Sh. Parmod Singla, Patiala v. The ACIT, Circle, Patiala

Page 2 of 32

4. That the appellant craves leave to add or amend the grounds of appeal before the appeal is finally heard or disposed off.

5. That the order of the Ld. CIT (A) is erroneous, arbitrary, opposed to the facts of the case and thus untenable.

2. Briefly the facts of the case are that a survey u/s 133A of the Income Tax Act was carried out at the business premises of the assessee on 08.07.2016 and during the course of survey operations, certain discrepancies were noticed and assessee came forward and surrendered a sum of Rs.84,80,000/-. Thereafter, the assessee filed his return of income, declaring total income of Rs.92,39,690/- on 23.03.2018 including the surrendered income, which was processed u/s 143(1) and thereafter, the case of the assessee was selected for compulsory scrutiny and notices u/s 143(2) and 142(1) were issued. During the course of assessment proceedings, the AO also issued a Show Cause Notice dated 30.11.2019 stating that as per the Surrender Letter, the assessee made a surrender for a sum of Rs.55 lacs as advances, Rs.20 lacs towards unaccounted stock and Rs.9,80,000/- towards cash in hand and the same has been offered in the return of income @ 30%, however, as per the provisions of Section 115BBE read with Section 69 and 69A, the amount so surrendered is taxable @ 60%.

3. In response to the show-cause, the assessee filed his submissions stating that the tax authorities during the course of survey proceedings had provisionally evaluated the stock which were physically found at the business premises and compared the same with the values worked out provisionally as per the books of account, that the cash available at the business premises was also counted and compared with the cash as per books of account and that details of certain business advances given by the assessee were also noticed and the assessee in order to buy peace of mind had offered the additional business income of

Page 3 of 32

Rs.55 lacs towards business advances, Rs.20 lacs were offered towards possible difference in the value of stock due to comparison purely on provisional basis and Rs.9,08,000/- towards difference in business cash in hand. It was submitted that the comparison had been made with the business transactions as per books of accounts as no other source thereof has been detected by the survey authorities. It was submitted that the survey authorities present during the course of survey thereafter had in principle agreed to the offer of the assessee of additional business income and survey operations were concluded after calculating the estimated tax liability by applying the normal tax rates as per applicable at the relevant point in time and they have also collected the cheques towards tax from the assessee for payment of advance income tax calculated at the normal rate of tax on such additional business income. It was further submitted that the additional business income was duly recorded in the Profit & Loss Account which has been duly audited by the Chartered Accountant and basis the same, the business income as per the Profit & Loss Account has been reflected under the head 'Profit & Gains of business and profession' and tax return has, accordingly, been filed.

4. In terms of applicability of Section 69 and 69A, it was submitted that these provisions are not attracted in the instant case as the assessee during the course of survey proceedings had disclosed the source of income in relation to the above income and this disclosure forms part of the statement recorded by the authorities during the course of survey and also the fact that the assessee had only source of income that is, from his business activity. It was submitted that during the course of survey so conducted, no other source was noticed/detected/brought on record by the Revenue Authorities. It was, accordingly, submitted that the source of income so surrendered was not

Page 4 of 32

unexplained rather the business of the assessee being carried on in the name and style of M/s Singla Wire & Allied products is the only source of income and as such, provisions of Section 69 and 69A are not attracted. It was further submitted that the tax rate u/s 115BBE has been enhanced from 30% to 60% by the Taxation Laws (Second Amendment) Act, 2016 and same cannot be applied in the instant case wherein at the time of survey, tax rate as applicable was 30% and accordingly, the tax liability has been rightly discharged as per the law, as was in existence at the time of survey.

5. The submissions so filed by the assessee were considered but not found acceptable to the AO. It was held by the AO that during the course of survey, the assessee was directed to explain the discrepancy of excess stock not recorded in the books of account and as the assessee was not able to explain the discrepancy, he voluntarily came forward with the surrender of Rs.20 lacs on account of unexplained stock. Regarding provisional valuation of stock, it was held by the AO that the said contention of the assessee cannot be accepted for the reason that the valuation of stock was arrived at by physically counting each and every item of stock and by applying purchase price of each and every item as described by the assessee and it is a matter of record that the assessee has appended his signatures to the inventory of stock prepared at the time of survey and as such, the valuation of stock as determined during the course of survey was not provisional but final and thereafter, the assessee voluntarily came forward with the surrender of Rs.20 lacs on account of unexplained stock because he was not able to establish the source of funds through which he procured such stock. Regarding cash of Rs.9,80,000/-, it was held by the AO that the survey team made a discovery of cash amounting to Rs.10,46,000/- from the business premises of the assessee and

Page 5 of 32

the assessee was asked to explain the difference in the cash so found and as recorded in the books of accounts amounting to Rs. 66,400/- and as the assessee could not explain the amount of cash so discovered and what has been shown in the books of account, the difference was brought to tax in the hands of the assessee as unexplained money and the provisions of Section 69A are clearly attracted. Further reliance was placed on the Hon'ble Punjab & Haryana High Court decision in case of M/s Kim Pharma (P) Ltd. Vs CIT ( ITA No. 106 of 2011) and the Hon'ble Gujarat High Court decision in case of Fakir Mohmed Haji Hasan Vs CIT 247 ITR 290. Further reference was drawn to the amendment brought in by the Taxation Law (Second Amendment) Act. 2016 which have been made applicable w.e.f. 01.04.2017 and it was, accordingly, held by the AO that the contention of the assessee that the tax rate of 30% should be applicable, cannot be accepted in view of the amendment brought in by the Taxation Laws, Second Amendment, Act, 2016. Accordingly, the income so surrendered was brought to tax as deemed income u/s 69 and 69A of the Act and tax @ 60% was computed u/s 115BBE of the Act.

