Baljinder Kumar Vs DCIT (ITAT Chandigarh)
ITAT Chandigarh held that transactions which were not recorded at the time of survey are unrecorded transaction, however, as nature and source of such unrecorded transaction explained the same cannot be brought to tax under the deeming provisions of section 69 of the Income Tax Act.
Facts- A survey action u/s. 133A took place on 05/09/2018 at the business premises of the assessee who is Proprietor of M/s Shivam Coir Foam Products wherein the assessee surrendered a sum of Rs. 15,00,000/- on account of receivables / debtors. Subsequently, the assessee filed his return of income u/s. 139(4) on 12/01/2020 at the returned income of Rs. 21,33,420/- including the amount surrendered of Rs. 15,00,000/-. The case of the assessee was thereafter selected for scrutiny and notice u/s. 143(2) and 142(1) were issued. During the course of assessment proceedings, the assessee was also asked a specific query regarding the amount surrendered during the course of survey and as to how the assessee has done the treatment of the amount surrendered in the books of account as well as to furnish details of the tax payment and to show cause why the amount so surrendered should not be taxed u/s. 115BBE of the Act.
However, AO held that the amount of Rs. 15,00,000/-is to be assessed under section 69 and not under the head business income and the same was accordingly brought to tax as per the provisions of Section 115BBE of the Act. CIT(A) upheld the action of AO. Being aggrieved, the present appeal is filed.
Conclusion- No doubts, these transactions were not recorded at the time of survey thus qualify as unrecorded transactions satisfying one of the essential conditions, at the same time, the as-sessee has provided the necessary explanation about the nature and source of such unrecorded trans-actions, thus, it cannot be said that these are unexplained transactions thus, doesn’t satisfy the second condition for invoking the deeming provisions of section 69 of the Act. Accordingly, held that the income of Rs 15,00,000/- surrendered during the course of survey cannot be brought to tax under the deeming provisions of section 69 of the Act and the same has been rightly offered to tax under the head “business income” and as a necessary corollary, in absence of deeming provisions, the question of application of section 115BBE doesn’t arise for consideration.
FULL TEXT OF THE ORDER OF ITAT CHANDIGARH
1. This is an appeal filed by the Assessee against the order of the Ld. CIT(A)-5, Ludhiana dt. 04/01/2023 pertaining to Assessment Year 2019-20 wherein the sole ground of appeal read as under:
” 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 he was not justified to uphold the action of the Learned Assessing Officer in treating the income of Rs. 15,00,000/- offered as business income on account of receivables / debtors found during the course of survey u/s 133A to be taxed as deemed income u/s 69 and taxed as per provisions of Section 115BBE.”
2. Briefly, the facts of the case are that a survey action under section 133A took place on 05/09/2018 at the business premises of the assessee who is Proprietor of M/s Shivam Coir Foam Products wherein the assessee surrendered a sum of Rs. 15,00,000/- on account of receiva-bles / debtors. Subsequently, the assessee filed his return of income under section 139(4) on 12/01/2020 at the returned income of Rs. 21,33,420/- including the amount surrendered of Rs. 15,00,000/-. The case of the assessee was thereafter selected for scrutiny and notice under section 143(2) and 142(1) were issued. During the course of assessment proceedings, the assessee was also asked a specific query regarding the amount surrendered during the course of survey and as to how the assessee has done the treatment of the amount surrendered in the books of account as well as to fur-nish details of the tax payment and to show cause why the amount so surrendered should not be taxed under section 115BBE of the Act.
