SH. GURINDER MAKKAR,LUDHIANA vs. DCIT, CC-3, LUDHIANA

आयकर अपीलीय अिधकरण,च"डीगढ़ "यायपीठ “ए” , च"डीगढ़ IN THE INCOME TAX APPELLATE TRIBUNAL, CHANDIGARH BENCH “A”, CHANDIGARH HEARING THROUGH: HYBRID MODE "ी आकाश दीप जैन, उपा"य" एवं "ी िव"म "सह यादव, लेखा सद"य BEFORE: SHRI. AAKASH DEEP JAIN, VP & SHRI. VIKRAM SINGH YADAV, AM आयकर अपील सं./ 2023 िनधा"रण वष" / Assessment Year : 2018-19 Gurinder Makkar बनाम The DCIT H.No. 2526, Rahon Road, CC-3, Ludhiana Basti Jodhewal, Ludhiana-141007 Punjab "थायी लेखा सं./PAN NO: AAXPM2598N अपीलाथ"/Appellant ""यथ"/Respondent िनधा"रती क" ओर से/Assessee by : Shri Sudhir Sehgal, Advocate राज"व क" ओर से/ Revenue by : Smt. Amanpreet Kaur, Sr. DR सुनवाई क" तारीख/Date of Hearing : 23/11/2023 उदघोषणा क" तारीख/Date of Pronouncement : 21/02/2024 आदेश/Order PER VIKRAM SINGH YADAV, A.M. :

This is an appeal filed by the Assessee against the order of the Ld. CIT(A)-5, Ludhiana dt. 25/11/2022 pertaining to Assessment Year 2018-19. 2. In the present appeal, the assessee has raised the following grounds:

, the Ld. CIT(Appeals) has wrongly confirmed the order passed u/s 143(3).

6. That the Ld. CIT(A), Ludhiana has erred in confirming the action of the Assessing Officer in invoking the provision of Section 68 of the Income Tax Act, 1961 on account of the additions has made by the Assessing Officer.

7. That the appellant craves leave to add, amend, alter any of the above grounds during the appellate proceedings have been considered.

3.1 During the course of assessment proceedings, the AO observed that the surrender relates to unexplained investment which is covered under section under section 69/69B/69C and accordingly a show cause was issued as to why the surrender amount of Rs. 50,53,000/- should not be taxed as per the provisions of Section 115BBE of the Act. In response, the assessee filed his submission which were considered but not found acceptable to the AO.

3.2 As per the AO, the surrender income on account of excess stock, unexplained expenditure in the construction of building and cash expenditure are chargeable under section 68/69A/69B and to be taxed as per the provisions of Section 115BBE of the Act. Further, the AO observed that from the perusal of the Income Tax Return, it has been found that the assessee has shown such income as income from other sources but not as business income which itself shows that the assessee himself has not treated such surrender income as business income. Further, from the perusal of the trading account, the AO observed that the assessee had claimed expenses of equal amount of the surrender of stock of Rs. 28,53,000/- on the debit side in the manufacturing and trading account given that the assessee has not declared any business income on the credit side of the P&L Account. The AO observed that the net effect is that the assessee has nullified the effect of the surrender income claimed to be income from other sources by making entry of Rs. 28,53,000/- which cannot be allowed and same was disallowed under section 37 of the Act. 3.3 Further, the AO observed that the surrender of Rs. 14,00,000/- on account of construction of building cannot be considered as part of actual cost of the building for the reason that the assessee has failed to show as to how the provision of Section 43(1)do not apply in the instant case and depreciation on the said amount @ 5% of Rs. 14,00,000/- amounting to Rs. 70,000/- was disallowed under section 32 r.w.s 43(1) of the Act.

