SH. KRISHAN KUMAR,KHANNA vs. DCIT, CC-1, LUDHIANA

आदेश/Order

Per A.D. Jain, Vice President:

This is Assessee’s appeal against the order of the ld. CIT(A)-5, Ludhiana, dated 01.03.2023, for the Assessment Year 2019-20, taking the following Grounds of appeal:

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r.w.s. 115BBE would be applicable on the amount surrendered during survey on account of stock to the tune of Rs. 1,00,00,000/-.

Ground, which reads as under:

“That the ld. CIT(Appeals), has erred in invoking section 69 read with section 115BBE of the Income Tax Act on the excess cash of Rs. 1,34,004/- and since the excess cash was related to same business of purchase and sale of jewellery and hence the normal rate of tax should be levied on excess cash.”

of the Income Tax Act was carried out at the business

premises of the Assessee on 24.01.2019 and during the

course of survey operations, certain discrepancies were

noticed and Assessee came forward and surrendered a sum

of Rs.1,00,00,000/-. The Assessee filed its return of income,

175-Chd-2023– Shri Krishan Kumar, Khanna 3

declaring total income of Rs.1,08,37,187/- on 24.09.2019

including the surrendered income, which was processed u/s

143(1) and thereafter, the case of the Assessee was selected

for compulsory scrutiny and notices u/s 143(2) and 142(1)

were issued. During the course of assessment proceedings,

the AO also issued a Show Cause Notice dated 04.02.2021

stating that as per the Surrender Letter, the Assessee has

made a surrender for a sum of Rs. 1,00,00,000 on account of

difference in stock and the Assessee was also asked to

explain the reasons for excess cash difference of Rs.

1,34,004/-found on the day of survey.

3.1 In response to the show cause, the Assessee filed his

written submissions as under:-

"26. & 27. The details of the business income offered and its utilization is as under:- Particular Debit Credit Business Income 100,00,000/- (Credited to P/L account) Gold 87,90,988/- Silver 6,69,384/- Diamond 2,75,981.62/- Cash in hand 2,63,646.38/- Total 100,00,000/- 100,00,000/-

175-Chd-2023– Shri Krishan Kumar, Khanna 4

"Tax on income referred to in section 68 or section 69 or section 69A or section 69B or section 69C or section 69D

115BBE. 1(1) Where the total income of an assessee, (a) Includes any income referred to in section 68 or section 69 or section 69A or section 69B or section 69C or section 69D and reflected in the return of income furnished under section 139;" The section 115BBE referred the section of 69, 69A, 69B, 69C, these sections speaks about the unexplained investment/ expenditure etc. (i) This Section is applicable where assessee's income is recorded in books but has not been offered to tax and the assessee fails to prove the nature and source to the satisfaction of the AO (in the case of the assessee the sources and the nature of the income offered is already there) (ii) This section is also applicable to the assessee who are not required to maintain books of accounts but is found to have made unexplained investment, unexplained expenditure or he is found to be in possession of money, bullion, jewellery or other valuable articles. (No unexplained investment found during the course of survey, only undisclosed business stock found, but explained) (iii) Where an assessee voluntarily shows income in his return but he is unable to prove the source of such income to the satisfaction of the AO, such income could be held to be liable under section 115BBE. (Sources of the income and satisfaction of the Assessing Officer already established during the course of survey) (iv) Further, during the course of survey proceedings, the assessee has offered a sum of Rs.1 Crore as business income on account of excess business stock of Gold, Silver & Diamond. Regarding your goodself’s query related to income offered by the Assessee amounting to Rs. 1 crore shown as Business Income in the Profit & Loss account already field with your goodself, in this regard, it is submitted that in the case of assessee, sum of Rs. 1 crore offered during the course of survey relates to same business activity of the assessee and amount was offered merely to cover the discrepancies pointed out by department of stock arising out of the trading business transactions. It is also pertinent to note that during survey proceedings, no document/ paper was found which can prove that assessee has undertaken any unexplained business other than the activities carried on by it in regular course of

175-Chd-2023– Shri Krishan Kumar, Khanna 5

business. The income offered by the assessee is out of the similar modus operandi. (v) Further, the income offered by assessee is trading income from thetrading of gold items and arising out of sale/purchase of the gold and it is nothing which the assessee has earned out of non-business activities. Therefore, what was offered during the course of survey pertains to regular business activities of the assessee and no part 01 income pertains to arising out of unexplained/unknown sources. It is also pertinent to mentioned here that the fact that income as offered during the course of survey was from regular business activity was duly found and accepted by the department during the course of survey.

Therefore, the question of the applicability of section 115BBE doesnot arise at all."

3.2 The detailed submissions and the details of the stock

furnished by Assessee the were examined by the A.O.

butwere found not acceptable. It was held by the A.O. that

the Assesses’s ITR showed that he had maintained books of

account of the relevant year and had got its accounts

audited and also had offered the income of Rs. 1,00,00,000/-

as surrendered income but the Assessee itself had not shown

/ passed the requisite accounting entries in its books of

account. The Assessee had shown only resultant income on

credit side of the profit and loss account. The A.O. further

found that no such details have been found available on the

record which substantiate the claim of the Assessee. Thus,

the A.O. observed that the explanation offered regarding

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nature and source thereof is not satisfactory and therefore,

the value of such explained credit / stock / investment in

assets /expenditure / cash, etc. were required to be taxed

u/s 68 to 69D of the Act. Accordingly, excess stock of Rs.