6. Being aggrieved, the assessee carried the matter in appeal before the ld. CIT(A) who has since sustained the said additions. As per the ld. CIT(A), the advances and unaccounted stock was added u/s 69 by the AO on the basis of discrepancies noticed, statement of the assessee and the surrender which followed. It was further held by Ld. CIT(A) that while the advances were admitted as being related to business activity, however, these were not explained. Similarly, recorded stock as per books was Rs.17,38,400/-, however, on physical verification, the same was found to be worth Rs.37,38,210/- and accordingly, the excess stock was added as unexplained investment u/s 69 of the Act. Similarly, cash in hand as per books was Rs.66,400/- whereas

Page 6 of 32

the Survey Team discovered Rs.10,46,000/- from the business premises of the assessee and since the assessee failed to explain the difference on account of cash in hand, the AO added the same u/s 69A of the Act. The findings of the AO were, accordingly, confirmed and against the said findings and directions of the ld. CIT(A), the assessee is in appeal before us.

7. During the course of hearing, ld. AR submitted that assessee is running a manufacturing unit wherein aluminum and copper wires are manufactured and the business is carried on in the name of M/s Singla Wire & Allied Products at the business premises located at B-9, Industrial Estate, Patiala. It was submitted that the survey at the business premises were conducted by the tax authorities on 08.07.2016 and the statement of the assessee was recorded. 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 Question No.3 of the statement so recorded. It was further submitted that cash available at the business premises was counted and compared with the balance appearing as per regular books of account and difference was worked out to Rs.9,80,000/- as has been recorded in reply to Question No.10 of the assessee's statement. It was submitted that the authorities also evaluated the business stock physically found at the business premises and compared the value so worked out with the values worked out provisionally as per the books of account and a figure of Rs. 20,00,000/- was determined as has been stated in response to Question No.12 of the assessee's statement. It was further submitted that certain documents/records were also seized/impounded in respect of business transactions in the nature of advances given to certain persons and the total amount

Page 7 of 32

of those business transactions were worked out at Rs.55 lacs and which has been stated in response to Question No. 11 of the assessee's statement. It was further submitted that the documents/records are still in the custody of the Revenue Authorities and therefore, form part of the records which are available to the AO.

8. It was submitted that the assessee had offered sum total of these transactions as business income for taxation in addition to the normal business income at the conclusion of the survey operation vide his letter dated 09.07.2016 which is available in the assessee's Paper Book. It was submitted that the said sum of Rs.84,80,000/- was offered for tax as additional business income at normal rate applicable for the period under reference and which was accepted by the Revenue authorities at the relevant point in time. It was submitted that the Revenue authorities 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 Singla Wire & Allied 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 AO has not been able to controvert the aforesaid submissions which were also made during the course of assessment proceedings. It was further submitted that the books of account were maintained in the normal course of the assessee's business which were duly audited and in the Tax Audit Report, the auditors have also mentioned that there is no change in the nature of the business so carried on by the assessee as compared to earlier years. It was submitted that the additional income so offered was 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 during the course of assessment proceedings, the

Page 8 of 32

submissions were filed from time to time which were duly accepted by the AO and towards the closure of the limitation period, the assessee received a Show Cause dated 30.11.2019 wherein the AO had proposed to invoke Section 115BBE and seek to levy tax @ 60%. It was submitted that the said Show Cause came to the notice of the assessee on 02.12.2019 and in response, the assessee filed his submission on 07.12.2019 wherein it was submitted that none of the income offered for taxation at the conclusion of survey proceedings was in the nature of deemed income and therefore, the deeming provisions as well as provisions of Section 115BBE were not applicable. It was submitted that the AO, however, brought these transactions amounting to Rs.84,80,000/- to tax u/s 115BBE of the Act merely for the reason that such income had been offered for taxation during the course of survey proceedings and thereafter, the said findings have since been confirmed by the ld. CIT(A). In view of the above, it was submitted that it is evident from the records that during the course of survey of the business premises, no other source of income except business being carried on in the name and style of M/s Singla Wire & Allied Products 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 surrender letter. It was submitted that the AO has not denied this fact and has rather accepted that the discrepancies 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

Page 9 of 32

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 provisions are attracted, Section 115BBE cannot be invoked in the instant case. It was submitted that on perusal of the Show Cause Notice, it is evident that there was no positive material with the AO to prima-facie form a view that the income so surrendered was in the nature of deemed income and the provisions of Section 115BBE are applicable. It was submitted that the Show Cause was issued at the fag end of the limitation period which was expiring on 31.12.2019 and it clearly shows that the AO has already drawn up his conclusion to invoke provisions of Section 115BBE for the simple reason that the income had been unearthed during the course of survey at the business premises of the assessee. It was submitted that Section 115BBE is only a machinery provision specifying a special tax rate for bringing deemed income as specified in Section 69, 69A to tax and not for bringing each and every income merely for the reason that the same has been disclosed during the course of survey of the business premises of the assessee.

9. It was further submitted that the AO has referred to the decision of the Hon'ble Punjab & Haryana High Court in case of M/s Kim Pharma Pvt. Ltd. Vs CIT. However, the said case is clearly distinguishable on facts in the present case. It was submitted that the said decision has been considered in 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

Page 10 of 32

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. as well as Gujarat High Court in case of Fakir Mohmed Haji Hasan Vs CIT.

