M/S KULKARNI & SAHU BUILDCON PVT.LTD.,BHILAI(CG) vs. THE DY. COMMISSIONER OF INCOME TAX 1(1), BHILAI(CG)

आदेश / ORDER PER RAVISH SOOD, JM:

The present appeal filed by the assessee is directed against the order passed by the CIT(Appeals)-II, Raipur, dated 29.01.2016, which in turn arises from the order passed by the A.O. u/s. 143(3)of the Income-tax Act, 1961 (for short ‘Act’), dated 30.01.2015 for A.Y. 2012-13. The assessee has assailed the impugned order on the following grounds of appeal before us:

“1. (a). The Id. Commissioner of Income-tax erred in confirming that the income surrendered during survey is assessable as 'undisclosed income' u/s 69 of the Act. (b) The decision of the jurisdictional High Court followed by him nowhere says that such income is to be assessed as 'undisclosed income'. (c) Sec. 69 speaks only of 'deemed income' in relation to unexplained investment. (d) The only source of income of the appellant is business in civil contracts and road works. (e) The excess stock is irretrievably linked only and wholly to such business. (f) Entries as regards the impugned investments have been recorded in the books of account and accepted as correct. (g) There is no separate Head of Income under which deemed income can be taxed. 2. (a) The Id Assessing Officer has not identified any instance of unverifiable or inadmissible nature of entries in the audited books of accounts that was produced before him. (b) Mere variance in rate of net profit is not a ground for making estimated additions.

3 M/s. Kulkarni & Sahu Buildcon Pvt. Ltd. Vs. Deputy Commissioner of Income Tax-1(1) ITA No. 30/RPR/2016

(c) The very fact that the AO has made the addition for "possible" leakage shows that he was guided by mere conjecture and surmises. 3. (a) The Id CIT(A) has misread and misinterpreted the order of the jurisdictional High Court, firstly to describe the surrendered income as 'undisclosed income' and, then to hold that the claim of depreciation on the 'undisclosed income' is not maintainable. (b) That the shuttering materials were being used for business is an undeniable fact that was verified at the time of survey. 4. (a) The Id Assessing Officer has not identified any instance of unverifiable or inadmissible nature of entries except in general terms.

4 M/s. Kulkarni & Sahu Buildcon Pvt. Ltd. Vs. Deputy Commissioner of Income Tax-1(1) ITA No. 30/RPR/2016

Also, it was noticed by the A.O that the survey team had came across excess stock of building material, which included shuttering material of a value of Rs.24.60 lac. On the basis of the aforesaid facts as had emerged in the course of the survey operation, the assessee was called upon to put forth an explanation both as regards the difference in the value of WIP of Rs.30,71,500/-(supra), and also the source of investment made in shuttering material of Rs.24.60 lac (supra). As the assessee failed to come forth with any explanation as regards the difference of Rs.30,71,500/- (supra) qua the excess WIP that had surfaced in the course of survey operation, therefore, the same being in the nature of unexplained investment was surrendered by it as its undisclosed income for the year under consideration. Apropos the value of shuttering materials of Rs.24.60 lacs (supra), as the assessee stood at a no better footing and failed to explain the source of the investment made in the same, therefore, the investment to the said extent was also surrendered by it as its undisclosed for the year under consideration.

5 M/s. Kulkarni & Sahu Buildcon Pvt. Ltd. Vs. Deputy Commissioner of Income Tax-1(1) ITA No. 30/RPR/2016

separately in its computation of income. The A.O was of the view, that as the excess stock or unexplained investment or cash surrendered during the course of survey operations was nothing but the accumulation of the profits of the assessee, which it had been systematically enjoying, and hence on being detected was surrendered in the course of survey operation as undisclosed income, thus, the same was liable to be assessed as the assessee’s undisclosed income against which no deduction for any expenditure would be allowable. On the basis of his aforesaid conviction, the A.O excluded the amount of the undisclosed income surrendered by the assessee from its declared net profit and brought the same to tax separately as its income under the head “business income” u/s.69 of the Act. In support of his aforesaid view, the A.O had relied on the judgment of the Hon’ble High Court of Chhattisgarh in the case of Dhanush General Stores Vs. CIT (2011) 339 ITR 651 (CG).

