MRS. KIRAN BALA,LUDHIANA vs. DCIT, CC-III, LUDHIANA

आदेश/ORDER

PER A.D.JAIN, VICE PRESIDENT

1. That the Ld. Commissioner of Income Tax (Appeals) has erred, in law as well as on facts in upholding the invocation of provisions of section 69A of the Act on the surrendered amount of Rs.24,25,000/- treating the same to be income from other sources as against declared business income which is arbitrary and unjustified.

2. That the provisions of Section 69A are not attracted in as much as the entire business receipts including excess cash of Rs. 8,25,000/-, alleged unexplained debtors of Rs. 7,00,000/-and Rs. 9,00,000/- on ITA 254/CHD/2023 A.Y. 2019-20 2 account of excess stock already stands declared in books as business income and as such treating Rs.24,25,000/- to be unexplained and as income from other sources is illegal, arbitrary and unjustified. 3. That the order of the Ld. Commissioner of Income Tax (Appeals) has further erred in upholding that charging of tax at 60% applying the provisions section 115BBE which are not attracted in the instant case.

During the course of survey, the assessee had surrendered Rs.24,25,000/- by surrender letter dated 11.10.2018 including Rs. 9,00,000/- on account of excess stock found, Rs. 8,25,000/- on account of excess cash found and Rs.7,00,000/- on account of unexplained debtors, based on impounded slips. Thereafter, the assessee was asked to show cause as to why the surrendered amount of Rs.24,25,00,000/- should not be taxed as per the provisions of Section 115BBE of the Income Tax Act. The assessee filed reply but the same was not found tenable by the AO. Thus as

per the AO, the sources of such investment in excess stock, receivables and excess cash remained unexplained and the unaccounted investment and money cannot be treated as income from regular business income. Moreover, as per the

ITA 254/CHD/2023 A.Y. 2019-20 3 AO, the offering of such income without any supporting evidence as to the nature and sources of the income which were not recorded in the books of account of the assessee, itself tantamounts to having accepted that the sources are unexplained and thus the excess stock and receivables from debtor; recorded on the impounded documents were considered as unexplained investment of the assessee u/s 69B and the excess cash found during the course of survey as unexplained money u/s 69A of the Income Tax Act, 1961.

Hence, the AO held that in view of this, the amount surrendered by the assessee of Rs. 25,00,000/- on account of discrepancy in excess stock found, excess cash and receivables found in impounded documents during the course of survey cannot be considered to be business income of the assessee but as unexplained investment, not fully disclosed in the books of account of the assessee u/s 69/69B and the excess cash is to be considered as unexplained money u/s 69A of the Income Tax Act and charged to tax as per the provisions of Section 115BBE of the Income Tax Act.

“……………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 opportunity to the assessee to establish a linkage between the surrendered income under the head of 'excess cash, excess stock and receivables' 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 ITA 254/CHD/2023 A.Y. 2019-20 5 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 source1 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 cash, excess stock and receivables found during survey proceedings, there can be no presumption to treat the value representing such excess cash, excess stock and receivables 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 cash, excess stock and receivables. 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 cash, excess stock and receivables 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. 24.25 lacs which has been surrendered as excess cash, excess stock and receivables. If the AR is sure about the business nature of the receipts necessary documentary evidence should have been adduced.”

5. The ld. CIT(A) further held that:

“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 69A & 69B, are to be treated separately and it would

ITA 254/CHD/2023 A.Y. 2019-20 6 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”

(1) Fakir Mohammed Haji Hasan Vs. CIT ([2001] 2A7 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. ACU, Chennai, the Hon'ble High Court of Madras in ITA No. 765 of 201S 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

ITA 254/CHD/2023 A.Y. 2019-20 7 held that the AO has rightly treated the surrender of Rs. 40 lacs on account of excess cash, excess stock and receivables found during the survey as deemed income u/ss 69A & 69B and to be taxed as per provisions of Section 115BBE of the Income Tax Act, 1961 and hence the same was being confirmed.

