M/S SHANKAR RICE & GENERAL MILLS ,MOGA vs. DEPUTY COMMISSIONER OF INCOME TAX CIRCLE, MOGA

order of the ld. Commissioner of Income Tax (Appeals)-5, Ludhiana dated 12.05.2023 in respect of Assessment Year: 2017-18.

Shankar Rice & Gen. Mills v. Dy. CIT 2. The assessee has raised the following grounds of appeal:

“1. That order passed u/s 250(6) of the Income Tax Act, 1961 by the learned Commissioner of Income Tax (Appeals)-5, Ludhiana is against law and facts on the file in as much as he was not justified to uphold action of the learned Assessing Officer in treating the additional income of Rs.39,99,973/- offered as business income during the course of survey u/s 133A to be taxed as deemed income u/s 69 and 69A r.w.s. 115BBE.”

Rice Bran, Phak and Chilka. As per AO, survey u/s 133A of the Income Tax Act, 1961 was conducted on 21.09.2016 where certain discrepancies were noticed and pointed out to the assessee. As per AO, the assessee failed to explain the discrepancies and offered an additional income of Rs. 39,99,973/- for taxation for the F.Y. 2016-17 relevant to the A.Y. 2017-18.

Subsequently, the assessee filed its return of income for the A.Y.2017-18 on 13.10.2017 declaring income of Rs. 68,63,820/. The AO further stated that the discrepancies found during survey were duly confronted in the statement of Sh. Parveen Kumar S/o Sh. Mehar Chand, partner of the Shankar Rice & Gen. Mills v. Dy. CIT assessee firm recorded during survey. The AO further mentioned that the assessee could not explain the nature of discrepancies and sources and offered the amount of Rs. 39,99,973/- (Rs. 18,44,953/- on account of excess stock, Rs. 12,78,270/- on account of receivables and Rs. 8,76,750/- on account of cash in hand) as additional income for the F.Y. 2016-17 relevant to A.Y.2017-18. Therefore, as per AO, the assessee had categorically admitted the undisclosed income amounting to Rs. 39,99,973/- for the A.Y.2017-18 during the course of survey conducted on 21.09.2016. The statement recorded of Sh. Parveen Kumar, partner of the assessee firm, during the course of survey also corroborates this admission as the assessee was unable to explain the source of the aforesaid unaccounted income detected for the F.Y. 2016-17 relevant to A.Y.2017-

Shankar Rice & Gen. Mills v. Dy. CIT respectively and as such held to be deemed income within the meaning of Section 69/ 69A of the Act.

“5.1 Ground of Appeal No. 1: This ground relates to charging of AO of the surrendered income of Rs. 39,99,973 u/s 69 & 69A of the Act and taxing the same u/s 115BBE of the Income Tax Act, 1961. The said surrender was made during the course of survey on account of discrepancies noticed under the head advances/ receivables, stock and cash in hand of the assessee. The AR in his submissions has tried to justify the same as unexplained investment out of the business income of the assessee. The AR has claimed that the appellant is not having any other source of income, but income arising from business. Further, the AR has relied upon judgments as quoted in his submissions.

5.1.1 The contentions of the assessee have been examined. 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 Hon'ble High Courts/Ld. Tribunal Benches have very clearly held out that the AO shall give an opportunity to the assessee to establish a linkage between the surrendered income with the business income, if any. If the assessee is able to do that then the income can be considered as from business. In the case of the assessee, the AO gave an opportunity to the assessee to establish a linkage between the surrendered income under the head of 'advances/ receivables, stock and cash in hand' and the business income. Hence, from above discussion, it is clear that in all the cases, the settled position of law is that the nexus between the surrendered income and business needs to be established before the same can be treated as income from business.

5.1.2 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 disclosed business

Shankar Rice & Gen. Mills v. Dy. CIT activities is not upon the AO. Therefore, there can be no presumption against the deeming fiction u/s 68 to 69D to hold that income/investment, whose source is not explained, will still be classified as income under any head u/s 14. It would be, therefore, impermissible to attempt and classify such incomes under any of specific heads, even if there is any activity which can be remotely/indirectly linked to such deemed income. The word 'source1 in the same context would refer to nexus of such income generating activity/transaction with name and identity, creditworthiness of person with whomsuch activity/transaction was done along with proving the genuineness of transaction also.

5.1.3 The requirement of proving these 3 essential ingredients to prove the source in order to escape the rigors of the deeming fiction has been upheld universally. The conjoint burden of proving the 'nature and source1 is therefore, not restricted to merely claiming the nexus of any activity/transaction to a particular credit/income/asset but also requires to establish with cogent evidence the nexus of such activity/transaction with source also by providing the name and identity, creditworthiness of person with whom the activity/ transaction was done along with proving the genuineness of transaction.

