments and expenses intended to be brought to tax as Undisclosed Income. 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 'undisclosed income' by itself and there is no question of any corresponding deduction from that in such cases.

During the course of the hearing the Ld. Counsel for the Assessee Shri Sudhir Sehgal, Advocate and Shri Rishaba Marwaha, CA repeated and reiterated the facts of the case and grounds of appeal

The letter of surrender dt. 17/09/2018 which are relied upon by both the authorities below unequivocally speaks of surrender of Rs. 10,00,000/- as income from business. The records and books of account which are maintained by the assessee during the course of manufacturing of PVC pipes at the material time of survey on 14/09/2018 when stock was verified vis a vis books of accounts; it was found to be in excess upon physical verification. Correspondingly it was found less as shown in books / records kept at place of manufacture upon comparison. These discrepancies were pointed out by the survey team to assessee and other members of staff present. Under these tiring circumstances the assessee could not explain the reason for discrepancies as pointed by the survey team during the examination of papers and books at the material time. Consequently he through his brother Sanjeev surrendered sum of Rs. 10,00,000/- as income from business and stated that this income shall be in addition to my book result. Be it noted that this surrender of income was voluntary with a promise to pay advance tax before closing on 31/03/2019. It was stated that same be accepted and oblige them. The Income Tax Authorities in proceedings below have duly accepted this surrender but there objection is only that it is unexplained investment under section 69B which is to be read with the section 115 BBE.

Therefore core issue in the present appeal before us is whether on facts and circumstances of the present case surrendered income of Rs. 10,00,000/- during and / or after survey [3 days gap] is business income of the assessee or unexplained investment. We are of the considered view in light of what is observed by us in forgoing paragraphs that it is business income and not unexplained investment under section 69B. There is no material on record both during the course of survey and during the course of the proceedings below that the excess material found on 14/09/2018 were kept in ready to move condition for onward distribution for sale in illegal markets. Further in the computation of income the amount of Rs. 7,00,000/- is shown as income from business [balance Rs. 3,00,000/- not shown] on account of shortage of cash stock as surrender under section 133A. We have seen the ROI of the assessee alongwith computation of income. We have also seen Question 23 put to the assessee wherein Income Tax Authorities themselves have observed by putting said Question 23 that “ As per trial balane as on 14/09/2018 there is no closing stock available with you. However as per physical verification the inventory of stock was prepared. As per inventory of stock there is available stock amounting to Rs. 9,08,100/- has been found in the premises. Please explain ? “ Further in Question 22 following is put to assessee “ please state the raw material use for manufacturing of PVC pipes and percentage of wastage”. Be that as it may we notice that assessee on basis of several documents like invoices, ledger, loose papers, Attendance Register, Salary disbursement Register, books of accounts which were kept at manufacturing premises of the assessee was questioned about nature of his business activities. We therefore hold that all material questions put up by tax authorities relate to manufacturing / production activities carried out by the assessee in the name and style of SK Industries hence excess stock though not accounted; but the income surrendered, to the extent of Rs. 10,00,000/- even though they were not in ready to dispatch condition is nothing but the business income of the assessee. The income tax return and computation of income too corroborates this fact. Hence surrendered income of Rs. 10,00,000/- partakes the character of business income and not unexplained investment. Hence provisions of section 69B r.w.s 115BBE are not attracted. However the said income of Rs. 10,00,000/- is liable to be taxed at the rate prevailing. The Ld. CIT(A) therefore has erred in law and had ignored totality of facts and circumstances of the present case as a whole and has passed impugned order ignoring what we have observed herein. The income tax authorities has not pointed in both orders i.e; AO and CIT(A) that excess stock found has any nexus with any other receipts other than the business being carried on by the assessee. There is thus a clear nexus of stock physically so found with the stock in which the assessee regularly deals in and thus the business of the assessee and the difference in the stock so found is clearly in the nature of business income. Further the stock was found within the business premises not outside business premises. The nature of goods tallies with the business of manufacturing being carried out of by the assessee i.e; manufacture of PVC pipes. The excess stock found is not of a strange item not manufactured by the assessee. Identity ownership of the excess stock found is related to business activity of the assessee and not any other person or entity. Hence income surrendered is business income and not unexplained investment.