1,00,00,000/- being unaccounted / unexplained be taxed as

per provisions of section 115BBE of the Income Tax

Account.The A.O.

Rs. 11,88,760/- was found whereas the cash in hand available,

as per the books of account, was Rs. 10,54,756/. The Assessee

was asked to explain the excess cash of Rs. 1,34,004/- but the

Assessee had merely presented a chart vide which utilization of

surrender income in stock of gold, silver diamond and cash in

hand was presented. Thus, finding no force in the submissions of

the Assessee, which were also not supported by any documentary

evidence, excess cash in hand of Rs. 1,34,004/-, being

unexplained, was added to the returned income of the Assessee

u/s 69A of the Act and the total income of the Assessee was

assessed at Rs. 1,09,71,190/- as per the provisions of section

115BBE of the Income Tax Act.

appeal before the ld. CIT(A) who has sustained the said

175-Chd-2023– Shri Krishan Kumar, Khanna 7

additions. As per the ld. CIT(A), surrender was made during

the course of survey on account of excess stock and

investment in construction of building of the Assessee. The

AR in his submissions has tried to justify the same as

business transactions of the Assessee. The AR has claimed

that the Assessee was not having any other source of income.

Further, the AR relied upon judgments as quoted in his

submissions. The ld. CIT(A) observed as follows :

“5.1 The judgments quoted by the AR have been gone through. It is important to emphasize here that in all the judgments quoted by the AR in his support, the 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 under the business income, if any. If the Assessee is able to do that then the income can be considered as from business. In the case of the Assessee, the AO gave an opportunity to the Assessee to establish a linkage between the surrendered income under the head of excess stock & investment in construction of building and the business income.

5.2 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 diseased 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

175-Chd-2023– Shri Krishan Kumar, Khanna 8

under any head u/s 14. It would be, therefore, impermissible to attempt and classify such incomes under any of specific heads, even if there is any activity which can be remotely/indirectly linked to such deemed income. The word 'source' in the same context would refer to nexus of such income generating activity/transaction with name and identity, creditworthiness of person with whom such activity/transaction was done along with proving the genuineness of transaction also.

5.3 The requirement of proving 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 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.

5.4 Thus, for the excess stock & investment in construction of building found during survey proceedings, there can be no presumption to treat the value representing such excess stock & investment in construction of building as application of business income in absence of any evidence of earning that income or details as to when, how and from whom such income was derived.

5.5 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 69, are to be treated separately and it would not be possible to classify such deemed income falling under Chapter-VI, under any of the heads including

175-Chd-2023– Shri Krishan Kumar, Khanna 9

'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 be related to.”

The ld. CIT(A) relied on – 5A

5B It was held that these decisions also bring out a clear

legal position that for any income to be treated as business

income, the nexus / the source, has to be established.

175-Chd-2023– Shri Krishan Kumar, Khanna 10

Hence, the action of the AO in applying the rate as

prescribed u/s 115BBE on the surrendered income included

in the ITR, treated by the Assessing Officer as income u/s 69

in the assessment order, is found sustainable. Keeping in

view the above facts and discussion, it is held that the AO

has rightly treated the surrender of Rs. 1,00,00,000/- on

account of excess stock and excess cash of Rs. 1,34,004/-

found during the survey as deemed income u/s 69 & 69A to

be taxed as per the provisions of section 115BBE of the Act

and confirmed the same by dismissing the Grounds of appeal

of the Assessee.

submitted that the Assessee is an individual, proprietor of a

business entity, namely RaiwazJeweller, engaged in the

business of gold smith and merchant trading of gold, silver

and diamonds and the said business is the only source of

income of the Assessee; that although the Assessee is the

proprietor of the business, but the business of the Assessee

was being looked after by the son, being the authorized

representative of his father (the Assessee), namely Shri

Rakesh Kumar, as the Assessee was 77 years of age; and

that the Assessee is engaged in the said business since past

175-Chd-2023– Shri Krishan Kumar, Khanna 11

many years and maintained complete books of account

which were duly audited and on the basis of the said

audited books, the Assessee filed his return of income on

24.9.2019 declaring total income of Rs. 1,08,37,190/-. The

return was accompanied with the audit set of accounts.

During the course of survey u/s 133A of the Income Tax Act,

1961 on 24.01.2019, the Assessee had offered an additional

income of Rs. 1,00,00,000/- as business income and was

duly declared in the return of income. The same also stood

accounted for in the books of account and was a part of the

trading account. While framing assessment, the Assessing

Officer treated the same as income to be taxed u/s 115BBE

of the Act.

para 11 are that during the course of survey, statement of

Shri Rakesh Kumar (son of the Assessee was also recorded),

which is placed in the paper book at pages 24A to24H; that

the Assessee declared the surrendered amount of Rs.