5.1.4 Thus, the advances/ receivables, stock and cash in hand found during survey proceedings, there can be no presumption to treat the value representing such advances/receivables, stock and cash in hand as application of business income in absence of any evidence of earning that income or details as to when, how and from whom such income was derived which has been invested in advances/ receivables, stock and cash in hand.

5.1.5 The AR has contended that the nature of the income has been duly explained during the course of survey as well as assessment proceedings. This contention of the AR is not found correct as nowhere during the assessment proceedings, the AR has been able to establish nexus between the investment in advances/ receivables, stock and cash in hand and normal business income. Further, the AR has contended that the assessee has carried out no activity other than business so there is no question of the advances/ receivables, stock and cash in hand being related to unexplained sources. In above context, it is important to allude to the findings in the assessment order that the assessee has not been able to produce any documentary evidence, bills, vouchers, purchase & sale, documents to justify the additional income of Rs. 39,99,973/- which has been surrendered as advances/ receivables, stock and cash in hand. If the AR is Shankar Rice & Gen. Mills v. Dy. CIT sure about the business nature of the receipts necessary documentary evidence should have been adduced.

5.1.6 In the case of PCIT vs. M/s. Khushi Ram & Sons Pvt. Ltd., the Hon'ble High Court of Punjab &Haryana in of 2015 dated 21.07.2016 held as under:

"It is not necessary that the surrendered amount is from business income. It could be on account of any other transaction legal or otherwise. Merely because an assessee carries on certain business, it does not necessarily follow that the amounts surrendered by him are on account of its business transactions. There is no presumption that absent anything else an amount surrendered by an assessee is his business income. It is for the assessee to establish the source of such surrendered amount."

In the case of SVS Oil Mills vs. ACIT, Chennai, the Hon'ble High Court of Madrasin of 2018 dated 26.03.2019, held in para 9 of the order, as under:

"When the excess stocks were found during the Survey, there is no question of allowing the Assessee to record any additional purchases because such purchases had already been recorded in the books of accounts of the Assessee. Therefore, the excess stock, per se, has to be naturally brought to tax as 'undisclosed income' by itself and there is no question of any corresponding deduction from that in such cases."

5.1.7 Similarly, in the case of Kim Pharma Pvt. Ltd. vs. CfT in of 2011dated 27.04.2011, the Hon'ble High Court of Punjab & Haryana held that, where the amount surrendered during the survey was not reflected in the books of accounts and the source from where it was derived was not declared, the same was assessable as deemed income u/s 69A of the Act.

5.1.8 The Hon'ble Supreme Court in the cases of Roshan Di Hatti vs. CIT [1977] 107 ITR 938 (SC) and Kale Khan Mohammad Hanif vs. CIT [1963] 50 ITR 1 (SC) held that the law is well-settled that the onus of proving the source of a sum of money found to have been received by an assessee is on him. Where the nature and source of a receipt, whether it be of money or other properly, cannot be satisfactorily explained by the assessee, it is open to the revenue to Shankar Rice & Gen. Mills v. Dy. CIT hold that it is the income of the assessee and no further burden lies n the revenue to show that the income is from any particular source. 5.1.9 The above observations also get support from the decision of Hon'ble ITAT Cochin Bench, Cochin in the case of M/s. Bhima Jewellersvs. PCIT Kozhikode in Assessment Year 2013-14 vide order dated 20.08.2018.

The relevant para of this order is reproduced below:-

"6.2. The opening words of section 14 ’Save as otherwise provided by this Act’ clearly leave scope for ’deemed income of the nature covered under the scheme of sections 69, 69A and 69C being treated separately, because such deemed income is not income from salary, house property, profits and gains of business or profession, or capital gains, nor is it income from ’other sources' because the provisions of sections 69, 69A, 69B and 69C treat unexplained investments, unexplained money, bullion, etc., and unexplained expenditure as deemed income where the nature and source of investment, acquisition or expenditure, as the case may be, have not been explained or satisfactorily explained. Therefore, in these cases, the source not being known, such deemed income will not fall even under the head 'Income from other sources'. Therefore, the corresponding deductions, which are applicable to the incomes under any of these various heads, will not be attracted in case of deemed incomes which are covered under the provisions of sections 69, 69A, 69B & 69C in view of the scheme of those provisions.

7. It is therefore, clear that, when the investment in or acquisition of gold, which was recovered from the assessee was not recorded in the books of account and the assessee offered no explanation about the nature and source of such investment or acquisition and the value of such gold was not recorded in the books of account, nor the nature and source of its acquisition explained, there could arise no question of treating the value of such gold, which was deemed to be the income of the assessee, as a deductible trading loss on its confiscation, because such deemed income did not fall under the head of income 'Profits and gains of business or profession'.

8. In our opinion, therefore, the Tribunal was perfectly right in holding that the value of the gold was liable to be included in the income of the assessee as the source of investment in the gold or of its acquisition was not explained and that the assessee was not entitled to claim that the value of the gold would be allowed as a deduction from his income.