ITA 254/CHD/2023 A.Y. 2019-20 8 on the higher side and, in some places, the value of the cloth has been overstated, as the average weight of roll of the Chinese cloth has been taken as 60kgs, instead of 20 kgs.

But all the stock is of hosiery goods and the same is kept at the premises of the assessee where the income tax department conducted the survey and they did not find any other stock in which the assessee was not dealing regularly.

8.1 As regards the difference of Rs.10.00 Lakhs in sundry debtors, the ld. Counsel submitted that the amount has been surrendered on the basis of slips. Copies of all the slips are already on record. From the slips, it can be observed that hosiery goods has been sold to different parties in which the assessee is regularly engaged. On each slip, the number of pieces sold has been mentioned. The income tax department has not found any slip in which any other material has been sold in which the assessee was not dealing regularly. The assessee has arranged copies of Aadhaar Card of some of the persons to whom the hosiery goods has been sold, copies of which were furnished. These persons are not regular business men and mainly doing work on piece rate system in the factories but purchase goods from the assessee for selling the same to their friends & relatives and thus earn

ITA 254/CHD/2023 A.Y. 2019-20 9 some profit out of it. As regards the difference of cash, has been submitted that the same was found in the premises of the assessee where the business was going on. The difference is from the business activities. Anything arising out of business activities is a business income and the same has been duly explained.

8.2 It has also been submitted that after the survey, the entries in the books of account has been passed and proof of the same has been submitted to the assessing officer in the form of ledger account. Cash has been increased in the books of account, slips have been entered in the books of account as due from debtors and entry relating to the stock has also been passed in the books of account. So, once all the entries have been passed in the books of account the same will be out of the preview of the Sections 69, 69A, & 69 B. While assessing the income of the assessee, the Assessing Officer has wrongly applied the sections, as when he was assessing the income, entries in the books of account existed and the assessee has given the proof of the same during assessment proceedings. The case law quoted by the Assessing Officer while assessing the income does not relate to the present case. As regards asking for the source of ITA 254/CHD/2023 A.Y. 2019-20 10 investment by the Assessing Officer, it has been submitted that the source of investment was purely from the business in which the assessee is engaged.

9. It has been submitted that during survey, the excess stock found was not due to quantity differences, it was due to the valuation differences. As per the assessee, the stock valuation is less, but as per the department, the value of stock is more. So just to buy peace of mind and to avoid litigation, the assessee has surrendered Rs.09.00 lacs on account of excess stock as additional business income over and above business income. It is also submitted that no question has been asked, either during survey by the survey team, or during assessment by the Assessing Officer w.r.t the sales and purchases of stock or source of the stock.

Moreover, the case law quoted by the assessee has not been considered by the Assessing officer.

9.1 It has been submitted that the Assessing officer relied the following case law:-

The Madras HC in M/S SVS Oils Mills Vs The Assistant Commissioner of Income Tax in of 2018. 9.2 It has been stated that in the said case, during the survey, there was a difference found between the quantity as ITA 254/CHD/2023 A.Y. 2019-20 11 per the record and the physical stock and that the assessee has entered certain quantity of stock in stock register without entering it in the financial records. The facts of the above case law is totally different from the facts of the case of the assessee and so, the same should not be considered.