1,00,00,000/- in the profit and loss account which was duly

audited and on the basis of audited report, the Assessee paid

tax on the total income including the surrendered income at

normal rate which was then accepted by the survey party;

175-Chd-2023– Shri Krishan Kumar, Khanna 12

that the case of the Assessee was selected for compulsory

scrutiny and notices u/s 143(2) and 142(1) along with

detailed questionnaires were issued to the Assessee and the

Assessee filed detailed response to the notices; and that no

adverse material was found during the course which showed

that the said excess stock was unexplained and hence, the

excess stock found during the course of survey should be

treated as business income of the Assessee and the

provisions of section 115BBE of the Act are not applicable

to the same. It is submitted that the A.O. without

considering the replies filed by the Assessee made addition

to the tune of Rs. 1,34,004/- to the total income on account

of excess cash found and hence assessed the total income at

Rs. 1,09,71,190/-. However, the Assessing Officer without

appreciating the facts and reply submitted from time to time

by invoking the provisions of section 69 of the Act treated

the same as unexplained investments in the hands of the

Assessee, which on appeal, was upheld by the ld. CIT(A). It is

important to refer the provisions of section 69 which reads

as under: -

“Unexplained Investments

175-Chd-2023– Shri Krishan Kumar, Khanna 13

7.1 From the bare reading of the provisions of section 69 of

the Act, it is very much clear that there must be some

investments not found in the books of account of the

Assessee and the Assessee offered no explanation about the

nature and source thereof or the explanation offered, was not

in the opinion of the Assessing Officer satisfactory, then, the

amount invested in the books of the Assessee be charged to

Income Tax and taxed at the rate of 60%. In the instant case,

the Assessee has already declared the additional investments

found as business income received by it in the normal course

of business. The Assessee had already discharged its

obligation to prove the source of investments declared by

him, onus shifted to the revenue to disapprove the same,

however, the Assessing Officer simply ignoring the facts

already accepted in survey and without analyzing the same,

arbitrarily invoked the provisions of section 69 of the Income

Tax Act.

175-Chd-2023– Shri Krishan Kumar, Khanna 14

7.2 Further, the quantum and basis of the amount

surrendered had duly been stated by theAssessee in its

statement recorded during survey and as declared in the

return of income. The same has been accepted as it is, since

the Assessing Officer nowhere denied / controverted these

facts in the assessment order. The income was offered to tax

which stand credited in the profit and loss account of the

Assessee for the year under appeal, copy of letter declaring

additional income at the time of survey was enclosed.

7.3 The Assessing Officer just simply mentioned that the

submissions of the Assessee were not found acceptable as no

cogent reasons supported by documentary evidence were

being cited by it during survey. The same was treated as an

unexplained investments u/s 69 and taxed the same at the

rate of 60%, thus she failed to prove authoritatively a view

taken by her and contrarily whatever the Assessee declared

in the return of income. However, the income surrendered

during survey was accepted by the AO at that time and the

Assessee has also offered the same for taxes while filing its

return of income.

175-Chd-2023– Shri Krishan Kumar, Khanna 15

7.4 In case, the investment is to be treated as unexplained,

the Assessing Officer has to bring on record some conclusive

evidence/ convincing finding as how the said investment is

being treated as unexplained. In the circumstances, it is a

bald allegation of the Assessing Officer to consider the

income declared as an unexplained investment.

Further,merely based on guess work of the Assessing officer,

there should not be invocation of provisions of section 69 of

the Act. During the course of survey, not even an iota of

evidence was found which suggests any contradiction of

mode of earning by the Assessee or that the Assessee was

engaged/ indulged in some other activities to generate any

unaccounted income/money. During the course of

assessment proceedings, the Assessing Officer never tried to

point out the source of investments otherwise than as

claimed by the Assessee and which allegedly considered as

unexplained without reverting to the source explained,

accepted and supported by the documents relating to the

Assessee. As such, there is no doubt about the source of the

investments as explained by the Assessee in its statement

recorded during the course of survey on 05.09.2018. If the

source of investments from income of business transactions

175-Chd-2023– Shri Krishan Kumar, Khanna 16

has been found satisfactory as was explained and stated at

the time of survey, particularly when no question was ever

raised by the department about the source of investment,

then the question of treating the same as an unexplained

investment is totally unwarranted. The section invoked in

the assessment or considering the same as deemed

investment under section 69, is an action having no

substance and without any basis or rationale on the part of

the Assessing Officer. Even this contention of the Assessee

is further strengthened from the fact that the income which

was declared by the Assessee during the survey and was

accepted by the department as it is, no other source of

income was ever confronted by the department at the time of

survey, even thereafter. Further declaration of the

surrendered income in the return and accepting the

statement of the Assessee given at the time of survey, was

not found to be incorrect particularly with respect to the

source of the said income than there is no reasons to

consider the same income as unexplained/uncounted

investment in view of the provisions of section 69 of the Act.

7.5 Therefore, in the absence of the any adverse findings by

the Assessing Officer on the source of earning of the

175-Chd-2023– Shri Krishan Kumar, Khanna 17

Assessee in respect of the income declared in the return,

treating the same as unexplained investment is uncalled for.

The AO was unreasonable and unjustified in rejecting the

explanation put forth by the Assessee and the assessment

framed is a clearly an example of preset mind of the

Assessing Officer. Thus, in the circumstances, the provisions

of section 69 of the Act as invoked while framing assessment

by the Assessing Officer was unjustified and the action of the

Assessing Officer deserves to be negated.

7.6 Reliance can also be placed on the Judgement of the

ITAT, Chandigarh Bench in case of ‘Shri Harish Sharma Vs.