5.1.10 Similarly in the case law of ITO Vs Dulari Digital Photo Services (P) Ltd. ([2012] 24 Taxman.com.31(CHD)), the question before the Co-ordinate Bench was whether unexplained cash credit under section 68 of the Act can be considered for set-o against losses under various heads of income. After examining the relevant provisions in detail. Co-ordinate Bench has clearly

Shankar Rice & Gen. Mills v. Dy. CIT outlined that for income to be considered even from other sources, the sources have to be established. The relevant observations read as follows.

"14……… Section 2(45) defines 'total income' as 'the total income referred to in section 5, computed in the manner laid down in this Act". It is relevant to note that the principal charging section 4 makes the 'total income referred to in the principal charging section. Section 14 classifies the heads of income while sections 15 to 59 provide for its quantification. Chapter VI of the Income tax Act provides for aggregation of income and set off or carry forward of loss. Thus Chapter VI is in two parts; first part deals with aggregation of income while the second part deals with set off or carry forward of losses. Chapter has been placed after Chapter IV and V, It comes into play only after the computation of total income under the various heads of income in terms of in terms of Chapter IV has been done. Income falling under Chapter VI is taxed by aggregating the same with the income quantified in terms of Chapter TV. Chapter VI is not subservient to Chapter IV. Besides, section 14 allows the taxability of income under specific provisions of the I. T. Act outside Chapter TV. For the reasons aforestated, the income assessable under section 68 cannot be assessed as income from other sources under section 56.

15. Thus what is taxed under Chapter IV is income from a known source including income from other sources. A source of income means a specific source from which a particular income springs or arises. Once a source giving rise to a particular income is identified, it has then to be placed under a particular head of income as specified in section 14. Thus income can be taxed under a specific head of income as enumerated in section 14 only when if is possible to peg the same to a know source/head of income. If the nature and source of a particular receipt is not known, it cannot then be pegged to a known source/head of income. 'Chapter IV contemplates computation of income arising from known sources/heads of income whereas Chapter VI, on the other hand, contemplates aggregation of the entire sum the nature and sources of which are not known. The aforesaid two Chapters are completely different in their nature, scope and effect. Though the income assessable under them are part of total income as defined in sections 2(45)/4/5 of the IT. Act yet that does not mean that income assessable under section 68 has to be assessed under section 56. In the case before us, source of unexplained cash credits is not known and hence they cannot be linked to any known source/head of income including income from other sources. In order to constitute 'income from 'other sources', the source, namely, the "other sources", has to be identified. Income from unexplained or unknown sources cannot therefore be considered or taxed as income from other sources.”

5.1.11 The aforesaid view is fortified by the judgement of the Hon’ble GujaratHigh Court in Fakir Mohamed Ilaji Hasan V. CIT [2001] 247 ITR 290/[2002] 120 Taxman 11 in which the Hon’ble High Court has held as under:-

Shankar Rice & Gen. Mills v. Dy. CIT

"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 investments made by the assessee or 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 the assessee. It follows that the moment a satisfactoryexplanation is given about such nature and source by the assessee, (hen the source would stand disclosed and will, therefore, be known and the income would be treated under the appropriate head of income for assessment as per the provisions of the Act. However, when these provisions apply because no source is disclosed at all on the basis of which the income can be classified under one of the heads of income under section 14 of the Act. it would not be possible to classify such deemed income under any of these heads including income from "other sources" which have to be sources known or explained. H hen the income cannot be so classified under any one of the heads of income under section 14, it follows that the question of giving any deductions under the provisions which correspond to such heads of income will not arise. If it is possible to peg the income under any of those heads by virtue of a satisfactory explanation being given, then these provisions of sections 69, 69A, 69B and 69C will not apply, in which event, the provisions regarding deductions, etc., applicable to the relevant head of income under which such income falls will automatically be attracted. The opening words of section 14 are "Save as otherwise provided by this Act" clearly leave scope for 'deemed income' of the nature covered under the scheme of sections 69, 69A, 69B and 69C being treated separately, because such deemed income is not income from salary, house property, profits and gains of business or profession, or capital gains, nor is it income from "other sources" because the provisions of sections 69.69A, 69B and 69C meat unexplained investment, unexplained money, bullion, etc., and unexplained expenditure as deemed income where the nature and source of investment, acquisition or expenditure, as the case may be, have not been explained or satisfactorily explained, Therefore, in these cases, the source not being known, such deemed income will not fall even under the head 'Income from other sources". Therefore, the corresponding deductions which are applicable to the incomes under any of these various heads, will not be attracted in the case of deemed incomes which are covered under the provisions of sections 69,69A, 69A and 69C of the Act in view of the scheme of those provisions."