9.3 With regard to the debtors of Rs.07 lakhs, the AO observed that further, the assessee has submitted that Rs. 07,00,000/- were the amounts due to debtors against the sale of goods based in the slips found during the course of survey which, according to the assessee, are claimed to be business receipts. But this claim is not acceptable, as the debtor represent receivables which were not recorded in the books of account. Cogent evidences regarding such receivables were found during the course of Survey. The assessee has submitted a ledger account of M/S Miscellaneous debtors for F.Y. 2018-19 showing cash receipt of mostly Rs.10,000/- each from 11.10.2018 to 26.12.2018, from Grewal, Neelam, Surinder, Manish, Bhuvan, Santoshi, Hunni and Rohit. But no proof of the sale made to them or the identity of such claimed debtor has been provided. Even during the course of survey, the assessee was having the full opportunity to show the sources of the claimed sales made to ITA 254/CHD/2023 A.Y. 2019-20 12 such person, but the assessee has not given any explanation showing that such income was its business income. Further, the assessee has not provided the bills and vouchers which were not recorded in the regular books of account. Therefore in view of the facts of the case and the material available on record, it was found that the sources of the claimed debtors were unsubstantiated and remained unexplained and thus, the provisions of section 69B of the Income Tax Act, 1961 were applicable.

9.3.1 The ld. Counsel for the assessee contended that the reply given by the assessee has not been understood by the Ld. Assessing officer. During the survey, no serial number of the slips has been found on the slips. When the slips were shown to the assessee then it was clear between the survey team and the assessee that these slips are those slips which were the evidence of sale of hosiery goods, the same items which the assessee is dealing in its regular course of business and not accounted for in the regular books of accounts and hence, the assessee has surrendered the same as additional business income. The survey team visited the business premises and found some slips of sale of hosiery goods and mounted pressure for surrender, which ITA 254/CHD/2023 A.Y. 2019-20 13 has been accepted. The same amounts to undisclosed business income. The Assessing Officer failed to understand this basic thing and assessed the debtors under Section 69B.

9.4 With regard to the excess cash of Rs.8.25 Lacs found during the course of survey on 10.10.2018, the AO observed that the assessee submitted that the same were business receipts as in that premises, no other activity was carried out, but this claim was not acceptable, as it was the onus of the assessee to explain the sources of excess cash found during the course of survey. The assessee made surrender on account of investment in excess stock and claimed debtors which were receivable. This showed that the assessee was getting extra investment into the business which may be from personal sources of the assessee and the assessee did not want to disclose. The claim that the survey team did not find any other activity at the premises was not acceptable as during the course of survey, the assessee was having full opportunity to show the sources of the excess cash found but the assessee had not given any explanation showing that such income was its business income. Therefore, in view of the facts of the case and the material available on record, it

ITA 254/CHD/2023 A.Y. 2019-20 14 was found that the sources of excess cash found were unsubstantiated and remained unexplained and thus, it represented the unexplained money of the assessee, on which, the provisions of section 69A of the income tax act, 1961 were applicable.

9.4.1 The ld. Counsel for the assessee has contended that the reply given by the assessee was not taken on record on its true spirit. During the survey, difference in the cash had been observed and the same had been surrendered as additional business income. During the survey, no question had been asked as to from where the cash has been generated. At that time, as the survey was conducted on a business premises, everybody present there was aware of the fact that if any type of difference is there, whether it related to stock, or debtor, or cash, all related to the business and if any difference will be observed then the same is from the activity of the business only. So, nobody from the survey team asked any question regarding this.

10. The ld. Counsel for the assessee also submitted that in response to the ld. CIT(A)’s notice u/s 250, the assessee was submitting before the ld. CIT(A), copies of the slips of sundry creditors, against which, income had been ITA 254/CHD/2023 A.Y. 2019-20 15 surrendered during survey, the statement recorded during the survey and the Power of Attorney. It was submitted that regarding providing of any documents for the identification of the sundry debtors to whom the material had been sold, they were very small traders and neither the assessee was dealing regularly with them, nor were they regularly engaged in the trading of the hosiery goods; that the assessee was trying to contact all of them and was getting the copy of Aadhar Card as proof of identification to be provided to the ld. CIT(A) and the assessee was assuring to provide the same on the next date of hearing; and that it was prayed that the appeal be kindly allowed. An adjournment was sought so as to enable the assessee to give a more elaborate reply and case law in favour of the assessee, as well as the balance information asked for. It was so submitted by the assessee vide letter dated 23.12.2022, a copy whereof is at APB 39.