We also find that stock physically found has been valued and then comparison with the value of the stock so recorded in the books of accounts and other records of manufacturing industry and surplus found not in ready to despatch condition and therefore what is surrendered is Rs. 10,00,000/- approximately in surrender letter which is a probable realisable value of excess so found. Hence surrendered income is business income and not unexplained investment. Had other types of goods having a totally different characteristic would have been found and that too not related to the business activity of the assessee than perhaps Department would have justified the same as unexplained investment. PVC Chair and Tables are not found what is found in excess is PVC pipes in relation to manufacturing activities of the assessee. No bills, no invoice of other articles not manufactured by the assessee have been found showing any other article save and except PVC pipes of different sizes. In manufacturing activities it is very common that many times finished products after production process is over are kept separately and / or mixed up before they are entered in books/ computer. The assessee therefore rightly has surrendered Rs. 10,00,000/- in survey as business income particularly so when Department has not brought on record any other activity of clandestine nature not connected with business of the assessee, further the surrender letter dt. 17/09/2018 speaks for itself. We therefore find that the nature and source of such unaccounted stock found within the manufacturing /business premises of the assessee is nothing but arising out of assessee’s business operation. Thus in law it cannot be said that the excess stock is unexplained investment and thus, does not satisfy conditions for invoking the deeming provision of section 69B of the Act. Further the excess stock found is not held to be a distinct identifiable stock. The assessee counsel has placed reliance on the judgment of ITAT Chandigarh Bench in case of M/s A P Knit Fab Vs. The DCIT Central Circle-3 ,Ludhiana dt. 15/02/2024, the copy of which was given to us and to Ld.DR on 30/04/2024.

In para 8.3 of the aforesaid judgment and order (supra) it is held as follows: In case of Chokshi Hiralal Maganlal vs. DCIT, 131 TTJ (Ahd.) 1, 8.3 briefly the facts of the case before the Coordinate Ahmedabad Benches were that during the course of survey under section 133A which was carried out at the premises of the assessee, excess stock of gold and silver ornaments were found and in the return of income subsequently filed by the assessee, he had included the value of excess stock as part of closing stock inventory. However the AO observed that the said disclosure was not consistent with the provisions of Section 69B of the Act and same was accordingly brought to tax under section 69B. The Ld. CIT(A) confirmed the order of the AO and thereafter on further appeal, the Coordinate Ahmedabad Bench held that the excess stock found during the survey is not separately and clearly identifiable but is part of mix lot of stock found at the premises which included declared stock as per books and also the excess stock as computed by the Survey Officers and therefore the provisions of Section 69B cannot be made applicable as primary condition for invoking the said provision is that the asset should be separately identifiable and it should have independent physical existence of its own and since excess stock as a result of suppression of profit from business over the years and has not kept identifiable separately but as part of overall physical stock found, the investment in the excess stock has to be treated as business income and thereafter has referred to the decision of the Tribunal in case of Fashion Fashion World Vs. ACIT (IT Appeal No. 1634(Ahd.) of 2006, dt. 12/02/2010) wherein the Tribunal had observed as under: “11. But this does not mean that loss computed under any of the five heads mentioned in section 14 – (i) ‘salary’, (ii) ‘income from house property’, (iii) ‘profits and gains from business or profession’, (iv) ‘capital gains’ and (v) ‘income from other sources’ – cannot at all be adjusted against unexplained investment or expenditure. What is necessary as per Hon. Gujarat High Court is that source of acquisition of asset or expenditure should be clearly identifiable. In the case before Hon. Gujarat High Court the source of gold confiscated was not identifiable and hence adjustment was not permitted.

In view of the above, AO is directed to consider the sum of Rs.8,10,011/- as undisclosed business income assessable under the head ‘business’ and other two sums under section 69. The business income including application of section 40(b) has to be considered accordingly. For calculation of income in view of our above observations, we restore the matter to the file of AO.

In para 8.4 of the aforesaid judgment and order (supra) it is held as follows:

In para 8.5 of the aforesaid judgment and order (supra) it is held as follows:

In para 8.6 of the aforesaid judgment and order (supra) it is held as follows:

The said decision of coordinate Jaipur Benches has since been confirmed by Hon’ble Rajasthan High Court in case of PCIT Vs. Bajargan Traders (DB Appeal No. 258/2017 dt. 12/09/2017).

This Chandigarh Benches in case of Gaurish Steels Pvt. Ltd. Vs. ACIT 43 ITR (Tri)414 has held as under:

On perusal of the said judgment, we find ourselves in agreement with the submission of the learned counsel for the assessee, that the only issue in that case was the taxability of cash surrendered during the course of survey, as the assessee had also surrendered income of Rs.10 lacs in assessment year 2005-06 on account of sundry credits, repairs to building and advances to staff, which being relatable to business carried on by the assessee was already included as income from business.