5. Against the said findings and the direction of the Ld. CIT(A), the assessee is in appeal before us.

6.1 It was submitted that during the course of survey action as well as during the course of assessment proceedings, no other source of income has been identified and all the income which accrues to assessee is on account of its regular business of manufacturing and selling of hosiery goods and fabrics which the assessee is carrying on for last so many years. It was accordingly submitted that the excess stock of Rs. 28,53,000/- pertains only to the regular business of the assessee and be therefore be assessed under the head “business income”. 6.2 It was further submitted that the excess stock so found was the only stock in which the assessee was regularly dealing and the department has itself compared the said stock with the stock as per books of account which makes it clear the department itself accepted that the stock pertains to the regular books of the assessee. It was submitted that after the surrender, the assessee has recorded the said stock in its books of account maintained for the regular business.

6.3 It was further submitted that the assessee debited the manufacturing and trading account with an amount of Rs. 28,53,000/- with account "Addition by Tax Auth. In stock" specifically instead of "Purchase Account" which was duly reflected in the Manufacturing and Trading Account for the year ended 31.03.2018. In this regard, it was submitted that the assessee has duly paid the taxes at normal rates on surrender amount by treating it under the head "Income from other Sources" although the same is the business income of the assessee and hence, the treatment of the assessee in the manufacturing and trading account has not resulted in nullifying the effect of surrender. Instead, the assessee has duly paid taxes on such amount of surrender under a different head of income, and as the surrender is only on account of the business of the assessee, the same is credited to the capital account of the assessee. Hence, when the tax has already been paid by the assessee on certain income, then making additions again on such income would lead to double taxation which is against the principles of natural justice and spirit of law. 6.4 It was further submitted that the additions made by the Ld. AO only on account of a mistaken view of law taken by the assessee are invalid. Reliance in this regard was placed on the judgment of Jaipur Bench of ITAT in the case of Smt. Rekha Shekhawat vs PCIT as reported in 218 DTR 161 wherein the matter has been decided in the favor of the assessee and wherein, it has been held as under: "Therefore, merely because the assesse had taken the mistaken view of the correct legal position by wrongly showing such additional income under head income from other sources, of the surrounding circumstances and the binding decisions of Hon'ble Rajasthan High Court and ITAT, Jaipur. Such an acquaintance cannot take away the right of a party to which he is otherwise entitled to, or in other words, to be assessed as business income. Law is also, well settled that, no tax can be collected without the authority of law as guaranteed by Article 265 of the Constitution of India. Therefore, even if the assessee has made some commitment but later on found wrong in law, it cannot work as an estoppel and the assessee, if still feels aggrieved in any manner, can pursue legal remedy. Hence, showing income under a wrong head in the return of income cannot be taken as an admission It is thus, held that the additional income was in the nature of business income and don't fall under Sec. 68 and/or Sec. 69 of the Act and consequently therefore, Sec. 115BBE could not have been invoked. In view of the above discussion, therefore, we are of the considered view that the Ld. Pr. CIT was not at all justified by invoking the provisions of Sec. 263 by wrongly/incorrectly holding that the subjected assessment order u/s 143(3) dated 25.02.2019, was passed without considering that the income declared under the head of other sources of Rs 28,95,300/-, being recovery of cash amount of advances paid for purchase, comes under preview of S. 68 and 69 of the Act and thus, the tax u/s 115BBE was to be paid, as against the tax at normal rates. The assumption of jurisdiction u/s 263 was contrary to the law and facts on record. Hence, the proceedings initiated u/s 263 of the Act and the impugned order dated 25.02.2019 are hereby quashed. Thus, ground of appeal nos. 1,2 & 4 are decided in favour of assess and against the revenue.."

