SANJEEV KUMAR GOYAL,FATEHABAD vs. DCIT, CC-2, LUDHIANA

This is an appeal filed by the Assessee who is an individual and has been engaged in the business of running a hotel in the name and style of “ Ratna Resorts”, since the year 2013. The residential status of assessee is that of a person “resident” in India. The appeal is filed before this Hon’ble Tribunal under section 253 of the Income Tax Act, 1961 as amended from time to time.

FACTUAL MATRIX 3. The assessee for the aforesaid business of running a hotel has been maintaining a complete set of books of account which are duly audited by a chartered accountant. Further, on the basis of said audited set of books of account, the assessee has been regularly filing its return of income.

21. Further, during the course of survey, a statement of the assessee was also recorded, the copy of said statement is placed at page number 9-18 of the paper book. Further the surrender for the group was made by the assessee in his statement recorded in the Investigation department on 17.09.2018, the copy of said statement is placed at page number 19-20 of the paper book.

6. Thereafter, the assessee following the surrender letter dated 17.09.2018 filed its return of income on 25.02.2020 wherein, the assessee declared total income of Rs. 43,58,490/-. It is hereby pertinent to mention that the assessee declared the surrendered income of Rs. 45,00,000/- to the credit of profit and loss account prepared for the year ending 31.03.2019. The same is evident from the copy of the Profit & Loss account for the year ending 31.03.2019 placed in the paper book at page no.

8. It is hereby pertinent to mention here that the AO during the investigation proceedings post survey action accepted the contention of the assessee treating the said surrender as business income of the assessee. Hence, the assessee paid normal rate of tax on total income including said surrendered amount of Rs. 45,00,000/-.

7. Thereafter, the case of the assessee was selected for 'Compulsory Manual Selection of Scrutiny' and a notice u/s 143(2) of the Act dated 30.09.2020 was issued to the assessee. Thereafter, the assessee filed various responses during the course of assessment proceedings vide response dated 14.1.2020, letter dated 17.02.2021 and letter dated 20.02.2021.

8. Thereafter, Show Cause Notice was issued to the assessee, w.r.t. part surrender amount of Rs. 38 lacs, as surrendered under the head 'building under construction' and the assessee filed a letter dated 26.09.2021 (Reply to SCN), copy placed at page no. 23-24 wherein, the assessee has duly explained as to why the provisions of section 115BBE are not applicable in the case of the assessee. In the said reply, the assessee has duly mentioned that the said part of the Rs. 38 lacs of surrendered income is out of the regular business income of the assessee, which has also been surrendered by the assessee over and above the regular business income. In addition to this, it was also submitted by the assessee that during the course of survey action, no cash or material as to any unexplained income was found by the survey team. Also, that all the surrendered income from functions was duly declared in the books of the assessee & return of income and that it has been mentioned by the assessee that the amount has been surrendered by the assessee without any reference to. Section 68 to 69D of the Act & as such provisions of sec 115BBE are not applicable. Moreover, the taxes on such income declared had been duly paid by the assessee. 9. However, the Ld. AO without considering the detailed replies filed by the assessee passed the .assessment order dated 27.09.2021 u/s 143(3) of the Act and in the assessment order, although the AO has not made any additions to the returned income of the assessee but, the AO made the provisions of section 115BBE applicable on the assessee on the part amount surrendered as addition to the hotel building to the tune of Rs. 38,00,000 and hence, assessed the surrendered amount of Rs. 38,00,000/- u/s 115BBE of the Act and balance income was assessed as business income. 10. Aggrieved by the order of the assessing officer, the assessee filed an appeal before the CIT(A), wherein, the assessee filed detailed submissions dated 02.01.2023. However, the CIT(A) vide order dated 20.01.2023 dismissed the appeal of the assessee.

1. That the order passed by the DCIT, Central Circle-2, Ludhiana and confirmed by the Commissioner of Income Tax (Appeals)-5, Ludhiana is illegal, unjust and uncalled for.

2. That invoking the provision u/s 115BBE on Rs. 38,00,000/-, which was surrendered during survey under building head and confirmed by the Commissioner of Income Tax (Appeals)- 5, Ludhiana is illegal, unjust and uncalled for.

3. That invoking the provisions u/s 115BBE on the income surrendered on account of building and confirmed by the Commissioner of Income Tax (Appeals)-5, Ludhiana is illegal, unjust and against the actual facts of the case on the file.

4. That the appellant may further craves to leave, to add or to add or to amend the grounds of appeal

5. That the appeal filed is within limitation. The total tax effect is Rs. 24,87,371/- as stated in Form No. 36. 12 We have perused the AO order No. ITBA/AST/S/143(3)/2021- 22/1035914377(1) dt. 27/09/2021 and we observe that AO has given the following findings:

5.1 A survey was conducted at the business premise of the assessee on 14.09.2018. During the course of survey, the assessee has surrendered an amount of Rs. 45,00,000/- vide surrender letter dated 07.09.2018. Out of total surrender, the assessee has surrendered Rs. 7,00,000/- on account of suppression/less receipt of booking found during the course of survey and an amount of Rs. 38,00,000/- was surrendered on account of construction of building used for business purpose. The scanned image of surrender letter is as under:

5.2 The assessee has treated the surrender amount of Rs. 38,00,000/ business income and accordingly paid tax on the surrender income at normal rates. The assessee has shown the construction of building as Capital work in progress in the balance sheet. However, the investment made for the construction of building falls under the provisions of section 69B of the Income-tax Act. Also, the assessee has not given any valid explanation about the source of making investment in construction of building. However, only showing the investment in construction of building as Capital work in progress in the balance sheet is not sufficient for the assessee to establish the source of investment is from the business income. The head of surrender relates to the unexplained investment in construction of building is covered under section 69B r.w.s. 115BBE of the Income -tax Act. Vide show cause notice dated 19.09.2021 assessee was show caused as to why not the surrendered amount of Rs. 38,00,000/- on account of construction of building may be treated as unexplained investment and should be taxed as per the provisions of section 115BBE of the Income-tax Act, 1961. 5.3 In response to notice dated 19.09.2021 the assessee submitted his reply dated 26.09.2021 through e-mail and reply filed by the assessee is reproduced as under: "i) sir we had offered the amount during the course of survey as to buy peace of mind, as there was no cash or any articles found during the course of survey still we offered the income to be surrendered under Hotel Building as the first part of the building was completed before 2013 and llnd phase was still under construction and got completed thereafter. ii) The amount so offered for surrender should have to be consider under normal taxation rates and not under 115BBE, as the amount pertains prior to the incorporation of the said Act and the same shall not be treated under 115BBE. iii) The said amount which was surrendered is already part of our books of accounts as cannot be treated as unexplained investments and so account surrendered should not be considered u/s 69B of the Income Tax Act, as surrendered amount is self-offered and not detected by the ITD."

