Suraj Rolling Pvt. Ltd. Vs ACIT (ITAT Raipur)
The ITAT Raipur partly allowed the assessee’s appeal arising from the assessment completed under Sections 143(3) read with 153A for AY 2019-20. The assessee, engaged in manufacturing steel products, was subjected to a search under Section 132 on 22.11.2018. In its return, it declared income of ₹1,21,56,460, including ₹45,00,000 surrendered during the search. The Assessing Officer completed the assessment by making additions of ₹8,28,344 as commission income on alleged bogus sales and ₹3,00,000 as cash received through hawala transactions, and applied Section 115BBE to ₹56,28,344 comprising the surrendered income and both additions.
The assessee did not press the ground challenging limitation. It also challenged the validity of approval under Section 153D, alleging mechanical approval without application of mind. The Tribunal distinguished between “approval” and “sanction”, referred to Section 292BC, and observed that the assessee had not produced corroborative material demonstrating non-application of mind. It held that the approval under Section 153D was valid and dismissed this ground.
On the addition of ₹8,28,344, the assessee contended that the commission income formed part of the ₹45,00,000 already surrendered on account of unexplained stock. The Revenue argued that the commission income arose from impounded material recovered during a survey at Jhanjharia Nirman Limited, whereas the surrendered amount related only to excess stock found during the search. The Tribunal noted that the commission income had been earned before the search and observed that, where unaccounted income is not found as cash or revenue expenditure during the search, its manifestation in the form of assets cannot be ruled out. Since unexplained stock-in-trade had been found during the search, the Tribunal held that the commission income could not be ruled out as having been invested in that stock and concluded that the surrendered income of ₹45,00,000 included the commission income. Accordingly, the addition of ₹8,28,344 was deleted.
The Tribunal then considered the addition of ₹3,00,000 received through hawala transactions. The CIT(A) had upheld the addition on the basis of seized mobile messages, the statement of the assessee’s employee, and the statutory presumption under Sections 132(4) and 292C. Before the Tribunal, the assessee did not specifically deny receipt of the amount or establish its true nature. Nevertheless, applying the same reasoning adopted for the commission income, the Tribunal observed that the amount had been received before the search and that, since it was not found in the form of cash or revenue expenditure during the search, it could have been reflected in the unexplained stock found during the search. It therefore held that the surrendered income of ₹45,00,000 also covered this amount and deleted the addition of ₹3,00,000.
The remaining issue concerned the applicability of Section 115BBE to the surrendered income. The assessee argued that the ₹45,00,000 represented business income arising from unexplained stock-in-trade and therefore could not be taxed under Section 115BBE. The Tribunal examined Sections 69, 69A and 115BBE and held that the deeming provisions apply where unexplained investments or assets are not satisfactorily explained. It observed that merely recording excess stock in the books after detection during search and offering it in the return of income did not remove it from the ambit of Sections 69 or 69A. The Tribunal noted that no purchase bills, vouchers, challans, banking records or other primary evidence had been produced to establish that the excess stock formed part of regular business transactions. It further held that subsequent accounting entries without supporting documentary evidence could not establish the stock as business income. Accordingly, it upheld the application of Section 115BBE to the surrendered income of ₹45,00,000. However, since the additions of ₹8,28,344 and ₹3,00,000 had been deleted, Section 115BBE would apply only to ₹45,00,000 and not to ₹56,28,344. The appeal was therefore partly allowed.
Cases Discussed
- SVS Oils Mills vs. ACIT (Madras High Court), ITA No. 765 of 2018 dated 26.03.2019
- Kim Pharma Pvt. Ltd. vs. CIT (Punjab and Haryana High Court), ITA No. 106 of 2011 dated 27.04.2011
- Fakir Mohd. Haji Hasan Vs. CIT (Gujarat High Court), [2001] 247 ITR 290 (Guj.)
- Fakir Mohamad Haji Hasan Vs CIT (Gujarat High Court), 247 ITR 290 (Guj)
- Kim Pharma Pvt Ltd. (Punjab and Haryana High Court), 216 Taxman 153
- Regional Manager v. Pawan Kumar Dubey (Supreme Court), AIR 1976 SC 1766
- Marathwada University v. Seshrao Balwant Rao Chavan (Supreme Court), (1989) 3 SCC 132
- Life Insurance Corporation of India v. Escorts Ltd. (Supreme Court), (1986) 1 SCC 264
- Kalpanath Rai vs State (Supreme Court), (1997) 8 SCC 732
- Kelvinator of India Ltd. (Delhi High Court, Full Bench), 123 Taxmann 433 (FB)
FULL TEXT OF THE ORDER OF ITAT RAIPUR
This appeal for Assessment Year (‘AY’) 2019-20 filed by the assessee is directed against the order dated 12.11.2025 of Commissioner of Income Tax (Appeals), [CIT(A)], Raipur-3, passed under section 250 of the Income Tax Act, 1961 (‘Act’).
2. The assessee has raised following grounds:
“ Gr.No.1:
“On facts and circumstances of the case and in law, assessment made u/s 143(3) rws.133A dt.3-6-21 is invalid; it is time barred by limitation u/s 153B;search u/s 132 was initiated on 22-11-18 which concluded on 24-11-18; time limit for completion of assessment made u/s 143(3) rws.153A for ‘search year i.e., AY 19-20, as per sec 153B(1)(b) (amended by FA, 2017 wef.1-4-17) was 18 months from the end of the FY in which search was conducted u/s 132, which expired on 30-9-20; assessment made u/s 143(3) rws. 153A dt.3-6-21 would be invalid as barred by limitation & is liable to be quashed.”