10. Further reliance was placed on the Co-ordinate Jaipur Benches decision in case of DCIT Vs. Shri Ram Narayan Birla ( ITA No. 482/JP/2015 dt. 30/09/2016), and Bajargan Traders Vs. ACIT ( in ITA No. 137/JP/2017 dt. 17/03/2017) which has subsequently been affirmed by the Hon'ble Rajasthan High Court in case of PCIT vs Bajrang Traders (ITA No.258 of 2017). Further, reliance was placed on Coordinate Ahmedabad Benches decision in case of Chokshi Hiralal Maganlal Vs. DCIT [2011] 45 SOT 349 (Ahmedabad) and Chandigarh Benches decision in case of M/s Sham Jewellers Vs. The DCIT (in ITA No. 375/Chd/2022).

11. It was, accordingly, submitted that in light of the aforesaid submissions, 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 & profession". Therefore, the action of the AO in treating the business income so offered by the assessee as deemed income u/s 69 and 69A and bringing the same to tax under the amended section 115BBE deserve to be set aside and necessary relief be provided to the assessee.

12. Per contra, the ld. DR has relied on the order of the AO as well as that of the ld. CIT(A) which we have already taken note of supra and the findings of the authorities are not been repeated for the sake of brevity. Further reliance was placed on the Hon'ble Punjab & Haryana High Court decision in the case of M/s Kim Pharma vs CIT (supra).

Page 11 of 32

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 evident 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 subsequent 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 surrender 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

Page 12 of 32

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, jewellery 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 recorded 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

Page 13 of 32

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 cons idered the r ival contentions and have gone through the record. As per the provis ions of Sect ion 115BBE of the Act, the income tax on income referred to in Section 68 or Sect ion 69 or Sect ion 69A or Sect ion 69B or Sect ion 69C or Sect ion 69D are chargeable to tax at a higher rate. Now a perusal of the prov is ions of Sect ion 68, 69, 69A, 69B, 69C and 69D would reveal that those prov is ions are attracted in respect of the credits, cash, expenditure, investment etc. regard ing which the assessee offers no explanat ion about the nature and source thereof . It is to be po inted 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. Sect ion 69 is attracted to the unexplained investments of which the assessee offers no explanation about the 'nature and source' thereof or the explanation is not found satisfactory. S imilarly, Sect ion 69A is attracted in case of money, bul l ion, jewellery or other valuable artic les, Sect ion 69B refers to the investments, Sect ion 69C refers to the expenditure and Sect ion 69D refers to the amount borrowed or repaid on hundi. The prov is ions of these Sect ions are attracted and the income is assessed under these Sect ions, if , the assessee fails to g ive 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 provis ions of Section 68 to 69D are attracted in respect of the undisclosed income but the condit ion for assessing such income under the said prov is ions is that the assessee has either failed to d isclose the nature and source of such income or the AO does not get sat isf ied with the explanation offered by him.

15. The perusal of the above re levant 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 authorit ies have been swayed by the notion that the income surrendered by the assessee was undisclosed income of the assessee and therefore, the same has to be assessed u/s 68 to 69D, as the case may be, of the Income Tax Act and thereby would be charged to h igher 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 assessee has failed to disclose the 'nature and source' of such undisclosed

Page 14 of 32

income or that the explanat ion of fered by the assessee is not found satisfactory by the AO. In the case in hand, as noted above, the AO duly made enquir ies f rom the assessee as to the nature and the source of the aforesaid surrendered income and has also show caused the assessee as to why the same should not be charged at a h igher rate of tax as per prov is ions of Sect ion 115BBE of the Act. The ld. AO af ter cons ider ing the submiss ions 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 of fered by the assessee to the AO was not satisfactory and further what more enquir ies are required to be conducted in this case, which the AO had fai led to conduct. The ld. PCIT has simply based his opin ion and order on the Audit Object ions/Report as pointed out even in the Audit Report that s ince the same was undisclosed income of the assessee which was surrendered by the assessee during the survey act ion and therefore, the same was to be assessed under the provis ions of Sect ion 68 to 69D of the Act. The above reasoning of the survey party is not in accordance with the re levant prov is ions of the Act. Therefore, we do not f ind any just if ication on the part of the ld. PCIT in invoking the Rev is ionary jur isdic tion 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 provisions 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 authority 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 assessee as part of his statement recorded u/s 133A needs to be analysed and examined before drawing any conclusions in this regard.

Page 15 of 32

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 Proprietor 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 Question 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 assessee 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 business premises thus there is excess cash of Rs. 9,80,000/- and the assessee was asked to explain the discrepancy. In response, the assessee submitted that at this point in time, he was not in a position to explain 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 submitted 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

Page 16 of 32

as per the books of account maintained by the assessee, 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 taxation for the F.Y. 2016-17 pertaining to A.Y. 2017-18. Thereafter, in the statement so recorded, it is mentioned 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. 08- 09/07/2016 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 income 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

Page 17 of 32

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 business 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 recorded in the books of accounts, thus, there is clear nexus of stock with the assessee's business. The statement 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 consideration 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 surrender 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 thereon.

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

Page 18 of 32

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 Revenue cannot be ignored. The mere fact that survey/search proceedings have been initiated at the business premises of the assessee doesn't mandate the Assessing officer to automatically invoke the deeming provisions and before invoking the deeming provisions, he has to call for the explanation of the assessee 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 laying 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 virtue 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 conclusive 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 covered 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 applicability 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

Page 19 of 32

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 silver ornaments were found and in the return of income subsequently filed by the assessee, he had included 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 accordingly 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 provision is that the asset should be separately identifiable and it should have independent physical existence 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 Tribunal 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 f ive heads mentioned in sect ion 14 - ( i) 'salary', ( i i) ' income f rom house property' , ( i i i ) 'prof its and gains f rom bus iness or profess ion', ( iv ) ' capital gains' and (v) ' income from other

Page 20 of 32

sources' - cannot at al l be adjusted against unexplained investment or expenditure. What is necessary as per Hon. Gujarat High Court is that source of acquis it ion of asset or expenditure should be clear ly identif iable. In the case before Hon. Gujarat High Court the source of gold conf iscated was not identif iable and hence adjustment was not permitted.