5.4 The reply of the assessee has been considered and not acceptable as only showing in the books of account as investment made for construction of building as Capital Work in Progress is not justifiable without any supporting documentary evidence to substantiate the source of investment used for the construction of building is from the income shown/declared. The assessee has not demonstrated in the reply that why the source of investment in the construction of building is to be considered being derived from the business. The assessee has not furnished the supporting documents to substantive his claim that the expenses incurred for the construction of building is from the source of business income. 5.5. During the course of survey proceedings the assessee failed to disclose the source of investment made for construction of building and also failed to produce any documentary evidence regarding construction of building. Even, the assessee had not provided the bills and vouchers which required to be recorded in the books of account if the source of investment made from the business income. During the course of assessment proceedings the assessee has also not produced any supporting evidence to substantiate the claim of source of investment from business income. Therefore, in view of the above facts of the case and the documents furnished by the assessee, it is seen that the source of investment in construction of building premise are remained unexplained source of income and thus the provisions of section 69B of the Income-tax are applicable in this case. 5.6 Further, after availing ample opportunities the assessee failed to prove the source of investment made in the construction of building is from the business income/disclosed sources. The assessee has only stated that the building has been shown in the balance sheet as capital Work in Progress and not claimed depreciation during the year under consideration. During the assessment proceedings the assessee has not produced any bills/vouchers/ proof of payment/ copy of accounts of the building as Capital Work in Progress to substantiate the claim of source of investment made for the construction of building. The onus to prove the sources of the surrender income lies entirely on the assessee because the assessee is doing certain business. 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, itsef tantamount to be accepted that the sources are unexplained. In the absence of any supporting documents/evidence the claim of the assessee is not acceptable and the source of investment made of Rs. 38,00,0007-for the construction of building premises is being treated as unexplained investment under section 69B of the Income-tax Act, 1961 and fax to be charged as per the provisions of section 115BBE of the Income-tax Act, 1961.

5.7 In view of the above, it is considered that the amount surrendered of Rs. 38,00,000/- by the assessee on account of construction of building is treated unexplained investment under section 69B and the Income-tax Act and tax liability is to be charged as per the provisions of section 115BBE of the Act as the assessee has used the undisclosed sources of income for the construction of building premise.”

“These grounds relate to charging by the AO of the surrendered income of Rs. 38 lacs u/s 69B of the Act and taxing the same u/s 115BBE 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 construction of building 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 'investment in building' 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 investment in building found during survey proceedings, there can be no presumption to treat the value representing such excess investment in building 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 invested in building. 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 investment in building 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 investment in building 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. 45 lacs which has been surrendered as investment in building. If the AR is sure about the business nature of the receipts necessary documentary evidence should have been adduced. In the case of PCIT vs. M/s. Khushi Ram & Sons Pvt. Ltd., the Hon'ble High Court of Punjab & Haryana in of 2015 dated 21.07.2016 held as under: "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." In the case of SVS Oil Mills vs. ACIT, Chennai, the Hon'ble High Court of Madrasin ITA No. 765 of 2018 dated 26.03.2019, held in para 9 of the order, as under:

"When the excess stocks were found during the Survey, there is no question of allowing the Assessee to record any additional purchases because such purchases had already been recorded in the books of accounts of the Assessee. Therefore, the excess stock, per se, has to be naturally brought to tax as 'undisclosed income' by itself and there is no question of any corresponding deduction from that in such cases." Similarly, in the case of Kim Pharma Pvt. Ltd. vs. CIT in of 2011 dated 27.04.2011, the Hon'ble High Court of Punjab & Haryana held that, where the amount surrendered during the survey was not reflected in the books of accounts and the source from where it was derived was not declared, the same was assessable as deemed income u/s 69A of the Act. The Hon'ble Supreme Court in the cases of Roshan Di Hatti vs. CIT [1977] 107 ITR 938 (SC) and Kale Khan Mohammad Hanif vs. CIT [1963] 50 ITR 1 (SC) held that the law is well-settled that the onus of proving the source of a sum of money found to have been received by an assessee is on him. Where the nature and source of a receipt, whether it be of money or other properly, cannot be satisfactorily explained by the assessee, it is open to the revenue to hold that it is the income of the assessee and no further burden lies n the revenue to show that the income is from any particular source.

The above observations also get support from the decision of Hon'ble ITAT Cochin Bench, Cochin in the case of M/s. Bhima Jewellers vs. PCIT Kozhikode in Assessment Year 2013-14 vide order dated 20.08.2018. The relevant para of this order is reproduced below:- "6.2. The opening words of section 14 'Save as otherwise provided by this Act' clearly leave scope for 'deemed income of the nature covered under the scheme of sections 69, 69A and 69C being treated separately, because such deemed income is not income from salary, house property, profits and gains of business or profession, or capital gains, nor is it income from 'other sources' because the provisions of sections 69, 69A, 69B and 69C treat unexplained investments, unexplained money, bullion, etc., and unexplained expenditure as deemed income where the nature and source of investment, acquisition or expenditure, as the case may be, have not been explained or satisfactorily explained. Therefore, in these cases, the source not being known, such deemed income will not fall even under the head 'Income from other sources'. Therefore, the corresponding deductions, which are applicable to the incomes under any of these various heads, will not be attracted in case of deemed incomes which are covered under the provisions of sections 69, 69A, 69B & 69C in view of the scheme of those provisions.