6 M/s. Kulkarni & Sahu Buildcon Pvt. Ltd. Vs. Deputy Commissioner of Income Tax-1(1) ITA No. 30/RPR/2016

survey proceedings was credited in the profit & loss account, therefore, there was no justification in recasting the financial results and drawing adverse inferences in its hands. Apart from that, it was the claim of the assessee that as the business/market condition in all the years cannot be found to be uniform/static, therefore, on the standalone basis that there was a decline in NP rate no adverse inferences could be drawn in its hands. However, the aforesaid explanation of the assessee did not find favor with the A.O. Considering the aforesaid facts, the A.O observing the rejection of books of account as per various judicial pronouncements was held to be proper when the purchases were not entered in the books of accounts therefore, he though without specifically rejecting the books of account of the assessee, but at the same time not finding favor with its undisclosed NP rate 4.04%, therein, in order to avoid possible leakage of revenue made a lump sum addition of Rs.3 lacs to its disclosed book results. Also, the assessee’s claim for deduction of depreciation of Rs.1,84,500/- on shuttering materials was declined by the A.O. The A.O after, inter alia, making the aforesaid additions/disallowance, vide his order passed u/s.143(3) dated 30.01.2015 assessed the income of the assessee company at Rs.1,71,93,370/-.

7 M/s. Kulkarni & Sahu Buildcon Pvt. Ltd. Vs. Deputy Commissioner of Income Tax-1(1) ITA No. 30/RPR/2016

8 M/s. Kulkarni & Sahu Buildcon Pvt. Ltd. Vs. Deputy Commissioner of Income Tax-1(1) ITA No. 30/RPR/2016

“3. In the return filed it is seen that the assessee has credited the surrendered income of Rs.30,71,500/- and Rs.24,60,000/- totaling to Rs.55,31,500/- in Trading/works a/c. and not shown separately in the computation of income. It may be mentioned here that the excess stock or unexplained investment or cash surrendered during the course of survey operations was nothing but the accumulation of the profits which the assessee has been systematically enjoying and hence such differences detected during the survey and surrendered as undisclosed income is assessable as undisclosed income………..” (emphasis supplied by us) Ostensibly, the aforesaid observation of the A.O in a way relates the amount surrendered by the assessee during the course of survey operation to the accumulated profit which the assessee had been systematically enjoying and thus, by no means could solely be related to the year under consideration. In fact, the aforesaid observation of the A.O finds support from the judgement of the Hon’ble Supreme Court in the case of Anantharam Veerasingaiah & Co. vs Commissioner of Income Tax, (1980) 123 ITR 457 (SC). It was observed by the Hon’ble Supreme Court that secret profits or undisclosed income of an assessee earned in an earlier assessment year may constitute a fund, even though concealed, from which the assessee may draw subsequently for meeting expenditure or introducing amounts in his account books.

9 M/s. Kulkarni & Sahu Buildcon Pvt. Ltd. Vs. Deputy Commissioner of Income Tax-1(1) ITA No. 30/RPR/2016

the course of survey proceedings had rightly been offered by the assessee as its business income?

10 M/s. Kulkarni & Sahu Buildcon Pvt. Ltd. Vs. Deputy Commissioner of Income Tax-1(1) ITA No. 30/RPR/2016

the assessee. In so far the judgment of the Hon’ble High Court of Chhattisgarh in the case of Dhanush General Stores Vs. CIT (2011) 339 ITR 651 (CG) that had been relied by the A.O is concerned, we are of the considered view that the same is clearly distinguishable on facts. Unlike the facts involved in the case before the Hon’ble High Court in the case of Dhanush General Stores Vs. CIT (supra), wherein the amount surrendered by the assessee was though shown in the Profit & loss account but did not form part of its returned income. In the case present case before us, the amount surrendered was not only considered in the assessee’s Profit & loss account but also formed part of its taxable returned income. On the said aspect, neither any fact to the contrary is available on record nor anything to the contrary had been brought to our notice by the Ld. DR in the course of hearing of the appeal. Considering the aforesaid facts, we are of the considered view that the undisclosed income of Rs.55,31,500/- (supra) surrendered by the assessee during the course of survey operation had rightly been offered to tax by the assessee under the head “business income”, and in light of the clearly established source of the corresponding investment the same could not have been held to be the deemed income of the assessee under Section 69 of the Act. Our aforesaid conviction is all the more fortified by the order of the Tribunal in the case of M/s. Shree Sita Udyog Vs. DCIT & Ors, Bhilai in ITA No. 249 to 255/RPR/2017, dated 22.07.2022 wherein, involving identical facts, it was observed by the