11. The ld. Counsel for the assessee has contended that the Ld. Commissioner of Income Tax (Appeals) has erred in law as well as on facts in upholding the invocation of the provisions of section 69A of the Act on the surrendered amount of Rs.25,00,000/-, treating the same to be income from other sources, as against declared business income,

ITA 254/CHD/2023 A.Y. 2019-20 16 which is arbitrary and unjustified; that the provisions of Section 69A are not attracted in as much as the entire business receipts including excess cash of Rs.8.25,00,000/-, alleged unexplained debtors of Rs. 07,00,000/-and Rs.09,00,000/- on account of excess stock already stands declared in books as business income and as such, treating Rs.25,00,000/- to be unexplained and as income from other sources is illegal, arbitrary and unjustified and that the ld. Commissioner of Income Tax (Appeals) has further erred in upholding that charging of tax at 60% applying the provisions section 115BBE which are not attracted in the instant case.

12. On the other hand, the ld. DR has placed strong reliance on the impugned order. It has been contended that as rightly observed by the ld. CIT(A), Hon'ble High Courts/ Tribunal Benches have very clearly held 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 opportunity to the assessee to establish a linkage between the surrendered income under the head of ITA 254/CHD/2023 A.Y. 2019-20 17 'excess cash, excess stock and receivables' and the business income. Hence, 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/ss 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/ss 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 the 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

ITA 254/CHD/2023 A.Y. 2019-20 18 these three 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 the 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 cash, excess stock and receivables found during survey proceedings, there can be no presumption to treat the value representing such excess cash, excess stock and receivables as application of business income in the 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 cash, excess stock and receivables. It has been 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 assessee is not found correct as nowhere during the assessment proceedings, the assessee has been able to ITA 254/CHD/2023 A.Y. 2019-20 19 establish the nexus between the excess cash, excess stock and receivables and normal business income. Further, the assessee 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. The Assessing Officer has recorded 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. 24,25,000/- which has been surrendered as excess cash, excess stock and receivables. If the assessee is sure about the business nature of the receipts, necessary documentary evidence should have been adduced.

13. Heard. To appreciate the aforesaid rival positions, we refer to the provisions of Section 69A of the Act. Section 69A provides that where in any financial year the Assessee is found to be the owner of any money, bullion, jewellery or other valuable article and such money, bullion, jewellery or valuable article is not recorded in the books of account, if any, maintained by him for any source of income, and the Assessee offers no explanation about the nature and source of acquisition of the money, bullion, jewellery or other

ITA 254/CHD/2023 A.Y. 2019-20 20 valuable article, or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the money and the value of the bullion, jewellery or other valuable article may be deemed to be the income of the Assessee for such financial year. As per Section 69B where in any Financial Year, the assessee has made investments or is found to be the owner of any bullion, jewellery or other valuable article, and the AO finds that the amount expended on making such investments or in acquiring such bullion, jewellery or other valuable article exceeds the amount recorded in this behalf in the books of account maintained by the assessee for any source of income, and the assessee offers no explanation about such excess amount or the explanation offered by him is not, in the hands of the AO, satisfactory, the excess amount may be deemed to be the income of the assessee for such Financial Year.

14. In the instant case, for the deeming provisions of section 69 to be attracted, there has to be a finding that the Assessee has made investments during the financial year in the stock and by way of advances, such investments are not recorded in the books of account so maintained by the Assessee, and the Assessee offers no explanation about the ITA 254/CHD/2023 A.Y. 2019-20 21 nature and source of the investments or the explanation so offered is not found satisfactory in the opinion of the AO.