8. In our opinion, therefore, the Tribunal was perfectly right in holding that the value of the gold was liable to be included in the income of the assessee as the source of investment in the gold or of its acquisition was not explained and that the assessee was not entitled to claim that the value of the gold would be allowed as a deduction from his income." Similarly in the case law of ITO Vs Dulari Digital Photo Services (P) Ltd. ([2012] 24 Taxman.com.31(CHD)), the question before the Co-ordinate Bench was whether unexplained cash credit under section 68 of the Act can be considered for set-off against losses under various heads of income. After examining the relevant provisions in detail, Co- ordinate Bench has clearly outlined that for income to be considered even from other sources, the sources have to be established. The relevant observations read as follows: "14 ... Section 2(45) defines 'total income' as 'the total income referred to in section 5, computed in the manner laid down in this Act". It is relevant to note that the principal charging section 4 makes the 'total income referred to in the principal charging section. Section 14 classifies the heads of income while sections 15 to 59 provide for its quantification. Chapter VI of the Income tax Act provides for aggregation of income and set off or carry forward of loss. Thus Chapter VI is in two parts; first part deals with aggregation of income while the second part deals with set off or carry forward of losses. Chapter has been placed after Chapter IV and V, It comes into play only after the computation of total income under the various heads of income in terms of in terms of Chapter IV has been done. Income falling under Chapter VI is taxed by aggregating the same with the income quantified in terms of Chapter IV. Chapter VI is not subservient to Chapter IV. Besides, section 14 allows the taxability of income under specific provisions of the IT. Act outside Chapter IV. For the reasons aforestated, the income assessable under section 68 cannot be assessed as income from other sources under section 56. 15. Thus what is taxed under Chapter IV is income from a known source including income from other sources. A source of income means a specific source from which a particular income springs or arises. Once a source giving rise to a particular income is identified, it has then to be placed under a particular head of income as specified in section 14. Thus income can be taxed under a specific head of income as enumerated in section 14 only when if is possible to peg the same to a know source/head of income. If the nature and source of a particular receipt is not known, it cannot then be pegged to a known source/head of income. Chapter IV contemplates computation of income arising from known sources/heads of income whereas Chapter VI, on the other hand, contemplates aggregation of the entire sum the nature and sources of which are not known. The aforesaid two Chapters are completely different in their nature, scope and effect. Though the income assessable under them are part of total income as defined in sections 2(45)/4/5 of the I. T. Act yet that does not mean that income assessable under section 68 has to be assessed under section 56. In the case before us, source of unexplained cash credits is not known and hence they cannot be linked to any known source/head of income including income from other sources. In order to constitute 'income from 'other sources', the source, namely, the "other sources", has to be identified. Income from unexplained or unknown sources cannot therefore be considered or taxed as income from other sources.

The aforesaid view is fortified by the judgement of the Hon'ble Gujarat High Court in Fakir Mohamed Haji Hasan V. CIT [2001] 247 ITR 290/(2002] 120 Taxman 11 in which the Hon'ble High Court has held as under:- "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 the 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 source 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. When the income cannot be so classified under any one of the heads of income under section 14, it follows that the question of giving any deductions under the provisions which correspond to such heads of income will not arise. If it is possible to peg the income under any of those heads by virtue of a satisfactory explanation being given, then these provisions of sections 69, 69A, 69B and 69C will not apply, in which event, the provisions regarding deductions, etc., applicable to the relevant head of income under which such income falls will automatically be attracted. The opening words of section 14 are "Save as otherwise provided by this Act" clearly leave scope for 'deemed income' of the nature covered under the scheme of sections 69, 69A, 69B and 69C being treated separately, because such deemed income is not income from salary, house property, profits and gains of business or profession, or capital gains, nor is it income from "other sources" because the provisions of sections 69,69A, 69B and 69C treat unexplained investment, unexplained money, bullion, etc., and unexplained expenditure as deemed income where the nature and source of investment, acquisition or expenditure, as the case may be, have not been explained or satisfactorily explained, Therefore, in these cases, the source not being known, such deemed income will not fall even under the head 'Income from other sources". Therefore, the corresponding deductions which are applicable to the incomes under any of these various heads, will not be attracted in the case of deemed incomes which are covered under the provisions of sections 69,69A,69A and 69C of the Act in view of the scheme of those provisions." Accordingly, the arguments of the AR that the surrendered income is to be treated as business income of the assessee is not acceptable and the additions made u/s 69B, are to be treated separately and it would not be possible to classify such deemed income falling under Chapter-VI, under any of the heads including 'income from other sources' but they will be aggregated along with the incomes computed under Chapter IV. The AR has not been able to adduce documentary evidence to establish the nexus between the surrendered income and business and no source for the surrendered income could not related to. The judgments cited supra i.e.:

(1) Fakir Mohammed Haji Hasan Vs. CIT ( [2001] 247 ITR 290 (Guj.) (2) PCIT vs. M/s. Khushi Ram & Sons Pvt. Ltd., the Hon'ble High Court of Punjab & Haryana in of 2015 dated 21.07.2016 (3) SVS Oil Mills vs. ACIT, Chennai, the Hon'ble High Court of Madras in ITA No. 765 of 2018 dated 26.03.2019 (4) Kim Pharma Pvt. Ltd. vs. CIT in ITA No. 106 of 2011 dated 27.04.2011, (5) The Hon'ble Supreme Court in the cases of Roshan Di Hatti vs. CIT [1977] 107 ITR 938 (SC) (6) Hon'ble ITAT Cochin Bench, Cochin in the case of M/s. Bhima Jewellers vs. PCIT Kozhikode in ITA No. 208/Coch/2018, Assessment Year 2013-14 also bring out a clear legal position that for any income to be treated as business income, the nexus/the source, has to be established. Hence, the action of the AO in applying the rate as prescribed u/s 115BBE on the surrendered income included in the ITR, treated by the AO as income u/s 69B in the assessment order, is found sustainable. Keeping in view the above facts and discussion, it is held that the AO has rightly treated the surrender of Rs. 38,00,000/- on account of unexplained investment in building found during the survey as deemed income u/s 69B and to be taxed as per provisions of Section 115BBE of the Income Tax Act, 1961 and hence the same is confirmed. The AR has also contended that the AO treated the surrender under the two heads differently. It is seen that the surrender was made on account of suppression of receipts (Rs. 7 lacs) and unaccounted investment in building (Rs. 38 lacs). The AO taxed the surrender on account of suppressed receipts under normal rates but the unaccounted investment in building was taxed u/s 69B of the Income Tax Act, 1961. The contentions of the AR have been gone through. The AO has rightly treated the surrender on account of less receipts under the head of business income as the same is directly linked with the business activity and the income has been suppressed on account of amounts booked for various fuctions and events being lower than those recorded on the booking slips found ring the course of survey. When there is a direct link between the surrendered amount and the business income, there is no need of imposing provisions of Section 68/69 on the surrender amount. But, the surrender under the head 'building' contained no such evidence which could corelate the investment in the building with the business income of the assessee. Hence, the AO has rightly treated the surrender under the head 'building under construction' u/s 69B. Accordingly, these grounds of appeal are dismissed.