12. Thus the important aspect that emerges f rom the ent ire discussion is that for invok ing deeming provis ions under sect ions 69, 69A, 69B & 69C there should be clearly identif iable asset or expenditure. In the present case we f ind that ent ire phys ical 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 uniformly by the assessee. There was no phys ical dist inct ion between the accounted stock or unaccounted stock. No such phys ical d istinct ion was found by the Revenue e ither. The assessee has repeatedly claimed that unaccounted business income is invested in stock and there is no amount separately taxab le under sect ion 69. The department has ignored th is claim of the assessee and sought to tax the dif ference between book- stock and phys ical -stock as unaccounted investment under sect ion 69 without consider ing the c laim of the assessee that f irst the bus iness rece ipt has to be considered and then investment should be treated as coming out of such unaccounted income. The dif ference in stock so worked out by the author it ies below had no independent identity of its own and it is part and parcel of entire lot of stock. The dif ference between declared stock in the books and what is phys ical ly found would only be a mathemat ical expression in terms of value and not a separate independent identif iab le asset. Therefore, it cannot be said that there is an undisclosed asset ex isted independently. Once th is is so then what is not declared to the department is receipt f rom business and not any investment as it cannot be co-re lated with any specif ic asset.

13. Thus in a case where source of investment/expenditure is clear ly identif iable and alleged undisclosed asset has no independent ex istence of its own or there is no separate phys ical identity of such investment/expenditure then f irst what is to be taxed is the undisclosed bus iness receipt invested in unidentif iable unaccounted asset and only on failure it should be cons idered to be taxed under sect ion 69 on the premises that such excess investment is not recorded in the books of account and its nature and source is not identif iab le. Once such excess investment is taxed as undeclared bus iness receipt then taxing it further as deemed income under sect ion 69 would not be necessary. Therefore, the f irst attempt of the assess ing authority should be to f ind out l ink of undeclared investment/expenditure with the known head, g ive opportunity to the assessee to establish nexus and if it is sat isfactor i ly established then f irst such investment should be cons idered as undeclared receipt under that part icular head. It is only where no nexus is established with any head then it should be considered as deemed income under sect ion 69, 69A, 69B & 69C as the case may be. It is because when assessee fails to explain sat isfactor ily the source of such investment then it should be taxed under sect ion 69, 69A, 69B & 69C as the case may be. It should not be done at the f irst instance without g iv ing

Page 21 of 32

opportunity to the assessee to estab lish nexus. Therefore, there is no conf l ict with the decis ion of Hon. Gujarat High Court in the case of Fakir Mohmed Haji Hasan (supra) where investment in an asset or expenditure is not identif iable and no nexus was established then with any head of income and thus was not availab le for set of f against any loss under any other head. Therefore, we hold that where asset in which undeclared investment is sought to be taxed is not clear ly identif iab le or does not have independent identity but is integral and inseparable (mixed) part of declared asset, fall ing under a part icular head, then the dif ference should be treated as undeclared business income explaining the investment.

14. To conclude sum of Rs.8,10,011/- being dif ference 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 'bus iness'. Other assets have separate phys ical identity being furn iture and f ixtures, air condit ioners etc. They cannot have a direct nexus with business and therefore investment there in has to be considered under section 69 only."

15. In v iew of the above, AO is directed to consider the sum of Rs.8,10,011/- as undisclosed bus iness income assessable under the head 'business' and other two sums under sect ion 69. The business income inc luding applicat ion of sect ion 40(b) has to be cons idered accordingly. For calculation of income in v iew of our above observations, we restore the matter to the f ile of AO.

23. In the instant case as well, we find that the difference 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 cannot be co-related with any specific asset and the difference should thus be treated as undeclared business income.

24. Following the said decision of the Coordinate Ahmedabad 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

Page 22 of 32

carried on by the assessee. The relevant findings are contained at para 4.3 which read as under:

"4.3. We have heard r ival contentions and perused the mater ial availab le on record. Undisputed facts emerged from the record that at the t ime of survey excess stock was found. It is also not disputed that the assessee is engaged in the bus iness of jewellery. During the course of survey excess stock valuing Rs. 77,66,887/- was found in respect of gold and si lver jewel lery. 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 clear ly identif iab le and al leged undisclosed asset has no independent existence of its own or there is no separate phys ical identity of such investment/expenditure then f irst what is to be taxed is the undisclosed business receipt invested in unidentif iable 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 identif iable. Once such excess investment is taxed as undeclared bus iness receipt then taxing it further as deemed income under sect ion 69 would not be necessary. Therefore, the f irst attempt of the assessing author ity should be to f ind out l ink of undeclared investment/expenditure with the known head, g ive opportunity to the assessee to establish nexus and if it is sat isfactor ily established then f irst such investment should be considered as undeclared receipt under that part icu lar head. It is observed that there is no conf lict with the decis ion of Hon'ble Gujarat High Court in the case of Fakir Mohd. Haj iHasan (supra) where investment in an asset or expenditure is not identif iable and no nexus was established then with any head of income and thus was not availab le for set of f against any loss under 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, fall ing under a par t icu lar head, then the dif ference should be treated as undeclared business income explain ing the investment. In the present case the excess stock was part of the stock. The revenue has not pointed out that the excess stock has any nexus with any other receipts. Therefore, we do not f ind any fault with the decis ion of the ld. CIT (A) direct ing 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 mater ial availab le on record. During the course of survey, the assessee has surrendered an amount of Rs. 70,04,814/- towards investment in stock of r ice which had not been recorded in the books of accounts. Subsequently, in the books of accounts, the assessee has incorporated this transact ion by deb it ing the purchase account and credit ing the income f rom undisclosed sources. In the annual accounts, the purchases of Rs. 70,04,814/- were f inal ly ref lected as par t of total purchases amounting to Rs.