Similarly, for the deeming provisions of section 69A to be attracted, there has to be a finding that the Assessee was found to be owner of cash so found at the time survey, such cash has not been recorded in the books of account so maintained by the Assessee, and the Assessee offers no explanation about the nature and source of the cash or the explanation so offered is not found satisfactory in the opinion of the AO. Likewise, for the deeming provisions of Section 69B to be attracted. There has to be a finding that the amount expended on making investment in or acquiring any bullion, jewellery or other valuable article exceeds the amount recoded in this behalf in the books of account maintained by the assessee for any source of income and that the assessee has not offered any explanation about such excess amount, or that, in the hands of the AO, the explanation offered by the assessee is not satisfactory.

Similarly, the stock physically found has been valued and then, compared with stock as recorded in the books of account, thus, there is clear nexus of stock with the Assessee’s business. The statement of the partner of the assessee is available on record and related documents so found during the course of survey are stated to be in ITA 254/CHD/2023 A.Y. 2019-20 24 possession of the Revenue authorities. Apparently, the AO has failed to take into consideration the statement of the partner of the assessee recorded during the course of survey holistically, and other documents and findings of the survey team which are very much part of the records. Following the surrender so made during the course of survey, the Assessee has honored the surrender so made and has offered the additional income as business income in its return of income and has paid due taxes thereon.

ITA 254/CHD/2023 A.Y. 2019-20 25 and it is clearly emerging that the source of such income is the business operations of the assessee. The assessee offered the amount of Rs.8.25 lacs, thus amount being the difference between the amount of Rs. 19.12 lacs found at the premises and the amount of Rs.10.87 lacs shown in the books of account as cash in hand. The assessee offered, for surrender, an amount of Rs.07 lacs on account of stock not entered in the books of account, relating to debtors. The assessee further offered an amount of Rs.09 lacs representing the amount entered in the books of account towards stock as against the excess stock found in the books of account towards stock as against the excess stock found in the physical verification during the survey. The statement of the Assessee is available on record and related documents so found during the course of survey are stated to be in possession of the Revenue authorities. Apparently, the AO has failed to take into consideration the statement of the Assessee recorded during the course of survey holistically, and other documents and findings of the survey team which are very much part of the records. Following the surrender so made during the course of survey, the Assessee has honored the surrender so made

ITA 254/CHD/2023 A.Y. 2019-20 26 and offered the additional income as business income in his return of income and paid due taxes thereon.

ITA 254/CHD/2023 A.Y. 2019-20 27 where the explanation so offered is not found satisfactory, he can proceed and invoke the deeming provisions.

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

ITA 254/CHD/2023 A.Y. 2019-20 29 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.

12. Thus the important aspect that emerges from the entire discussion is that for invoking deeming ITA 254/CHD/2023 A.Y. 2019-20 30 provisions under sections 69, 69A, 69B & 69C there should be clearly identifiable asset or expenditure. In the present case we find that entire physical stock of Rs.25,14,306/- was part of the same business. Both kind of stock i.e. what is recorded in the books and what was found over and above the stock recorded in the books, were held and dealt uniformly by the Assessee. There was no physical distinction between the accounted stock or unaccounted stock. No such physical distinction was found by the Revenue either. The Assessee has repeatedly claimed that unaccounted business income is invested in stock and there is no amount separately taxable under section 69. The department has ignored this claim of the Assessee and sought to tax the difference between book-stock and physical-stock as unaccounted investment under section 69 without considering the claim of the Assessee that first the business receipt has to be considered and then investment should be treated as coming out of such unaccounted income. The difference in stock so worked out by the authorities below had no independent identity of its own and it is part and parcel of entire lot of stock. The difference between declared stock in the books and what is physically found would only be a mathematical expression in terms of value and not a separate independent identifiable asset. Therefore, it cannot be said that there is an undisclosed asset existed independently. Once this is so then 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.