14. We have also carefully perused the written submission of Ld. Sr. DR dt. 26/03/2024 filed before us. The core objections of Ld. Sr. DR are as under: i) The assessee is a proprietor of M/s Ratna Resorts, Dhuri, carrying the business of hoteling, conferencing, wedding receptions etc. A survey operation u/s 133A of Income Tax Act 1961 (subsequent referred as in this submission) was carried out at the business premises of the assessee on 14.09.2018. During the course of survey u/s 133A of the Act, various discrepancies were noticed and admitted by the assessee and offered to surrender an amount of Rs.45,00,000/- on account of Rs.7 lakhs (suppression of booking receipts) and Rs.38 lakhs (construction of building) during course of survey. ii) That the assessee submitted his ITR -3 u/s 139(1) of the Act for A.Y. 2019-20 on 25.02.2020, declaring total income at Rs.42,58,490/-. As per return of income, the income from profession/ business is Rs.46,45,698/- (Ratna Resorts), Rs.9,60,000/- salary income from Supreme Polytube Limited, loss of Rs.2,00,000/- from house property and loss from other sources are Rs.8,73,382/-. In the profit & loss account, the assessee has shown income of Rs.45,00,000/- with narration Income from Business on A/c of shortage of cash and building exp. As surrender u/s 133A on the credit side of Profit & loss Account. iii) That the return of income was accompanied with audited trading and profit & loss account& balance sheet, tax audit report of M/s SRatna Resorts. The income surrendered was not shown in the books of accounts/ rather were taken directly to profit & loss account of the assessee. Therefore, as per profit & loss account, the income surrendered was not business/ professional income but income surrender (survey) which is apparent from the books of accounts. The assessee also filed a surrender letter dated 17.09.2018 (which has been scanned and pasted by the assessing officer at page 3 of the assessment order). It is as under:-

Respectfully, it is hereby stated as under: That a Survey under section 133A was conducted by the Department on 14/09/2018 on the premises of M/s Ratna Resorts, Dhuri. That during the survey proceeding, accounts were examined and were verified with the functions booking details. On verification, it was found and pointed out that the charges shown in the books are quite less as compare to booking slips and the expenses made on the construction of the building shown in the books of accounts were also not sufficient as per carpet area. That at this time I am not in this position to explain the discrepancies pointed out by the survey tern and to buy piece to cover the discrepancies pointed out by the survey tern during the examination of papers and books, I surrender a sum of RS. 45 Lac as income from business and this income shall be in addition to my book result. That this offer of surrender is voluntarily and I will pay Advance tax before 31st day of March 2019. Kindly accept the surrender & oblige. Thanking you, Yours faithfully, For M/s Ratna Resorts iv) That during the course of assessment, the assessing officer in para 5.2 observed as under:- 5.2. The assessee has treated the surrender amount of Rs.38,00,000/- as business income and accordingly paid tax on surrender income at normal rates. The assessee has shown the construction of building as Capital work in progress in the balance sheet in the balance sheet is not sufficient for the €V assessee to establish the source of investment is from the business income.

(v) That during the course of assessment under section 143(3) of the Act, the assessing officer assessed the said income under section 69B read with section 115BBE of the Act after confronting the facts/ issues to the assessee. While assessing the same as deemed income u/s 69B of the Act, the observations in the Assessment Order were:- 5.4 the reply of the assessee has been considered and not acceptable as only showing in the books of account as investment made for construction of building as Capital Work in Progress is not justifiable without any supporting documentary evidence to substantiate the source of investment used for the construction of building is from the income shown/declared. The assessee has not demonstrated in the reply that why the source of investment in the construction of building is to be considered being derived from the business. The assessee has not furnished the supporting documents to substantive his claim that the expenses incurred for the construction of building is from the source of business income. 5.5 During the course of survey proceedings the assessee failed to disclose the source of investment made for construction of building and also failed to produce any documentary evidence regarding construction of building. Even, the assessee had not provided the bills and vouchers which required to be recorded in the books of account if the source of investment made from the business income. During the course of assessment proceedings the assessee has also not produced any supporting evidence to substantiate the claim of source of investment from business income. Therefore, in view of the above facts of the case and the documents furnished by the assessee, it is seen that the source of investment in construction of building premise are remained unexplained source of income and thus the provisions of section 69B of the Income-tax are applicable in this case. 5.6 Further, after availing ample opportunities the assessee failed to prove the source of investment made in the construction of building is from the business income/disclosed sources. The assessee has only stated that the building has been shown in the balance sheet as capital Work in Progress and not claimed depreciation during the year under consideration. During^ the assessment proceedings the assessee has not produced any bills/Vouchers/proof of payment/copy of accounts of the building as Capital Work in Progress to substantiate the claim of source of investment made for the construction of building. The onus to prove the sources of the surrender income lies entirely on the assessee because the assessee is doing certain business. 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 be accepted that the sources """are unexplained.. In the absence of any supporting documents/evidence the claim of the assessee is not acceptable and the source of investment made of RS. 38,00,000/- for the construction of building premises is being treated as unexplained investment under section 69H of Income-tax Act, 1961 and tax to be charged as per the provisions of section 115BBE of the Income-Tax Act, 1961. vi) Here, the material available on the record shows that the assessee has not recorded all financial entries in its books of account; cash book, ledger, journal, etc. It is natural that if any person is not recording particular transaction/ receipt in books of accounts, he would not have done so even subsequently, had not the search/ survey or enquiry been carried out by the Department. The books of accounts can always have some genuine time lag between happening of business transactions and recording of some entries in accounts on real-time basis for multiple reasons. There can be no denial from this situation. But in a genuine and bonafide situation, there would always be availability of basic documents as evidence to support such unrecorded transactions in the form of bills/ vouchers/ transport details/ labour charges/ challans/ payment receipts/ bank statement etc. If that be so, the updating of the accounts subsequent to survey to arrive at the correct position would still be permissible because the source of such entries is already backed by necessary evidences found during the survey/ enquiries itself. Therefore, the benefit of recording entries in books of accounts of any business being carried subsequent to survey would not be available to claim that such income was part of business income only, if the necessary bills/ vouchers/ transport details/ labour charges/ challans/ debit/ credit notes/ vouchers for expenses/ receipts, sources of funds being received/ transferred through banking channels, etc pertaining to such transaction/ stock/ investment/ cash, are not available. Hence, even though the Act does not specify as to at what point of time the entries are required to be recorded in accounts, if any maintained but since the event of not recording can be ascertained only when detected by the department during any search/ survey/ enquiries, therefore in the context the point of time when non-recording in accounts is to be tested, shall be the point when it was detected initially during survey and not at any later date when they were recorded subsequent to survey. vii) In the above situation, mere recording it in books of accounts subsequently without any corroborating evidences to support such entries and offering the same to tax as income in the ITR for the search/ survey AY, would also not meet the conditions of recording in accounts and offering satisfactory explanation with regards to nature & source thereof. viii) The assessee filed appeal before CIT(A). According to the Id. CIT(A) vide his order dated 26.10.2021 passed in appeal No. 10853/2018-19/IT/CIT(A)-5/Ldh/2021-22, the settled position of law is that nexus between surrendered income and business income needs to be established before the same can be treated as income from business. ix) The Ld. DR further has relied upon para5.1 of order of the Ld. CIT(A) and other para which are already reproduced in para 13 above. x) In response to ground of appeal

3 of assessee made before us the Ld. DR has averred as under:

11. The assessee in his brief submissions submitted on 03.07.2023 before Tribunal, he has made following submissions (Page 5 onwards):- A) The assessee has made journal entry in the books of accounts by debiting the building under construction account and crediting income surrender on account of survey by Rs.38,00,000/-.