3. In his submissions, the assessee submitted that he has offered addition-al income in his P&L Account and have already paid due taxes thereof. It was further submitted that during the course of survey, a diary in the name of the assessee concern had been found containing cer-tain names of individuals, date, amount etc and when the said diary was confronted to him, he ex-plained that the same relates to advances given during the course of his business however subject to reconciliation with his books of account and thereafter, in order to avoid prolonged litigation and to buy peace of mind, offered the amount of Rs. 15,00,000/- as an additional income. Separately, letter dt. 05/09/2018 was also addressed to the JCIT, Khanna Range, Khanna wherein the assessee offered the additional income of Rs. 15,00,000/- which was earned by him out of the business transactions carried out by him during the current F.Y 2018-19. It was submitted that the amount so surrendered was ac-cepted by the officers of the Department who were in-charge at the time of survey and the assessee paid the normal tax as was due which was also mentioned in the surrender letter and subsequently, the assessee included the same while filing his return of income under the head “Profit and Gains of busi-ness and profession”. It was submitted that it is settled proposition of law that the statement on oath has evidentiary value and the same therefore needs to be accepted. It was further submitted that the impounded documents depict the income earned from business transaction and the statement given at the time of survey confirmed the same, thus the correctness of these documents cannot be doubted. It was submitted that the Department cannot accept the quantum part of the income as correct and dis-believe the source of income explained therein. It was submitted that assessee never retracted his in-come offered during the course of survey which stands disclosed in the return subsequently filed.
4. It was further submitted that the provisions of Section 115BBE of the Act are applicable where the assessee offers no explanation or explanation offered by him is not satisfac-tory in the opinion of the AO. It was submitted that in the instant case, the amount that were recorded in the books / diary maintained by the assessee had already been offered to tax as business income in his profit and loss account and these amounts are no longer unexplained considering that the assessee has already explained that these are the result of his business transaction carried out by him. It was sub-mitted that there is no evidence in the said diary so found or any other information found during the course of survey that can suggest that the assessee made such advance out of the source other than what has been stated by the assessee during the course of survey. It was accordingly, submitted that the amount offered as additional income as a result of his business transactions and there is no other source of income and therefore the deeming provisions r.w.s 115BBE are not applicable. It was submitted that the Section 115BBE of the Act is not a charging provision rather than a machinery provision to levy tax on income and it does not enlarge the ambit of Section 68 and 69 etc to create a deeming fiction to tax any sum already offered as income.
5. The submissions so filed by the assessee were considered but not found acceptable to the AO. As per the AO, the assessee has not been able to establish nexus between the sundry receivables and his business affairs supported by documentary evidences and it is therefore not a matter of belief as pleaded by the assessee that the department has accepted the quantum but not a source. It was held by the AO that the tax deposited by the assessee as advance tax does not prop up the proposition that his surrender of income has been accepted by the department as the scrutiny of the financial affairs submitted by the assessee can only be done during the course of assessment pro-ceedings. It was held that the onus is on the assessee that the unexplained receivables are out of busi-ness proceeds and on account of failure of the assessee to substantiate as to how receivables are part of his business proceeds, the provision of section 69 are required to be invoked. It was held by the AO that in this case, a survey operation was conducted at the business premises of the assessee wherein certain documents showing the unaccounted, unexplained receivables aggregating to Rs. 15,00,000/- were im-pounded from the custody of the assessee and same has been surrendered as income under the head “business income” while filing the return of income. It was stated by the AO that from the assessee’s return of income as well as books of account which have been audited under section 44AB of the Act, the assessee himself has not shown requisite accounting entries and only resultant income have been shown on the credit side of the P&L Account. It was held by the AO that the prerequisite condition for applicability of Section 69 are that during the financial year, the investments are not recorded in books of accounts if any maintained by the assessee for any source of income and the assessee had failed to offer satisfactory explanation about the nature and source thereof. It was held that in the in-stant case the material available on the record shows that the assessee has recorded financial entries in the books of account and it is natural that if any person has not recorded these transactions in his books of account, he would not have done so even subsequently had the search / survey or enquiry not been carried out by the Department. Therefore the benefit of recording entries in the books of account sub-sequent to the survey operation would not be available to the assessee to claim that such income was part of business income. It was accordingly held that even though the Act does not specify as to at what point of time, the entries are required to be recorded in accounts, but since the event of not recording can be ascertained only when detected by the Department during the course of search or the relevant point in time at which the transactions are to be tested shall be the point when it was detected initially during the survey and not at any later date when they were recorded subsequent to the survey opera-tion. It was accordingly, held that the subsequent transactions were clearly not on record on or before the conduct of the survey operation. It was accordingly held that the amount of Rs. 15,00,000/-is to be assessed under section 69 and not under the head business income and the same was accordingly brought to tax as per the provisions of Section 115BBE of the Act.