6.5. In support of his aforesaid contentions, reliance was further placed on the Coordinate Benches decision in case of M/s Sham Jewellers in M/s Sham Fashion mall in ITA No. 315/Chd/2022, M/s Khurana Rolling Mills Pvt. Ltd. in ITA No. 745/Chd/2016, M/s DDK Spinning Mills in ITA No. 19/Chd/2023, Shri Ravinder Kumar Bansal in ITA No. 319/Chd/2023, M/s Montu Shallu Knitwears in ITA No. 21/Chd/2023, Durga Dass Surender Kumar in ITA No. 397/Chd/2022. 6.6 It was further submitted that in the order so passed by the ld CIT(A) dated 04.01.2023, the ld CIT(A) has placed reliance on the judgments in the cases of Fakir Mohamad Haji Hasan v CIT 247 IT 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 was 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. (ITA No. 745/CHD/2016) 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. 6.7 With regard to the disallowance of depreciation amounting to Rs. 70,000/-, it was submitted that the assessee has duly paid the taxes on whole amount of surrender of building to the tune of Rs. 14,00,000/-which have been surrendered by the assessee. The Ld. AO in para 5.3 of the assessment order has stated as under: "5.3 The reply filed by the assessee has been considered and is not found acceptable. The assessee himself has not declared the surrendered income in the Profit & Loss Account and has shown it under the head of Income from other sources" 6.8 As stated above, reliance in this regard is placed on the judgment of Jaipur Bench of ITAT in the case of Smt. Rekha Shekhawat vs PCIT (supra). As the assessee has already paid the taxes on whole amount of surrender on account of addition to the building, hence, disallowing the depreciation of such building would result in double taxation.

6.9 It was submitted that as the assessee has duly paid tax on all such amount of surrender made by the assessee, therefore, making additions of the same amount to the total income of the assessee are wholly invalid as it results 'double taxation and therefore, against the principles of natural justice. Further, the application of provisions of section 115BBE of the Act in the case of the assessee is wholly invalid as apart from the nominal interest incomes, the assessee has been earning income under the head Income from Business/ Profession only and no other source of income has been found by the Ld. AO during the course of assessment proceedings. Hence, the additions made by the Ld. AO deserve to be deleted and the application of provisions of section 115BBE in the case of assessee is uncalled for.

8.1 In particular, for the deeming provisions of Section 69B to be attracted in the instant case, there has to be a finding that the assessee has made investments in the stock during the financial year and such investments are not fully recorded in the books of accounts so maintained by the assessee, and the assessee offers no explanation about the nature and source of the investments or the explanation so offered is not found satisfactory in the opinion of the AO, the latter can proceed and the value of the investment may be deemed as income of the assessee for such financial year. Therefore, the explanation so offered by the assessee explaining the nature and source of such undisclosed income and the reasonability of the explanation so offered by the assessee needs to be analysed and examined to draw necessary conclusions in this regard and discretion so vested in the AO for invocation of the deeming fiction so envisaged in the statute can accordingly be exercised.

8.2 For the purposes, we refer to the statement so recorded of the assessee during the course of survey on 16/03/2018. In Question no. 22, it was stated that during the course of survey proceedings u/s 133A, physical verification of stock lying in the business premises was done and after physical verification, it comes to Rs 67,42,240/- whereas as per profit/loss account, the stock is Rs 42,93,058/- and the assessee was asked to explain the difference. In response, the assessee submitted that as per last year gross profit, the value of closing stock should be Rs 42.93 lacs and the difference in stock value is due to gross margin increase in sale due to good season for the current financial year, however, to buy piece of mind, he declares the difference of Rs 28,53,182/- which also includes the value of stock sent for job work as his income for the current financial year subject to no penal action. We therefore find that the stock physically found has been valued and then, compared with the value of stock so recorded in the books of accounts and the difference in the value of the stock so found belonging to the assessee firm has been offered to tax. There is thus no dispute that there is a commonality in the stock so found and as recorded in the books and in absence of which, the comparison would not have been possible and difference would not have been worked out. The Revenue has not pointed out that the excess stock has any nexus with any other receipts other than the business being carried on by the assessee. There is thus a clear nexus of stock physically so found with the stock in which the assessee regularly deals in and recorded in the books of accounts and thus with the business of the assessee and the difference in value of the stock so found is clearly in nature of business income. 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 appreciate the statement of the assessee recorded during the course of survey and other documents and findings of the survey team which are very much part of the records in correct perspective. We therefore find that the nature and source of such unaccounted stock is nothing but arising out of assessee’s business operations. No doubt, these transactions were not recorded at the time of survey thus qualify as unrecorded transactions satisfying one of the essential conditions, at the same time, the assessee has provided the necessary explanation about the nature and source of such unrecorded transactions and the necessary nexus with assessee’s business has been established, thus, it cannot be said that these are unexplained transactions thus, doesn’t satisfy the second condition for invoking the deeming provisions of section 69B of the Act.