B) The reliance is placed on following judgments:- i) DDK Spining Mills [2023] 157 taxmann.com 817 (Chd. Tribunal). ii) Harish Sharma vs. ITO [ITA No. 327/CHD/2020] by ITAT Chd. iii) Daulatram Rawatmull Vs. CIT [1967] 64 ITR 593 (Calcutta). iv) Judgment by Jurisdictional Bench of ITAT in the case of Gurdeep Singh Ubhi in ITA No. 551/CHD/2022. iv) Hon'ble Chandigarh (Jurisdictional) Bench„of ITAT in the case of M/s Sham Jewellers in ITA No. 375/CHD/2022. v) Hon'ble Chandigarh (Jurisdictional) Bench of ITAT in the case of M/s Sham Jewellers in ITA No. 315/CHD/2022. vi) Hon'ble Chandigarh (Jurisdictional) Bench of ITAT in the case of M/s Gaurish Steels Pvt. Ltd. in 82 Taxmann.com 337. vii) Hon'ble Chandigarh (Jurisdictional) Bench of ITAT in the case of M/s Bajaj Sons Ltd. in ITA No. 1127/CHD/2019. viii) The binding judgment of Hon'ble Chandigarh Bench in the case of M./s Khurana Rolling Mills Pvt. Ltd in ITA No. 745/CHD/2016. ix) The Hon'ble Chandigarh (Jurisdictional) Bench of ITAT in the case of M/s Prashanti Surya Construction Co. Pvt. Ltd. in ITA No. 315/CHD/2014. x) Hon'ble Chandigarh (Jurisdictional) Bench of ITAT in the case of M/s Arora Allys vs. DCIT in ITA No. 1481/CHD/2017. xi) The Ld. CIT(A) in his order has relied upon various judgments pronounced by jurisdictional High Court and tribunal to various other judgments pronounced by the Supreme Court/ High Court/ Tribunal (Refer para 5.1 onwards of his order). Now, the assessee's submission (Para 10 of brief submissions dated 03.07.2023) against the CIT(A)'s observations/ reliance of judgments in his order from para 5.1 onwards are as under:- In addition to this, it is hereby submitted that in the order passed by the Worthy CIT(A) dated 20.01.2023, the worthy CIT(A) has placed his reliance on the judgments in the case of Fakir Mohamad Haji Hasan v CIT 247 ITR 290 (Guj.), Kim Pharma Pvt. Ltd.v CIT 216 Taxman 153 (P & H), Famina Knit Fab v ACIT 176 ITD 246 (Chandigarh Trib.), Pr. CIT v. Khushi Ram & Sons Foods (P) Ltd. In this regard, it is submitted that the said judgments are duly discussed in the judgment of the Hon'ble Chandigarh Bench of ITAT in the case of M/s Khurana Rolling Mills Pvt. Ltd. as reported in as well as in the case of judgment of the Hon'ble Chandigarh Bench of ITAT in the case of M/s Bindas Foods Pvt. Ltd. in ITA No. 409/CHD/2021. It is humbly submitted that judgment of the jurisdictional Pb. & Hry. High Court in the case of PCIT vs Khurshi Ram & Sons Pvt. Ltd. in ITA No. 126 of 2015 dated 21.07.2016 is binding judgments on all the Tribunals under its jurisdictions atleast. With all humility at command, it is respectfully submitted that the binding effect of the judgment can-not end by considering/ distinguishing the said judgment in one or more case. Unless the said judgment is reversed by larger bench of the same court or by the superior court, the binding effect of the said judgment can not come to end by relying upon the judgment of any court/ tribunal lower to the status of Hon'ble High Court. The assessee has failed to distinguish the binding decision of the Hon'ble Pb. & Hry. High Court in the case of PCIT vs Khurshi Ram & Sons Pvt. Ltd. in ITA No. 126 of 2015 dated 21.07.2016. In the said judgment, the Hon'ble High Court has given following findings:- 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. Further,the Hon'ble ITAT SMC Chandigarh bench in its judgment dated 30.04.2010 passed in ITA No. 189/CHD/2010 in the case of Kim Pharma (P) Ltd. vs. ITO, W-4 Ambala for A. Yr. 2006-07 held in para 9 as under:- 9. In the facts of the present case before us, we find that unaccounted cash was found during the course of survey operation in the possession of the assessee company and the same was surrendered as additional income for the year under appeal. The assessee has failed to explain the nature and source of the said cash found which was not recorded in the books of account, though while surrendering the additional income it was admitted by the Manager of the assessee company, in the statement recorded during the course of survey that the said additional income is its income from other sources. The Hon'ble Gujrat High Court in Fakir Mohmed Haj Hussain Vs CIT had held as under : "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 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." In the absence of the explanation / evidence regarding the sources of the additional income being satisfactorily explained by the assessee and applying the ratio of the Hon'ble Gujrat High Court in Fakir Mohmed Haji Hasan Vs. CIT (supra), we hold that the additional income offered is deemed income assessable u/s 69A of the Act and no deduction is allowable against such deemed income assessed u/s 69A of the Act in the hands of the assessee. Following the ratio laid down by the Gujrat High Court in Fakir Mohmed Haji Hasan Vs. CIT (supra), once the assessee has failed to explain the nature and source of cash found available with it and the same is assessed as deemed income u/s 69A of the Act, therefore, the corresponding deductions under the head Profits and gains are not available to the assessee. The business loss determined for the year is not allowed to be set off against such deemed income included in the books of account. The alternative plea of the assessee of assessing the income under the head income from other sources and allowing set off of losses u/s 71 of the Act also fail in view of the above. Further, the Hon'ble High Court of Punjab and Haryana in the case of M/s Kim Pharma (P) Ltd. v. CIT Panchkula, of 2011 (O&M) dated 27.04.2011 has given following findings:- 5. The point for determination in this appeal is, whether Rs.5,00,000/- which was surrendered by the assessee during the course of survey under Section 133A of the Act would form part of business income or was assessable under Section 69A of the Act. The Assessing Officer, the CIT(A) and the Tribunal after considering the factual aspect noticed that 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 under Section 69A of the Act. The findings recorded by the Tribunal in this regard are as under:-

"In the facts of the present case, we find that assessee during the course of survey had surrendered the income as income from other sources though a plea has been raised by the assessee that the income was surrendered as income from job work but no evidence to prove the stand of the assessee has been brought on record. The assessee had also surrendered additional 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 assessee was included as income from business. However, in respect of cash found during survey, which was not reflected in the books of account, 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. In the circumstances, we uphold the order of the CIT(A) in including the additional income as deemed income u/s 69A of the Act and not allowing the benefit of the business losses determined against the said deemed income. The grounds of appeal raised by the assessee are dismissed."