Gr.No.2:
“On facts and circumstances of the case & in law, approval granted u/s 153D dt.1-6-21 is in mechanical & routine manner, without application of mind by Addl. CIT, it is granted only on the basis of letter dt. 31-5-21 of seeking approval (just one day before) without even mentioning that he has perused the record; it is granted on presumption that AO has verified all the materials; he has granted blanket approval to the AO and has abdicated from his statutory duty as mandated by sec 153D; without even recording any word of own satisfaction on ‘additions made, without even considering the reply/submissions of the assessee; even he has not cared/ pointed out glaring mistake/ error in ‘draft order that it is time barred by limitation u/s 153B; it is purely non-application of mind by Addl. CIT and it is invalid & assessment made u/s 143(3) rws. 153A dt. 3-6-21 would be liable to be quashed.”
Gr.No.3:
On facts and circumstances of the case and in law, Id CIT(A) has erred in sustaining addition of Rs.8,28,344 made by AO on the count of hypothetical estimation of commission income @ 3% on certain unverified transaction on documents found (i.c., LPI-2) from third party premises & on the statement recorded from the third party (i.c., Sushil Agrawal) even without cross-examining him by the assessee; addition is merely on presumption & surmises without bringing any material/evidence on record by the AO against the assessee-Company, is invalid, unjustified & is liable to be deleted.”
Gr.No.4:
On facts and circumstances of the case and in law, ld CIT(A) has erred in sustaining addition of Rs.3,00,000 on the count of presumption of ‘unaccounted sale on the basis of statement of an employee (Kamlesh Shrivastava) without considering explanation given by the assessee-Company; even without cross-examining him by the assessee-Co; addition is merely on presumption & surmises without bringing any material/ evidence on record by the AO against the assessee-Co; is invalid, unjustified & is liable to be deleted.”
Gr.No.5:
“On facts and circumstances of the case and in law, Id CIT(A) has erred in applying higher rate of tax u/s 115BBE on Rs.56,28,344 which comprised of Rs.45,00,000 as ‘business income’ offered for taxation on account of closing stock variation & on certain business transactions on seized material and addition of Rs.8,28,344 made on certain business transactions in the regular course of business of the assessee-Co; without considering the explanation of the assessee-Co; application of sec 115BBE is invalid, unjustified and is liable to be deleted/ quashed.”
3. The relevant facts giving rise to this appeal are that the assessee is engaged in the business of manufacturing of steel products. The assessee was searched under section 132 of the Act on 22.11.2018. It filed its Income Tax Return (‘ITR’) of the relevant year on 31.10.2019 declaring income of Rs.1,21,56,460/- which included the income of Rs.45,00,000/- surrendered during search operation. The case was picked up for scrutiny and consequential assessment was completed at income of Rs.1,32,84,804/- by making following two additions:
i. Commission income of Rs.8,28,344/-;
ii. Cash receipts of Rs.3,00,000/- through Hawala transactions.
4. A survey under section 133A of the Act was conducted on Jhanjharia Nirman Limited (3rd party), wherein certain incriminating materials pertaining to the assessee marked as LPI-2 were impounded, which showed that the assessee was engaged in providing bogus sales to Jhanjharia Nirman Limited. The statement of Shri Sushil Kumar Agrawal, Director of Jhanjharia Nirman Limited was recorded during the course of survey under section 133A of the Act on 18.11.2018, wherein he admitted that he had taken bogus purchase bills from the assessee after making payment through RTGS and receiving the cash thereafter after payment of commission @ 2-4% of purchase invoice value. The impounded incriminating materials from the business premises of Jhanjharia Nirman Limited revealed that the assessee had made bogus sales of Rs.2,76,11,470/- to Jhanjharia Nirman Limited during the relevant year. On the bogus sales of Rs.2,76,11,470/- to Jhanjharia Nirman Limited, the Ld. Assessing Officer (‘AO’) worked out commission income @ 3% (average of 2-4% admitted by Shri Sushil Kumar Agrawal, Director of Jhanjharia Nirman Limited) and taxed the same under section 69A r.w.s. 115BBE of the Act.
5. During the course of search at the assessee’s premises, the mobile data of Shri Kamlesh Shrivastava, Accountant of the assessee were downloaded and print out of some downloaded documents duly signed by Shri Kamlesh Shrivastava were seized vide Annexure LPS-2. One of such documents from downloaded WhatsApp messages revealed that the assessee had received Rs.3,00,000/- in cash through Hawala transactions backed by the currency note number, identification details, etc. Since the assessee failed to offer proper explanation thereof during the assessment proceedings; therefore, the Ld. AO taxed the sum of Rs.3,00,000/- under section 69A r.w.s. 115BBE of the Act. Further, the Ld. AO also taxed the surrendered income of Rs.45,00,000/- in accordance with section 115BBE of the Act.
6. Aggrieved with the assessment order, the assessee filed appeal before the Ld. CIT(A), who dismissed the appeal. Hence, the assessee filed this appeal raising following three issues as under:
i. Taxability of Rs.8,28,344/-;
ii. Taxability of the sum of Rs.3,00,000/- received through Hawala and;
iii. Applicability of tax rate @ 60% on the income of Rs.56,28,344/-(Rs.45,00,000 + 8,28,344 + 3,00,000).
7. At the outset, Shri Sunil Kumar Agrawal, CA, Ld. Authorized Representative (‘AR’) of the assessee submitted that he did not press ground No.1. Hence, the same stands dismissed.