The Income Tax Officer, Ward 5, Khanna’, Distt. Ludhiana in

ITA No. 327/Chd/2020, wherein it was held that:

"Find merit in the contention of the Assessee that in the absence of any adverse findings by the AO on the source of earning of the Assessee, the authorities below have wrongly treated the amount in question as undisclosed income u/s 68 of the Act and computed the Tax liability under the provisions of the section 115BBE of the Act."

7.7 As regards, the charging of income tax @ 60% invoking

the provisions of section 115BBE on the income declared by

175-Chd-2023– Shri Krishan Kumar, Khanna 18

the Assessee in its return of income. The Assessee has

already made its detailed submissions with respect to the

invocation of the provisions of section 69 above. In case the

Bench is also of the view that the action of the Assessing

Officer in invoking the provisions of section 69 of the Act is

not warranted then this ground will consequently become

inoperative as the charging of income at a higher rate does

not arise when an income is a part of normal business

income and the normal rate of tax is applicable.

7.8 It is more of strangulation situation as far as the

Assessee is concerned in case he has been charged to tax as

per the provisions of section 115 BBE. Further the

provisions of section 69 of the Act apply to unexplained

investments and not sum already offered to tax as income by

the Assessee in the return of income at the maximum

marginal rate. The objective behind the introduction of the

section 115BBE was only to curb the practice of laundering

of unaccounted money.

7.9 Based on the above, it is requested that the tax on the

additional income already declared in Profit and Loss

account of the Assessee be kindly treated as business

175-Chd-2023– Shri Krishan Kumar, Khanna 19

income taxed accordingly and not as per the provisions of

Section 115BBE of the Act.

7.10 The Assessee, through his additional Ground of

appeal has also submitted that the AO had gravely erred in

invoking the provisions of section 69 read with section

115BBE on the excess cash of Rs. 1,34,004/- and since the

excess cash was related to the same business of purchase

and sale of jewellery, hence, the normal rate of tax should be

levied on excess cash.

7.11 The contention of the Assessee is that when the

income / investment is already surrendered during the

survey and also offered for taxes while filing return of

income, the same cannot be treated as unexplained

investment. Therefore, if an investment is not unexplained

than the expenditure claimed in relation to that investment

cannot be disallowed.

total of these transactions as business income for taxation in

addition to the normal business income at the conclusion of

the survey operation. It was submitted that the said sum of

Rs.1,00,00,000/-was offered for tax as additional business

175-Chd-2023– Shri Krishan Kumar, Khanna 20

income at normal rate applicable for the period under

reference and which was accepted by the Revenue authorities

at the relevant point in time. It was submitted that the

Revenue authorities who had conducted the survey were

satisfied about the source of the said transactions which had

been carried on by the Assessee under the name and style

ofM/s RiwazJeweller, Khanna and no questions or objections

were raised during the course of survey proceedings and

therefore, the onus cast on the Assessee was duly

discharged. It was submitted that the AO has not been able

to controvert the aforesaid submissions which were also

made during the course of assessment proceedings. It was

further submitted that the books of account were maintained

in the normal course of the Assessee's business which were

duly audited and in the Tax Audit Report, the auditors have

also mentioned that there is no change in the nature of the

business so carried on by the Assessee as compared to

earlier years. It was submitted that the additional income so

offered was duly recorded in the books of account and on the

basis thereof, was offered to tax by the Assessee while filing

his return of income. It was submitted that during the

course of assessment proceedings, the submissions were

175-Chd-2023– Shri Krishan Kumar, Khanna 21

filed from time to time which were duly accepted by the A.O.,

and, wherein it was submitted that none of the income

offered for taxation at the conclusion of survey proceedings

was in the nature of deemed income and therefore, the

deeming provisions as well as provisions of Section 115BBE

were not applicable. It was submitted that the AO, however,

brought these transactions amounting to Rs.1,00,00,000/- to

tax u/s 115BBE of the Act merely for the reason that such

income had been offered for taxation during the course of

survey proceedings and thereafter, the said findings have

since been confirmed by the ld. CIT(A). In view of the above,

it was submitted that it is evident from the records that

during the course of survey of the business premises, no

other source of income except business being carried on in

the name and style of M/s RiwazJeweller, Khanna was

detected and evidently, the source of additional income

offered for taxation was found to be from the said business

only as duly corroborated by the statement of the Assessee

recorded by the Revenue Authorities at the conclusion of the

survey proceedings.

surrendered was offered for taxation at the rates applicable

175-Chd-2023– Shri Krishan Kumar, Khanna 22

at the relevant point in time and which has also been

accepted by the authorities while accepting the surrender

letter. It was submitted that the AO has not denied this fact

and has rather accepted that the discrepancies

found/detected during the survey operations pertain to the

business which is being carried on by the Assessee. It was

further submitted that Section 115BBE is a machinery

provision enabling the AO to levy tax as per the specified tax

rate, provided the income is assessable as deemed income

under the deeming provisions. It was submitted that,

however, in the instant case, the deeming provisions are

clearly not attracted as the source of the income has been

duly explained by the Assessee during the course of survey

proceedings. It was, accordingly, submitted that unless and

until the deeming provisions are attracted, Section 115BBE

cannot be invoked in the instant case. It was submitted

that Section 115BBE is only a machinery provision

specifying a special tax rate for bringing deemed income as

specified in Section 69, 69A to tax and not for bringing each

and every income merely for the reason that the same has

been disclosed during the course of survey of the business

premises of the Assessee.