6. 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. When the income cannot be so classified under any one of the heads of income under section 14, it follows that the question of giving any deductions under the provisions which correspond to such heads of income will not arise. If it is possible to peg the income under any one of those heads by virtue of a satisfactory explanation being given, then these provisions of sections 69,69A, 69B and 69C will not apply, in which event, the provisions regarding deductions etc. applicable to the relevant head of income under which such income falls will automatically be attracted. The opening words of section 14 "save as otherwise provided by this Act" clearly leave scope for "deemed income" of the nature covered under the scheme of sections 69, 69A, 69B and 69C being treated separately, because such deemed income is not income from salary, house property, profits and gains of business or profession, or capital gams, nor as it income from "other sources" because the provisions of sections 69, 69A, 69B and 69C treat unexplained investments, unexplained money, bullion etc. and unexplained expenditure as deemed income where the nature and sources of investment, acquisition or expenditure, as the case may be, have not been explained or satisfactorily explained. Therefore, in these cases, the source not being known, such deemed income will not fall even under the head "income from other sources". Therefore, the corresponding deductions which are applicable to the incomes under any of these various heads, will not be attracted in the case of deemed incomes which are covered under the provisions of sections 69,69A, 69B and 69C of the Act in view of the scheme of those provisions."

7. The said decision fully applies to the facts of the present case. As the assessee has failed to distinguish the above binding judgments of the Jurisdictional High Court, the assessee's appeal deserves to be rejected.

xii) The Ld. DR has further averred as under in his said written submission which are follows:

(i) At the cost of repetition, it is being submitted that merely because the income has been reflected in the ITR as income under the head 'Income from Business, will not lead to conclusion that the appellant has explained nature and source of construction of building. Even, if the assessee offers the investment in building (work-in-progress) as income in the return of income, it does not take away such income out of category of deemed income u/s 69/69A of the Act. For this purpose reliance is placed upon the decision of Hon'ble Punjab & Haryana High court in the case of Dulari Digital Photo Services vs Commissioner of Income Tax [2013] 219 Taxman 126 (Punjab and Haryana) wherein it has been held that the expression "income from Business" would come into play only where income is relatable to a known source. Where the income is not relatable to any known or any bonafide source, it would necessarily be brought to tax/considered as income of the assessee, u/s 68 of the Act and it cannot then be pegged to a known source/head of income as defined u/s 14 of the Act. Therefore, in the cases, the source not being known, such deemed income will not fall ever under the head "income from other sources". The same principal has been laid by Hon'ble Madras High court in the case of SVS Oil Mills vs ACIT, of 2018, where it has been held that mere the fact that such undisclosed assets have been subsequently recorded in the books of accounts, would not take away such income representing undisclosed assets out of sweep of section 69/69A/69B etc. ii) In the present case, the source of income on account of unexplained investment in building to the extent of Rs.45,00,000/- 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.45,00,000/- on account of unexplained investment in building, 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.45,00,000/-. Therefore, in the given facts of the case, such income cannot be put under the head income from other sources. iii) 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.45,00,000/- as deemed income the assessee u/s 69 of the Ac and not as income from business. Once the income as been assessed u/s 69 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. iv) In this regard, reliance is placed on the following judgments: (i) M/s Kim Pharma (P) Ltd Vs. CIT, 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. vi) The judgment of Hon'ble Pb. & Hry. High Court in the case of CIT vs. Meera & Co. [1986] 24 Taxman 658 is hereby relied upon on this issue of onus to prove. In this case, it was held as under:- Adverting to the second question, whenever certain credits are shown in the books of an assessee in the accounting year, unless the assessee offers explanation, which is found to be satisfactory, the sum so credited may be charged to income-tax as the income of the assessee for that year. In this case a sum of Rs. 90,000 was shown to have been credited in the books of account of the assessee in the name of three minors. Therefore, by virtue of section 68, it was for the assessee to offer the explanation as to the source thereof. The only explanation, which the assessee furnished, was that under the Voluntary Disclosure Scheme these amounts had been accepted in the name of the minors. That is no explanation because in terms of the decision of the Supreme Court and this Court referred to above, it was for the assessee to prove the source of income of the minors from which it could be gathered that they could earn Rs. 30,000 each or any other source from which they got it. In this behalf no evidence, whatsoever, was led and mere reliance was placed on the disclosure statement made on behalf of the minors. Hence, it has to be held that the assessee failed to discharge the onus which lay on it under section 68 to explain the source of deposit of Rs. 90,000. In this behalf, we disagree with the decision of the Tribunal and answer the second question as well in favour of the revenue and against the assessee, that is in the negative. vii) Further, the judgment of the Hon'ble Chhattisgarh High Court in the case of Dhanush General Stores vs. CIT(2012) 20 taxmann.com 853 is relied upon. The Head notes reads as under:- Section 69, read with section 69B of the Income-tax Act, 1961 - Unexplained investments - Assessment year 1998-99 - Value of excess stock ought to be treated as deemed income under section 69 [In favour of revenue.

Keeping in view the above facts, the A.O. has rightly assessee^the C excess investment in building of Rs.45,00,000/- u/s 69B of the Act r.w.s. 115BBE and same was rightly confirmed by Ld. CIT(A). Ground of appeal raised by the assessee may kindly be dismissed. At the cost of repetition, it is stated that the factual findings recorded by the Assessing Officer in the Assessment Order have neither been answered or rebutted before the CIT(A) nor before the Hon'ble ITAT. Therefore, in view of the above, it is prayed that the appeal of the appellant may kindly be dismissed.