8. Vide ground No.2, the assessee had challenged the validity of approval under section 153D of the Act being mechanical as there was non-application of mind by the Approving Authority/Range Head as it was granted in routine manner. However, on our specific query that why not this ground, in view of newly inserted section 292BC of the Act, should be dismissed, the Ld. AR submitted that validity of section 292BC of the Act had not been examined by the Hon’ble High Courts and Hon’ble Supreme Court. On our specific query, the Ld. AR was not able to furnish any material on the record to demonstrate the shortcoming and anomaly in the approval under section 153D of the Act pinpointing that the approval under section 153D of the Act was granted mechanically and without application of mind.
9. On the other hand, the Ld. CIT-DR submitted that very few search group cases were centralized in the Central Charges for personal monitoring of search assessments. The Ld. CIT-DR further submitted that the Ld. Joint/Additional Commissioner of Income Tax/Range Head was actively involved in assessments of all search cases from the beginning of assessment proceedings, viz, approval of questioners, guidance/discussion to/with the Ld. AO from time to time; hence, the question of non-application of mind as the approval was granted in a day did not arise at all. The Ld. CIT-DR had also contended that the claim of approval granted in mechanical manner without due application of mind must be proven by a finding of fact. The Ld. AR had not provided any corroboratory evidence to demonstrate the non-application of mind and mere allegation was not sufficient. The Ld. CIT-DR submitted that the search & seizure assessments in Central Charge were regularly supervised, discussed and guided by the Ld. Addl. CIT/Range Head. The Ld. AO and the Ld. Addl. CIT/Range Head both were required to follow various instructions/guidelines issued by the CBDT for completion of search & seizure assessments. It was further submitted that the approval under section 153D of the Act granted by the Ld. Addl. CIT was administrative in nature. The Ld. Addl. CIT/Range Head while approving the order under section 153D of the Act was not required to examine or adjudicate upon the rights or obligations of the assessee, but only considered whether the Ld. AO had done assessment as per the provisions of section 153A of the Act.
10. We have given thoughtful consideration to the entire issue of the approval under section 153D of the Act. The phrase “application of mind” which is at the core of the controversy here is a well-established expression in jurisprudence. In legal parlance, approval and sanction are two different words having distinct shades of meaning depending on context wherein such words are used (statutory interpretation, administrative law, corporate law, or criminal procedure). Approval is a formal expression of assent, usually given after an act is done, ratifying or confirming it. Generally, it is in the nature of post-facto recognition or confirmation. Approval often refers to supervisory/confirmatory consent by the higher authority. Whereas, Sanction is mandatory and jurisdictional without which, the proceedings are invalid. Sanction is more than mere approval. The Hon’ble Supreme Court in the cases of Regional Manager v. Pawan Kumar Dubey, AIR 1976 SC 1766, Marathwada University v. Seshrao Balwant Rao Chavan, (1989) 3 SCC 132, Life Insurance Corporation of India v. Escorts Ltd., (1986) 1 SCC 264 and Kalpanath Rai vs State (1997) 8 SCC 732 has held that the approval and sanction are not synonymous and the “approval” generally conveys a sense of confirmation of an act already done, while “sanction” conveys a prior permission or authorization before the act is done. Here, the word ‘approval’ instead of ‘sanction’ has been used in section 153D of the Act.
11. The Hon’ble Delhi High Court (Full Bench), in the case of Kelvinator of India Ltd. 123 Taxmann 433 (FB), on the basis of the statutory presumption under section 114(e) of the Indian Evidence Act, 1872, had drawn a presumption in the Income Tax matter that all official actions were performed regularly unless controverted by the corroboratory evidence. Thus; in the present case, the onus is on the assessee/Ld. AR to rebut that the Addl. CIT while approving the order under section 153D of the Act has not applied his mind. It is very surprising to note that the assessee has accepted the approval of Ld. Addl. CIT under section 153D of the Act for AYs wherein no adverse finding was made as the said approval was for AYs 2013-14 to 2019-20. I am unable to understand the reasoning that how the approval of Ld. Addl. CIT under section 153D of the Act for AYs which have been accepted by the assessee being valid in the eyes of the law will justify the questioning of validity of approval under section 153D of the Act for AY 2019-20 when the approval for AYs 2013-14 to 2019-20 was granted by the letter dated 01.06.2021 (Page 204 of the Paper Book).
12. Section 292BC of the Act reads as under:
“292BC. Notwithstanding anything contained in this Act or in any judgment, order or decree of any Court, for the removal of doubts, it is hereby clarified that any approval given by an income-tax authority in relation to any assessment, reassessment or recomputation proceedings under this Act shall be deemed to be administrative and supervisory in nature and shall not be invalid or shall not be deemed to be invalid by reason of any insufficiency of the reasons recorded or by reason of any defect in the form or manner of its authentication or communication including whether digital signature have been appended to such approval or not, where such approval is granted electronically.”
13. On our specific query with respect to the applicability of section 292BC of the Act, the Ld. AR Ld. AR submitted that the retrospective application of section 292BC of the Act had not tested the judicial scrutiny; therefore, provisions of section 292BC of the Act should not be made applicable in the present case.
14. In view of the above, we are of the considered view that the newly inserted section 292BC of the Act is effective from 01.04.2021. The applicability of provisions of section 292BC of the Act cannot be differed as of now in anticipation that the retrospectivity of provisions will be stuck down by the Hon’ble Court. Thus, in view of the foregoing discussion and provisions of section 292BC of the Act, we hold that the approval granted under section 292BC of the Act is valid. Consequentially, the ground of appeal stands dismissed.