In the present case, we see that the Assessing Officer has nowhere disputed the business losses incurred by the assessee. The books have not been rejected. It was stated at the Bar that even at the time of survey, in the trading account prepared by the survey team, there were losses incurred by the assessee. All these facts have not been disputed by the Assessing Officer. Further, the surrender made by the assessee was on account of cash found during the course of survey, discrepancy in the cost of construction of building, discrepancy in stock and discrepancy in advances and receivables. By no stretch of imagination, any of these incomes apart from cash can be considered as income under any head other that the 'business income'.

Clearly, it is evident from the above that the surrender was on account of debtors/receivables relating to the business of the assessee only. The Revenue has accepted the surrender as such, as being on account of receivables. It follows that the debtors were generated from the sales made by the assessee during the course of carrying on the business of the assessee, which was not recorded in the books of the assessee. Though the said income was not recorded in the books of the assessee but the source of the same stood duly explained by the assessee as being from the business of the assessee. Even otherwise no other source of income of the assessee is there on record either disclosed by the assessee or unearthed by the Revenue. The preponderance of probability therefore is that the debtors were sourced from the business of the assessee. Therefore, there is no question of treating it as deemed income from undisclosed sources u/s 69, 69A, 69B and 69C of the Act and the same is held to be in the nature of Business Income of the assessee. Having held so, the same was assessable under the head ‘business and profession’ and as stated above, the benefit of set off of losses both current and brought forward was allowable to the assessee in accordance with law.

Therefore, as per the facts of the case in ITA No.408/Chd/2018 and as per the provisions of law relating to the issue, the surrendered income, we hold, was assessable as business income of the assessee and set off of losses was to be allowed against the same as rightly claimed by the assessee. The appeal of the Revenue, therefore, in ITA No.408/Chd/2018 is dismissed.

Now coming to the facts of the case in ITA No/1494/Chd/2017, the income surrendered was on account of the following as narrated above in earlier part of our order: (i) investment of Rs. 60 lacs in Kothi at Sukhmani Enclave in the name of Smt. Rekha Miglani; (ii) Sundry creditors and advances received from customers amounting to Rs. 132 lacs; (iii) Gross profit on sale out of books amounting to Rs. 198 lacs and; (iv) surrender to cover miscellaneous discrepancies in loose papers etc. amounting to Rs. 10 lacs.

As far as the surrender made on account of investment in Kothi of Rs.60 lacs, neither is the same disclosed in the books of the assessee nor source of the same disclosed. Therefore, the same is to be assessed as deemed income u/s 69 of the Act. The same applies to the surrender of Rs.10 lacs made to cover the miscellaneous discrepancies in loose paper of Rs.10 lacs. Neither the nature of the discrepancies, nor any source relating to the same has been disclosed and, therefore, the same is also to be assessed as deemed income u/ss 69, 69A, 69B and 69C of the Act.

As far as the surrender of Rs.132 lacs made on account of sundry creditors and advances received from customers and Rs.198 lacs on account of gross profit on sale out of the books, both of them clearly are in relation to the business carried on by the assessee and are thus in the nature of business income. Therefore, the set off of business losses, both current and brought forward are to be allowed as per the provisions of law. As far as the income surrendered and to be assessed u/s 69, 69A, 69B and 69C of the Act, as held above before us, the same is to be subjected to tax as per the provisions of section 115BBE of the Act.” Be it noted in gross case as listed in para 23 above (i)(ii)(iii), (iv) the benefit under section 69, 69A, 69B & 69C r.w.s 115BBE were upheld.