13. Thus in a case where source of investment/expenditure is clearly identifiable and alleged undisclosed asset has no independent existence of its own or there is no separate physical identity of such investment/expenditure then first what is to be taxed is the undisclosed business receipt invested in unidentifiable unaccounted asset and only on failure it should be considered to be taxed under section 69 on the premises that such excess investment is not recorded in the books of ITA 254/CHD/2023 A.Y. 2019-20 31 account and its nature and source is not identifiable. Once such excess investment is taxed as undeclared business receipt then taxing it further as deemed income under section 69 would not be necessary. Therefore, the first attempt of the assessing authority should be to find out link of undeclared investment/expenditure with the known head, give opportunity to the Assessee to establish nexus and if it is satisfactorily established then first such investment should be considered as undeclared receipt under that particular head. It is only where no nexus is established with any head then it should be considered as deemed income under section 69, 69A, 69B & 69C as the case may be. It is because when Assessee fails to explain satisfactorily the source of such investment then it should be taxed under section 69, 69A, 69B & 69C as the case may be. It should not be done at the first instance without giving opportunity to the Assessee to establish nexus. Therefore, there is no conflict with the decision of Hon. Gujarat High Court in the case of Fakir Mohmed Haji Hasan (supra) where investment in an asset or expenditure is not identifiable and no nexus was established then with any head of income and thus was not available for set off against any loss under any other head. Therefore, we hold that where asset in which undeclared investment is sought to be taxed is not clearly identifiable or does not have independent identity but is integral and inseparable (mixed) part of declared asset, falling under a particular head, then the difference should be treated as undeclared business income explaining the investment.

14. To conclude sum of Rs.8,10,011/- being difference in stock is represented by undeclared business income. It does not have a separate physical identity. It is to be only taxed under the head ‘business’. Other assets have separate physical identity being furniture and fixtures, air conditioners etc. They cannot have a direct nexus with business and therefore investment therein has to be considered under section 69 only.”

ITA 254/CHD/2023 A.Y. 2019-20 32 15. 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.

22. Following the said decision of the Coordinate Ahmedabad Bench, the Jaipur Bench of the Tribunal in case of DCIT Vs. Shri Ram Narayan Birla(Supra) has taken a similar view holding that the excess stock so found during the course of survey was part of the stock and the Revenue has not pointed out the excess stock has any nexus with any other receipts other than the business being carried on by ITA 254/CHD/2023 A.Y. 2019-20 33 the Assessee. The relevant findings are contained at para 4.3 which read as under:

“4.3. We have heard rival contentions and perused the material available on record. Undisputed facts emerged from the record that at the time of survey excess stock was found. It is also not disputed that the Assessee is engaged in the business of jewellery. During the course of survey excess stock valuing Rs. 77,66,887/- was found in respect of gold and silver jewellery. The Coordinate Bench in the case of ChokshiHiralalMaganlal vs. DCIT, 131 TTJ (Ahd.) 1 has held that in a cases where source of investment/expenditure is clearly identifiable and alleged undisclosed asset has no independent existence of its own or there is no separate physical identity of such investment/expenditure then first what is to be taxed is the undisclosed business receipt invested in unidentifiable unaccounted asset and only on failure it should be considered to be taxed under section 69 on the premises that such excess investment is not recorded in the books of account and its nature and source is not identifiable. Once such excess investment is taxed as undeclared business receipt then taxing it further as deemed income under section 69 would not be necessary. Therefore, the first attempt of the assessing authority should be to find out link of undeclared investment/expenditure with the known head, give opportunity to the Assessee to establish nexus and if it is satisfactorily established then first such investment should be considered as undeclared receipt under that particular head. It is observed that there is no conflict with the decision of Hon’ble Gujarat High Court in the case of Fakir Mohd. HajiHasan (supra) where investment in an asset or expenditure is not identifiable and no nexus was established then with any head of income and thus was not available for set off against any loss under any other head. Therefore, the Hon’ble Coordinate Bench held that where asset in which undeclared independent identity but is ITA 254/CHD/2023 A.Y. 2019-20 34 integral and inseparable (mixed) part of declared asset, falling under a particular head, then the difference should be treated as undeclared business income explaining the investment. In the present case the excess stock was part of the stock. The revenue has not pointed out that the excess stock has any nexus with any other receipts. Therefore, we do not find any fault with the decision of the ld. CIT (A) directing the AO to treat the surrendered amount as excess stock qua the excess stock found.”