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 69 & 69A, 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 'income from other sources' but they will be aggregated along with the incomes computed under Chapter IV. The AR has not been able to adduce documentary evidence to establish the nexus between the surrendered income and business and no source for the surrendered income could not related to. The judgments cited supra i.e.:

Shankar Rice & Gen. Mills v. Dy. CIT

(1) Fakir Mohammed Haji Hasan Vs. CIT ([2001] 247 ITR 290 (Guj.) (2) PCIT vs. M/s. Khushi Ram & Sons Pvt. Ltd., the Hon'ble High Court of Punjab &Haryana in of 2015 dated 21.07.2016 (3) SVSOil Mills vs. ACIT, Chennai, the Hon'ble High Court of Madras in ITA No. 765 2018 dated 26.03.2019. (4) Kim Pharma Pvt. Ltd. vs. CIT in ITA No. 106 of 2011 dated 27.04.2011, (5) The Hon'ble Supreme Court in the cases of Roshan Di Hatti vs. CIT [1977] 107ITR 938 (SC) (6) Hon'ble ITAT Cochin Bench, Cochin in the case of M/s. Bhima Jewellers vs. PCIT Kozhikode in ITA No. 208/Coch/2018, Assessment Year 2013-14

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 ofthe 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 69 & 69A in the assessment order, is found sustainable. Keeping in view the above facts and discussion, it is he that the AO has rightly treated the surrender of Rs. 39,99,973/- on account of advances/ receivables, stock and cash in hand found during the survey as deemed income u/s 69 & 69A and to be taxed as per provisions of Section 115BBE of the Income Tax Act, 1961 and hence the same is confirmed.

The AR has also submitted that the survey in the case of the assessee was conducted on 21.09.2016 and the provisions of Section 115BBE were introduced w.e.f. 15.12.2016, hence the same not applicable to his case. It is important to point out here that the Taxation Laws Amendment Act, 2016 passed on 15.12.2016 introduced Section 115BBE providing a higher rate of tax @60% w.e.f. AY 2017-18. It is further essential to emphasize here that the return of income was filed by the assessee in the month of October, 2017 i.e. after 10 months of the amendment brought in the Act relating to Section 115BBE. Hence, the contention of the appellant that the assessee had already offered to tax the surrendered amount during survey is not acceptable as the appellant had all the time available with him till the date of filing of return to pay the tax as per the amended provisions of law. Hence, the contentions of the appellant are not acceptable on this issue. Accordingly, this ground of appeal is dismissed.”

Shankar Rice & Gen. Mills v. Dy. CIT

M/s Shankar Rice and General Mills is a unit is engaged in manufacturing and trading of rice and other byproducts viz. Rice Phak and Chilka during the year. Return for A/Y 2017-18 was filed on 06.10.2017 declaring income at Rs. 68,63,820/- . The case was selected for compulsory scrutiny as per the guidelines for manual selection issued by the CBDT. Accordingly, Notice u/s 143(2) of the Act dated 12.09.2018was issued by the office of Assistant Commissioner of Income Tax - Circle Moga ('Ld. AO') through registered post and was also served manually on 26.09.2018. Subsequently, notice u/s 142(1) of the Act along with the questionnaire dated 15.03.2019was issued. During the relevant previous year, survey u/s 133A of the Act was conducted at the business premises of the Appellant on 21.09.2016 and the Appellant had offered an additional income of Rs. 39,99,973/- as Income from Business. While making statement during the course of survey also, it was specifically stated that the additional income offered is income from business and the Ld. AO had accepted the cheques against liability of income tax @ 30 per cent. While framing the assessment, the Ld. AO assessed the income at the returned income but treated

Shankar Rice & Gen. Mills v. Dy. CIT the additional income disclosed of Rs. 39,99,973/- as income chargeable to tax u/s 115BBE of the Income Tax Act, 1961. Aggrieved by the order dated 30.12.2019, the Appellant preferred an appeal before the Commissioner of Income Tax Appeals - 3, Ludhiana which is now pending for adjudication before Your Honors.

The Appellant seeks to place on record, its preliminary legal assertions, challenging tire legitimacy of the addition effected in the assessment order as under:

That assessment order passed is against law and facts on the file in as much as the Learned Assessing Officer was not justified to treat the additional income declared as business income during the course of survey u/s 133A on 21.09.2016 as income u/s 69 and 69A r.w.s. 115BBE of the Income Tax Act, 1961.

Vide this ground of appeal, the Appellant is agitated against the action of the Ld. AO in treating the income declared during the course of survey at Rs.39,99,973/- as unexplained and taxing the same u/s 115BBE of the Act.