6. Being aggrieved, the assessee carried the matter in appeal before the Ld. CIT(A). The submissions made before the AO were reiterated. It was submitted that the impounded documents depict the income earned from business transactions and the statement given at the time of survey confirmed the same, thus the correctness of these documents cannot be doubted. It was sub-mitted that the AO cannot accept the quantum part of income as correct and disbelieve the source of income explained therein. It was submitted that the diary found and impounded constitutes books of account and the transactions recorded therein were also the result of business transactions. It was submitted that the deeming provisions are applicable where the assessee failed to offer any explanation and in the instant case, the assessee has already discharged his obligation to prove the source of income declared by him, and now the onus shifted on the Revenue to disprove the same. It was submitted that in the instant case, the AO simply ignoring the facts already accepted in survey and without analyzing the same invoked the provision of Section 69 of the Act. It was submitted that during the course of sur-vey, no iota of evidence was found which suggests any contradiction of mode of earning by the assessee or for that matter, the assessee was engaged in some other activities to generate any unaccounted in-come. It was accordingly, submitted there is no other source of income which was detected by the au-thority at the time of survey and the only source of income was the business carried on by the assessee in the name of M/s Shivam Coir Foam Products and therefore where the nature and source of the amount so surrendered has been duly explained, there is no basis for invocation of provision of Section 69 of the Act and consequently, the provisions of section 115BBE doesn’t apply. In support, reliance was placed on various Coordinate Benches decisions such as Shri Harish Sharma, Khanna Vs. ITO, W-5, Khanna (ITA No. 327/Chd/2020 dt. 11/05/2021) and Bajaj Sons Limited Vs. DCIT (ITA No. 1121/Chd/2019 dt. 24/05/2021).
7. The submissions so filed by the assessee were considered but not found acceptable to the Ld. CIT(A). It was held by the Ld. CIT(A) that in the instant case, the assessee has not able to establish linkage between the surrendered income and the business income. It was held that merely having a known business activity will no perse render any unexplained income as business in-come under section 14 unless the burden of proving the source is also discharged. It was held that onus of proving such receipts are from an activity other than disclosed business activities is not upon the AO and therefore there can be no presumption against the deeming fiction under section 68 to 69 to hold that the investment whose source is not explained will still be classified as income under any head under section 14. It was accordingly, held that it would be impermissible to attempt and classify such incomes under any of specific heads even if there is any activity which can be indirectly linked to such deemed income. The word source in the same context would refer to nexus of such income generating activity with name and identity, creditworthiness of person with whom such transactions were done alongwith proving the genuineness of the transaction also. Therefore for the unaccounted receivables / debtors found during the course of survey, there can be no presumption to treat the value representing such receivables as application of business income in absence of any evidence of earning that income. There-after reliance was placed on the decision of Hon’ble Punjab & Haryana High Court in case of Kim Pharma Pvt. Ltd. Vs. CIT (ITA No. 106 of 2011 dt. 27/04/2011) and various other decisions. It was ac-cordingly held that in the instant case, the assessee has not been able to adduce documentary evidence to establish the nexus between the surrendered income and business income and no source for the sur-rendered income could be related to assessee’s business and therefore the action of the AO in bringing the same to tax under section 69 r.w.s 115BBE was upheld.