11 M/s. Kulkarni & Sahu Buildcon Pvt. Ltd. Vs. Deputy Commissioner of Income Tax-1(1) ITA No. 30/RPR/2016

Tribunal that the amount surrendered by the assessee qua the investment in the excess stock was liable to be taxed under the head “business income” and not under the head “income from other sources”. For the sake of clarity the relevant observations of the Tribunal in the aforesaid case are culled out as under: “ 8. We have heard the rival contentions, perused the material available on the records. In principle, we find force in the argument and contentions of the Ld AR on the following aspects: a. Ld AO himself has observed that the Excess Stock or Unexplained investment or cash surrendered during the course of survey operations was nothing but the accumulation of profits which the assessee has been systematically enjoying and hence difference detected during the survey and surrendered as undisclosed income is assessable as undisclosed income, thereby, has admitted that the undisclosed stock was part of the business of assessee. b. From the order of Hon’ble Jurisdictional High Court in the case of Dhanush General Store (Supra) it is emerged that the assessee has shown the income trading and P&L account but not in computation of income. However, in the present case which is distinguished on the facts and verifiable from the records that the amount surrendered was duly considered in the Audited P&L account and finally was became part of the taxable income in the computation of income. c. During the survey Statement of Mr Suresh Kumar Agarwal as a partner of the assessee partnership firm were taken on oath u/s 131 of the Income Tax Act. Q no 3 and answer given are relevant, which was place in paper book of the assessee at page 9-12, the same is reproduced as under: �.3-losZ{k.k ds nkSjku fnukad 17@01@2012 dks vkids daiuh ds O;kolkf;d@QSDVjh ifjlj esa miyC/k LVkWd dk vkids le{k ,oa vkids deZpkfj;ksa dh enn ls HkkSfrd lekiu dj lwph rS;kj dh xbZ HkkSfrd lekiu ij ik;s x;s LVkWd dk vkids }kjk losZ{k.k fnukad 17@01@2012 rd dh fn;s x;s VªsfMax ,dkmUV esan tZ Closing Stock ls feyku djus ij fuEukuqlkj fLFkfr ifjyf{kr gksrh gS %&

LVkWd dk HkkSfrd lR;kiu [kkrs cgh ds vuqlkj HkkSfrd lR;kiu LVkWd ij vf/kd ik;k fooj.k ijLVkWd

12 M/s. Kulkarni & Sahu Buildcon Pvt. Ltd. Vs. Deputy Commissioner of Income Tax-1(1) ITA No. 30/RPR/2016

x;k LVkWd

/kku 23108-00 fDo- 19778-31 fDo- 3329-70 fDo- pkoy 7849-74 fDo- 7276-99 fDo- 572-75 fDo-

mijksDrkuqlkj HkkSfrd lR;kiu Ik”pkr 3329-70 fDo- /kku ,oa 572-75 fDo- pkoy dk LVkWd cgh [kkrs esa ntZ LVkWd ls vf/kd ik;k x;kA mDRk vf/kd ik;s x;sL VkWd dk vkids }kjkc rk;sx;s ewY;@cktkj ewY; ds vk/kkj ijf uEukuqlkj ewY;kadu fd;k x;k& LVkWd nj¼:-@fDoa-½ DqyewY; /kku 3329-70 fDoa- :- 1050@& :- 3496185@& (I) pkoy 572-75 fDoa- :- 1750@& :- 1002313@& (II) :- 44]98]498@&