15. Vide ground No. 3, the assessee had challenged the taxability of commission income of Rs.8,28,344/-. The Ld. AR submitted that the commission income of Rs.8,28,344/- was included in the surrendered income of Rs.45,00,000/-; hence, the same could not be taxed again as it would tantamount to double taxation. The Ld. AR submission was that the commission income of Rs.8,28,344/- under reference received by the assessee would have been reflected/manifested in the form of cash, valuables, stock-in-trade, expenditure, etc. found/noticed during the course of search under section 132 of the Act on 22.11.2018. Since the commission income of Rs.8,28,344/- was received prior to the search under section 132 of the Act on 22.11.2018, then the same was bound to get reflected in the form of asset and or expenditure. Since the unaccounted stock-in-trade was found during the search and the assessee had surrendered income of Rs.45,00,000/- on this score; therefore, it could not be ruled out that the commission income of Rs.8,28,344/- under reference received by the assessee had not been invested in the stock-in-trade as the surplus stock had to be sourced from the unaccounted income only. The Ld. AR contended that since neither the search team nor the Ld. AO had found any evidence otherwise; therefore, the assessee’s claim that the surrendered income of Rs.45,00,000/- included the commission income of Rs.8,28,344/- was justified.
16. On the other hand, the Ld. CIT-DR, drawing our attention to the fact that the assessee had surrendered the income based on the incriminating material found and seized from its premises and the said surrendered income of Rs.45,00,000/-had to do nothing with the commission income of Rs.8,28,344/-. The Ld. CIT-DR, placing emphasis on page 4 & 5 of the assessment order, categorically submitted that the surrendered income of Rs.45,00,000/- was on account of stock-in-trade only, whereas the commission income of Rs.8,28,344/- was for providing accommodation entries to various parties through bogus billings. The Ld. CIT-DR categorically submitted the issue of commission income of Rs.8,28,344/- for providing accommodation entries to Jhanjharia Nirmam Limited through bogus billings came in the survey under section 133A of the Act carried out on Jhanjharia Nirmam Limited. The commission income of Rs.8,28,344/- was not base on any incrimination document seized during the search operation on the assessee. The commission income of Rs.8,28,344/- had been computed based on the incriminating material impounded from the premises of Jhanjharia Nirmam Limited during the course of survey under section 133A of the Act, which were not before the assessee at the time of surrender of income of Rs.45,00,000/-; hence, the surrendered income of Rs.45,00,000/- did not include commission income of Rs.8,28,344/-. The Ld. CIT-DR drew our attention to the finding of the Ld. CIT(A) at page 14 onwards of the appellate order, which read as under:
“During the course of appeal proceedings, I have carefully perused the assessment order and reply of the assessee company. The assessee company submitted that only genuine sale of Rs.17,81,618/- was made to Jhajharia Nirman Ltd. through proper invoice and RTGS payment and no other transaction took place with that company during the year. The assessee company has also submitted that the statement of Shri Sushil Kumar Agrawal could not be relied upon as there was no opportunity given to cross-examine it.
The assessee company further contended that it had already disclosed Rs. 45 lakh as additional business income in its return of income and that the addition of Rs.8,28,344/-, even if assumed to be correct, was already covered by this surrendered amount.
I have carefully gone through the assessment order, the submissions of the assessee, and all the facts of the case. The issues raised by the assessee have been considered one by one.
it is not in dispute that the name of the assessee company appears in the impounded documents LPI-2 and LPI-4. These documents were found during survey operation at the premises of Jhajharia Nirman Ltd. They are coexistent business records maintained by that concern in the regular course of its activities, even though those activities were not fully accounted for in its books. The entries are detailed, contain dates and figures, and mention the names of parties including the assessee. The pattern of entries and the corroboration by the statement of the Director of Jhajharia Nirman Ltd. show that these were not casual notings but records of actual transactions.
Jhajharia Nirman Ltd. was a regular customer of the assessee company for several years, and this business relationship is admitted by the assessee itself. The long and consistent pattern of dealing strengthens the probability that the assessee’s name appearing in the impounded material is not a coincidence.
The argument that the documents were found from another person’s premises does not by itself make them irrelevant. When third-party material directly names and links an assessee to unrecorded transactions, it becomes a relevant piece of evidence. The burden lies on the assessee to rebut such evidence with credible explanation or supporting proof. In this case, the assessee company has not produced any material such as transport bilty/slip, gate pass etc. to prove that no such unrecorded dealings took place.
The statement of Shri Sushil Kumar Agrawal recorded during survey proceedings clearly mentions the modus operandi of bogus billing and cash return. The statement was given voluntarily, supported by documents and there is no record of any retraction. The later explanation given by him was general and unsupported by any evidence and therefore, cannot displace the earlier admission which was detailed and specific.
The estimation of commission income at 3% is based on the rates mentioned in the impounded document LPI-4, which shows commission extending between 2% to 4%. Hence, the average estimation of 3% is fair and reasonable.
The assessee company’s mpany’s plea that the surrendered income of Rs.45 lakh already covers the disputed amount cannot be accepted. The surrendered income was offered by the assessee for documents found at its own premises relating to its own unrecorded business transactions. The present addition arises from an entirely different set of papers and different facts found from the premises of Jhajharia Nirman Ltd. Therefore, the two cannot be treated as one.
Considering all these facts, it is clear that the Id. AO has not acted on mere assumption but on tangible documentary material supported by statements and business links. The assessee has not been able to disprove or even properly explain the specific entries mentioning its name. Therefore, the finding of the Id. AO that the assessee was engaged in issuing bogus bills on commission to Jhajharia Nirman Ltd. is reasonable and justified.
Considering the facts of the case and facts discussed in preceding paras, the addition of Rs.8,28,344/- is hereby confirmed and this ground of appeal is hereby dismissed.”
17. The Ld. CIT-DR further submitted that the Ld. AR had not brought any material on the record to contradict the finding of the Ld. CIT(A) and or to demonstrate that the surrendered income of Rs.45,00,000/- included the commission income of Rs.8,28,344/-. He, therefore, prayed for dismissal of this appeal.