8. Against the said findings and the direction of the Ld. CIT(A), the as-sessee is in appeal before us.
9. During the course of hearing the Ld. AR reiterated the submissions made before the lower authorities. Further our reference was drawn to the statement of the assessee recorded during the course of survey under section 133A and taken us through the various questions raised by the survey team and responses submitted by the assessee and it was submitted that the only source of income in the hands of the assessee was out of the business activity run in the name of M/s Shivam Coir Foam Products and further no other source of income has been found by the survey team. It was submitted that no other activity, business or otherwise to establish any other source of income was detected during the course of survey at the business premises of the assessee and in this regard, reference was drawn to the response of the assessee in the context of various questions asked by the survey team. It was submitted that during the course of survey, a diary in the name of the assessee con-cern had been found containing names of certain individuals, date, amount etc and when the said diary was confronted to the assessee, he explained that the same relates to advances given during the course of his business dealings and thereafter, in order to avoid prolonged litigation and to buy peace of mind, offered the amount of Rs. 15,00,000/- as an additional business income, a fact which is also corroborat-ed by the surrender letter dt. 05/09/2018 addressed to the JCIT, Khanna Range, Khanna wherein the assessee offered the additional income of Rs. 15,00,000/-which was earned by him out of the business transactions carried out by him during the current F.Y 2018-19. It was submitted that the said sum of Rs. 15,00,000/- was offered for tax as additional business income at normal rate applicable for the period under reference and which was accepted by the survey team at the relevant point in time. It was sub-mitted that the survey team 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 of M/s Shivam Coir Foam Products 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 additional in-come so offered was thereafter duly recorded in the books of account and basis thereof, was offered to tax by the assessee while filing his return of income. It was submitted that the AO, however, brought the amount to tax u/s 115BBE of the Act merely for the reason that at the relevant point in time, when the survey was conducted, the same was not recorded in the books of accounts and the same has been rec-orded subsequently and such income had been offered for taxation during the course of survey pro-ceedings and thereafter, the said findings have since been confirmed by the ld. CIT(A).
10. In view of the above, it was submitted that it is evident from the rec-ords that during the course of survey of the business premises, no other source of income except busi-ness being carried on by the assessee firm 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. It was submitted that the additional income so surrendered was offered for taxation at the rates applicable at the relevant point in time and which has also been accepted by the authorities while accepting the sur-render letter. It was submitted that the AO has not denied this fact and has rather accepted that the dis-crepancies 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 provi-sions are attracted, Section 115BBE cannot be invoked in the instant case.
11. In support, reliance was placed on 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. and the facts of the said case are clearly distinguishable on facts as in that case, the issue under consideration was surrender of cash and the source thereof as per statement recorded was from other sources unlike the instant case, where the surrender is of business receivables, thus, the necessary nexus and source of such busi-ness receivable is clearly identifiable as from the assessee’s business operations.
12. It was, accordingly, submitted that in light of the aforesaid submis-sions, 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 & pro-fession”. Therefore, the action of the AO in treating the business income so offered by the assessee as deemed income u/s 69 and bringing the same to tax under the amended section 115BBE and the action of the ld CIT(A) in confirming the same deserve to be set aside and necessary relief be provided to the assessee.
13. Per contra, the Ld. DR relied on the findings of the lower authorities and it was submitted that the AO has invoked the provisions of Section 69 of the Act for the reason that the amount so surrendered by way of business receivables have not been recorded in the books of ac-counts and thus, the necessary nexus with assessee’s business has not been established. It was sub-mitted that the onus is on the assessee to prove that the source thereof is from assessee’s business ac-tivities but he had failed to do so. Hence, the AO was right in invoking the provisions of Section 69 of the Act, in respect of amount so surrendered by way of receivables found during the course of survey at the business premises of the assessee and in support, reliance was placed on the Hon’ble Punjab & Haryana High Court decision in the case of M/s Kim Pharma vs CIT (supra).
14. We have heard the rival contentions and purused the material availa-ble on record. Recently, we have decided a similar matter in case of Shri Parmod Singla, Prop. M/s Singla Wire & Allied Products vs ACIT (ITA No.516/CHD/2022 dated 24/07/2023), wherein we have discussed the matter in detail including the various authorities quoted at the Bar and it would be relevant to refer to the discussion therein which are equally relevant in the instant case and the same are reproduced as under:
“13. We have heard the rival contentions and purused the 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 8/07/2016 wherein the assessee surrendered a sum of Rs 84.80 lacs, thereafter the return of income filed by the assessee on 23/03/2018 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 evi-dent 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 sub-sequent passing of the assessment order. As per the AO, the amount so surrendered by the 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 sur-render 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.
14. To appreciate the aforesaid rival positions, we refer to the provisions of section 69 and 69A of the Act. 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 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 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, jewel-lery or other valuable article may be deemed to be the income of the assessee for such financial year.