Similarly, the Coordinate Chandigarh Bench in case of M/s Sham Jewellers Vs. The DCIT in Appeal No. 375/Chd/2022 by order dt. 22/08/2022 has held as under: “10.17 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. 10.18 The Hon'ble Andhra Pradesh High Court in the case of Principal Commissioner of Income Tax Vs. Deccan Jewellers Ltd. reported in (2021) 438 ITR 131 (AP) held that where the assessee was engaged in the business of Gold and Diamond jewellery and Silver articles and during the search and seizure operation u/s 132, excess stock was found to be declared and the assessee had submitted that excess stock was result of suppression of profit from business over the years and the same had not been kept identified separately and the AO had duly considered and accepted the assessee’s explanation that investment in excess stock was to be treated as business income, the revisional powers invoked by the Principal Commissioner u/s 263 of the Act were not correct in the eyes of law. 10.19 The ITAT Chandigarh Bench in the case of Famina Knit Fabs Vs. ACIT reported in (2019) 176 ITD 246 (Chd-Trib) has held that, wherein during the course of survey, a surrender was made by the assessee on account of debtors / receivables which was based on a diary found during the course of survey and the Revenue had accepted that the surrender was on account of receivables, it followed that the debtors were generated from the sales made by the assessee during the course of carrying on the business of the assessee which was not recorded in the books of the assessee. The Coordinate Bench of the ITAT went on to further hold that though the said income was not recorded in the books of the assessee but the source of the same stood duly explained by the assessee as being from the business of the assessee and even otherwise no other source of income of the assessee was on record either disclosed by the assessee or unearthed by the Revenue. The Bench further held that the preponderance of probability, therefore, is that the debtors were sourced from the business of the assessee. Therefore, there was no question of treating it as deemed income from undisclosed sources u/s 69, 69A, 69B, or 69C of the Act and the same was held to be in the nature of business income of the assessee. 10.20 Thus, as in the present case, where the source of investment or expenditure is clearly identifiable and the alleged undisclosed asset has no independent existence of its own or there is no separate physical identity of such investment or expenditure, then, first, what is to be taxed is the undisclosed business receipt invested in unidentifiable unaccounted asset and only on failure can it be considered to be taxed u/s 69 of the Act and further where once such investment or expenditure is brought within the purview of tax as undeclared business receipt, then taxing it further as deemed income u/s 69 would be completely out of place. 10.21 Similar view was taken by the Coordinate Bench of ITAT Ahmedabad in the case of Chokshi Hiralal Maganlal Vs. DCIT reported in 131 TTJ 1 (Ahd.) 10.22 It is also seen that the Ld. CIT(A) has relied on the judgement of the Hon'ble Punjab & Haryana High Court in the case of Kim Pharma Ltd. Vs. CIT in of 2011 (O&M) and the Ld. CIT DR has also quoted the same in his arguments before us. However, after going through the aforesaid judgement of the Hon'ble Punjab & Haryana High Court, it is seen that in that particular case, the only issue was with regard to the cash surrendered at the time of survey and no other income. The cash found could not be related to the already disclosed and accepted source of income of the assessee and, therefore, the Hon'ble Punjab & Haryana High Court held that such surrendered cash was to be treated as deemed income u/s 69 of the Act. However, in the present case before us, the assessee has only one source of income i.e. business income and nowhere has it been brought on record that the assessee had any other source of income except business income and, therefore, we respectfully state that judgement of the Hon’ble Punjab and Haryana High Court in the case of Kim Pharma Pvt. Ltd (supra) would not apply on the facts of the present case. 10.23 Accordingly, keeping in view the various judicial precedents as cited above and respectfully following the same, we hold that the AO could not have legally invoked the provisions of section 115BBE of the Act in the present case and further the Ld. CIT(A) was also not legally correct in upholding of the application of provisions of section 115BBE of the Act. Accordingly, ground Nos. 8 and 9 are also allowed.” 36.1 The Ld. DR besides placing reliance on surrender letter dt. 17/09/2018 has also placed relied on AO’s order and that of Ld. CIT(A). The core contention of Ld. DR is that the assesse has miserably failed to adduce evidence to justify the surrendered income of Rs. 10,00,000/- as the business income. Reliance is placed on the judgment of jurisdictional High Court of Punjab & Haryana in case of PCIT-3, Ludhiana Vs. M/s Khusi Ram & Sons Foods Pvt. Ltd. Ludhiana dt. 21/07/2016 in of 2015. We have perused the said judgment the ratio of the judgment is recorded in para 13 & 14 which are as under: “13. It is not necessary that the surrendered amount is from business income. It could be on account of any other transaction legal or otherwise. Merely because an assesse carried on certain business, it does not necessarily follow that the amounts surrendered by him are on account of its business transactions. There is no presumption that absent anything else an amount surrendered by an assesse is his business income. It is for the assesee to establish the source of such surrendered amount.

Learned counsel for the assessee submitted that the amount surrendered by the assessee was business income and assessable as such. He relied upon a decision of the Karnataka High Court in Commissioner of Income-Tax and another v. S.K. Srigiri and Bros. [2008] 298 ITR 13 (Karn).

The Tribunal had relied upon a decision of the Gujarat High Court in Fakir Mohmed Haji Hasan v. Commissioner of Income-Tax [2001] 247 ITR 290. In that case, interpreting the scope and describing the scheme of Sections 69, 69A, 69B and 69C of the Act, it was observed:- "The scheme of sections 69, 69A, 69B and 69C of the Income-tax Act, 1961, would show that in cases where the nature and source of investments made by the assessee or the nature and source of acquisition of money, bullion etc., owned by the assessee or the source of expenditure incurred by the assessee are not explained at all, or not satisfactorily explained, then, the value of such investments and money or the value of articles not recorded in the books of account or the unexplained expenditure may be deemed to be the income of such assessee. It follows that the moment a satisfactory explanation is given about such nature and source by the assessee, then the source would stand disclosed and will, therefore, be known and the income would be treated under the appropriate head of income for assessment as per the provisions of the Act. However, when these provisions apply because no sources is disclosed at all on the basis of which the income can be classified under one of the heads of income under section 14 of the Act, it would not be possible to classify such deemed income under any of these heads including income from "other sources" which have to be sources known or explained.