d`i;k bl vf/kd ik;s x;s :- 44]98]498@&ewY; ds LVkWd ckor viuk Li’Vhdj.k lk{; lfgr nsaA m- & bl ckor~ Bhd&Bhd Li’Vhdj.k nsus esa eS vleFkZgwW Agks ldrk gSf d cgh [kkrs esa LVkWd laca/kh izfof’V;ka djrs le; dqN izfof’V;ka =qfVo”k NwV xbZ gksaA esajsikl bl ckor dksbZ lk{; ughagSA vr% loS{k.k ds nkSjku bl vf/kd ik, x, :- 44]98]498@&ewY; ds LVkWd dh jde dks pkyw fo=h; o’kZ 2011&12 dh QeZ dh v?kksf’kr vk; esa ls LVkWd esa fuos”k (Investment)eku rs gq,] dj fu/kkZj.k o’kZ 2012&13 ds fy, djk/kku gsrq izLrqr djuk pkgrk gwWArFkk mDr v?kksf’kr Investment @vk; :- 44]98]498@&ijf u;ekuqlkj vfxze dj dk Hkqxrku djus dk opu ns rkgwWA 9. On perusal of the above question and answer offered by the assessee during the survey proceedings, it is very clear that the excess stock was found in the business premises of the assessee on physical verification by the survey team with the help of employees of the assessee. Assessee, without objecting to the figures of excess stock arrived at by survey team accepted the same and offered the same asundisclosed income for the current year. In this context, we are of the considered view that since the excess stock of rice and paddy are the commodities

13 M/s. Kulkarni & Sahu Buildcon Pvt. Ltd. Vs. Deputy Commissioner of Income Tax-1(1) ITA No. 30/RPR/2016

in which the assessee was dealing under his regular business and accordingly any surrender on account of mismatch in physical stock and accounting balance of the stock cannot be treated as income from the other source, the same has to be brought to tax under income from business, which the assessee has rightly done. Our view on this aspect has a concurrence from the finding of Hon’ble Rajasthan High Court in the case of CIT Vs. Bajrang Traders, which is discussed here under in the coming paras. Relevant Case laws and findings : i) Sagar Samrat Vs. ACIT, ITA No.546/Pun/2017, order dated 27.10.2020, wherein the Pune Bench of the Tribunal has held as under :- 4. Having heard both the sides through virtual court and gone through the relevant material on record, it is found as an admitted position that during the course of survey at the business premises of the assessee certain excess cash, excess stock and undisclosed advances receivable totaling Rs.50.25 lakh and odd were found and the assessee offered the same as additional income. On such declaration, necessary entries were passed and the amount was credited to the Profit and loss account at the time of finalization of accounts and also offered it for taxation. The assessee worked out the amount of partners' remuneration by including such surrendered amount. The AO came to hold that such surrendered amount was separately taxable under sections 69/69A and hence does not fall under Chapter IV-D dealing with the income under the head `Profits and gains of business or profession'. 5. Section 40(b) of the Act provides for allowing remuneration and interest to partners on the amount of `book-profit'. This expression has been defined in Explanation 3 to mean `the net profit, as shown in the profit and loss account for the relevant previous year, computed inthe manner laid down in Chapter IV- D...'. The crux of the controversy is to ascertain whether the income offered by the assessee is covered u/ss 69/69A of the Act as held by the AO or can be classified as `Business income' as claimed by the assessee. 6. Section 69 provides that: `Where in the financial year immediately preceding the assessment year the assessee has made investments which are not recorded in the books of account, if any, maintained by him for any source of income, and the assessee offers no explanation about the nature and source of the investments or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the value of the investments may be deemed to be the income of the assessee of such financial year.'. Section 69A is also almost similarly worded to this extent by providing 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