Records of physical personal hearing

The Income Tax Authorities has not pointed out in both the orders below of CIT(A) and AO that the surrendered income of Rs. 38,00,000/- for building purposes has nexus with any other receipts other than business being carried out by the assessee. On going construction activities IInd phase etc. are ongoing phenomenon in Resort business which has come up all over India due to rapid development particularly of the road infrastructure. Gone are the days of Dharmshalas, Musafirkhana, etc. The Resorts which have come up meets several necessities of general public like holding of seminars, conferences, social functions like marriage ceremony, birthdays, the list is endless. Resorts far away reduces rush, congestion and suffocation, which are common phenomenon in India’s social order. Ample parking are too available unlike cities. In brief in Resort there are more plus than minus points. Be that as it may development of Resorts per se does not given liberty to assessee to play with law particularly so tax laws in a welfare nation like India. The authorities at the time of survey noticed ongoing Building Construction activities in the Resort; in addition to operation and functioning of the Resort itself. In response to Q 6 in his statement dt. 15/09/2018 whether in addition to the pre constructed building as on 2013, was any update made in the building of this Resort ? The assessee has replied “Yes” a new hall was build from October 2016 and also 12 new rooms and were build in addition to the existed building. The building is still under construction period. From the statement dt. 15/09/2018 it is revealed that originally Resort had opened in 2013-14 with nine rooms, one big hall, two kitty halls, restaurant and bar. Total area of resort was 3500 sq. yards and the lands were purchased in different year 1984, 1999,2003 and 2013. Around Rs. 1.00 Crore was invested upto 31/03/2018 . Thus the assessee’s ownership of Resort is not doubted. Further the building expansion II phase is under construction is too not doubted. There is a regular business from existing Resort [ 1st Phase] too is not doubted. What is doubted is unexplained investment in expansion of building( IInd phase). Be it noted that construction industry is highly fragmented industry in India where there are several stakeholders in civil works, division, sub division of works, vendors, sub vendors, worker’s gang for different segments right from pilling to finish are far too many,. This is to talk of just pure construction of civil work. In finishing sector of construction industry there are several stakeholders, like, painter, carpenter, plumber, electricians, etc. In brief to construct in India is indeed a difficult exercise. Procurement of raw materials from several sources is a big headache too. In brief the entire industry is highly fragmented. The generation of business income from Resort is not questioned by tax authorities and as a natural corollary a resort owner in order to keep himself up in the competitive market expands and invest from ongoing income in bits and pieces slowly; what we call updation / expansion / new facilities etc. Furniture, fixtures, kitchen equipment, air conditioning, bathroom, etc apart. Therefore in the absence of any material to the contrary brought on record in form of other receipts of income or utilization of funds sourced from other person /entities etc at any stage of the proceedings by the Department after the surrendered amount of Rs. 38,00,000/- by assessee post 14-09-2018/17-09-2018 towards building under construction IInd phase. We hold that the amount of Rs. 38,00,000/- surrendered partakes the character business income and not unexplained investment. Thus in law it cannot be said that surrendered income of Rs. 38,00,000/- is nothing but unexplained investment as it satisfies the requirement of business income deployed for expansion in an building which was being constructed in second phase of it’s operations and running a resort.

22.1 We also notice and hold that reply dt. 26/09/2021 to the show cause notice dt. 19/09/2021 wherein an explanation has been given by the assessee that “ we had offered the amount during the course of survey as to buy peace of mind, as there was no cash or any articles found during the course of survey still we offered the income to be surrendered under Hotel building as first part of the building was completed before 2013 and IInd phase was still under construction and got completed thereafter.”

“ The said amount which was surrendered is already part of our books of account as cannot be treated as unexplained investments and so account surrendered should not be considered under section 69B of the Income Tax Act as surrendered amount is self offered and not detected by Income Tax Department.” has been not considered by both authorities below i.e; AO and CIT(A) in their respective orders in correct perspective. The nature of activities of running a Resort by virtue of which business income is derived is given a convenient go by. The emphasis that there are no supporting in support of such claim, in Form of bills and vouchers. The activities of the assessee to earn his livelihood on day to day basis, in the absence of bills and vouchers cannot be ignored particularly so when there is absence of recovery of cash during survey and no other material evidence of other receipts of income from other sources are found. Be that as it may the asset found was building in existence with large track of land as a resort. The civil work was ongoing as and by way of expansion of facilities of Resort. We therefore hold such activities are not unexplained investment within the meaning of Section 69B of the Act, as building perse with facilities and large open track of land itself is source of income as business income. It is not the case of the Department that Resort with Building / Building expansion were not in operation and or that the operations were to commence. There was thus a existing business resort running fully. It is also not the case of the Department that building / building expansion was illegal and clandestine construction work was being carried out without prior approval of the local administration. Expansion of building by the assessee in Resort thus has remained undisputed. We also notice and observed that despite show cause notice dt.19/09/2021 as aforesaid the assesse was also called upon to show cause as to why the books of assesse should not be rejected under section 145(3) of the Act, but that has not happened even in the AO’s order dt. 27/09/2021.The reply dt. 26/09/2021 to the show cause notice dt. 19/09/2021 is just not considered. If the Ld. AO felt that the assesse has failed to discharge the burden of proof with regard to the bills / vouchers etc. with regard to the construction of building (IInd phase) as discussed aforesaid nothing prevented him to reject the books of account as assesse was already under a notice as to why books should not be rejected. So is the situation before the Ld. CIT(A). Hence, against the claim of the assesse in books that the surrendered amount is expended in construction of building (IInd phase) while filing the return is discharged and later upon burden is on the Department to prove other sources of income of the assesse expended towards the building which unfortunately the Department has failed to do so in both the orders below.

22.2 We hold that building expansion IInd phase is identified or identifiable asset / investment alongwith the Resort which was admittedly running and operational both during the course of survey, during inquiry / investigation, after survey and during the course of assessment proceedings before AO and CIT(A) (first appeal) but such alleged undisclosed asset / investment 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. Building under construction IInd phase in existing resort of assessee at the time of survey is integral and inseparable (mixed) part of declared asset, being a resort which was in existence over several years prior to survey falling under a particular head, then the difference should be treated as undeclared business income explaining the factual aspect of trade vis a vis the investment. During the course of the hearing the Ld. DR could not point out any nexus of such surrender income of Rs. 38 lakhs with any other receipts. Piece meal expansion of Resort is common occurance in trade. It is a constant process of upgradation of facilities so as to offer more and more to the customer’s of the Resort so that they frequently come and / or recommend others. This is popular trade practice in the business of Resort particularly so an existing resort.

22.3 We therefore find that the expansion of the building premises IInd Phase has close nexus with running of a resort. Thus in law it cannot be said that such an expansion of building (IInd phase) is an unexplained investment and thus does not satisfy the conditions for invoking the deeming provisions of 69B of the Act. Further expansion of the building premises with in the overall premises of the resort is not held to be a distinct identifiable asset having a separate identity of its own.

22.4 It is required to be appreciated that in DDK Spinning Mills judgment (supra) reliance is placed on two judgments of Hon’ble Calcutta High Court in case of Daulatram Rawatmull Vs. CIT reported in (1967) 64 ITR 593(Cal) and in case of Mansfiled and Sons Vs. CIT reported in (1963) 48 ITR 254(Cal) wherein following ratio is cuddled out: “ In the instant case the assesse is a firm formed for the purpose of carrying on business. There is nothing on record to show that the firm had any source of income other than business. Therefore, in our opinion, it is not unreasonable to hold that any amount representing secret income arose out of the business of the firm.”