18. We have perused the assessment order and impugned appellate order. The relevant year is the year in which search operation has taken place. Therefore, the addition on account of unexplained cash, unexplained valuables, unexplained stock-in-trade, etc. has to be done in the relevant year. Since no addition other than the commission income of Rs.8,28,344/- and the sum of Rs.3,00,000/- received through Hawala have been done over and above the returned income. Therefore, the unaccounted income if not found in cash and or revenue expenditure, then the manifestation of the same in form of asset cannot be ruled out. We find force in the arguments/contentions/submissions of the Ld. AR. We have taken note of the fact that the assessee has no knowledge of the incriminating material impounded from the premises of Jhanjharia Nirman Ltd. pin-pointing the assessee being involved in providing bogus billing. However, we are of the considered view that the unaccounted stock-in-trade found during the course of search under section 132 of the Act on 22.11.2018 has to be sourced from unaccounted income/fund. Since the commission income of Rs.8,28,344/- has been earned before the search under section 132 of the Act on 22.11.2018; therefore, it cannot be ruled out that the said commission income of Rs.8,28,344/- has not been reflected/manifested in the form of cash, valuables, stock-in-trade, expenditure, etc. found/noticed during the course of search under section 132 of the Act on 22.11.2018. Since the said commission income of Rs.8,28,344/- has not been found in the form of cash and or revenue expenditure during the search under section 132 of the Act on 22.11.2018, then the same is bound to get reflected in the form of asset. Since the unaccounted stock-in-trade has been found during the course of search; therefore, it cannot be ruled out that the commission income of Rs.8,28,344/- under reference received by the assessee has not been invested in the surplus stock-in-trade. We, therefore, hold that the surrendered income of Rs.45,00,000/- on account of unexplained stock-in-trade includes the commission income of Rs.8,28,344/-. We, therefore delete the addition of Rs.8,28,344/-. Accordingly, the ground No.3 is allowed in favour of the assessee as above.
19. The next issue raised vide ground No.4 is in respect of the taxability of Rs.3,00,000/- received through Hawala by mentioning currency note number as identification mark for receiving the cash. During the course of assessment proceedings, the assessee denied having made any unaccounted sale to the person from whom the sum of Rs.3,00,000/- was received through Hawala (page 28 of the assessment order). The relevant finding of Ld. CIT(A), on this issue, is as under:
“During the course of appeal proceedings, I have carefully perused the assessment order and reply of the assessee company. The mobile message extract seized during the search is a part of incriminating material found from the possession of the assessee company’s employee in the course of search u/s 132. The message is directly related to the company’s business affairs, referring to receipt of cash against sales through Hawala mode.
The Further, the statement of Shri Kamlesh Shrivastava was recorded under oath, wherein he categorically admitted that the payment of Rs.3,00,000/- was received by the company’s Director, Shri Suresh Agrawal, against unaccounted sales. The statement was clear, specific, and corroborated by the seized communication. assessee company has not brought on record any material evidence to disprove the same except for a self-serving affidavit of Shri Sanju Chaitma, which has no evidentiary value in absence of cross-verification or corroboration. The assessee company’s claim that the addition is based on presumption is not tenable. The seized documents, attached with the employee’s statement, constitute sufficient material evidence as envisaged u/s 132(4) and section 292C of the Act, which presume the correctness of documents and statements found during search unless rebutted with cogent evidence. The assessee company’s mere denial and production of an affidavit after the event cannot prevail the clear admission of its own employee and the seized digital evidence. The assessee company’s contention that Rs.3,00,000/- is already covered under the surrendered income of Rs.45,00,000/- is without merit. The assessee company has not demonstrated any correlation between the seized message (LPS-2, pages 1 & 2) and the documents forming part of the surrendered income. Unless the assessee establishes that this particular transaction was specifically included in the surrendered sum, such claim cannot be accepted.
In view of the above discussion, the addition of Rs.3.00.000/- made by the Id. AO is based on tangible evidence seized during search assessee company has failed to rebut the presumption u/s 292C or and corroborated by the statement of the company’s employee. The provide any credible explanation or evidence. The affidavit produced by a related person cannot prevail the direct evidence found in the course of search. The plea that the amount is covered under surrendered income is not substantiated. Accordingly, the addition of Rs.3,00,000/- is hereby confirmed and this ground of appeal is hereby dismissed”
20. We have perused the assessment order and impugned appellate order. The receipt of sum of Rs.3,00,000/- was not specifically denied by the assessee. During the assessment proceedings, the assessee has not admitted having made any unaccounted sale to the person from whom the sum of Rs.3,00,000/- received. Before us also, the true nature of receipt of sum of Rs.3,00,000/- has not been demonstrated by the assessee/Ld. AR. The sum of Rs.3,00,000/- under reference here was received on 11.08.2018, whereas the assessee has been searched under section 132 of the Act on 22.11.2018. The details of cash, valuables, stock-in-trade, expenditure, etc. found/noticed during the course of search under section 132 of the Act on 22.11.2018 were inventoried by the search team. The relevant year is the year in which search operation has taken place. Therefore, the addition on account of unexplained cash, unexplained valuables, unexplained stock-in-trade, etc. has to be done in the relevant year. Since no addition other than the commission income of Rs.8,28,344/- and the sum of Rs.3,00,000/- received through Hawala have been done over and above the returned income. Therefore, the unaccounted income if not found in cash and or revenue expenditure, then the manifestation of the same in form of asset cannot be ruled out. We find force in the arguments/ contentions/submissions of the Ld. AR. We are of the considered view that the sum of Rs.3,00,000/- under reference received by the Director of the assessee has been reflected/manifested in the form of cash, valuables, stock-in-trade, expenditure, etc. found/noticed during the course of search under section 132 of the Act on 22.11.2018. Since the sum of Rs.3,00,000/- under reference has not been found in the form of cash and or revenue expenditure during the search under section 132 of the Act on 22.11.2018, then the same is bound to get reflected in the form of asset. Since the unaccounted stock-in-trade has been found during the course of search; therefore, it cannot be ruled out that the sum of Rs.3,00,000/- under reference received by the assessee has not been invested in the surplus stock-in-trade. We, therefore, hold that the surrendered income of Rs.45,00,000/- on account of unexplained stock-in-trade includes the sum of Rs.3,00,000/- under reference. We, therefore delete the addition of Rs.3,00,000/-. Accordingly, the ground No.4 is allowed in favour of the assessee as above.
