GPG CATTLE FEED PVT. LTD.,MOGA V. DEPUTY COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-1, LUDHIANA, LUDHIANA

CO 14/CHANDI/2024

AI Insights

The case involves GPG Cattle Feed Pvt. Ltd., which during a survey conducted by the DCIT Central Circle-I, Ludhiana, surrendered Rs. 2,00,00,000 as additional income due to discrepancies in stock records. The Assessing Officer treated this amount as unexplained investment under section 69 of the Income Tax Act, taxing it at a higher rate under section 115BBE. The CIT(A) reversed this decision, accepting the assessee's argument that the amount represented normal business income. The Revenue appealed against this decision. The Tribunal upheld the CIT(A)'s decision regarding the nature of the surrendered income but agreed with the Revenue on the issue of unaccounted capital.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 126049 (ITAT-CHANDIGARH)
• Appeal Type: Cross Objection
• Pronouncement Date: 24-04-2025
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2018-2019
• Other Referred Cases: Khushi Ram & Sons ITA No. 126 of 2015, DDK Spinning Mills, Montu Shallu Knitwears, Jaswinder Singh, Smt. Renu Singla Vs. ACIT dt. 28/11/2024
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: VIVEK VARDHAN
• Assessee Lawyers: RUPINDER KANSAL
• Keywords: Business income; Corroborative evidences; Unexplained investment; Rejection of books of accounts; Gross profit estimation; Source of fund
• Section: 69; 13; 133A; 145(3)