175-Chd-2023– Shri Krishan Kumar, Khanna 23

9.1 It was further submitted that the AO has referred to the

decision of the Hon'ble Punjab & Haryana High Court in case

of M/s Kim Pharma Pvt. Ltd. Vs CIT. However, the said case

is clearly distinguishable on facts in the present case. It

was submitted that the said decision has been considered in

various Co-ordinate Chandigarh Bench decisions such as

Famina Knit Fabs Vs ACIT 176 ITD 246, Gaurish Steels Pvt.

Ltd. Vs ACIT 43 ITR (Trib) 414 and Marshal Machines Pvt.

Ltd. (ITA No. 57/CHD/2017). It was submitted that in the

said decisions, the Co-ordinate Chandigarh Benches have

adequately discussed the judgement of the Hon'ble Punjab &

Haryana High Court in case of M/s Kim Pharma Pvt. Ltd. as

well as Gujarat High Court in case of Fakir Mohmed Haji

Hasan Vs CIT.

Hon'ble Calcutta High Court in the cases of

‘DaulatramRawatmull vs. CIT’, 64 ITR 593, in ‘Mansfeild and

Sons vs. CIT’, 48 ITR 254 (Cal.), and Coordinate Chandigarh

Benches decision in cases of ‘M/s Sham Jewellers Vs. The

DCIT’, (in ITA No. 375/Chd/2022, ‘M/s Sham Fashion Mall’

in ITA 315/Chd/2022, ‘Bajaj Sons Ltd.’, (ITA No.

1127/Chd/2019)’, ‘DCIT vs. M/s Khurana Rolling Pvt Ltd’

175-Chd-2023– Shri Krishan Kumar, Khanna 24

(ITA No. 745/Chd/2017) and some other decisionsof the

other Benches of the Tribunal.

aforesaid submissions, the amounts so surrendered during

the course of survey proceedings is clearly in the nature of

business income and it has been duly offered to tax under

the head "income from business & profession”. Therefore,

the action of the AO in treating the business income so

offered by the Assessee as deemed income u/s 69 and 69A

and bringing the same to tax under the amended section

115BBE deserve to be set aside and necessary relief be

provided to the Assessee.

v. Commissioner of Income Tax, Delhi (Central)’, 126 ITR 49

(Del.) wherein, it has been held that expenditure not

accounted for can be estimated and treated as income from

undisclosed sources; that correctness of estimate is question

of fact and degree; that absence of direct evidence does not

preclude assessment by inference and estimate; that it is

duty of the ITO to make exhaustive enquires and gather

some material as the basis of the estimate; that the estimate

175-Chd-2023– Shri Krishan Kumar, Khanna 25

without details may not be accepted; that where the

expenditure on marriage of the Assessee was understated,

the ITO estimated the expenditure and treated the same as

from undisclosed sources, the joint family had been spending

monies for the marriage, it was held that it was more

probable that estimated income belongs to HUF and that the

Assessee was entitled to the benefit of doubt.

material available on record. The genesis of the present case

lies in the survey operations u/s 133A conducted at the

business premises of the Assessee on 24.09.2019 wherein

the Assessee surrendered a sum of Rs. 1,00,00,000/-

thereafter the return of income filed by the Assessee on

24.09.2019 was selected for compulsory manual scrutiny as

per CBDT guidelines presumably to examine whether the

Assessee has honoured the surrender so made at the time of

survey while filing his return of income, as also evident from

the conduct of the assessment proceedings by the AO in

terms of issuing the show-cause and seeking comments of

the Assessee on the amount so surrendered during the

course of survey and subsequent passing of the assessment

order. As per the AO, the amount so surrendered by the

175-Chd-2023– Shri Krishan Kumar, Khanna 26

Assessee during the course of survey though has been

offered in the return of income and thus, the Assessee has

honoured the surrender of income so made but at the same

time, the income so offered in the return of income falls

under the deeming provisions of section 69 and 69A of the

Act and thus, the tax liability thereon has to be determined

in terms of section 115BBE of the Act. As per the ld AR, the

Assessee has honoured the surrender so made at the time of

survey not just in terms of the quantum of income so

surrendered but also in terms of nature of income so

surrendered, and the rate of tax at which the surrender has

been made and surrender so made has been accepted by the

survey team and thus, the deeming provisions of section 69

and 69A r/w section 115BBE are not attracted in the instant

case.

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

175-Chd-2023– Shri Krishan Kumar, Khanna 27

Assessee offers no explanation about the nature and source of

acquisition of the money, bullion, jewellery or other 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.

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.