21. The last ground of appeal i.e. ground No.5 relates to taxability of income of Rs.56,28,344/- in accordance with the provisions of section 115BBE of the Act. The Ld. CIT(A) had adjudicated this issue as under:
“During the course of appeal proceedings, I have carefully perused the assessment order and reply of the assessee company and judicial precedents submitted by the assessee. Post-search proceedings, the assessee company voluntarily disclosed an amount of Rs.45,00,000/- on account of discrepancies in stock as per physical verification regarding books. The disclosure was not made in the statement u/s 132(4) but only subsequently through a letter dated 21.02.2019. The assessee company has failed to furnish any Item-wise reconciliation or valuation details to substantiate that the difference in stock was recorded or explained through regular business transactions. The disclosure remains adhoc and unsubstantiated. Thus, the surrendered amount cannot be said to represent business profit arising from the regular course of business. Rather, it represents unaccounted investment in stock, which is squarely covered undisclosed investment.
Section 115BBE provides that any income referred to in Sections 68 to 69D shall be taxable at a special rate irrespective of the head under which such income is declared. The Hon’ble CBDT Circular No. 11/2019 dated 19.06.2019 also clarifies that where the nature and source of income are not satisfactorily explained, such income shall be deemed as unexplained and taxed u/s 115BBE.
In In the present case, the assessee company’s explanation has been found to be general and devoid of documentary evidence. Merely including the surrendered amount in the profit & loss account does not change its inherent character as unexplained investment. the instant case, the Id. AO has categorically recorded that the assessee failed to produce supporting documents for the disclosure, and the same is adhoc in nature. Hence, the ratio of the cited cases does not apply.
I find that during the course of search operation excess stock of has been found from the premises of the assessee company and the same were not recorded in the books of the assessee company. During the course of appeal proceedings, the assessee company could not establish a nexus that the surrendered income was generated from the income from business. No supporting evidences are produced to show that it was profit of regular business. The assessee company has failed to prove that it was out of business income as the supporting evidences like the purchase bills relating to the excess stock were not produced for verification before the Id. AO as well as appeal proceedings. It is always the assessee’s burden to prove that the excess stock was purchased from business income. In the instant case, the assessee failed to prove that the excess stock was purchased from business income. It is not necessary that the surrendered amount is from business income. It could be on account of any other transaction. 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 its business income. It is for the assessee to establish the source of such surrendered amount. If the assessee is able to do that then the income can be considered as from business. 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. 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 activities is not upon the Id. 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. Thus, for the unrecorded excess stock and excess cash found during search/survey operation, there can be no presumption to treat the value representing such excess stock and excess cash and 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 excess stock and excess cash. The assessee 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.
I also relied on the following case laws:
i. Fakir Mohd. Haji Hasan Vs. CIT [2001] 247 ITR 290 (Guj.)
ii. SVS Oils Mills vs. ACIT, Chennai, the Hon’ble High Court of Madras in ITA No. 765 of 2018 dated 26.03.2019
iii. Kim Pharma Pvt. Ltd. vs. CIT in ITA No. 106 of 2011 dated 27.04.2011
These decisions also bring out a clear legal position that for any income to be treated as business income, the nexus/the source, has to be established; that hence, the action of the Id. AO in applying the rate as prescribed u/s 115BBE of the Act on the surrendered income included in the ITR, treated by the Id. AO as undisclosed investment in the assessment order was found sustainable; that keeping in view the above facts and discussion, that the AO has rightly treated the surrender of Rs.45,00,000/- on account of excess stock during the search and to be taxed as per provisions of Section 115BBE of the Act and this ground of appeal is hereby dismissed.”
22. The Ld. AR submitted that the income of Rs.45,00,000/- was offered as business income in the ITR on account of unexplained stock-in-trade. Hence, the same could not be taxed in accordance with provisions of section 115BBE of the Act. On the other hand, the Ld. CIT-DR placed reliance on orders of the Authorities below and prayed for dismissal of this ground.
23. The applicability of section 115BBE of the Act is attracted only when the income either offered in ITR suo moto by the assessee or as determined by the Ld. AO, is in nature of deemed incomes under sections 68 to 69D of the Act. In the present case the unexplained stock found during the search has been offered for tax in the ITR. However, the AO taxed the same in accordance with the provisions of section 115BBE of the Act (refer last para of page 5 and first para of page 6 of the assessment order). Section 69 and 69A of the Act require fulfilment of twin conditions, (i) Investments/money/bullion/article/valuable thing is not recorded in books of accounts, if any, maintained by him for any source of income in the Financial Year (‘FY’) and (ii) Assessee fails to offer satisfactory explanation about the nature and source thereof. The expression “not recorded in the books of accounts, if any, maintained by him for any source of income” in section 69 and 69A of the Act clearly indicates that by the use of words ‘if any’ in above expression, the section has been made also applicable in cases where the assessee has not at all maintained any books for a particular source of income. The section therefore envisages that if the books of are not maintained, then by virtue of 2nd condition of section 69/69A, the onus will be still on assessee to prove the genuineness and source of the investments by some other evidence. Thus, the condition of proving the source is the primary condition and recording of the same in books of account is required when books of account are maintained for any source of income. This therefore, leads to the conclusion that the two limbs of sections 69 and 69A of the Act are not interdependent and operate disjointly.
