SHRI TEJPAL SINGH,AMRITSAR vs. ASSISTANT COMMISSIONER OF INCOME TAX CENTRAL CIRCLE, AMRITSAR

ORDER Per: Anikesh Banerjee, JM: The instant appeal of the assessee was filed against the order of the ld. Commissioner of Income-tax (Appeals)-5, Ludhiana,[(in brevity ‘the CIT(A)’] order passed u/s 250(6) of the Income-tax Act, 1961 (in brevity the Act) for assessment year 2018-19. The impugned order was emanated from the order of the ld. Asstt. Commissioner of Income Tax, Central Circle, Amritsar (in brevity the AO) order passed u/s 143(3) of the Act.

“1) The learned Assessing officer has erred both in law and as per facts in making an addition of Rs.7,12,805/- under section 69A of the Income Tax Act 1961 on account of availability of excess cash is not directly relatable to the business. The assessee during the course of proceedings have fully substantiated that the excess cash represents the sale of medicine in normal course of business not recorded in the books of accounts. The Worthy Commissioner of the Income Tax (Appeals) has further erred both on facts and in laws in upholding the action of the learned Assessing Officer.

2) The learned Assessing officer has further erred both in law and as per facts to tax the same under the provisions of Section 115BBE of the Income Tax Act, 1961. As the assessee during the course of proceedings have fully substantiated that the excess cash represents the sale of medicine in normal course of business not recorded in the books of accounts. So invoking of Section 115BBE is not as per law. The Worthy Commissioner of the Income Tax (Appeals) has further erred in laws in upholding the action of the learned Assessing Officer.

3) The appellant craves leave to add, alter or amend the grounds of appeal at later stage.”

3. The brief fact of the case is that the assessee is a trader of medicines and other allied product. A survey was conducted u/s 133A on dated 14.03.2019 at the assessee’s premises of M/s Simran Medicos. During survey proceeding the statement of the assessee was recorded. The assessee surrendered amount of Rs.50,38100/- out of which Rs.43,25,285/- was recorded to excess stock found during the survey and Rs.7,12,805/- related to excess cash found from the business premises of the assessee during the survey. In the books assessee declared cash Rs.40,550/- on the date of survey. During survey the cash of amount to Rs.7,53,355/- was found by the survey team. Therefore, the balance amount which works out to Rs.7,12,805/- was added with the total income u/s 69A of the Act. Accordingly, the tax was levied on this amount u/s 115BBE(2) of the Act. Aggrieved assessee filed an appeal before the ld. CIT(A). But the ld. CIT(A) upheld the order of the ld. AO related to imposing of section 115BBE on the excess cash. Being aggrieved assessee filed an appeal before us.

“Q No. 12- Whether you have purchased any immovable property during the last 6 years in your name or in the name of your family member?

Ans.- No, I have not purchased any immovable property in my name or in the name of my family members during the last 6 years”.

Q No. 23- Cash as per books of accounts as stated by you is Rs.40,550/- where as cash of Rs.7,53,355/- please explain the excess cash lying at your shop”?

Ans.- The excess cash of Rs.7,12,805/- is from sale of medicines which are not recorded in the books.”

4.1 The ld. AR further argued that the revenue had not found any other source of income related to assessee for generation of cash in the business premises.

Further the assessee has the excess stock amount to Rs.43,25,285/- which was surrendered during the survey. So, the entire cash was generated by sale of medicines from the undisclosed stock. Therefore, the nature of cash is from business not from any other sources.

4.2 The ld. AR relied on the order of the ITAT Amritsar Bench in the case of Deepak Setia vs. DCIT (2023) 155 Taxmann.com 293 (Asr Trib.). The relevant paragraphs are reproduced as below: -

“6. We heard the rival submission and considered the documents available in the record. During survey proceeding the assessee surrendered total income of Rs. 29 lacs out of which amount to Rs. 14,23,000/- was related to other discrepancies/miscellaneous business income which was treated as income u/s 69A and calculated tax under special rate during assessment. There entire addition is certainly without forming proper basis for conversion into business income to non-business income. The revenue was not able to submit any evidence during assessment and appeal proceeding that the said income is not connected with the business income of the assessee or accumulated from non-recognising source. Hence, when all the incomes earned by the assessee are only from the business income of the assessee, there do not arise any question as to application of provisions of section 69A of the Act and hence taxing such income at special rate as per section 115BBE is improper. It is a settled principle in law that when there is no other/separate source of income identified during the course of survey or during the course of assessment proceedings, any income arising to the assessee shall be treated to be out of the normal business of the assessee only.

During survey proceeding the assessee filed surrendered letter dated 27-2-2019 and in statement assessee also recorded and income was surrendered. We respectfully relied on the order of the ITAT, Chandigarh Bench in the case of Harish Sharma & Sham Jewellers (supra) and the order of Hon'ble Calcutta High Court in the case of Daulatram Rawatmull (supra). In considered view, the conversion of business income into other income and application of section 69A is bad and illegal. Accordingly, levy of tax u/s 115BBE on the income amount to Rs.14,23,000/- liable to be quashed.