398/Chd/2022), the Chandigarh Bench of the Tribunal has

held that there is difference between the undisclosed income

and unexplained income and the deeming provisions are

attracted in respect of undisclosed income however, the

condition before invoking the same is that the Assessee has

175-Chd-2023– Shri Krishan Kumar, Khanna 28

either failed to disclose the nature and source of such

income or the AO doesn’t get satisfied with the explanation

so offered by him and the relevant findings read as under:

“10. We have considered the rival contentions and have gone through the record. As per the provisions of Section 115BBE of the Act, the income tax on income referred to in Section 68 or Section 69 or Section 69A or Section 69B or Section 69C or Section 69D are chargeable to tax at a higher rate. Now a perusal of the provisions of Section 68, 69, 69A, 69B, 69C and 69D would reveal that those provisions are attracted in respect of the credits, cash, expenditure, investment etc. regarding which the Assessee offers no explanation about the nature and source thereof. It is to be pointed out that the income is to be assessed u/s 68 wherein any sum is found credited in the books, of which the Assessee offers no explanation about the ‘nature and source thereof’ or the explanation offered by him is not found satisfactory by the AO. Section 69 is attracted to the unexplained investments of which the Assessee offers no explanation about the ‘nature and source’ thereof or the explanation is not found satisfactory. Similarly, Section 69A is attracted in case of money, bullion, jewellery or other valuable articles, Section 69B refers to the investments, Section 69C refers to the expenditure and Section 69D refers to the amount borrowed or repaid on hundi. The provisions of these Sections are attracted and the income is assessed under these Sections, if, the Assessee fails to give the explanation about the ‘nature and source’ of such undisclosed income. The ld. PCIT in our view, in this case has confused himself between the

175-Chd-2023– Shri Krishan Kumar, Khanna 29

‘undisclosed income’ and the word ‘unexplained income’. As per provisions of Section 68 to 69D are attracted in respect of the undisclosed income but the condition for assessing such income under the said provisions is that the Assessee has either failed to disclose the nature and source of such income or the AO does not get satisfied with the explanation offered by him. 15. The perusal of the above relevant part of the Audit Report proposal of the AO and Show Cause Notice issued by the ld. PCIT u/s 263 of the Act, would show that all the aforesaid authorities have been swayed by the notion that the income surrendered by the Assessee was undisclosed income of the Assessee and therefore, the same has to be assessed u/s 68 to 69D, as the case may be, of the Income Tax Act and thereby would be charged to higher rate of tax u/s 115BBE of the Act. However, as noted above, for an income to be taxed u/s 68 to 69D, as the case may be, it should not only be the undisclosed income but the essential condition is that the Assessee has failed to disclose the ‘nature and source’ of such undisclosed income or that the explanation offered by the Assessee is not found satisfactory by the AO. In the case in hand, as noted above, the AO duly made enquiries from the Assessee as to the nature and the source of the aforesaid surrendered income and has also show caused the Assessee as to why the same should not be charged at a higher rate of tax as per provisions of Section 115BBE of the Act. The ld. AO after considering the submissions and explanations of the Assessee accepted the contention of the Assessee that the surrendered income was out of the business income of the Assessee. The perusal of the impugned order of the ld. PCIT would show that

175-Chd-2023– Shri Krishan Kumar, Khanna 30

the ld. PCIT has not pointed out as to why the explanation offered by the Assessee to the AO was not satisfactory and further what more enquiries are required to be conducted in this case, which the AO had failed to conduct. The ld. PCIT has simply based his opinion and order on the Audit Objections/Report as pointed out even in the Audit Report that since the same was undisclosed income of the Assessee which was surrendered by the Assessee during the survey action and therefore, the same was to be assessed under the provisions of Section 68 to 69D of the Act. The above reasoning of the survey party is not in accordance with the relevant provisions of the Act. Therefore, we do not find any justification on the part of the ld. PCIT in invoking the Revisionary jurisdiction in this case.”

the deeming provisions is not that there were certain survey

operations u/s 133A and some undisclosed income has been

detected and surrendered by the Assessee and thus, the

deeming provisions are automatically attracted. Rather the

foundational requirement is whether the Assessee has made

the investment/has been found to be owner of cash and the

explanation offered by the Assessee explaining the nature

and source of such undisclosed income and the reasonability

of the explanation so offered by the Assessee keeping into

account the facts and circumstances of the relevant case. In

fact, if we look at the provisions of section 133A, clause (iii)

175-Chd-2023– Shri Krishan Kumar, Khanna 31

of sub-section (3) provides that an income tax authority

acting under this section shall record the statement of any

person which may be useful for or relevant to any

proceedings under this Act. Therefore, what explanation has

been offered by the Assessee as part of his statement

recorded u/s 133A needs to be analysed and examined before

drawing any conclusions in this regard.

during the course of survey, the Assessee has been asked

about the nature and source of his income and various

discrepancies so found during the course of survey. In

response, the Assessee has stated that he is running a sole

proprietorship business concern in name of M/s

RiwazJewellers, Khanna and allied products wherein he is

engaged in the business of trading of various kind of

jewellery, i.e., gold, silver and diamond and related

productsand all along, the same is his only source of income

and thereafter, he has been confronted with discrepancies in

terms of cash found excess as compared to what has been

recorded in the books of account, certain advances relating

to his business written in a rough diary and excess value of

stock as compared to what has been recorded in the books of

175-Chd-2023– Shri Krishan Kumar, Khanna 32

account. Therefore, we find that the Assessee has been

confronted with not just the discrepancy so found during the

course of survey but the nature and source thereof during

the course of survey proceedings and it is clearly emerging

that the source of such income is from his business

operations. There is a clear statement of the Assessee that

the advances are related to his business, however since the

same have not been recorded in the books of account, he has

offered the same to taxation. 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

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 and offered the additional

175-Chd-2023– Shri Krishan Kumar, Khanna 33

income as business income in his return of income and paid

due taxes thereon.

deeming provisions is not just the factum of survey action

but besides that, what is the explanation so offered by the

Assessee explaining the nature and source of income so

found during the course of survey proceedings and which

has not been recorded in the books of account and the same

is the essence of the statutory provisions as duly recognized

by the Courts and various Benches of the Tribunal and

which has been reiterated from time to time. The statement

of the Assessee has to be read as a whole and not in

piecemeal especially where the Revenue is relying on the

same statement and in such circumstances, the

defenceavailable to the Assessee in terms of part of the

statement not been considered by the Revenue cannot be

ignored. The mere fact that survey/search proceedings have

been initiated at the business premises of the Assessee

doesn’t mandate the Assessing officer to automatically

invoke the deeming provisions and before invoking the

deeming provisions, he has to call for the explanation of the

Assessee and only where the explanation so offered is not

175-Chd-2023– Shri Krishan Kumar, Khanna 34

found satisfactory, he can proceed and invoke the deeming

provisions.