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

12. Thus the important aspect that emerges from the entire discussion is that for invoking deeming 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 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.” 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. 8.4 In the instant case as well, we find that the difference in stock so found out by the authorities has no independent identity and is part and parcel of entire stock, therefore, it cannot be said that there is an undisclosed asset which existed independently and thus, what is not declared to the department is receipt from business and not any investment as it cannot be co-related with any specific asset and the difference should thus be treated as undeclared business income.

8.5 Following the said decision of the Coordinate Ahmedabad Bench, the Jaipur Bench in case of DCIT Vs. Shri Ram Narayan Birla (ITA No. 482/JP/2015 dt. 30/09/2016) 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 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 Chokshi Hiralal Maganlal 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 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.

8.6 Thereafter, the Coordinate Jaipur Benches in case of Bajargan Traders Vs. ACIT (in dt. 17/03/2017) 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 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.” 8.7 The said decision of Coordinate Jaipur Benches has since been confirmed by the Hon’ble Rajasthan High Court in case of PCIT vs Bajargan Traders (DB Appeal No. 258/2017 dt. 12/09/2017).

8.8 Similarly, the Coordinate Chandigarh Benches in case of Gaurish Steels Pvt. Ltd. Vs ACIT 43 ITR (Trib) 414 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 found Rs. 9 lacs (ii) Discrepancy on cost of construction of building Rs. 21 lacs (iii) Discrepancy in stock Rs. 10 lacs (iv) Discrepancy in advances and receivable Rs. 30 lacs 11. These facts have not been disputed by any one at any stage. The only issue to be considered by us is whether the income of Rs.70 lacs surrendered is to be taxable as business income or income from other sources or as deemed income under sections 69A, 69B and 69C of the Act as held by the Assessing Officer. A number of judicial pronouncements have been cited during the course of hearing, however, we have to bow down to the proposition laid down by the Jurisdictional Punjab & Haryana High Court in the case of M/s Kim Pharma Pvt. Ltd.(supra) since this is the only judgment of the Jurisdictional High Court which were brought to our notice.

“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 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].”

(i) investment of Rs. 60 lacs in Kothi at Sukhmani Enclave in the name of Smt. Rekha Miglani; (ii) Sundry creditors and advances received from customers amounting to Rs. 132 lacs; (iii) Gross profit on sale out of books amounting to Rs. 198 lacs and; (iv) surrender to cover miscellaneous discrepancies in loose papers etc. amounting to Rs. 10 lacs.