22.5 Further the judgment of the ITAT Chandigarh Bench in case of DDK Spinning Mills (supra) has very exhaustively made analysis of several judicial pronouncements which were cited both by the assesse and the Department and have finally concluded that source of investments has been stated to be out of business income and the surrender has been duly honored by the assesse while filing the return of income wherein the amount has been offered to tax under the head “Business income” and deeming provisions therefore cannot be invoked in the instant case. 22.6 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. 38,00,000/- as the business income expended towards construction of building (IInd phase). 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.

22.7 Simultaneously we have perused another judgment of jurisdictional High Court in case of Kim Pharma P. Ltd. Vs. CIT reported in (2013) 35 taxmann.com 456 (P&H) wherein in para 4 to 9 following is recorded:

4. 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).

5. The point for determination in this appeal is, whether Rs.5,00,000/- which was surrendered by the assessee during the course of survey under Section 133A of the Act would form part of business income or was assessable under Section 69A of the Act. The Assessing Officer, the CIT(A) and the Tribunal after considering the factual aspect noticed that 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 under Section 69A of the Act. The findings recorded by the Tribunal in this regard are as under:- "In the facts of the present case, we find that assessee during the course of survey had surrendered the income as income from other sources though a plea has been raised by the assessee that the income was surrendered as income from job work but no evidence to prove the stand of the assessee has been brought on record. The assessee had also surrendered additional 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 assessee was included as income from business. However, in respect of cash found during survey, which was not reflected in the books of account, 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. In the circumstances, we uphold the order of the CIT(A) in including the additional income as deemed income u/s 69A of the Act and not allowing the benefit of the business losses determined against the said deemed income. The grounds of appeal raised by the assessee are dismissed."

When the income cannot be so classified under any one of the heads of income under section 14, it follows that the question of giving any deductions under the provisions which correspond to such heads of income will not arise. If it is possible to peg the income under any one of those heads by virtue of a satisfactory explanation being given, then these provisions of sections 69,69A, 69B and 69C will not apply, in which event, the provisions regarding deductions etc. applicable to the relevant head of income under which such income falls will automatically be attracted. The opening words of section 14 "save as otherwise provided by this Act" clearly leave scope for "deemed income" of the nature covered under the scheme of sections 69, 69A, 69B and 69C being treated separately, because such deemed income is not income from salary, house property, profits and gains of business or profession, or capital gains, nor as it income from "other sources" because the provisions of sections 69,69A, 69B and 69C treat unexplained investments, unexplained money, bullion etc. and unexplained expenditure as deemed income where the nature and sources of investment, acquisition or expenditure, as the case may be, have not been explained or satisfactorily explained. Therefore, in these cases, the source not being known, such deemed income will not fall even under the head "income from other sources" . Therefore, the corresponding deductions which are applicable to the incomes under any of these various heads, will not be attracted in the case of deemed incomes which are covered under the provisions of sections 69,69A, 69B and 69C of the Act in view of the scheme of those provisions."

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

8. 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.

22.9 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 was issued by the Department to the Assessee, the assesee’s counsel in reply dt. 26/09/2021 has stated as under:

We are in response to Show Cause notice No ITBA/AST/F/143(3)(SCN)/2021- 22/1035714669(1) dt 19/09/2021 in the case of the above said, in response to the same please consider my submissions as under :- Sir we had offered the amount during the course of survey as to buy peace of mind, as there was no cash or any articles found during the course of survey still we offered the income to be surrender under Hotel Building as the first part of the building was completed before 2013 and IInd phase was still under construction and got completed thereafter. The amount so offered for surrender should have to be consider under normal taxation rates and not under 115BBE, as the amount pertains prior to the incorporation of the said Act and the same shall not be treated under 115BBE. The said amount which was surrendered is already part of our books of accounts- as-cannot be treated as unexplained investments and so account surrendered should not be considered u/s 69B of the Income Tax Act, as surrendered amount is self-offered and not detected by the ITD. 22.10 We hold that in the entirety and totality of the facts and circumstances of the case is required to be considered while adjudging and adjudicating the case in hand. Mere finding of building under construction IInd phase in the resort premises itself cannot lead to an inference that these are unexplained investments by the assesse. The assesse in his statement dt. 15/09/2018 has very clearly stated that he is the sole proprietor of M/s Ratna Resort, Dhuri. It is further stated that the said resort was opened in the F.Y. 2013-14 with 09 Rooms, 01 Big Hall, 02 Kitty Halls, and Restaurant & Bar. It is further averred that total area of the resort is 3500 sq. yards and that the same were purchased in the year 1984, 1999, 2003 and 2013. He has also averred that around Rs. 1.00 Crore was invested by him and rest under construction amount expended will be explained. He has categorically stated that in addition to the pre constructed building the updates in the building of the resorts have been done and that 12 new Rooms were built in addition to the existing building, the building is still under construction. The statement clearly shows alongwith the surrender letter together with the return of income and books of account filed that assesse is a businessman and that he is the owner of Ratna Resort, Dhuri. The said resort has two phases of construction out of which the first phase was over and the IInd phase was being constructed when the survey team visited the resort on 14/09/2018. On 15/09/2018 his statement was recorded and that on 17/09/2018 he surrendered the amount of Rs. 45,00,000/- as income from business and further stated that this income shall be in addition to his books results. These crucial aspects are completely ignored by the authorities below and that entirety and totality of the facts and circumstances of the case have not been taken into consideration. 22.11 In the instant case as well, there is no physical distinction between the under constructed building and the functional and operational Resort called Ratna Resort, Dhuri. No such physical distinction between the first phase and IInd phase of Ratna Resort, Dhuri has been identified by the Income Tax Authorities. 22.12 We therefore find that building under construction and the resort in existence are part and parcel of the entire resort complex / premises popularly called Ratna Resort, Dhuri. The building under construction IInd phase expansion has no independent identity physically and also in terms of value. Therefore, it cannot be said that there is an undisclosed asset which exist independently having a distinct name and identity and thus what is declared to the Department is the amount of money expended on building under construction IInd phase and same is required to be accounted as business income expended. Order 23. In the foregoing and in the light of premises as set out hereinabove in the entirety the income so surrender on account of building construction IInd phase during the course of survey and inquiry on 14-09-2018 / 15-09-2018 / 17-09-2018 aggregating to Rs. 38,00,000/- 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 assesse. The impugned order dt. 20/01/2023 of Ld. CIT(A) is set aside.

Order pronounced in the open Court on 22/05/2024.