04/08/2022), speaking through one of us, it was held by the

Chandigarh Bench of the Tribunal, that it is like laying a

general rule which is beyond the mandate of law that

wherever there is a survey and some income is detected or

surrendered by the Assessee, the deeming provisions are

attracted by default and by virtue of the same, provisions of

section 115BBE are attracted and the relevant findings read

as under:

175-Chd-2023– Shri Krishan Kumar, Khanna 35

specific findings as to the applicability of the relevant provisions and how the explanation called for and offered by the Assessee is not acceptable in the facts of the present case which is clearly absent in the instant case. Therefore, where the ld PCIT himself is not clear about the applicability of relevant provisions and in the same breath holding the Assessing officer to task by not invoking the said provisions is clearly shooting in the dark which cannot be sustained in the eyes of law and the order so passed therefore cannot be held as erroneous in the eyes of law.”

briefly, the facts of the case 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

175-Chd-2023– Shri Krishan Kumar, Khanna 36

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.

175-Chd-2023– Shri Krishan Kumar, Khanna 37

175-Chd-2023– Shri Krishan Kumar, Khanna 38

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,

175-Chd-2023– Shri Krishan Kumar, Khanna 39

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.

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.

175-Chd-2023– Shri Krishan Kumar, Khanna 40

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

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

175-Chd-2023– Shri Krishan Kumar, Khanna 41

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.”

of Bajargan Traders Vs. ACIT(Supra) has similarly held as

under:

175-Chd-2023– Shri Krishan Kumar, Khanna 42

“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

175-Chd-2023– Shri Krishan Kumar, Khanna 43

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.”

since been confirmed by the Hon’ble Rajasthan High Court in

case of PCIT vs Bajarang Traders (DB Appeal No. 258/2017

dt. 12/09/2017).

175-Chd-2023– Shri Krishan Kumar, Khanna 44

“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

175-Chd-2023– Shri Krishan Kumar, Khanna 45

Assessee had also surrendered income of Rs.10 lacs in assessment year 2005-06 on account of sundry credits, repairs to building and advances to staff, which being relatable to business carried on by the Assessee was already included as income from business. 13. In the present case, we see that the Assessing Officer has nowhere disputed the business losses incurred by the Assessee. The books have not been rejected. It was stated at the Bar that even at the time of survey, in the trading account prepared by the survey team, there were losses incurred by the Assessee. All these facts have not been disputed by the Assessing Officer. Further, the surrender made by the Assessee was on account of cash found during the course of survey, discrepancy in the cost of construction of building, discrepancy in stock and discrepancy in advances and receivables. By no stretch of imagination, any of these incomes apart from cash can be considered as income under any head other that the 'business income'. 14. Nowhere in his order the Assessing Officer has been able to bring on record the fact that the income surrendered during the course of survey was not out of the business of the Assessee. Also nowhere he has objected to the heads under which the Assessee had surrendered these amounts, i.e. cash, construction of building, discrepancy in stock and discrepancy in advances and receivable. Further, even the survey team has not found any source of income except the business income. Now, following the judgment of Jurisdictional High Court, in the background of the facts of the present case, we can safely infer that apart from cash all other income surrendered may be brought to tax under the head 'business income' while the cash has to be taxed

175-Chd-2023– Shri Krishan Kumar, Khanna 46

under the head deemed income under section 69A of the Act.” 27. 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 ITA No.408/Chd/2018, 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

175-Chd-2023– Shri Krishan Kumar, Khanna 47

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].” 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.

175-Chd-2023– Shri Krishan Kumar, Khanna 48

175-Chd-2023– Shri Krishan Kumar, Khanna 49

loose paper of Rs.10 lacs. Neither the nature of the discrepancies, nor any source relating to the same has been disclosed and, therefore, the same is also to be assessed as deemed income u/ss 69, 69A, 69B and 69C of the Act. 25. As far as the surrender of Rs.132 lacs made on account of sundry creditors and advances received from customers and Rs.198 lacs on account of gross profit on sale out of the books, both of them clearly are in relation to the business carried on by the Assessee and are thus in the nature of business income. Therefore, the set off of business losses, both current and brought forward are to be allowed as per the provisions of law. As far as the income surrendered and to be assessed u/s 69, 69A, 69B and 69C of the Act, as held above before us, the same is to be subjected to tax as per the provisions of section 115BBE of the Act.”

advances were relating to the business being carried on by

the Assessee. The ld CIT(A) has also returned a finding that

the advances were admitted as being related to business

activity of the Assessee. Where the same has been found

unrecorded in the books of account, the same has to be

brought to tax under the head “business income”.