8.11 Similarly, the Coordinate Chandigarh Bench in case of M/s Sham Jewellers Vs. The DCIT (Supra) has held as under:

“10.17 Ground Nos. 8 & 9 challenge the action of the lower authorities in applying the provisions of section 115BBE and thereby charging tax at the rate of 60%. The main thrust of the arguments of the Ld. AR has been that all the additions made or sustained relate only to the business income of the assessee and that nowhere in the assessment order has it been alleged that some other source of income had been detected which gave rise to additional income. It is seen that during the course of assessment proceedings, the various explanations submitted by the assessee have duly mentioned that the surrendered income was derived from the business. A perusal of the assessment order would also show that nowhere in the body of the assessment order, the AO has even contradicted this explanation of the assessee. The AO has not brought on record any iota of evidence to demonstrate that the assessee had any other source of income except income from business and, therefore, it is our considered view that deeming such income under the provisions of sections 68 or 69 would not hold good. In our view, in such a situation, the AO could not have legally and validly resorted to taxing the income of the assessee at the rate of 60% in terms of provisions of section 115BBE of the Act. 10.18 The Hon'ble Andhra Pradesh High Court in the case of Principal Commissioner of Income Tax Vs. Deccan Jewellers Ltd. reported in (2021) 438 ITR 131 (AP) held that where the assessee was engaged in the business of Gold and Diamond jewellery and Silver articles and during the search and seizure operation u/s 132, excess stock was found to be declared and the assessee had submitted that excess stock was result of suppression of profit from business over the years and the same had not been kept identified separately and the AO had duly considered and accepted the assessee’s explanation that investment in excess stock was to be treated as business income, the revisional powers invoked by the Principal Commissioner u/s 263 of the Act were not correct in the eyes of law. 10.19 The ITAT Chandigarh Bench in the case of Famina Knit Fabs Vs. ACIT reported in (2019) 176 ITD 246 (Chd-Trib) has held that, wherein during the course of survey, a surrender was made by the assessee on account of debtors / receivables which was based on a diary found during the course of survey and the Revenue had accepted that the surrender was on account of receivables, it followed that the debtors were generated from the sales made by the assessee during the course of carrying on the business of the assessee which was not recorded in the books of the assessee. The Coordinate Bench of the ITAT went on to further hold that though the said income was not recorded in the books of the assessee but the source of the same stood duly explained by the assessee as being from the business of the assessee and even otherwise no other source of income of the assessee was on record either disclosed by the assessee or unearthed by the Revenue. The Bench further held that the preponderance of probability, therefore, is that the debtors were sourced from the business of the assessee. Therefore, there was no question of treating it as deemed income from undisclosed sources u/s 69, 69A, 69B, or 69C of the Act and the same was held to be in the nature of business income of the assessee. 10.20 Thus, as in the present case, where the source of investment or expenditure is clearly identifiable and the alleged undisclosed asset has no independent existence of its own or there is no separate physical identity of such investment or expenditure, then, first, what is to be taxed is the undisclosed business receipt invested in unidentifiable unaccounted asset and only on failure can it be considered to be taxed u/s 69 of the Act and further where once such investment or expenditure is brought within the purview of tax as undeclared business receipt, then taxing it further as deemed income u/s 69 would be completely out of place. 10.21 Similar view was taken by the Coordinate Bench of ITAT Ahmedabad in the case of Chokshi Hiralal Maganlal Vs. DCIT reported in 131 TTJ 1 (Ahd.)

10.22 It is also seen that the Ld. CIT(A) has relied on the judgement of the Hon'ble Punjab & Haryana High Court in the case of Kim Pharma Ltd. Vs. CIT in of 2011 (O&M) and the Ld. CIT DR has also quoted the same in his arguments before us. However, after going through the aforesaid judgement of the Hon'ble Punjab & Haryana High Court, it is seen that in that particular case, the only issue was with regard to the cash surrendered at the time of survey and no other income. The cash found could not be related to the already disclosed and accepted source of income of the assessee and, therefore, the Hon'ble Punjab & Haryana High Court held that such surrendered cash was to be treated as deemed income u/s 69 of the Act. However, in the present case before us, the assessee has only one source of income i.e. business income and nowhere has it been brought on record that the assessee had any other source of income except business income and, therefore, we respectfully state that judgement of the Hon’ble Punjab and Haryana High Court in the case of Kim Pharma Pvt. Ltd (supra) would not apply on the facts of the present case. 10.23 Accordingly, keeping in view the various judicial precedents as cited above and respectfully following the same, we hold that the AO could not have legally invoked the provisions of section 115BBE of the Act in the present case and further the Ld. CIT(A) was also not legally correct in upholding of the application of provisions of section 115BBE of the Act. Accordingly, ground Nos. 8 and 9 are also allowed.” 8.12. In the instant case as well, there is no physical distinction between the accounted stock and unaccounted stock. No such physical distinction was found by the Revenue either. We therefore find that the difference in stock so found out by the authorities has no independent identity and is in terms of value terms only and thus part and parcel of entire stock, therefore, it cannot be said that there is an undisclosed asset which existed independently and thus, what is not declared to the department is receipt from business and not any investment as it cannot be co-related with any specific asset and the difference should thus be treated as business income.