14 M/s. Kulkarni & Sahu Buildcon Pvt. Ltd. Vs. Deputy Commissioner of Income Tax-1(1) ITA No. 30/RPR/2016

income, and the 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.'. 7. At this juncture, it is significant to take note of section 14 of the Act, with the caption `Heads of income', which provides that : `Save as otherwise provided by this Act, all income shall, for the purposes of charge of income-tax and computation of total income, be classified under the following heads of income..'. There are five heads, which include `Profits and gains of business or profession'. Sections 69 and 69A fall under the Chapter VI of the Act with sub- head `Aggregation of income'. From the language of these sections as reproduced supra, it is overt that they deal with deeming unexplained investments and unexplained money etc. as income of the financial year in which the assessee has made unexplained investments or found to be owner of unexplained money etc. These provisions do not provide for any separate head under which such incomes are to be covered. On a conjoint reading of section 14 porunaparte and sections 69/69A porotraparte, it turns out that such incomes have to be classified under one of the five heads. This proposition of law has been judicially recognised in certain decisions including CIT VS. Shilpa Dyeing & Printing Mills (P.) Ltd. (2013) 219 Taxman 279 (Gujarat). 8. It is observed that the survey was conducted at the business premises of the assessee. Excess cash, stock and unrecorded advances were found from the business premises only. The AO has not referred to any other source of income of the assessee-firm apart from the business carried on by it. In such circumstances, the only circumstantial inference that can be drawn is that the excess cash, stock and advances were generated from the income earned from the business carried on by the assessee, therefore, also justifying treating such amount as `Business income'. 9. Earning an income and spending it are two different things. Income earned is indicative of the source of income and not its destination in the end utilization. If suppose some income from business is earned outside the books of account and the same is invested in purchase of some immovable non-business property, we will determine the source of income by seeing wherefrom the income was earned and not where it was spent. Adverting to sections 69/69A of the Act, it is noticed that these are attracted when : `the assessee offers no explanation about the nature and source of the investments ....'. Emphasis in this provision is on the non- satisfactory explanation about the source of investment and not the investment itself. Amount of investment is only a measure for quantifying the amount of addition. Raison d'etre for the addition is not giving any satisfactory explanation about the source of income, which was used for investment. If source is explained, there can be no addition on account of investment.

15 M/s. Kulkarni & Sahu Buildcon Pvt. Ltd. Vs. Deputy Commissioner of Income Tax-1(1) ITA No. 30/RPR/2016

16 M/s. Kulkarni & Sahu Buildcon Pvt. Ltd. Vs. Deputy Commissioner of Income Tax-1(1) ITA No. 30/RPR/2016

17 M/s. Kulkarni & Sahu Buildcon Pvt. Ltd. Vs. Deputy Commissioner of Income Tax-1(1) ITA No. 30/RPR/2016

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 u/s 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. Jajihasan (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 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. 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.” 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

18 M/s. Kulkarni & Sahu Buildcon Pvt. Ltd. Vs. Deputy Commissioner of Income Tax-1(1) ITA No. 30/RPR/2016

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 regularize 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. 3.2. The ld. AR of the assessee submitted that at the outset, it may be noted that the AO has made addition on account of notional interest of Rs. 1,39,366/-. There cannot be any addition on account of notional income as held by the Hon’ble Supreme Court in case of E.D. Sassoon & Co. &Ors. vs. CIT (1954) 26 ITR 27 and Godhra Electricity Co. Ltd. vs. CIT (1997) 225 ITR 746 where it was held that only real income can be taxed, hypothetical income cannot be taxed nor income can be taxed in vacuum. Therefore, the addition made by the AO

19 M/s. Kulkarni & Sahu Buildcon Pvt. Ltd. Vs. Deputy Commissioner of Income Tax-1(1) ITA No. 30/RPR/2016

is not as per law and the same be deleted. The ld. CIT(A) has confirmed the addition by stating that it is the disallowance of interest. It is submitted that the lower authorities have not disputed about the commercial expediency about the advance given to Smt. Rita Gupta. In fact, the advance was given to Smt. Rita Gupta in earlier years for construction of godown and the same was given on rent by the assessee. Therefore once commercial expediency for giving the advance is established, no part of the interest expenditure can be disallowed in view of the decision of Hon’ble Supreme Court in case of S.A. Builders 288 ITR 1 and Hero Cycles Pvt. Ltd. vs. CIT 379 ITR 347 where it was held that the Revenue cannot justifiably claim to put itself in the armchair of the businessman or in the position of the Board of Directors and assume the role to decide how much is reasonable expenditure having regard to the circumstances of the case. If further held that no businessman can be compelled to maximize his profit and that the income tax authorities must put themselves in the shoes of the assessee and see how a prudent businessman would act. The authorities must not look at the matter from their own viewpoint but that of a prudent businessman. Further, in past, no such disallowance/addition was made. Therefore, neither the addition of notional interest made by the AO or disallowance of interest as held by the ld. CIT(A) is Rs. 1,96,73,637/-. Partners are paid interest @ 12% the balance in the partners account is much more than the amount advanced to Smt. Rita Gupta who is a wife of one of the partner. Therefore, even the disallowance made @ 4% is not justified and the same should be restricted @ 2% only. Reliance is also placed on the following cases. CIT vs. Ram Kishan Verma (2016) 132 DTR 107/132 Taxman 107 (Raj.)(HC) CIT vs. Vijay Solvex Ltd. (2015) 113 DTR 382 (Raj.) (HC) 4. We are in complete agreement with the view taken by the Tribunal. No substantial question of law arises. 10. In view of the above judicial pronouncements as well as the facts and circumstances of the case, we are of the opinion that the investment in the excess stock ought to be taxed under the head “business income” and not under the head “income from other sources”. Accordingly, we set aside the orders of the authorities below and direct the AO to delete the