175-Chd-2023– Shri Krishan Kumar, Khanna 50

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

175-Chd-2023– Shri Krishan Kumar, Khanna 51

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

175-Chd-2023– Shri Krishan Kumar, Khanna 52

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 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 ITA No. 106 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

175-Chd-2023– Shri Krishan Kumar, Khanna 53

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.” 30. Now, coming to the decision of Kim Pharma (P) Ltd. Vs.

CIT [2013] 35 taxmann.com 456 (P&H). Briefly the facts of

the case were that the survey under section 133A was

conducted at the business premises of the Assessee and

during the course of survey, cash amounting to Rs.

5,00,000/- was found which was surrendered by the

Assessee for A.Y 2006-07 and another amount of Rs.

10,00,000/- was surrendered for A.Y. 2005-06 on account of

sundry credits, repair to building and advances to staff. The

matter pertaining to A.Y 2006-07 came up for consideration

before the Coordinate Chandigarh Benches and taking note

of the statement of the General Manager of the Assessee

175-Chd-2023– Shri Krishan Kumar, Khanna 54

company recorded during the course of survey wherein he

had admitted the said cash has been generated out of income

from other sources and in the absence of nature of source of

cash being proved, it uphold the order of the CIT(A) in

including the additional income as deemed income u/s 69A of the Act and relevant findings read as under:

“9. In the facts of the present case before us, we find that unaccounted cash was found during the course of survey operation in the possession of the Assessee company and the same was surrendered as additional income for the year under appeal. The Assessee has failed to explain the nature and source of the said cash found which was not recorded in the books of account, though while surrendering the additional income it was admitted by the Manager of the Assessee company, in the statement recorded during the course of survey that the said additional income is its income from other sources. The Hon'ble Gujrat High Court in Fakir Mohmed Haj Hussain Vs 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

175-Chd-2023– Shri Krishan Kumar, Khanna 55

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. 9. The learned AR for the Assessee had placed reliance in CIT & Another Vs. S.K.Srigiri& Bros. (supra) for the proposition that even in cases of survey, the additional income surrendered is includible as income from business. In the facts of that case, we find that the Tribunal after considering the records and statement given by the partners of the Assessee firm, on facts, came to the conclusion that Assessee had received additional income from business only and not from other sources. The said conclusion of the Tribunal was upheld by the Hon'ble Karnataka High Court in CIT & another vs. S.K.Srigiri& Bros. (supra) and the remuneration paid to the partners was held allowable against the additional income form business. The said precedent has been taken note of by the Hon'ble Gujrat High Court.

175-Chd-2023– Shri Krishan Kumar, Khanna 56

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

175-Chd-2023– Shri Krishan Kumar, Khanna 57

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

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 instant case, as we have noted above, the Assessee in his

statement recorded during the course of survey has clearly

stated that he is running a sole proprietorship business

concern in name of M/s Riwaz Jeweller, Khanna and is

engaged in the business of trading of various kind of

jewellery, i.e., gold, silver and diamond and related products

and all along, the same is his only source of income and

thereafter, he has been confronted with discrepancies in

terms of cash found excess as compared to what has been

recorded in the books of account, certain advances relating

to his business written in a rough diary and excess value of

175-Chd-2023– Shri Krishan Kumar, Khanna 58

stock as compared to what has been recorded in the books of

account. Therefore, we find that the Assessee has been

confronted with not just the discrepancy so found during the

course of survey but the nature and source thereof during

the course of survey proceedings and it is clearly emerging

that the source of such income is from his business

operations. Thus, the decision of the Hon’ble High Court,

being rendered in the specific facts and circumstances of the

said case, doesn’t support the case of the Revenue in the

instant case.

of “Yadu Hari Dalmia v. Commissioner of Income Tax, Delhi

(Central)’, (supra) is at all applicable, does not stand made

out. If at all, it helps the Assessee rather than the

Department in as much as it holds that it is the duty of the

ITO to make exhaustive enquiries to gather some material as

the basis of the estimation. In the present case, on the other

hand, the proposition is that since the Assessee had

explained the surrendered income to be from its business,

the onus to prove otherwise shifted on to the A.O., as

discussed herein above.

175-Chd-2023– Shri Krishan Kumar, Khanna 59

entirety of the facts and circumstances of the case and

following the decisions supra, the income of Rs

1,00,00,000/- surrendered during the course of survey

cannot be brought to tax under the deeming provisions of

section 69 and 69A of the Act and the same has been rightly

offered to tax under the head “business income”. In absence

of deeming provisions, the question of application of section

115BBE doesn’t arise for consideration.

Order pronounced on 4th January,2024

Sd/- Sd/-

(VIKRAM SINGH YADAV) ( A.D. JAIN ) Accountant Member Vice President

Dated : 04.01.2024 “आर.के.”/Poonam आदेश क� ��त�ल�प अ�े�षत / Copy of the order forwarded to : 1. अपीलाथ�/ The Appellant 2. ��यथ�/ The Respondent 3. आयकर आयु�त/ CIT 4. �वभागीय ��त�न�ध, आयकर अपील�य आ�धकरण, च�डीगढ़/ DR, ITAT, CHANDIGARH 5. गाड�फाईल/ Guard File

आदेशानुसार/ By order, सहायक पंजीकार/ Assistant Registrar