Judgement Text

"आयकर अपीलीय अिधकरण,चǷीगढ़ Ɋायपीठ “ए” , चǷीगढ़ IN THE INCOME TAX APPELLATE TRIBUNAL, CHANDIGARH BENCH “A”, CHANDIGARH HEARING THROUGH: HYBRID 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 आयकरअपीलसं./ ITA No. 210/Chd/ 2024 िनधाŊरणवषŊ / Assessment Year : 2018-19 The DCIT Central Circle-I, Ludhiana बनाम GPG Cattle Feed Pvt. Ltd. Vill: Machi Burga, Talwandi Bhai, Head Office- H.No. 162, Ward-16, Opp. Bibi Da Gurudwara, Punjab- 142001 ˕ायीलेखासं./PAN NO: AAFCG2761C अपीलाथŎ/Appellant ŮȑथŎ/Respondent Cross Objection No. 14/Chd/2024 In (आयकर अपील सं./ ITA No. 210/Chd/ 2024) िनधाŊरण वषŊ / Assessment Year : 2018-19 GPG Cattle Feed Pvt. Ltd. Vill: Machi Burga, Talwandi Bhai, Head Office- H.No. 162, Ward-16, Opp. Bibi Da Gurudwara, Punjab- 142001 बनाम The DCIT Central Circle-I, Ludhiana ˕ायी लेखा सं./PAN NO: AAFCG2761C अपीलाथŎ/Appellant ŮȑथŎ/Respondent िनधाŊįरती की ओर से/Assessee by : Shri Rupinder Kansal, Advocate and Shri Vipin Gupta, C.A (Virtual) राजˢ की ओर से/ Revenue by : Shri Vivek Vardhan, Addl. CIT, Sr. DR सुनवाई की तारीख/Date of Hearing : 22/04/2025 उदघोषणा की तारीख/Date of Pronouncement : 24/04/2025 आदेश/Order PER LALIET KUMAR, J.M: The present appeal has been filed by the Revenue against the order dated 21.12.2023 passed by the Ld. CIT(A) pertaining to the Assessment Year 2018-19, wherein substantial relief had been granted to the assessee by holding that the surrendered 2 income was liable to be taxed as business income and not as unexplained income under section 69 of the Income Tax Act, 1961 (\"the Act\"). 2. Feeling aggrieved by the order of Ld. CIT(A) the revenue is in appeal before us on the following grounds:- 1. Whether upon the facts and circumstances of the case, the Ld. CIT(A)was justified in treating the surrender income as normal business income instead of unexplained income under the deeming provisions of 69 of the Income Tax Act 1961 and to be taxed as per provisions of section 115BBE of the Act by the AO, ignoring the facts involved in this case ? 2. Whether upon the facts and circumstances of the case, the Ld. CIT(A) was justified in treating the surrender income as normal business income instead of unexplained income under the deeming provisions of 69 of the Income Tax Act 1961 and ignoring the decision of Hon'ble Punjab & Haryana High Court in the case of Khushi Ram & Sons ITA No. 126 of 2015 wherein Hon'ble High Court has held that merely the assessee carries on certain business, it does not necessarily follow that amounts surrendered by assessee are on account of business transaction and onus on assessee to establish the source of surrendered income ? 3. Whether upon the facts and circumstances of the case, the Ld. CIT(A) was justified in treating surrender income of Rs. 2,00,00,000/- is a normal business income as the assessee has failed to establish its claim with supporting evidence by ignoring the facts otherwise arbitrary unreasonable and perverse ? 4. Whether upon the facts and circumstances of the case, the Ld. CIT(A) was justified in deleting addition of Rs.4,10,874/- made by the AO on account of suppression of sales against the surrender income under the head excess stock found during the course of survey, ignoring the facts involved in this case ? 5. Whether upon the facts and circumstances of the case, the Ld. CIT(A) was justified in deleting addition of Rs.37,59,718/- made by the AO applying Gross Profit on taking home cash earned from undisclosed sales against the surrender income under the head excess stock found during the course of survey, ignoring the facts involved in this case? 6. Whether upon the facts and circumstances of the case, the Ld. CIT(A) was justified to delete the addition of Rs. 10,96,681/- made by the AO on account of capital employed for unaccounted business transactions u/s 69 of the Act, ignoring the facts involved in this case. 7. The appellant craves leave to add, amend, modify, vary, omit or substitute any of the aforesaid grounds of appeal at any time before or at the time of hearing of appeal. 3. The facts in brief are that a survey under section 133A had been conducted at the premises of the assessee on 25.04.2018. During the course of the survey, physical verification of stock was carried out, and an excess stock amounting to Rs.2,00,00,000/- was found over and above the stock recorded in the regular books of accounts. On being confronted with the discrepancies, the assessee surrendered an amount of Rs.2,00,00,000/- during the survey proceedings as additional income for the financial year relevant to the Assessment Year 2018-19. The said surrendered amount was thereafter incorporated in the return of income filed by the assessee, where it was offered as business income taxable at normal rates. 3 4. During the assessment proceedings, the Assessing Officer, having noted that no supporting evidences such as purchase invoices, transportation challans, or bank entries had been furnished to establish the source of the excess stock, treated the surrendered amount as unexplained investment under section 69 of the Act and taxed the same at the rate prescribed under section 115BBE. The books of accounts of the assessee were also rejected under section 145(3), and additions were made towards low gross profit, suppressed sales, and undisclosed capital employed in unaccounted business activities. 5. Feeling aggrieved by the order of Ld. AO, the assessee preferred an appeal before the CIT(A), where several submissions had been advanced. It was submitted that the assessee was engaged exclusively in manufacturing and trading cattle feed, and that all business activities were being duly carried out with the maintenance of statutory records. It was contended that the excess stock represented normal business operations, and the surrender had been made voluntarily to avoid protracted litigation. It was argued that the surrendered income had been duly recorded in the audited accounts and offered to tax as part of business profits. Reliance was placed on the assertion that no independent source of income had been found during the survey proceedings. The assessee submitted that the surrender letter clearly mentioned that the disclosure was out of normal business transactions and that taxes at normal rates would be paid. It was also submitted that there was no intention to conceal income and that penalty provisions were not attracted. 