24. The next question arisen is that where the assessee records the necessary entries in books of accounts in respect of unrecorded stock/investment/cash found during search/survey, albeit subsequent to date of search/survey but before the closure of the relevant FY of search/survey and also fully recognizes the income in relation to such entries in Profit & Loss account for relevant FY and its disclosure as income in ROI, then whether such incomes get out of the sweep of the nature of deemed incomes under section 69/69A? The answer needs to be analysed in the context that it is quite natural that if any person is not regularly recording particular transaction/receipt in books of accounts, the assessee would not have done so even subsequently, had no search taken place by the Income Tax Department. The subsequent recording in books of account after having been detected during search/survey, would not be akin to recording in books in normal course but only as an attempt to claim the benefit of capitalization of unrecorded stock/investment/cash found during search/survey. Hence, recording of any entry in books of accounts after the search/survey for the period prior to search/survey would not foreclose/mitigate the default of non-recording detected during the search/survey. In the present case, it is not a case non-recording of stock-in-trade on a real-time basis as the assessee has not brought any details/bills/vouchers of purchases resulting the unaccounted stock-in-trade detected during search operations carried on the assessee as in genuine and bonafide cases, there would always be availability of basic documents with assessee at the time of search/survey as evidence to support the happening of such transactions in the form of bills/vouchers/challans/payment receipts/bank statement, etc. which remained to be entered in books for multiple reasons. However, no such basic document was brought on the record to establish the genuineness of stock-in-trade in regular books account. Thus, by disclosing unaccounted stock-in-trade in the Profit & Loss account and Balance Sheet, in absence of primary documents, cannot be held genuine. Therefore, in such situation, mere recording the stock-in-trade subsequently after search but without explaining the source thereof corroborated by various independent third parties evidence about its source would not fulfil the conditions for purposes of getting out of the sweep of sections 69 and 69A of the Act. Therefore, the claim that the stock-in-trade recorded in books of account subsequent to the search is nothing but part of the business income is not justified as no bills/challans/debit/credit notes/vouchers for expenses/receipts, the purchase price transferred through banking channels, etc. pertaining to such stock-in-trade was found during the search.
25. Sections 68 to 69D of the Act are legal fictions. In the present case, the assessee has offered the surplus/excess stock-in-trade suo-moto as income in the ITR. But it does not take away such income out of category of deemed incomes under sections 69 and or 69A of the Act. Rather, offering surplus/excess stock-in-trade as income in the ITR of the relevant year in which it was found, without any supporting evidences to support the year of income and the nature of income and also not having recorded such income in books of accounts for the business/profession maintained if any, itself tantamount to having applied and accepted the provisions of sections 69 and or 69A of the Act. If it were not to be interpreted so, then it was impossible for the assessee too to ascertain as to for which financial year the unrecorded stock-in-trade pertains to and for which financial year the income therein pertained to. Hence, offering such income in ITR suo-moto would also not foreclose the applicability of 69 and 69A of the Act.
26. The Hon’ble Madras High Court in the case of SVS Oils Mills in ITA no 765 of 2018, while dismissing the appeal of the assessee decided the following question of law while confirming the order of ITAT: –
” Whether the provisions of section 69B/69C of the Act would justify the separate addition for the value of the excess stock despite inclusion of such excess stock by posting necessary entries in the stock register and further despite the undisputed reporting of the sales effected in relation thereto in its entirety by the Appellant?
The relevant findings of the Tribunal are as under:
“There is a clear admission by the assessee that the difference in stock as on date of survey was added in its stock register but no corresponding entry was passed in the books of accounts. Stock cannot come in from vacuum. When stock is introduced in the stock register, there has to be a corresponding entry in the financial books of accounts. Either it has to be a purchase or shown as paid out of explained or unexplained source. Once stock to the extent of the surplus found at the date of survey, is included in the stock register, assessee has to give an explanation for the source from which it acquired such stock.
……………… Assessee having not passed any entry in financial books, addition of stock made by it, in its stock register, can only be considered as made out of undisclosed source. The addition in our opinion was rightly done by the lower authorities. Coming to the decision of Ahmedabad Bench of the Tribunal in the case of Chokshi Hiralal Mangnlal (supra), there is a clear finding that excess stock found during the survey was not separated or clearly identified, but, was part of mixed stock which was included in the declared stock, as per books of accounts. Facts here are entirely different. There is no case for the assessee that surplus stock was clearly identified at the time of surveyor entries passed in its cash book, journal or ledger for the value of such stock. In the circumstances, we do not find any reason to interfere with the order of the learned Commissioner of Income Tax (Appeals). Appeal of the assessee stands dismissed.”
Hon’ble Madras High Court observed as under in para 6 to 11 of its order dated 26/3/2019:
“6. Having heard the learned counsel appearing for the Assessee, we are satisfied that no substantial question of law arises in the present case and the finding of facts of all the three Authorities concurrently rendered against the Assessee in the present case cannot be held to be perverse or wrong in any manner. These orders, therefore, deserve to be upheld and we do not find any merit in the Appeal of the Assessee.