23. Thereafter, the Coordinate Jaipur Benches in the case of Bajargan Traders Vs. ACIT(Supra) has similarly held as under:

“2.10. We have heard the rival contentions and perused the material available on record. During the course of survey, the Assessee has surrendered an amount of Rs. 70,04,814/- towards investment in stock of rice which had not been recorded in the books of accounts. Subsequently, in the books of accounts, the Assessee has incorporated this transaction by debiting the purchase account and crediting the income from undisclosed sources. In the annual accounts, the purchases of Rs. 70,04,814/- were finally reflected as part of total purchases amounting to Rs. 33,47,19,658/- in the profit and loss account and the same also found included as part of the closing stock amount to Rs. 1,94,42,569/- in the profit/loss account since the said stock of rice was not sold out. In addition to the purchase and the closing stock, the amount of RS. 70,04,814/- also found credited in the profit and loss account as income from undisclosed sources. The net effect of this double entry accounting treatment is that firstly the unrecorded stock of rice has been brought on the books and now forms part of the recorded stock which can be subsequently sold out and the profit/loss therefrom would be subject to tax as any ITA 254/CHD/2023 A.Y. 2019-20 35 other normal business transaction. Secondly, the unrecorded investment which has gone in purchase of such unrecorded stock of rice has been recorded in the books of accounts and offered to tax by crediting the said amount in the profit and loss account. Had this investment been made out of known source, there was no necessity for Assessee to credit the profit/loss account and offer the same to tax. Accordingly, we do not see any infirmity in Assessee's bringing such transaction in its books of accounts and the accounting treatment thereof so as to regularise its books of accounts. In fact, the same provides a credible base for Revenue to bring to tax subsequent profit/loss on sale of such stock of rice in future.

2.11. Having said that, the next issue that arises for consideration is whether the amount surrendered by way of investment in the unrecorded stock of rice has to be brought to tax under the head "business income" or "income from other sources". In the present case, the Assessee is dealing in sale of foodgrains, rice and oil seeds, and the excess stock which has been found during the course of survey is stock of rice. Therefore, the investment in procurement of such stock of rice is clearly identifiable and related to the regular business stock of the Assessee. The decision of the Co-ordinate Bench in case of Shri Ramnarayan Birla (supra) supports the case of the Assessee in this regard. Therefore, the investment in the excess stock has to be brought to tax under the head "business income" and not under the head income from other sources". In the result, ground No. 1 of the Assessee is allowed.”

24. The said decision of Coordinate Jaipur Benches has since been confirmed by the Hon’ble Rajasthan High Court in ITA 254/CHD/2023 A.Y. 2019-20 36 case of PCIT vs Bajarang Traders (DB Appeal No. 258/2017 dt. 12/09/2017).

25. Similarly, the Coordinate Chandigarh Bench in case of M/s Gaurish Steels Pvt. Ltd. Vs. ACIT (Supra) has held as under:

“10. We have heard the rival contentions and perused the material available on record. This is a fact on record that the Assessee surrendered an amount of Rs.70 lacs as additional income during the course of survey conducted at its premises on account of following heads:

(i) Discrepancy on account of cash Rs. 9 lacs found (ii) Discrepancy on cost of Rs. 21 lacs construction of building (iii) Discrepancy in stock Rs. 10 lacs (iv) Discrepancy in advances and Rs. 30 lacs receivable

ITA 254/CHD/2023 A.Y. 2019-20 38 26. Similarly, the Coordinate Chandigarh Bench in case of Famina Knit Fabs Vs. ACIT(Supra) has held as under:

“19. In the facts of the case in the income surrendered was on account of unaccounted receivables of the business of the Assessee amounting to Rs.1.25 crores. The Ld.CIT(A) in para 9 of the order has outlined the facts relating to the surrender made by the Assessee stating that during survey a pocket diary was found from the account section of the Assessee company which contained entry of receivables amounting to Rs.1.25 crores on pages 27, 28, 31 and 33, which were not recorded in the regular books of the Assessee and were subsequently surrendered stating that these entries were unaccounted sundry receivables being surrendered as income under the head business, to buy piece of mind and subjected to no penalty and further that the losses incurred by the Assessee in the impugned year will be adjusted against this surrendered income. The relevant facts as stated by the CIT(A) in para 9 of his order and which are not disputed, are reproduced hereunder:

“9. Adverting now to the facts of the instant case, it is seen that when survey proceedings were conducted at the business premises of the appellant company, a pocket diary was found from the accounts section which contained entries of receivables amounting to Rs.1.25 crores on page nos. 27, 28, 31 and 33, which were not recorded in the regular books of accounts. When these entries were confronted to the appellant company while recording the statement on 15/09/2012, it was stated: "that these entries are sundry receivables which has not been accounted for in the books of accounts and in order to buy peace of mind, the same is surrendered as income under the head business for F.Y.2012-13 relevant to asstt. Year 2013-14 subject to no penalty and prosecution under the I.T. Act, 1961. Since the company is ITA 254/CHD/2023 A.Y. 2019-20 39 incurring losses in current F.Y.2012-13, the surrendered income will be adjusted against these losses." [Extracted from the impugned assessment order; pages 5 &6].”

20. 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.

21. The contention of the Revenue therefore that the income be treated as deemed income u/s 69,69A/B/C of the Act is accordingly rejected and as a consequence thereto the plea that no set off of losses be allowed against the same u/s 115BBE of the Act also is rejected.

The appeal of the Revenue, therefore, in is dismissed.

ITA 254/CHD/2023 A.Y. 2019-20 41

“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 ITA 254/CHD/2023 A.Y. 2019-20 42 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 ITA 254/CHD/2023 A.Y. 2019-20 43 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 ChokshiHiralalMaganlal 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.”

ITA 254/CHD/2023 A.Y. 2019-20 44

“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 ITA 254/CHD/2023 A.Y. 2019-20 45 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 C IT 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. C IT (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 setoff 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.

29. Thereafter, the matter came up for consideration before the Hon’ble Punjab & Haryana High Court and the Hon’ble High Court has stated that the AO, the ld. 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 and accordingly the findings of the Tribunal were affirmed and it was held that no substantial question of law arose and the appeal of the Assessee was dismissed. We therefore find that the statement of the General Manager as recorded during the course of survey played a decisive role and was taken into consideration by the Tribunal wherein he had admitted that cash has been generated out of income from ITA 254/CHD/2023 A.Y. 2019-20 47 other sources and in the absence of nature of source of cash being proved, it uphold the order of the CIT(A) and thereafter, on further appeal, the order of the Tribunal was upheld by the Hon’ble High Court. Unlike the said case, in the present case, as noted herein above, the partner of the assessee firm, in his statement recorded during the survey, had clearly stated that he was one of the two partners of the assessee firm, that the business of the assessee firm, i.e., manufacturing clothes of small children was the only source of income of the assessee firm. When he was confronted with discrepancies as found by the Department in the survey, the assessee was so confronted not only with the discrepancies found but also the nature and source thereof and it has emerged that the source of income of the assessee is from its business operations. This being so, the decision of the Hon'ble High Court does not support the case of the Revenue.

ITA 254/CHD/2023 A.Y. 2019-20 48 Tax Act and the same has been rightly offered to tax by the assessee under the head of business income. In the absence of applicability of the deeming provisions, there is no question of the provisions of Section 115BBE.

Order pronounced on 26.03.2024.