20 M/s. Kulkarni & Sahu Buildcon Pvt. Ltd. Vs. Deputy Commissioner of Income Tax-1(1) ITA No. 30/RPR/2016

addition. Thus, we allow the sole ground of assessee and consequently appeal of the assessee in ITA No.249/RPR/2017 is allowed. 11. Since the issues in all the appeals are similar and identical, except variation in figures, therefore, our observations made in ITA No.249/RPR/2017 shall be applied mutatis mutandis to the other appeals also i.e. to ITA Nos.250-255/RPR/2017. Accordingly, ITA Nos.250- 255/RPR/2017 are allowed. ” We, thus, in terms of our aforesaid observations, are of the considered view, that the assessee had rightly offered the undisclosed income of Rs.55, 31,500/- (supra) that was surrendered by it during the course of survey proceedings to tax under the head “business income”. Accordingly, on the basis of our aforesaid observations, we set-aside the view to the contrary drawn by the lower authorities. Thus, the Ground of appeal No.1 raised by the assessee is allowed in terms of our aforesaid observations.

21 M/s. Kulkarni & Sahu Buildcon Pvt. Ltd. Vs. Deputy Commissioner of Income Tax-1(1) ITA No. 30/RPR/2016

view that the same had witnessed a steep decline as in comparison to that of the immediately preceding year. Although, it was the claim of the assessee that the undisclosed income surrendered during the course of the survey action formed part of its net profit for the year under consideration, but the said contention did not find favor with the A.O. Also, the claim of the assessee that the uniformity in the profit considering the fluctuating business/market condition cannot be accepted over the years was also not accepted by the A.O. It was observed by the A.O that various courts/forums had observed that where purchases were not properly entered in the books of account, then the same were liable to be rejected. Although the A.O had not specifically rejected the books of account of the assessee in the body of the assessment order, but had made a lumpsum addition of Rs.3 lacs to its returned income in order to cover possible leakage of the revenue to some extent.

22 M/s. Kulkarni & Sahu Buildcon Pvt. Ltd. Vs. Deputy Commissioner of Income Tax-1(1) ITA No. 30/RPR/2016

23 M/s. Kulkarni & Sahu Buildcon Pvt. Ltd. Vs. Deputy Commissioner of Income Tax-1(1) ITA No. 30/RPR/2016

corrected state of affairs was incorporated in the books oh account that were set in order. In fact, it is a matter of fact borne from record that the A.O had made a lumpsum addition of Rs.3 lac (supra) only for the reason that as per him NP rate of 4.04% (recasted) was lower than that of the preceding year. In our considered view, in absence of any infirmity in the books of account of the assessee company as were there before the A.O in the course of the assessment proceedings, there was no justification on his part to have drawn adverse inferences as regards the disclosed business results in the hands of the assessee company. We, thus, in terms of our aforesaid observations not finding favor with the ad-hoc disallowance of Rs.3 lac (supra) made by the A.O, vacate the same. Thus, the Ground of appeal No.2 raised by the assessee is allowed in terms of our aforesaid observation.

24 M/s. Kulkarni & Sahu Buildcon Pvt. Ltd. Vs. Deputy Commissioner of Income Tax-1(1) ITA No. 30/RPR/2016

of depreciation is allowed in terms of our aforesaid observation. Thus, the Ground of appeal No.3 raised by the assessee is allowed in terms of our aforesaid observation.