The brief facts of the case are that a survey u/s 133A took place on 21.09.2016 at the premises of the Appellant. There were certain discrepancies that were observed in the stock of by-products, receivables and cash in hand as under:

Sr. No. Discrepancy in respect of Amount (in Rs.) 1. Stock of By-Products 18,44,953/- 2. Receivables 12,78,270/- 3. Cash in hand 8,76,750/- Total 39,99,973/-

During the course of Survey, the Appellant was asked about the above discrepancies. Statement of the Appellant was also recorded wherein the partner of the appellant firm specifically mentioned that the additional income is being surrendered over and above the regular income and in order to buy peace mind and to avoid litigation, the Appellant is disclosing the income of Rs. 39,99,973/- in respect of the said discrepancies. The Appellant also gave security cheques to survey team of the department for the tax amount calculated at the normal rates applicable to the declared income, in order to discharge its tax liability on time. The cheques were duly accepted by the department officials considering the Shankar Rice & Gen. Mills v. Dy. CIT quantum of the income and the - tax due thereon as per the rates applicable at that point of time.

The Appellant filed its return of income on 06.10.2017 declaring income at Rs. 68,63,820/- after including the surrendered income of Rs. 39,99,973/- as Income from Business as was declared during the course of Survey u/s 133A of the Act. However, the Ld. AO without appreciating the facts invoked the provisions of Section 115BBE of the Act and taxed the same @ 60 per cent. The assessment was framed with a preconceived notion and on complete surmises and conjectures.

The Appellant wishes to state that the said differences were on account of income out of normal business activities only and was offered over and above normal income of the Appellant and accordingly, the same should be taxed at the normal rates and not at the higher rate of 60% u/s 115BBE of the Act.

Further, the quantum and basis of the amount surrendered had duly been stated by the Appellant in the statement recorded during survey and declared subsequently in the ROI filed. A copy of the disclosure note declaring additional income is enclosed. The same has been accepted as it is, the Ld. AO has nowhere denied these facts in assessment order. The income offered to duly credited in the Trading and Profit and # Loss account of the Appellant for the year under consideration. The Appellant never retracted its income offered during the course of survey which stands disclosed in the ROI filed as income from business within the purview of Section 28 of the Act. Despite the same, the alleged discrepancies were deemed to be unexplained and were taxed by the Ld. AO @ 60% u/s 115BBE of the Act. In case any income has to be treated as unexplained by the Ld. AO, he is required to bring on record some conclusive evidence/ convincing finding to prove the same. In the given circumstances, it is just a bald allegation of the Ld. AO to treat the income declared as an unexplained without clarifying the basis for the same and consequently invoking Section 115BBE of the Act is bad in law. During the course of survey, not even an iota of evidence was found which suggests any contradiction of mode of earning by the Appellant or that the Appellant was engaged in some other activities to generate any unaccounted income/ money. The income was declared by the Appellant during the survey and was duly accepted by the department as it is. No other source of income was ever confronted by the department during the survey. The preponderance of Shankar Rice & Gen. Mills v. Dy. CIT probability therefore is that the discrepancies that appeared were certainly sourced from the business of the Appellant which was also stated in the disclosure letter (copy enclosed). Further, the Appellant duly made the necessary declaration in respect of the surrendered income in the ROL

Therefore, in the absence of any adverse findings by the Ld. AO on the source of earning of the Appellant in respect of the income declared in the ROl, treating the same as unexplained without giving appropriate reasoning is unfair and uncalled for. In order to determine whether a transaction would fall within the purview of Section 69 or Section 69A, it would be important to review the said provisions, which are reproduced herein:

Unexplained investments.

69A. Where in any financial year the assessee is found to be the owner of any money, bullion, jewellery or other valuable article and such money, bullion, jewellery or valuable article is not recorded in the books of account, if any, maintained by him for any source of income, and the assessee offers no explanation about the nature and source of acquisition of the money, bullion, jewellery or other 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 of such financial year." (Emphasis supplied)

On a perusal of the above provisions, it is noted that the Section 69 is applicable when the assessee has made an investment, which is not recorded in the books of accounts maintained by him. Similarly, when the assessee is found to be the owner of any money, bullion, jewellery or other valuable article and such money,

Shankar Rice & Gen. Mills v. Dy. CIT bullion, jewellery or valuable article is not recorded in the books of accounts maintained, by him, the same may invite invocation of Section 69A of the Act.

In the instant case, however the said amounts were duly recorded in the books maintained by the Appellant and have been offered to tax as Business income. In any case, these amounts are no longer unexplained as the Appellant has disclosed that they are arising as a result of normal business activities and already offered them to tax. Even otherwise no other source of income of the Appellant is unearthed by the Revenue during the course of sui-vey. The preponderance of probability therefore is that the discrepancies that appeared were certainly sourced from the business of the Appellant. Therefore, it is submitted that Section 69/69A of the Act have no application for the reasons that are enlisted below:

1. These are duly recorded in the books of accounts which have been duly accepted and no defect/ infirmity is pointed in the books of accounts by the Ld AO. Thus, these have been duly accepted. Business Income of the

2. These emerge out of normal business activities and hence form a part of the Appellant and are duly reflected in the Profit and Loss account.

3. Return of Income has been filed after including the income arising on account of the same

The Appellant here wishes to rely upon the recent judgment of the Hon'ble ITAT, Chandigarh Bench in the case of Shri Bhuwan Goyal vs. DCIT Central Circle - 1, Ludhiana in wherein the following was held:

"The said explanation given by the assessee to the Ld. CIT(A) has not been rebutted, therefore the provisions of Section 69 of the Act were not applicable as the business transactions were recorded in the books of account and the assessee either earned commission or profit on all those Real Estate transactions. The income earned from the Real Estate transactions was claimed to be utilized for making the investment in the property. In the present case it is not brought on record to substantiate that the said income was utilized by the assessee elsewhere and not in the investment of the property. Therefore we are of the view that the A.O. was not justified in taxing the aforesaid income of Rs. 1

Shankar Rice & Gen. Mills v. Dy. CIT

Crore separately particularly when nothing is brought on record to substantiate that the assessee had made separate investment different from the income earned on real estate transactions recorded in the pocket diary found & seized during the course of search. Accordingly the impugned order passed by the Ld. CIT(A) on this issue is set aside and the A.O. is directed to tax the entire surrendered income of Rs. 3.64 at the normal rate of tax.

Reliance is also placed on the judgment of the Hon'ble ITAT, Chandigarh Bench in the case of Shri Harish Sharma vs. Income Tax Officer, Ward-5, Khanna in wherein the following was held:

"9. Further, section 68 of the Act, applies where any sum is found credited in the books of account maintained by the assessee for any previous year and the assessee fails offer any explanation about the nature and source thereof or the explanation by the assessee is not satisfactory in the opinion of the AO, the sum so credited may be treated as income of the assessee of that previous year. In the present case the assessee has explained the nature and source of the amount in question and to substantiate his contention submitted cash flow statement. We further note that the AO has not given his findings on this point. We, therefore, find merit in the contention of the assessee that in the absence of any adverse findings by the AO on the source 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 section 115BBE of the Act.

In the result, the appeal of the assessee is allowed.

Shankar Rice & Gen. Mills v. Dy. CIT

Reliance is also placed on the judgement of the Hon'ble ITAT, Delhi Bench in the case of M/s Agson Global Private Limited vs. The Assistant Commissioner of Income Tax, Central Circle-28, Delhi in to 3746/ Dell 2019, wherein it has been held by the Hon'ble Bench that the income which is a part of Profit and Loss account, cannot be treated as an unexplained cash credits u/s 68 of the Act.

The Appellant also wishes to rely upon another judgment of the Hon’ble jurisdictional ITAT, Chandigarh Bench in the case of DCIT Central Circle - 1, Ludhiana vs. M/s Mehta Engineers in wherein the following was held:

"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 earning on the business of the assessee, which was not recorded in the books of the assessee. Though the said income was not recorded 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."

Reliance is also placed on the judgment of the Hon'ble ITAT, Pune Bench in the case /of Sh. Sagar Samrat Vs ACIT Circle-2, Nashik in wherein the following was held:

"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 Shankar Rice & Gen. Mills v. Dy. CIT excess cash, stock and advances we therefore, advances were generated from the income earned from the business carried on by the assessee, therefore, also justifying treating such amount as Business income"."

Reliance is further placed on the judgment of the Hon'ble ITAT, Jaipur Bench in the case of The Assistant Commissioner of Income Tax, Central Circle-2, Jaipur Vs M/s Sanjay Bairathi Gems Limited in wherein their Lordships have held that the excess stock found during the course of survey is a part of the business income and the case laws relied upon by the AO is not applicable and the additional income declared by the assessee is not liable to tax as per the provisions of Section 115BBE of the Act.

Thus, in light of the above judgments, it can be concluded that the surrendered income cannot be brought within the purview of Section 69/69A of the Act for the reasons briefed as follows:

The survey was conducted on its premises of the Appellant on 21.09.2016. The Appellant surrendered the income the very same day and gave security cheques to survey team of the department for the tax amount calculated at the normal rates applicable to the declared income, in order to discharge its tax liability on time The post-dated cheques were duly accepted by the department officials

Shankar Rice & Gen. Mills v. Dy. CIT considering the quantum of tire income and the tax due thereon as per the rates applicable at that point of time. The same is evident in the disclosure note After around 3 months from the date of survey, on 15.12.2016, the Taxation Laws (Second Amendment) Act, 2016 was passed amending Section 115BBE of the Act to provide a higher rate of tax of 60% w.e.f. AY 2017-18 Thus, as on 21.09.2016., when the Appellant surrendered the income, he could not have envisaged that 3 months post the said date, the rate would increase to 60% if the income unexplained.

However, in the Appellant's case, as the income is arising from business activities, it makes no difference as the same rate of 30% would apply on the said as it is business income of the Appellant. The income is arising out of regular business activities and is being offered over and above the normal income. Thus, treating the same as unexplained is not warranted as it stands properly disclosed in the books of accounts. The action of the Ld. AO in treating the same as unexplained u/s 69/69A of the Act and consequently invoking Section 115BBE of the Act becomes inoperative as the charging of income at a higher rate does not arise when an income is a part of normal business income and normal rate of tax is applicable thereon.

The Appellant has emphatically submitted that the income which has been declared in the Profit and Loss account as a part of business income cannot partake to be unexplained as has been considered by the Ld. AO. If the income cannot be treated as unexplained, the provisions of Section 115BBE of the Act are also not applicable to-the income declared.

Even otherwise, the Appellant has declared an additional income of INR 39,99,973/- on 21.09.2016 i.e. during the course of survey carried out at its business premises. Whereas the tax rate changed to 60% from existing 30% has been made u/s 115BBE of the Act by the Taxation Laws (Second Amendment) Act, 2016 which got assent from the Hon'ble President of India on 15.12.2016. The amendment was made effective from 01.04.2017 for AY 2017-18, i.e. the relevant year underassessment.

It is well-settled by the Hon'ble Apex Court in the case of Kasimtharuvi Tea Estates Limited vs. State of Kerala (1966) 60 1TR 262 (SC) and CIT vs. Scindia Steam Navigation Co. Limited (1961) 42 ITR 589 wherein it has been held that any amendment in the Act which comes in force after the 1st day of April of Shankar Rice & Gen. Mills v. Dy. CIT relevant FY would not apply to the assessment of that year, even if the assessment is actually made after the amendment came into force.

Reliance in this regard is also placed on the judgment of the Hon'ble Apex Court in the case of CIT Vs M/s Vatika Township Private Limited [367 ITR 466] wherein it has been held that it is a settled law lhal any amendment which increases the tax burden of the assessee has to be considered prospective and not retrospective. Also, the legislations which modify accrued rights or which impose obligations or which impose new duties or attach a new disability have to be treated as prospective unless the legislative intent is clearly to give the enactment a retrospective effect. If further held in para 39(c) that “if the concerned provision of the taxing statute is ambiguous and vague and is susceptible to two interpretations, the interpretation which favours the subject as against there the revenue, has to be preferred.”

In the instant case, the declaration of additional income was made and accepted with the tax rates applicable to business income at the prevailing rate of Tax/normal rate of tax (@30%). Even on the date of survey nobody dreamt of such a change m t e ct. The amount declared was with the view to pay taxes at the normal rates and at the same time, the department officials had also accepted the declaration in the same spirit. Accordingly, the post dated cheques were given to the department for due payments of taxes on time, as evident in the disclosure note. It is more of strangulation situation as far as the Appellant is concerned in case the income is charged to tax in accordance with amended provisions of Section 115BBE of the Act. The income has already been offered to tax by the Appellant in its ROI at the maximum marginal rate. The objective behind the introduction of the Section 115BBE of the Act was only to curb the practice of laundering of unaccounted money. '

In the given circumstances, the amended provisions of Section 115BBE of the Act should not be made applicable. The provisions of the said section should not be made effective retrospectively but prospectively as the Appellant will then be subject to undue burden of the enhanced tax rate which is against natural justice as well.

Keeping in view the submissions made above, it is respectfully submitted that the taxation of additional income at a higher rate of tax by the Ld. AO is not eligible either on facts or in law. There was no justification on the part of the Ld. AO to arbitrarily invoke the provisions of Section 115BBE of the Act.

Shankar Rice & Gen. Mills v. Dy. CIT The Appellant wishes to state that it has provided citations in respect of the case laws relied upon. However, in case Your Honors desires to have a copy of the case laws being relied upon, request you to kindly intimate us the same and we would submit a copy of the same.

Hope Your Honors would find the above submission in order, and, shall proceed to adjudicate the appeal accordingly.

6. Per Contra, the learned additional CIT (DR) has placed reliance on the impugned order. He argued that the appellant has failed to explain the source of unexplained stock, receivables and cash found during the course of survey under section 133A of the Act, with reference to the books of accounts, and that the disputed amount has been surrendered as undisclosed income of the appellant over and above the regular business income.

21, the statement of appellant assessee dated 21.09.2016 recorded during survey, as under:

“7. That to summarise surrender of income is over and above the normal income as per bookshop account is made in the following accounts.

Shankar Rice & Gen. Mills v. Dy. CIT

Sr. No. Discrepancy in respect of Amount (in Rs.) 1. Stock of By-Products 18,44,953/- 2. Receivables 12,78,270/- 3. Cash in hand 8,76,750/- Total 39,99,973/-

8. It is seen that the Ld. CIT(A) has considered the submissions of the Ld. AR and he has observed that for any income to be treated as business income, the nexus to business transaction or the source thereof, has to be established by the assessee. The judgment relied upon by the Ld. AR in support have been gone through where the Hon'ble High Courts/Tribunal Benches have very clearly held out that the AO shall give an opportunity to the assessee to establish a linkage between the surrendered income with the business income, if any. If the assessee is able to do that then only the income can be considered as income from business. In the present case of the assessee, the AO gave an adequate opportunity to the assessee to establish a linkage between the surrendered income under the head of 'advances/ receivables, stock and cash in hand' and that of the business

Shankar Rice & Gen. Mills v. Dy. CIT transaction/activity. In view of that matter, it is the settled position of law that the nexus between the surrendered income and business transaction needs to be established before the same can be treated as income from business. It is noted that the Ld. CIT (A) required the Ld. AR vide his office note sheet entry dated 14.07.2022 to submit the following information: a. Copy of statement recorded at the time of survey. b. Copy of ITR/Computation of income/Audit report. c. Copy of impounded documents. d. Accounting entry of the surrender amount in the books of accounts of the ` assessee on the date of survey 8.1 However, no documents have been filed by the AR on the above said query even being granted enough opportunities to the assessee vide various notices issued to the appellant vide the note sheet query, as per table below:

S. No. DIN/Letter& Date of Notice Hearing Date Remarks ITBA/APL/F/APL_l/2022-23/1044108220(1) Adjournment 1. 10.08.2022 dated 27.07.2022 ITBA/APL/F/APL_l/2022-23/104S555391(l) 20.09.2022 Adjournment 2. dated 10.09.2022 3. ITBA/APL/F/APL_l/2022-23/1045750094(l) 10.10.2022 None appeared dated 20.09.2022 4. ITBA/APL/F/APL_l/2022-23/1046246939(l) Adjournment 21.10.2022 dated 11.10.2022 5. lTBA/APL/F/APl_l/2022-23/104G534215(l) 21.11.2022 None appeared dated 31.10.2022

Shankar Rice & Gen. Mills v. Dy. CIT

Shankar Rice & Gen. Mills v. Dy. CIT 10. The AR has contended that the nature of the income has been duly explained during the course of survey as well as assessment proceedings is not acceptable in the absence of corroborative documentary evidence on record. It is seen that during the assessment proceedings, appeal proceedings and before us, the Ld. AR failed to establish nexus between surrendered income on account of the investment in advances/receivables, stock and cash in hand to that of normal business income. Again, the AR contention that the assessee has carried out no activity other than business so there is no question of the advances/ receivables, stock and cash in hand being related to unexplained sources is also not sustainable because the assessee has not been able to produce any corroborative documentary evidence, such as bills, vouchers, purchase & sale, documents to justify the additional income of Rs. 39,99,973/- over and above the regular business income which has been surrendered as undisclosed investment on account of advances/ receivables, stock and cash in hand. Thus, the AR of the appellant failed to prove the business nature of the undisclosed income, in absence of necessary documentary evidence never have been adduced.

Shankar Rice & Gen. Mills v. Dy. CIT 21.07.2016 held that it is not necessary that the surrendered amount is from business income. It could be on account of any other transaction, legal or otherwise. Merely because an assessee carries on certain business, it does not necessarily follow that the amounts surrendered by him are on account of its business transactions. There is no presumption that absent anything else an amount surrendered by an assessee is his business income. It is for the assessee to establish the source of such surrendered amount.

Shankar Rice & Gen. Mills v. Dy. CIT and the source from where it was derived was not declared, the same was assessable as deemed income u/s 69A of the Act.

Shankar Rice & Gen. Mills v. Dy. CIT i.e. after 10 months of the amendment brought in the Act relating to Section 115BBE. Hence, the ld. CIT(A) was justified in rejecting the contention of the appellant that the assessee had already offered to tax the surrendered amount during survey is not acceptable as the appellant had all the time available with him till the date of filing of return to pay the tax as per the amended provisions of law. Hence, the contentions of the appellant are not acceptable on this issue. Accordingly, this plea of the appellant is rejected.

We find no merit in the contention of the appellant and therefore, the ground of appeal is rejected.

16. In view of the above discussion, and judicial precedents, we hold that the action of the AO in applying the rate as prescribed u/s 115BBE on the surrendered income in survey and disclosed in the ITR, is rightly treated by the AO as income u/s 69 and 69A in the assessment order. Accordingly, we find no infirmity or perversity in the decision of the Ld. CIT(A) to the facts on record in confirming the finding of the AO in treating the surrendered income of Rs. 39,99,973/- on account of advances/ receivables, stock and cash in hand found during the survey as deemed income u/s 69 and 69A of the Act and to be taxed as per provisions of Shankar Rice & Gen. Mills v. Dy. CIT Section 115BBE of the Income Tax Act, 1961. As such, we upheld the impugned order passed by the Ld. CIT (A).

Order pronounced in the open court on 06.10.2023