15. In the instant case, for the deeming provisions of section 69 to be attracted, there has to be a finding that the assessee has made investments during the financial year in the stock and by way of advances, such investments are not recorded in the books of accounts so maintained by the assessee, and the assessee offers no explanation about the nature and source of the investments or the explanation so offered is not found satisfactory in the opinion of the AO. Similarly, for the deeming provisions of section 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 record-ed in the books of accounts 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.
16. Recently, in case of Surender Kumar & others (ITA No. 398/Chd/2022), the Coordinate Chandigarh Benches 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 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 Sec-tion 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, ex-penditure, 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 un-explained investments of which the assessee offers no explanation about the ‘nature and source’ there-of or the explanation is not found satisfactory. Similarly, Section 69A is attracted in case of money, bul-lion, 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 ‘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 na-ture 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 surren-dered by the assessee was undisclosed income of the assessee and therefore, the same has to be as-sessed 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 as-sessee 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 sur-rendered 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 sub-missions 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 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.”
17. Therefore, the foundational requirement before invoking 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 provi-sions 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) of sub-section (3) provides that an income tax au-thority 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 as-sessee as part of his statement recorded u/s 133A needs to be analysed and examined before drawing any conclusions in this regard.
18. In the instant case, in the statement so recorded of the assessee during the course of survey, in Question No. 3 raised by the survey team, the assessee was asked about the source of his income and in response, the assessee submitted that he was sole Proprie-tor of M/s Singla Wire and Allied Products, Patiala and except the said business, he has no other source of income. Further, he stated that he was not partner/Director in any of the firm or company. In Ques-tion No. 4 raised by the survey team, he was asked to state the date of commencement of his concern and the nature of activity carried out alongwith details of manufactured products. In response, the as-sessee submitted that the concern started business in the year 2008 and it is involved in manufacturing of aluminum and copper wires and thereafter, he has given the details of manufacturing process. In Question No. 10, he was asked by the survey team that as per assessee’s books of account, there was cash in hand of Rs. 66,400/-however on physical verification, Rs. 10,46,000/- is found from your busi-ness premises thus there is excess cash of Rs. 9,80,000/- and the assessee was asked to explain the dis-crepancy. In response, the assessee submitted that at this point in time, he was not in a position to ex-plain the said discrepancy found in cash and offered the difference of Rs. 9,80,000/- for taxation. In Question No. 11, the survey team noted that one note pad (katcha) was found during the course of survey and advance to various persons to the tune of Rs. 55,00,000/- has been found noted therein and the assessee was asked to explain the nature of these advances. In response, the assessee sub-mitted that these advances relates to his business activity, however he is not in a position to explain the same at this moment of time and to buy peace of mind, he offered this amount of Rs. 55,00,000/- for taxation for the F.Y. 2016-17 pertaining to A.Y 2017-18. In Question No. 12, the survey team stated that stock to the tune of Rs. 17,38,400/- has been found as per the books of account maintained by the as-sessee, however on physical verification, stock to the tune of Rs. 37,38,210/- has been determined and the assessee was asked to explain the difference of excess stock valued at Rs. 20,00,000/-. In response, the assessee submitted that at this moment of time, he is not in a position to explain the said difference of Rs. 20,00,000/- however to buy peace of mind, he offered this amount of Rs. 20,00,000/- for taxa-tion for the F.Y. 2016-17 pertaining to A.Y. 2017-18. Thereafter, in the statement so recorded, it is men-tioned that taxes on total additional income of Rs. 84,80,000/- so surrendered by the assessee were worked out and three post dated cheques were given by the assessee to the survey team for securing the payment of due taxes amounting to Rs. 26,20,000/-. Thereafter, in terms of surrender letter dt. 0809/07/2016 addressed to the Additional CIT, Patiala Range, Patiala, the assessee has reiterated the amount surrendered of Rs. 84,80,000/- which were offered as additional income at the time of survey on account of certain discrepancies noticed in terms of advances to various persons amounting to Rs. 55,00,000/-, cash in hand of Rs. 9,80,000/-, excess stock of Rs. 20,00,000/- and the tax liability of Rs. 26,20,000/- which has been worked out at the time of survey and the details and particulars of the cheque issued were mentioned.