Page 23 of 32

33,47,19,658/- in the prof it and loss account and the same also found included as part of the clos ing stock amount to Rs. 1,94,42,569/- in the prof it/ loss account s ince the said stock of r ice was not sold out. In addit ion to the purchase and the closing stock, the amount of RS. 70,04,814/- also found credited in the prof it and loss account as income from undisclosed sources. The net ef fect of th is double entry accounting treatment is that f irst ly the unrecorded stock of r ice has been brought on the books and now forms par t of the recorded stock which can be subsequently sold out and the prof it/loss therefrom would be subject to tax as any other normal business transact ion. Secondly, the unrecorded investment which has gone in purchase of such unrecorded stock of r ice has been recorded in the books of accounts and of fered to tax by credit ing the said amount in the prof it and loss account. Had this investment been made out of known source, there was no necessity for assessee to credit the prof it/ loss account and offer the same to tax. Accordingly, we do not see any inf irmity in assessee's br ing ing such transaction in its books of accounts and the accounting treatment thereof so as to regular ise its books of accounts. In fact , the same prov ides a credible base for Revenue to br ing to tax subsequent prof it/loss on sale of such stock of r ice in future.

2.11. Having said that, the next issue that ar ises for considerat ion is whether the amount surrendered by way of investment in the unrecorded stock of r ice has to be brought to tax under the head

"bus iness income" or " income f rom other sources" . In the present case, the assessee is dealing in sale of foodgrains, r ice and o il seeds, and the excess stock which has been found during the course of survey is stock of r ice. Therefore, the investment in procurement of such stock of r ice is c lear ly identif iab le and related to the regular business stock of the assessee. The dec is ion of the Co-ordinate Bench in case of Shri Ramnarayan Bir la (supra) supports the case of the assessee in th is 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 f rom other sources" . In the result, ground No. 1 of the assessee is al lowed."

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 Appeal 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 under:

"10. We have heard the r ival contentions and perused the mater ial availab le on record. This is a fact on record that the assessee surrendered an amount of Rs.70 lacs as addit ional

Page 24 of 32

income during the course of survey conducted at its premises on account of fo llowing heads:

11. These facts have not been disputed by any one at any stage. The only issue to be cons idered by us is whether the income of Rs.70 lacs surrendered is to be taxable as bus iness income or income from other sources or as deemed income under sections 69A, 69B and 69C of the Act as held by the Assessing Off icer . A number of judic ial pronouncements have been c ited during the course of hear ing, however, we have to bow down to the propos it ion laid down by the Jurisdict ional Punjab & Haryana High Court in the case of M/s Kim Pharma Pvt. Ltd.(supra) s ince th is is the only judgment of the Jur isdict ional High Court which were brought to our not ice.

12. On perusal of the said judgment, we f ind ourselves in agreement with the submiss ion of the learned counsel for the assessee, that the only issue in that case was the taxab il ity of cash surrendered during the course of survey, as the assessee had also surrendered income of Rs.10 lacs in assessment year 2005-06 on account of sundry credits, repairs to build ing and advances to staf f , which be ing re latable to business carr ied on by the assessee was already included as income f rom business.

13. In the present case, we see that the Assess ing Of f icer has nowhere disputed the bus iness losses incurred by the assessee. The books have not been rejected. It was stated at the Bar that even at the t ime of survey, in the trading account prepared by the survey team, there were losses incurred by the assessee. Al l these facts have not been d isputed by the Assessing Off icer . Further, the surrender made by the assessee was on account of cash found during the course of survey, d iscrepancy in the cost of construct ion of build ing, discrepancy in stock and d iscrepancy in advances and receivables. By no stretch of imagination, any of these incomes apart from cash can be cons idered as income under any head other that the 'business income' .

14. Nowhere in his order the Assessing Off icer has been able to br ing on record the fact that the income surrendered dur ing the course of survey was not out of the business of the assessee. Also nowhere he has objected to the heads under which the assessee had surrendered these amounts, i.e . cash, construct ion of build ing, d iscrepancy in stock and discrepancy in advances and rece ivable. Further, even the survey team has not found any source of income except the bus iness income. Now, fo llowing the judgment of Jurisd ict ional High Court, in the background of the facts of the present case, we can safely infer that apart f rom cash al l other income surrendered may be brought to tax under the head 'business income' while the cash has to be taxed under the head deemed income under sect ion 69A of the Act."