The said decision fully applies to the facts of the present case.

In S.K. Srigiri and Bros's case (supra) before the Karnataka High Court, a finding of fact was recorded that the assessee received additional income from business only and, therefore, it was entitled to deduction on account of remuneration paid to the partners. Such is not the situation here.

In view of the above, no substantial question of law arises in this appeal. The appeal is accordingly dismissed. 36.3 Once we analyse the above judgment vis a vis to the facts of the present case we notice that the facts herein are very peculiar. Admittedly excess stock of Rs. 10,00,000/- (approximately) of PVC pipes of different sizes was found on the day of survey i.e; 14/09/2018 the Department officers tallied the stock so found with the available books of account and found stock to be in excess. No doubt assesse has surrendered the income of Rs. 10,00,000/- on 17/09/2018 through his brother as aforesaid. However, the nature of income surrendered is business income as per the said letter which is required to be noted. Correspondingly there is a inventory of stock taken on 14/09/2018 page 8 of paper book which records an amount of Rs. 9,08,100/- . Nowhere the said documents perse is speaking of excess found of pipes of different sizes. Statement of assesse is from page 9 to 18 which is dt. 14/09/2018 wherein the identity disclosed by the assesse is that of a businessman i.e; proprietor M/s S.K Industries, Dhuri. With regard to income as business income the assesse has averred that it is from the proprietary concern i.e; S.K. Industries. The assesse has further described the nature of the work of his proprietary concern as manufacturers of PVC pipes. He has also averred that books of account are maintained in the same premises. Process of procuring orders has been described by him, he has further stated that no stock of M/s S.K. Industries are lying outside the factory premises. All stocks are lying in the factory premises itself. The assesse has described the production process of manufacture of the PVC pipes in his statement. Quantum of turnover per machine is also stated by him. Be that as it may the statement as a whole describes the assesse as a business person doing business in the name and style of S.K Industries who are manufacturers of PVC pipes of different sizes. Viewed in this context a plausible explanation is of surrender of business income and nothing else as no other source of income during the course of survey was found. It is not a case of no explanation offered but if the entirety of the case is taken into consideration which we have, a plausible explanation which emerges is of a business income linked to stock found in the premises. 36.4 We are therefore of the considered view that explanation of surrendered income is satisfactorily given, provision of 69B r.w.s 115BBE of the Act does not apply. Consequently the above facts are noted which we respectfully feel that these facts are not pari materia with the judgments (supra). Therefore the Ld. DR contentions are not acceptable. We also observed that in reply to the show cause notice that issued by the Department to the Assessee, the assesee’s counsel in reply dt. 26/09/2021 has stated as under:

Sir in respect to the difference of stock found at the business premises and no stock found in the books it is submitted that there were certain sale bills which had already been recorded in our books and goods were yet to be dispatched and delivered / send to our customers at later stage . It is normal practice in business just to reflect and predict higher monthly sale / figures to the MD the sales department just to claim the appreciation and applause of the MD issue actual bills before the close of the month and the goods are delivered later on , to claim the sales benefits from his seniors authorities . Even this practice of the junior staff got high lighted in our business as well , as a result of this survey and was not in the knowledge of the seniors . Sir this resulted in difference of closing stock at the time of survey . Sir there is virtually no such difference in the same and it should not be treated as under reporting of income and the profits actually derived from such sale have been considered which preparing the accounts books and reflecting the true profits from such sales , hence the provisions of sec 115BBE are not to be applicable on the same.

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. Order 38. In the foregoing and in the light of premises as set out hereinabove in entirety, the income so surrendered on account of investment in excess stock during the course of survey 14/09/2018/17/09/2018 aggregating to Rs. 10,00,000/- cannot be brought to tax under the deeming provisions of Section 69B of the Act and that the same is liable to be assessed to tax under the head “Business Income”. In the absence of deeming provisions, the question of application of section 115BBE does not arise and normal tax rate shall apply. The AO is thus directed to assess the income under the head “Income from Business / Profession and apply normal rate of tax as applicable to assessee. The impugned order of the Ld. CIT(A) dt. 03/02/2023 is set aside.

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