19. We therefore find that through various questions raised during the course of survey, the assessee has been asked about the nature and source of his in-come 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 Singla wires and allied products since 2008 wherein he manufactures and sells aluminum and copper wires 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 accounts, 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 accounts. 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 busi-ness 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 accounts, he has offered the same to taxation. Similarly, the stock physically found has been valued and then, compared with stock as record-ed in the books of accounts, thus, there is clear nexus of stock with the assessee’s business. The state-ment 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 con-sideration 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 sur-render so made during the course of survey, the assessee has honored the surrender so made and offered the additional income as business income in his return of income and paid due taxes there-on.
20. In our view, what is relevant before invoking the 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 accounts 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 defence available to the assessee in terms of part of the statement not been considered by the Rev-enue cannot be ignored. The mere fact that survey/search proceedings have been initiated at the busi-ness premises of the assessee doesn’t mandate the Assessing officer to automatically invoke the deem-ing provisions and before invoking the deeming provisions, he has to call for the explanation of the as-sessee and only where the explanation so offered is not found satisfactory, he can proceed and invoke the deeming provisions.
21. In case of Gandhi Ram (ITA No. 121/CHD/2021 dated 04/08/2022), speaking through one of us, it was held that it is like lay-ing 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 vir-tue of the same, provisions of section 115BBE are attracted and the relevant findings read as under:
5. “Firstly, how the ld PCIT has arrived at a con-clusive finding that the discrepancies found, confronted and accepted by the assessee during the course of survey attract the deeming provisions of section 68, 69, 69A, 69B & 69C is not apparent from the impugned order. Merely stating that excess cash is clearly covered u/s 68 or 69A, excess stock is cov-ered u/s 69 or 69B, construction of Shed/Godown is covered u/s 69B or 69C and advances made to Sundry Parties is covered u/s 69, 69B or 69D is like an open ended hypothesis which is not supported by any specific finding that the matter shall fall under which of the specific sections and how the conditions stated therein are satisfied before the said provisions are invoked. It is like laying a general rule, which to our mind 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. The ld PCIT has to record his specific findings as to the ap-plicability 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.”
22. In case of Chokshi Hiralal Maganlal Vs. DCIT (Supra), 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 sil-ver ornaments were found and in the return of income subsequently filed by the assessee, he had in-cluded 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 accord-ingly brought to tax under section 69B. The Ld. CIT(A) confirmed the order of the AO and thereafter on further appeal, the Coordinate Ahmedabad Bench held that the excess stock found during the survey is not separately and clearly identifiable but is part of mix lot of stock found at the premises which included declared stock as per books and also the excess stock as computed by the Survey Officers and therefore the provisions of Section 69B cannot be made applicable as primary condition for invoking the said pro-vision is that the asset should be separately identifiable and it should have independent physical exist-ence 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 Tri-bunal in case of Fashion Fashion World Vs. ACIT (IT Appeal No. 1634(Ahd.) of 2006, dt. 12/02/2010) wherein the Tribunal had observed as under:
“11. But this does not mean that loss computed under any of the five heads mentioned in section 14 – (i) ‘salary’, (ii) ‘income from house property’, (iii) ‘profits and gains from business or profession’, (iv) ‘capital gains’ and (v) ‘income from other sources’ – cannot at all be adjusted against unexplained investment or expenditure. What is necessary as per Hon. Gujarat High Court is that source of acquisition of asset or expenditure should be clearly identifiable. In the case before Hon. Gujarat High Court the source of gold confiscated was not identifiable and hence adjustment was not permitted.
12. Thus the important aspect that emerges from the entire discussion is that for invoking deeming provisions under sections 69, 69A, 69B & 69C there should be clearly identifiable asset or expenditure. In the present case we find that entire physical stock of Rs.25,14,306/- was part of the same business. Both kind of stock i.e. what is recorded in the books and what was found over and above the stock recorded in the books, were held and dealt uni-formly by the assessee. There was no physical distinction between the accounted stock or unaccounted stock. No such physical distinction was found by the Revenue either. The assessee has repeatedly claimed that unaccounted business income is invested in stock and there is no amount separately taxa-ble under section 69. The department has ignored this claim of the assessee and sought to tax the differ-ence between book-stock and physical-stock as unaccounted investment under section 69 without con-sidering the claim of the assessee that first the business receipt has to be considered and then invest-ment should be treated as coming out of such unaccounted income. The difference in stock so worked out by the authorities below had no independent identity of its own and it is part and parcel of entire lot of stock. The difference between declared stock in the books and what is physically found would only be a mathematical expression in terms of value and not a separate independent identifiable asset. Therefore, it cannot be said that there is an undisclosed asset existed independently. Once this is so then what is not declared to the department is receipt from business and not any investment as it cannot be co-related with any specific asset.