Page 25 of 32

28. Similarly, the Coordinate Chandigarh Bench in case of Famina Knit Fabs Vs. ACIT (Supra) has held as under:

"19. In the facts of the case in ITA No.408/Chd/2018, the income surrendered was on account of unaccounted rece ivables of the business of the assessee amounting to Rs.1.25 crores. The Ld.CIT(A) in para 9 of the order has outl ined the facts re lat ing to the surrender made by the assessee stat ing that dur ing survey a pocket d iary was found from the account sect ion of the assessee company which contained entry of receivables amounting to Rs.1.25 crores on pages 27, 28, 31 and 33, which were not recorded in the regular books of the assessee and were subsequently surrendered stat ing that these entr ies were unaccounted sundry rece ivables being surrendered as income under the head business, to buy piece of mind and subjected to no penalty and further that the losses incurred by the assessee in the impugned year wil l be adjusted against this surrendered income. The relevant facts as stated by the CIT(A) in para 9 of his order and which are not disputed, are reproduced hereunder:

"9. Advert ing now to the facts of the instant case, it is seen that when survey proceedings were conducted at the business premises of the appellant company, a pocket d iary was found from the accounts sect ion which contained entr ies of rece ivab les amounting to Rs.1.25 crores on page nos. 27, 28, 31 and 33, which were not recorded in the regular books of accounts. When these entr ies were confronted to the appellant company while recording the statement on 15/09/2012, it was stated: " that these entr ies are sundry rece ivables which has not been accounted for in the books of accounts and in order to buy peace of mind, the same is surrendered as income under the head business for F.Y.2012-13 relevant to asstt. Year 2013-14 subject to no penalty and prosecution under the I.T . Act, 1961. Since the company is incurr ing losses in current F.Y.2012-13, the surrendered income wil l be adjusted against these losses."

[Extracted f rom the impugned assessment order; pages 5 &6] ."

20. Clearly, it is evident f rom the above that the surrender was on account of debtors/rece ivables re lating to the bus iness of the assessee only. The Revenue has accepted the surrender as such, as being on account of rece ivables. It fol lows that the debtors were generated from the sales made by the assessee during the course of carrying on the bus iness of the assessee, which was not recorded in the books of the assessee. Though the said income was not recorded in the books of the assessee but the source of the same stood duly explained by the assessee as being f rom the bus iness of the assessee. Even otherwise no other source of income of the assessee is there on record e ither disclosed by the assessee or unearthed by the Revenue. The preponderance of probabil ity therefore is that the debtors were sourced f rom the business of the assessee. Therefore, there is no question of treat ing it as deemed income f rom undisclosed sources u/s 69, 69A, 69B and 69C of the Act and the same is held to be in the nature of Bus iness Income of the assessee. Having held so, the same was assessable under the head 'bus iness and profession' and as stated above, the benef it of set off of losses both current and brought forward was al lowable to the assessee in accordance with law.

Page 26 of 32

21. The contention of the Revenue therefore that the income be treated as deemed income u/s 69,69A/B/C of the Act is accordingly rejected and as a consequence thereto the plea that no set off of losses be allowed against the same u/s 115BBE of the Act also is re jected.

22. Therefore, as per the facts of the case in ITA No.408/Chd/2018 and as per the prov is ions of law relat ing to the issue, the surrendered income, we hold, was assessable as business income of the assessee and set off of losses was to be al lowed against the same as r ight ly c laimed by the assessee. The appeal of the Revenue, therefore, in ITA No.408/Chd/2018 is dismissed.

23. Now coming to the facts of the case in ITA No/1494/Chd/2017, the income surrendered was on account of the fo llowing as narrated above in earl ier part of our order:

( i) investment of Rs. 60 lacs in Koth i at Sukhmani Enclave in the name of Smt. Rekha Mig lani;

( i i ) Sundry creditors and advances received f rom customers amounting to Rs. 132 lacs;

( i i i) Gross prof it on sale out of books amounting to Rs. 198 lacs and;

( iv ) surrender to cover miscel laneous discrepancies in loose papers etc. amounting to Rs. 10 lacs.

24. As far as the surrender made on account of investment in Koth i of Rs.60 lacs, neither is the same disclosed in the books of the assessee nor source of the same d isclosed. Therefore, the same is to be assessed as deemed income u/s 69 of the Act. The same applies to the surrender of Rs.10 lacs made to cover the miscel laneous d iscrepancies in loose paper of Rs.10 lacs. Neither the nature of the discrepancies, nor any source re lat ing to the same has been disclosed and, therefore, the same is also to be assessed as deemed income u/ss 69, 69A, 69B and 69C of the Act.

25. As far as the surrender of Rs.132 lacs made on account of sundry creditors and advances rece ived f rom customers and Rs.198 lacs on account of gross prof it on sale out of the books, both of them clear ly are in re lat ion to the bus iness carr ied on by the assessee and are thus in the nature of bus iness income. Therefore, the set off of bus iness losses, both current and brought forward are to be al lowed as per the provis ions of law. As far as the income surrendered and to be assessed u/s 69, 69A, 69B and 69C of the Act, as held above before us, the same is to be subjected to tax as per the prov is ions of sect ion 115BBE of the Act."

29. In the instant case as well, the surrender on account of advances were relating to the business being carried on by the assessee. The ld CIT(A) has also returned a finding that the advances were admitted as being related to business activity of

Page 27 of 32

the assessee. Where the same has been found unrecorded in the books of accounts, the same has to be brought to tax under the head "business income".

30. Similarly, the Coordinate Chandigarh Bench in case of M/s Sham Jewellers Vs. The DCIT (Supra) has held as under:

"10.17 Ground Nos. 8 & 9 chal lenge the action of the lower authorit ies in applying the provis ions of sect ion 115BBE and thereby charging tax at the rate of 60%. The main thrust of the arguments of the Ld. AR has been that al l the addit ions made or sustained relate only to the business income of the assessee and that nowhere in the assessment order has it been al leged that some other source of income had been detected which gave r ise to addit ional income. It is seen that during the course of assessment proceedings, the var ious explanations submitted by the assessee have duly mentioned that the surrendered income was der ived f rom the business. A perusal of the assessment order would also show that nowhere in the body of the assessment order, the AO has even contradicted this explanation of the assessee. The AO has not brought on record any io ta of evidence to demonstrate that the assessee had any other source of income except income f rom business and, therefore, it is our cons idered v iew that deeming such income under the provis ions of sect ions 68 or 69 would not hold good. In our v iew, in such a situation, the AO could not have legally and valid ly resorted to tax ing the income of the assessee at the rate of 60% in terms of provis ions of sect ion 115BBE of the Act.

10.18 The Hon'b le Andhra Pradesh High Court in the case of Pr inc ipal Commiss ioner of Income Tax Vs. Deccan Jewellers Ltd. reported in (2021) 438 ITR 131 (AP) held that where the assessee was engaged in the business of Gold and Diamond jewellery and Silver ar t icles and during the search and se izure operat ion u/s 132, excess stock was found to be declared and the assessee had submitted that excess stock was result of suppression of prof it f rom bus iness over the years and the same had not been kept identif ied separately and the AO had duly considered and accepted the assessee's explanation that investment in excess stock was to be treated as business income, the revis ional powers invoked by the Pr incipal Commissioner u/s 263 of the Act were not correct in the eyes of law.

10.19 The ITAT Chandigarh Bench in the case of Famina Knit Fabs Vs. ACIT reported in (2019) 176 ITD 246 (Chd-Trib) has held that, where in during the course of survey, a surrender was made by the assessee on account of debtors / receivab les which was based on a diary found during the course of survey and the Revenue had accepted that the surrender was on account of receivables, it fo llowed that the debtors were generated f rom the sales made by the assessee during the course of carrying on the business of the assessee which was not recorded in the books of the assessee. The Coord inate Bench of the ITAT went on to further hold that though the said income was not recorded in the books of the assessee but the source of the same stood duly explained by the assessee as being f rom the bus iness of the assessee and even otherwise no other source of income of the

Page 28 of 32

assessee was on record either disclosed by the assessee or unearthed by the Revenue. The Bench further held that the preponderance of probabil ity, therefore, is that the debtors were sourced from the business of the assessee. Therefore, there was no quest ion of treat ing it as deemed income f rom undisclosed sources u/s 69, 69A, 69B, or 69C of the Act and the same was held to be in the nature of bus iness income of the assessee.

10.20 Thus, as in the present case, where the source of investment or expenditure is clear ly identif iab le and the al leged undisclosed asset has no independent existence of its own or there is no separate phys ical identity of such investment or expenditure, then, f irst, what is to be taxed is the undisclosed business rece ipt invested in unidentif iable unaccounted asset and only on failure can i t be considered to be taxed u/s 69 of the Act and further where once such investment or expenditure is brought within the purv iew of tax as undeclared business receipt , then tax ing it further as deemed income u/s 69 would be completely out of p lace.

10.21 Similar v iew was taken by the Coordinate Bench of ITAT Ahmedabad in the case of Chokshi Hiralal Maganlal Vs. DCIT reported in 131 TTJ 1 (Ahd.)

10.22 It is also seen that the Ld. CIT(A) has rel ied on the judgement of the Hon'b le Punjab & Haryana High Court in the case of Kim Pharma Ltd. Vs. CIT in ITA No. 106 of 2011 (O&M) and the Ld. CIT DR has also quoted the same in h is arguments before us. However, af ter go ing through the aforesaid judgement of the Hon'ble Punjab & Haryana High Court, it is seen that in that particular case, the only issue was with regard to the cash surrendered at the time of survey and no other income. The cash found could not be related to the already disclosed and accepted source of income of the assessee and, therefore, the Hon'b le Punjab & Haryana High Court held that such surrendered cash was to be treated as deemed income u/s 69 of the Act. However, in the present case before us, the assessee has only one source of income i.e. bus iness income and nowhere has it been brought on record that the assessee had any other source of income except business income and, therefore, we respectfully state that judgement of the Hon'ble Punjab and Haryana High Court in the case of Kim Pharma Pvt. Ltd (supra) would not apply on the facts of the present case.

10.23 Accord ingly, keeping in v iew the various jud ic ial precedents as c ited above and respectfully fo llowing the same, we hold that the AO could not have legally invoked the provis ions of sect ion 115BBE of the Act in the present case and further the Ld. CIT(A) was also not legally correct in uphold ing of the applicat ion of provis ions of sect ion 115BBE of the Act. Accord ingly, ground Nos. 8 and 9 are also al lowed."

31. Now, coming to the decision of Kim Pharma (P) Ltd. Vs. CIT [2013] 35 taxmann.com 456 (P&H). Briefly the facts of the case were that the survey under section 133A was conducted at the business premises of the assessee and during the course of

Page 29 of 32

survey, cash amounting to Rs. 5,00,000/- was found which was surrendered by the assessee for A.Y 2006-07 and another amount of Rs. 10,00,000/- was surrendered for A.Y. 2005-06 on account of sundry credits, repair to building and advances to staff. The matter pertaining to A.Y 2006-07 came up for consideration before the Coordinate Chandigarh Benches and taking note of the statement of the General Manager of the assessee company recorded during the course of survey wherein he had admitted the said cash has been generated out of income from other sources and in the absence of nature of source of cash being proved, it uphold the order of the CIT(A) in including the additional income as deemed income u/s 69A of the Act and relevant findings read as under:

"9. In the facts of the present case before us, we f ind that unaccounted cash was found dur ing the course of survey operat ion in the possession of the assessee company and the same was surrendered as additional income for the year under appeal. The assessee has failed to explain the nature and source of the said cash found which was not recorded in the books of account, though while surrender ing the addit ional income it was admitted by the Manager of the assessee company, in the statement recorded during the course of survey that the said addit ional income is its income f rom other sources. The Hon'b le Gujrat High Court in Fakir Mohmed Haj Hussain Vs C IT had held as under :

"The scheme of sections 69 , 69A , 69B , and 69C of the Income-tax Act, 1961, would show that in cases where the nature and source of acquis it ion of Money, bul l ion, etc., owned by the assessee or the source of expenditure incurred by the assessee are not explained at al l , or not sat isfactor ily explained, then the value of such investments and money or the value of articles not recorded in the books of account or the unexplained expenditure may be deemed to be the income of such assessee."

In the absence of the explanat ion / evidence regarding the sources of the additional income being sat isfactor i ly explained by the assessee and applying the ratio of the Hon'b le Gujrat High Court in Fak ir Mohmed Haji Hasan Vs. C IT (supra) , we hold that the addit ional income offered is deemed income assessable u/s 69A of the Act and no deduct ion is al lowable against such deemed income assessed u/s 69A of the Act in the hands of the assessee. Following the ratio laid down by the Gujrat High Court in Fakir Mohmed Haj i Hasan Vs. CIT (supra), once the assessee has failed to explain the nature and source of cash found availab le with it and the same is assessed as deemed income u/s 69A of the Act , therefore, the corresponding deduct ions under the head Prof its and gains are not available to the

Page 30 of 32

assessee. The bus iness loss determined for the year is not al lowed to be setoff against such deemed income included in the books of account. The al ternative p lea of the assessee of assessing the income under the head income f rom other sources and allowing set off of losses u/s 71 of the Act also fail in v iew of the above.

9. The learned AR for the assessee had placed rel iance in CIT & Another Vs. S.K.Sr igir i & Bros. (supra) for the proposit ion that even in cases of survey, the addit ional income surrendered is includible as income f rom bus iness. In the facts of that case, we f ind that the Tr ibunal af ter cons ider ing the records and statement g iven by the partners of the assessee f irm, on facts, came to the conclusion that assessee had received addit ional income f rom business onl y and not from other sources. The said conclus ion of the Tr ibunal was upheld by the Hon'b le Karnataka High Court in CIT & another vs. S.K.Srigiri & Bros . (supra) and the remuneration paid to the par tners was held al lowable against the addit ional income form business. The said precedent has been taken note of by the Hon'b le Gujrat High Court.

10. In the facts of the present case, we f ind that assessee during the course of survey had surrendered the income as income f rom other sources though a plea has been raised by the assessee that the income was surrendered as income from job work but no evidence to prove the stand of the assessee has been brought on record. The assessee had also surrendered addit ional income of Rs. 10 lacs in Assessment Year 2005-06 on account of sundry cred its, repairs to build ing and advances to staf f , which being re latable to business carr ied on by assessee was included as income f rom bus iness. However, in respect of cash found during survey, which was not ref lected in the books of account, no source was declared by the assessee and in the absence of nature of source of cash be ing proved, the same is not assessable as income f rom bus iness. In the c ircumstances, we uphold the order of the CIT(A) in includ ing the addit ional income as deemed income u/s 69A of the Act and not allowing the benef it of the bus iness losses determined against the said deemed income. The grounds of appeal raised by the assessee are dismissed."

32. Thereafter, the matter came up for consideration before the Hon'ble Punjab & Haryana High Court and the Hon'ble High Court has stated that the AO, the Ld. CIT(A) and the Tribunal after considering the factual aspect noticed that the amount surrendered during the survey was not reflected in the books of accounts and no source from where it was derived was declared by the assessee and therefore it was deemed income of the assessee under section 69A of the Act and accordingly the findings of the Tribunal were affirmed and it was held that no substantial question of law arises and the appeal of the assessee

Page 31 of 32

was dismissed. We therefore find that the statement of the General Manager as recorded during the course of survey played a decisive role and was taken into consideration by the Tribunal wherein he had admitted that cash has been generated out of income from other sources and in the absence of nature of source of cash being proved, it uphold the order of the CIT(A) and thereafter, on further appeal, the order of the Tribunal was upheld by the Hon'ble High Court. Unlike the said case, in the instant case, as we have noted above, the assessee in his statement recorded during the course of survey has clearly 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 business operations. Thus, the decision of the Hon'ble High Court, being rendered in the specific facts and circumstances of the said case, doesn't support the case of the Revenue in the instant case.

33. In light of aforesaid discussion and in the entirety of facts and circumstances of the case and following the decisions supra, the income of Rs 84,80,000/- surrendered during the course of survey cannot be brought to tax under the deeming provisions of

Page 32 of 32

section 69 and 69A of the Act and the same has been rightly offered to tax under the head "business income". In absence of deeming provisions, the question of application of section 115BBE doesn't arise for consideration.

34. Ground No. 1 was not pressed during the course of hearing. Hence, the same is dismissed as not pressed.

35. In the result, the appeal of the assessee is partly allowed. Order pronounced in the Open Court on 24/07/2023. Sd/- Sd/-

आद शे क  अ ⁽िप^Aतीि^.लल^Dािथ^.प^Jअ^A े^Iि^Nषत ) (VIKRAM SINGH YADAV) VICE PRESIDENT ACCOUNTANT MEMBER "AG" / Copy of the order forwarded to : 1. / The Appellant

2.

3. िगआवाययडभथ काफगरा / ी ईयआ T ल h यु e ि R ति e न sp िध ondent / CIT 4. , आयकर अपीलीय आिधकरण, च डीगढ़/ DR, ITAT, CHANDIGARH 5. / Guard File सह ा य क पं आजदीकेशाारनुसार/ By order, / Assistant Registrar

FIT FOR PUBLICATION

Sd/- Sd/-

(A.D.JAIN ) (VIKRAM SINGH YADAV)

VICE PRESIDENT ACCOUNTANT MEMBER