7. However, before parting with, we may observe that there is a series of five provisions viz., Section 69-Unexplained investments, Section 69A-Unexplained money, etc., Section 69B-Amount of investments, etc., not fully disclosed in books of account 69CUnexplained expenditure, etc. and 69D-Amount borrowed or repaid on hundi which have been enacted in the Income Tax Act, 1961 from time to time to bring to tax the undisclosed income either as undisclosed income or the same found during the course of investigation either during the Survey under section 133A or the search operation under Section 132 of the Act or otherwise, investigation or scrutiny during the Assessment proceedings and thus, the unexplained investment or expenses are brought to tax in the form of undisclosed income by making the additions to the extent of such undisclosed income or expenditure straightaway. There is no justification or question of giving the corresponding deduction to the extent of any purchase or source of incurring such expenditure or unexplained investments.
8. In our opinion, Section 69B providing for amounts of investments in Bullion, Jewellery or other valuable articles (including excess Stocks as well) would have been more appropriate Section to be indicated in the orders passed by the Authorities below rather than Section 69C-Unexplained Expenditure. Nonetheless, we are of the clear opinion that mentioning of wrong section would not upset the Additions made by the Assessing Authorities below in the present case. All these 5 provisions enumerated above have been enacted with a view to bring to tax the unexplained debit balances in the Balance Sheet of the Assessee either in the form of Unexplained Investments, Expenses or Stocks, etc., or unexplained Assets, Money, Bullion, Jewellery, etc., and therefore, such unexplained investments and expenses intended to be brought to tax as Undisclosed Income, these provisions are not only clearly worded but also indicated to plug the loopholes and check the menace of black money. Likewise, unexplained credits in the Balance Sheet are also brought to tax under Section 68 of the Act.
9. In the light of the above, the contention raised by the learned counsel for the Assessee has essentially emanated from a misconception that the Additions made under Section 69B/69C have to be reduced to some extent by giving leverage to the Assessee to claim some deductions from these Additions as well. If the contention of the learned counsel for the Assessee was to be accepted viz., by allowing the purchases corresponding to the alleged excess stock, the Assessee will have to now record verifiable purchases in his Books of Accounts and for that he will have valid purchase Invoices from genuine and existing Sellers which is not possible. 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.
10. In our opinion, the learned Tribunal as well as the Authorities below were justified in bringing to tax the Undisclosed Income under Section 69B/69C of the Act and such findings of fact do not give rise to any substantial question of law. The order passed by the learned Income Tax Appellate Tribunal, Ahmedabad Bench does not enure to the benefit of the arguments advanced by the learned Senior Counsel as there also the learned Tribunal has rightly held that the value of excess stock of Rs.58,02,095/- should suffer tax and by inclusion of those Stocks in the value of Closing Stock the Assessee has recognised income over and above recorded in its Books of Accounts. Such Additions of the excess Stocks declared by the Assessee during the course of search in the closing stock does not amount to double taxation as contended. Mere remand of the case by the Ahmedabad Bench of Income Tax Appellate Tribunal to the Assessing Authority for verifying the figures, does not lay down any principle as contended by the learned Senior Counsel for the Assessee.
11. We do not find any merit in the present Appeal of the Assessee and the same is liable to be dismissed. Accordingly, it is dismissed. No order as to costs.”
27. The above decision of Madras HC also supports the view that mere subsequent recording in books of accounts for his business, does not take away such income representing undisclosed assets such as stock/cash/money/bullion etc out of sweep of 69/69A/69B etc and they do not ipso facto be treated as part of business income. Recording of such entries to make them as part of business income can be permissible only when the entries subsequently recorded as part of business transactions are based on other collateral evidences already found during search/survey such as bills/challans/debit/credit notes/vouchers for expenses/ receipts, funds being received/transferred through banking channels, etc even though not recorded in books till the date of survey. Therefore, unless the subsequent recording done in books of accounts maintained for any particular business/profession and the same is supported by bills/challans/debit/credit notes/vouchers for expenses/ receipts, funds being received/transferred through banking channels, etc available during search/survey, the linkage of such transactions/entries to the regular business income does not get established so as to take such transactions/assets to be part of the same business income for which accounts were being maintained. Such income would fall into residual head of income and not as business income.
28. The Hon’ble Gujarat High court in the case of Fakir Mohamad Haji Hasan Vs CIT 247 ITR 290(Guj) has held that expression “save as otherwise provided by this Act” used in section clearly leaves the scope for deemed income of nature covered under scheme of section 69, 69A, 69B and 69C of the Act being treated separately, because such deemed income is not income from salary, house property, profit and gains of business or profession or capital gains nor the income from other sources. The Hon’ble Punjab and Haryana High Court in the case of Kim Pharma Pvt Ltd. 216 Taxman 153 has held that the unexplained money disclosed during survey, which was not reflected in books of accounts and no source from where it was derived was declared by the assessee, is assessable under section 69A of the Act and not the business income.
29. In view of the above, we are of the considered view that the surplus/excess stock-in-trade found unrecorded in the regular books of account at the time of search offered for tax in the ITR of the assessee of relevant year has rightly been taxed under section 115BBE of the Act as the same is not the business income. We therefore, do not find any infirmity in the finding of the Ld. CIT(A) on this score. Therefore, we are declining to interfere with the finding of the Ld. CIT(A) on this score. However, the provisions of section 115BBE of the Act is held applicable only on the income of Rs.45,00,000/- instead of Rs.56,28,344/- as we have deleted theaddition of Rs.11,28,344/-. The Ground of appeal numbered 5 is therefore, allowed partly as above.
30. In the result, the appeal of the assessee is partly allowed as above.
Order pronounced in the open court on 02/07/2026.