13. Thus in a case where source of invest-ment/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 fail-ure 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 in-vestment 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 in-vestment in an asset or expenditure is not identifiable and no nexus was established then with any head of income and thus was not available for set off against any loss under any other head. Therefore, we hold that where asset in which undeclared investment is sought to be taxed is not clearly identifiable or does not have independent identity but is integral and inseparable (mixed) part of declared asset, falling under a particular head, then the difference should be treated as undeclared business income explaining the investment.
14. To conclude sum of Rs.8,10,011/- being difference in stock is represented by undeclared business income. It does not have a separate physical identity. It is to be only taxed under the head ‘business’. Other assets have separate physical identity be-ing furniture and fixtures, air conditioners etc. They cannot have a direct nexus with business and there-fore investment therein has to be considered under section 69 only.”
15. In view of the above, AO is directed to con-sider 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.
23. In the instant case as well, we find that the differ-ence 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 can-not be co-related with any specific asset and the difference should thus be treated as undeclared busi-ness income.
24. Following the said decision of the Coordinate Ah-medabad Bench, the Jaipur Bench 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 pe-rused the material available on record. Undisputed facts emerged from the record that at the time of survey excess stock was found. It is also not disputed that the assessee is engaged in the business of jewellery. During the course of survey excess stock valuing Rs. 77,66,887/- was found in respect of gold and silver jewellery. The Coordinate Bench in the case of Chokshi Hiralal Maganlal vs. DCIT, 131 TTJ (Ahd.) 1 has held that in a cases where source of investment/expenditure is clearly identifiable and al-leged 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 invest-ed 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 re-ceipt 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 estab-lished 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 un-der 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 par-ticular head, then the difference should be treated as undeclared business income explaining the invest-ment. 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 de-cision of the ld. CIT (A) directing the AO to treat the surrendered amount as excess stock qua the excess stock found.”
25. Thereafter, the Coordinate Jaipur Benches in case of Bajargan Traders Vs. ACIT (Supra) has similarly held as under:
“2.10. We have heard the rival contentions and perused the material available on record. During the course of survey, the assessee has surrendered an amount of Rs. 70,04,814/- towards investment in stock of rice which had not been recorded in the books of accounts. Subsequently, in the books of accounts, the assessee has incorporated this transaction by debiting the purchase account and crediting the income from undis-closed 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. Sec-ondly, 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 as-sessee’s bringing such transaction in its books of accounts and the accounting treatment thereof so as to regularise its books of accounts. In fact, the same provides a credible base for Revenue to bring to tax subsequent profit/loss on sale of such stock of rice in future.
2.11. Having said that, the next issue that arises for consideration is whether the amount surrendered by way of investment in the unrecorded stock of rice has to be brought to tax under the head “business income” or “income from other sources”. In the present case, the assessee is dealing in sale of foodgrains, rice and oil seeds, and the excess stock which has been found during the course of survey is stock of rice. Therefore, the investment in procurement of such stock of rice is clearly identifiable and related to the regular business stock of the assessee. The de-cision of the Co-ordinate Bench in case of Shri Ramnarayan Birla (supra) supports the case of the as-sessee 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.”
26. The said decision of Coordinate Jaipur Benches has since been confirmed by the Hon’ble Rajasthan High Court in case of PCIT vs Bajargan Traders (DB Ap-peal No. 258/2017 dt. 12/09/2017).
27. Similarly, the Coordinate Chandigarh Benches in case of M/s Gaurish Steels Pvt. Ltd. Vs. ACIT (Supra) has held as un-der:
“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 ac-count of following heads:
