EKTA SANITARY STORE,FOCAL POINT PATIALA V. ACIT, CIRCLE, PATIALA, AAYAKAR BHAWAN

ITA 743/CHANDI/2024

AI Insights

The case revolves around the Income Tax Department's treatment of a Rs. 50,00,000 income surrender by Ekta Sanitary Store during a survey under Section 133A of the Income Tax Act, 1961. The surrender was recorded as business income in the company's audited financial statements. However, the Assessing Officer (AO) reclassified this income as unexplained investments and subjected it to a higher tax rate under Section 115BBE. The assessee contested this decision, arguing that the income was declared as business income during the survey and should be taxed accordingly. The CIT(A) upheld the AO's decision, leading to the appeal before the ITAT, which reversed the lower authorities' decisions, aligning with precedents that support the assessee's classification of the income.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 315966 (ITAT-CHANDIGARH)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-05-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2017-2018
• Other Referred Cases: DDK Spinning Mills, A.P NIT Fab, GPG Cattle Feed Pvt. Ltd., Khushi Ram & Sons Foods (P) Ltd., Kim Pharma Pvt. Ltd.
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VIVEK VARDHAN
• Assessee Lawyers: SUDHIR SEHGAL
• Keywords: Set aside; Business income; Unexplained investment; Source of fund; Deemed to accrue or arise in india
• Section: 69; 133A

Judgement Text

"आयकर अपीलीय अिधकरण,चǷीगढ़ Ɋायपीठ “ए” , चǷीगढ़ IN THE INCOME TAX APPELLATE TRIBUNAL, CHANDIGARH BENCH “A”, CHANDIGARH HEARING THROUGH: PHYSICAL MODE ŵी लिलत क ुमार, Ɋाियक सद˟ एवं ŵी मनोज क ुमार अŤवाल, लेखा सद˟ BEFORE: SHRI. LALIET KUMAR, JM & SHRI. MANOJ KUMAR AGGARWAL, AM आयकर अपील सं. ITA No. 743/Chd/ 2024 िनधाŊरण वषŊ / Assessment Year : 2017-18 Ekta Sanitary Store C-197, Focal Point, Patiala-147001 Punjab बनाम The ACIT Circle, Patiala ˕ायी लेखा सं./PAN NO: AAEFE6663M अपीलाथŎ/Appellant ŮȑथŎ/Respondent िनधाŊįरती की ओर से/Assessee by : Shri Sudhir Sehgal and Shri Vipin Sethi, Adovactes राजˢ की ओर से/ Revenue by : Shri Vivek Vardhan, Addl. CIT, Sr. DR सुनवाई की तारीख/Date of Hearing : 23/04/2024 उदघोषणा की तारीख/Date of Pronouncement : 14/05/2025 आदेश/Order PER LALIET KUMAR, J.M: This appeal has been filed by the assessee against the order of the Ld. CIT(A)/NFAC, Delhi dated 06.05.2024 for the assessment year 2017–18. 2. In the present appeal Assessee has raised the following grounds: 1. That the Ld. CIT (A)-3, Coimbatore has erred in dismissing the appeal of the assessee and confirming the order of the Assessing Officer and wrongly treated the surrendered amount of Rs 50,00,000/- on account of business advances, building construction, stock and other misc discrepancies found during the course of survey as deemed income u/s 69 and to be taxed as per provisions of Section 115BBE of the Income Tax Act, 1961. 2. That the Ld, CIT (A) has grossly erred in charging the nature of income as unexplained investment, instead of business income, as declared during the course of survey without any basis and while doing so, he has failed to appreciate the judgments of Jurisdictional Bench of ITAT tn the case of DDK Spinning Mills in ITA bearing No, 19/Chd/2023,dated 29.11.2023 and of the judgment of A.P NIT Fab in ITA 732/ Chd/2022 dated 15.02.2024 and other judgments in which, it has been held that, if certain income has been declared as business income, the same has to be treated as the business income and the Assessing Officer cannot disturbed the same, without any' cogent evidence. 2 3. Even during the course of survey, the assessee was found to be not carrying on any other business activities and. all such investment having been made from the same business income, and, therefore, taxing the surrendered income u/s 69 r.w.s. 115BBE. is against the facts & circumstances of the case 4. That the appellant craves leave to add, amend, any of the above ground or grounds of appeal during the appellate proceedings. 3. Briefly, the facts of the case are that a survey under section 133A was conducted at the business premises of the assessee on 31.05.2016. During the survey proceedings, the assessee had offered a surrender of Rs.50,00,000/- by way of a written letter and sworn statement. This amount comprised business advances, construction of godown, and minor discrepancies, all claimed to have arisen out of regular business transactions. The said income was recorded in the books of accounts and disclosed in the return of income as \"business income.\" Taxes were duly paid thereon at normal rates. 4. During the assessment proceedings, the Ld. AO treated the surrendered amount as unexplained investments and expenditure under Sections 69 and 69C, on the ground that the source of the income had not been satisfactorily explained. The AO accordingly invoked Section 115BBE and taxed the surrendered amount at the enhanced rate applicable to deemed income. 5. Against the order of the Ld. AO the assessee went in appeal before the Ld. CIT(A). During the appellate proceedings, it was submitted that the surrendered amount pertained to transactions carried out in the normal course of business. The assessee asserted that it had no other source of income and that the entire surrender arose from business-related discrepancies such as stock differences, building construction, and advances traceable to business dealings. The income had been duly disclosed and accounted for in the audited financial statements. It was also argued that the amendment to Section 115BBE was prospective and not applicable to the year under consideration. 6. The Ld. CIT(A), however, rejected the submissions of the assessee and upheld the assessment order by relying on the judgment of the Hon’ble 3 Punjab & Haryana High Court in Khushi Ram & Sons Foods (P) Ltd. and Kim Pharma Pvt. Ltd., holding that the assessee had failed to substantiate the source of surrendered income and thus the same was liable to be taxed under Section 115BBE. 7. Against the order of the Ld. CIT(A) the assessee is in appeal before us. 8. During the course of hearing the Ld. AR submitted that the Ld. CIT(A)-3, Coimbatore, erred in dismissing the appeal and confirming the Assessing Officer’s treatment of the surrendered amount of Rs. 50,00,000/-pertaining to business advances, construction, stock, and other items found during survey as unexplained income under Section 69 and taxing it under Section 115BBE. The amount was voluntarily disclosed as business income during the survey and duly offered to tax as such. There is no finding of any undisclosed or separate business activity. The Ld. CIT(A) failed to appreciate binding precedents, including DDK Spinning Mills (ITA No. 19/Chd/2023) and A.P. NIT Fab (ITA No. 732/Chd/2022), which hold that income declared as business income during survey must be accepted as such unless contradicted by cogent evidence. The assessee submits that treating the surrendered income as unexplained investment is incorrect both in fact and in law. Therefore, it is respectfully requested that the addition made under Section 69 be deleted and the income be rightly assessed as business income. 9. Per contra, the Ld. DR relied on the order of the lower authorities. 10. We have heard the rival contentions and perused the material available on record. It is an undisputed fact that the assessee is engaged in the trading of tiles and sanitary goods for several years, and the surrendered income was incorporated in the audited financial statements and declared in the return of income as part of the business income. The surrender had been made voluntarily during the survey, and the letter of surrender as well as the sworn statement clearly state that the income arose from business- related discrepancies and not from any outside source. 4 10.1. Upon a careful reading of the survey statement, it is noted that the partner of the firm had categorically stated that the construction of the godown, advances, and stock discrepancies were out of business receipts and it was further mentioned in question 19-22 that assessee had failed to record the amount in the books of account of the firm. No material was brought on record by the survey team or the Assessing Officer to demonstrate that the assessee was engaged in any parallel activity or possessed any alternate source of income. 10.2 The Hon’ble ITAT, Chandigarh Bench, in the case of GPG Cattle Feed Pvt. Ltd. (ITA No. 210/Chd/2024, A.Y. 2018–19) has held that when the surrendered income pertains to regular business operations and no evidence is found to the contrary, the same must be taxed under the head \"Profits and Gains of Business or Profession.\" In that case, as in the present one, the surrender was related to excess stock and business assets, and was therefore held to be part of the normal business income. 10.3. Similarly, in DDK Spinning Mills (ITA No. 191/Chd/2023) and Ruff Fab (ITA No. 732/Chd/2022), it was held that the nature of surrendered income must be judged in the context of the business activity carried on by the assessee, and in absence of any contrary evidence, the surrender cannot be deemed unexplained within the meaning of Section 69. 10.4. In the present case, the surrendered amount was linked with building construction (godown used for business), advances for business dealings, and stock-related discrepancies, were interlinked and closely connected with the business activity of the assessee therefore the business character of these items was not rebutted. The tax auditor accepted the surrender as part of business income, and the books of account reflect the same. The AO has not brought any iota of evidence to indicate that the source of funds was from unexplained or undisclosed activity. 5 10.5. It is further noted that the amendment to Section 115BBE enhancing the tax rate was brought into effect from 01.04.2017, i.e., A.Y. 2018–19 onwards. The survey in this case was conducted on 31.05.2016, and the return was filed in October 2017. Therefore, the enhanced tax provisions under Section 115BBE could not have been applied retrospectively. 10.6 In view of the above factual matrix and judicial precedents, we are of the considered opinion that the surrendered income of Rs.50,00,000/- was part of the assessee’s regular business income. The treatment of such income under Sections 69/69C and consequent taxation under Section 115BBE was not justified. 10.7 Accordingly, the orders of the lower authorities are set aside, and the Assessing Officer is directed to treat the surrendered income of Rs.50,00,000/- as business income taxable at normal applicable rates. 11. In the result, appeal of the assessee is allowed. Order pronounced in the open Court on 14/05/2025 Sd/- Sd/- मनोज क ुमार अŤवाल लिलत क ुमार (MANOJ KUMAR AGGARWAL) (LALIET KUMAR) लेखा सद˟/ ACCOUNTANT MEMBER Ɋाियक सद˟ /JUDICIAL MEMBER AG आदेश की Ůितिलिप अŤेिषत/ Copy of the order forwarded to : 1. अपीलाथŎ/ The Appellant 2. ŮȑथŎ/ The Respondent 3. आयकर आयुƅ/ CIT 4. आयकर आयुƅ (अपील)/ The CIT(A) 5. िवभागीय Ůितिनिध, आयकर अपीलीय आिधकरण, चǷीगढ़/ DR, ITAT, CHANDIGARH 6. गाडŊ फाईल/ Guard File आदेशानुसार/ By order, सहायक पंजीकार/ Assistant Registrar "