8.13. In light of aforesaid discussion and in the entirety of facts and circumstances of the case, the income so surrendered on account of investment in excess stock during the course of survey cannot be brought to tax under the deeming provisions of section 69B of the Act and the same has to be assessed to tax under the head “business income”. In absence of deeming provisions, the question of application of section 115BBE doesn’t 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 the normal rate of tax.

8.14. Coming to the matter relating to surrender on account of cost of building amounting to Rs 14,00,000/-, from the perusal of the statement of the assessee recorded during the course of survey, it is noted that the building was constructed way back in the year 2014-15 and during the year under consideration, certain renovation and extension work has been undertaken by the assessee. In terms of cost of such renovation and extension, no bills, vouchers etc were found during the course of survey, however, based on estimate, an amount of Rs 14 lacs was surrendered by the assessee. We therefore find that there is no dispute that certain renovation and extension to the building has been carried out by the assessee during the year, however, as far as the quantum of expenditure on renovation and extension was concerned, no material/documentation was found during the course of survey and the estimated amount of expenditure has been taken basis the statement of the assessee recorded at the time of survey. Even during the course of assessment proceedings, the AO has not taken any action in terms of referring the matter to the valuation officer and in determining the amount of expenditure basis physical examination and applying specified rates.

8.15 It is a settled position that the statement of the assessee recorded during the course of the survey on a standalone basis has no evidentiary value, at the same, the said statement can be considered as relevant material, but for that, there has to be further material to corroborate and substantiate the same which is manifestly absent in the instant case. Therefore, basis the statement on a standalone basis, there is no legal basis for taking action against the assessee. At the same time, it is also a matter of record that the assessee has not retracted from the said surrender either as part of filing of the return of income or during the assessment proceedings and even before us, no such prayer has been made. Therefore, the fact that the assessee has honoured the surrender so made inspite of the fact that there is no corroborative material against the assessee, the same can’t be held against the assessee and more so, cannot form the basis for invocation of deeming provisions as has been done in the instant case as the conditions stated therein are not satisfied. Merely the fact that survey has taken place and certain expenditure on estimated basis has been surrendered doesn’t satisfy the requirements for invoking the deeming provisions as has been done in the instant case. Accordingly, the order of the ld CIT(A) is set-aside and the AO is directed to tax the surrendered income at normal rates as applicable to the business income. 8.16 Coming to the related issue of disallowance of depreciation on such cost of construction, we find that there is no legal and justifiable basis to disallow the depreciation. Once the assessee has surrendered the amount on account of cost of extension, renovation and the same has been brought in the books of accounts, the same will form part of block of the building and the assessee will be eligible for claim of depreciation thereon. As we have noted earlier, no bills/vouchers have been found during the course of survey, therefore, there is no basis to invoke section 43(1) in the instant case and thus, the depreciation so claimed is directed to be allowed. 8.17 Now coming to the issue of surrender of Rs 8,00,000/- on account of disallowance u/s 40A(3) of the Act, there is no finding that cash expenditure has been found and which has not been accounted for and in such a situation, we fail to understand as to how the deeming provisions can be invoked in this regard. Where the expenditure has been held disallowable in terms of section 40A(3) of the Act which means that certain expenditure has been incurred, accounted for in books of accounts and has been found to be incurred in cash in violation of section 40A(3), the question of unexplained expenditure or unaccounted expenditure doesn’t arise for consideration. Hence, the action of the AO in invoking the deeming provisions in this regard is set-aside. 8.18 In light of aforesaid discussions, the income so surrendered amounting to Rs 50,53,000 during the course of survey cannot be brought to tax under the deeming provisions and has to be assessed to tax under the head “business income”. In absence of deeming provisions, the question of application of section 115BBE doesn’t 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 the normal rate of tax.