7. In the result, the appeal of the assessee bearing is allowed.”

4.3 The ld. AR further relied on the Sharp Chuks and Machines (P.) Ltd. Vs. DCIT, CC-1 (2023) 156 Taxmann.com 53 (Amritsar-Trib.).The relevant paragraphs are reproduced as below: -

“7. From the record, it is evident that the expenditure incurred for creating a business asset must have been generated through the business carried out by the assessee and that expenditure laid out for the purpose of business is to be allowed deduction either as expenditure or to be capitalized on which depreciation will be allowed. In the present case, to the extent of the expenditure incurred for construction of the building, out of unexplained source is concerned, it is to be construed as income earned from the business and it will take character of the business income. The case law relied upon by the Ld. CIT(A) is distinguishable on the facts as in that case the amount surrendered during survey was not reflected in the books of account and the source from where it was derived was not declared/explained whereas in the present case the amount surrendered during survey was duly reflected in the books of account and the source it was declared/explained as business activity with due payment of Tax liability and the authorities below failed to prove the contrary to disprove source of income other than Business income.”

4.4 The ld. AR respectfully relied on the CIT vs. Smt. Sudarshan Gupta (2008) 10 DTR (P & H) 184

“So in the light of the judgment passed by the Hon'able jurisdictional High Court as stated above if department has agreed to the surrender they should also assess the surrender amount as business Income and taxed the Income at Normal rate of Tax as per surrender letter & provision of Sec 115BBC read with Sec 69 should not be invoked.

It has been held by the Hon’able Jurisdiction High Court of Punjab and Haryana that “The Statement of surrender has to be accepted in TOTO or it has get to be ignored”.

“5.1.12 Accordingly, the arguments of the AR that the surrendered income is to be treated as business income of the assessee is not acceptable and the additions made u/s 69A is to be treated separately and it would not be possible to classify such deemed income falling under Chapter-VI, under any of the heads including ‘income from other sources’ but they will be aggregated along with the incomes computed under Chapter IV. The AR has not been able to adduce documentary evidence to establish the nexus between the surrendered income and business and no source for the surrendered income could not relate to. The judgments cited supra i.e.:

(1). Fakir Mohammed Haji Hasan Vs. CIT ([2001] 247 ITR 290 (Guj.)

(2) PCIT vs. M/s. Khushi Ram & Sons Pvt. Ltd., the Hon'bie High Court of Punjab & Haryana in of 2015 dated 21.07.2016

(3) SVS Oil Mills vs. ACIT, Chennai, the Hon’ble High Court of Madras in of 2018 dated 26.03.2019

(4) Kim Pharma Pvt. Ltd. vs. CIT in of 2011 dated 27.04.2011,

(5) The Hon’ble Supreme Court in the cases of Roshan Di Hatti vs. CIT [1977] 107 ITR 938 (SC)

(6) Hon’bie ITAT Cochin Bench, Cochin in the case of M/s. Bhima Jewellers vs. PCIT Kozhikode in Assessment Year 2013-14 also bring out a clear legal position that for any income to be treated as business income, the nexus/the source, has to be established. Hence, the action of the AO in applying the rate as prescribed u/s 115BBE on the surrendered income included in the ITR, treated by the AO as income u/s 69A 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. 7,12,805/- on account of excess cash found during the survey as deemed income u/s 69A and to be taxed as per provisions of Section 115BBE of the Income Tax Act, 1961 and hence the same is confirmed.

Accordingly, these grounds of appeal are dismissed.”

Ltd. vs. CIT (2013) 35 taxmann.com 456 (P & H).

6.1 We respectfully considered the order of the jurisdictional High CourtKim Pharma (P.) Ltd(supra) but the case is not factually same with the assessee’s case. In fact of the Kim Pharma (P) Ltd the source was unexplained by the assessee. In impugned appeal the assessee has accepted the source of cash from business transaction. We respectfully relied on the order of theSmt. Sudarshan Gupta(supra) and followed accordingly.The ld. AR respectfully relied on the order of the ITAT Amritsar Bench in the case of Deepak Setia (supra) and Sharp Chuks and Machines (P.) Ltd (supra). The order was delivered by the same combination of the ITAT Amritsar Bench. The revenue was unable to show any other sources related to excess cash found in the survey. During statement recorded in survey the assessee clearly declared that the assessee had not made any investment in immovable property within 6 years and the entire amount of the excess cash was generated from undeclared sale of medicine. So, the source of excess cash is from business. Therefore, we are setting aside the impugned appeal order. Accordingly, the application of section 115BBE an amount of Rs.7,12,805/- is bad in law. Hence, the assessee will be assessed related to excess cash under normal rate of tax not U/s 115BBE of the Act.

Order pronounced in the open court on 06.12.2023