5.1 Further, it had been contended that the impounded documents, including the receipts during the survey, reflected normal business transactions and not undisclosed investments or income. A plea was also raised for telescoping the surrendered stock against other alleged unaccounted sales and receipts. Reliance was placed on certain judicial precedents where surrendered stock had been treated as business income. 5.2 After considering these submissions, the Ld. CIT(A) had accepted the assessee’s contention and held that the surrendered amount of Rs. 2,00,00,000/- was part of the regular business income and ought to be taxed accordingly at normal rates. The Ld. CIT(A) further deleted the additions made towards low GP, suppressed sales, and 4 undisclosed capital, thereby granting substantial relief to the assessee. The finding of Ld. CIT(A) are as under: 5.2.15Hence, various Hon'ble Tribunal Benches also include case laws cited by the AR have clearly held that the nature of incriminating documents is the key which needs to be examined to reach the conclusion whether the source of money in the said documents is related to the regular course of business of the assessee. 5.2.16In the assessment order, there is no material on record which suggests that the appellant is running some other activity. 5.2.17Thus, there is merit in the argument of the AR on account of difference in inventory found physically and inventory as per trading account made on the date of survey, that no fault has been found in the contentions/declaration of the assessee. Therefore, the facts & circumstances of the case, the arguments of the AR are found acceptable duly supported by the judicial pronouncement as relied upon during the appellate proceedings that the income surrendered by the assessee during the survey was 'business income' of the assessee and must be taxed at the normal rate of taxes applicable in the case of the assessee. It is a case where the surrender was made on the basis of business-related inventory only as each of the items in the list of inventories drawn on the date of survey was related to his normal/routine business. Secondly, in the statement recorded during survey also, the appellant has mentioned that these are transactions in the nature of difference in inventory and are his income from the same business. Said fact is reiterated in the surrender letter also. Thirdly, the appellant in its return of income filed, maintained the same instance. Fourthly, neither the survey team nor the AO has brought any other material on record to show that there was some other business activity. Fifthly, evidence of unaccounted sales of the same business products has been found during survey and addition has been made by the AO on the issue of unaccounted sale. Thus, it leads to a logical conclusion that investment in excess stock was on account of same business only. Hence, the action of AO in charging tax at the rate prescribed u/s 115BBE in this case on the surrendered income of Rs.2,00,00,000/-, in respect of inventory, is not found sustainable and therefore deleted. 5.2.18Therefore, the AO is directed to treat this income of Rs.2,00,00,000/- pertaining to inventory as business income. Therefore, these grounds of appeal are allowed. 5.3 Ground of Appeal No. 4In this ground, the appellant has contested that books of accounts have been wrongly rejected u/s 145(3) and addition of Rs.6,70,875/- made on account of enhancement of GP rate on declared turnover. 5.3.1The contentions of the AR are that there is no reason to enhance the declared gross profit as there is no reason to reject the books. This contention of the AR is not found correct as a lot of seized material relating to unrecorded sales for the current financial year has been found which has been discussed in the assessment order. Keeping in view the above facts and discussion, it is held that the AO has right in making the addition of Rs.6,70,875/- by enhancing the declared gross profit and hence the same is confirmed. This ground of appeal is dismissed. 6. Aggrieved by the said decision of the CIT(A), the Revenue is in appeal before us. 7. The Ld. DR in support of the appeal of the Revenue had drawn our attention to the answer given to Question 17 at page 19 which is as under: “ The above referred difference of Rs. 1,98,98,943/- (physical stock Rs. 2,05,34,699/- minus stock as per books Rs. 6,35,756/-) very much exists. To buy peace of my mind and to avoid litigation with department I hereby declare Rs. 2 crore (Two Crore) for taxation in the hand of M/s GPG Cattle Feed Pvt. Ltd. of which I am Director for F.Y. 2017-18 relevant to A.Y. 2018-19 over and above the normal income of the company. Separate surrender letter to this effect is being submitted.” 5 8. On the basis of the above said statement it was submitted by the DR that the surrender made by the assessee was over and above the normal income of the company. 9. The Ld. DR submitted that the assessee while filing the return of income has increased the closing stock by Rs. 2,00,00,000/- and including the P&L Account. It was submitted that assessee has not divulged any details regarding the bills, challans, transport details, labour charges, debit or the credit notes / vouchers for such purchases and sales and source of fund being received / transferred for such purchases. The Ld. DR, relying on page 6 of the Assessing Officer has submitted that the assessee has failed to submit the details of purchase of the stock and has not substantiated the source of investments in the stocks. It was submitted by the Ld. DR that the Ld. Assessing Officer had made the addition under section 69 of the Act and therefore the provision under section 115BBE were rightly applied by the Assessing Officer. 10. Per contra, the Ld. AR had submitted that the entire inventory found at the time of survey was related to the regular business of cattle feed manufacturing and trading, and the surrendered amount of Rs.2 crore pertained only to the same business activity. It was stated that the excess stock discovered during the survey had no separate or independent identity but was part of the regular business stock already dealt with by the assessee. The surrendered stock was claimed to be integral to the business operations and not a new source of income. In the surrender letter, the assessee had clearly disclosed that the additional income of Rs. 2,00,00,000/- was out of the same business activities and not from any other unexplained source. It was contended that the difference in inventory arose only due to pending reconciliations with creditors, debtors, and banks at the time of the survey. Hence, the discrepancy was purely like a stock difference, not an unexplained investment. The assessee further emphasized that the surrender was voluntary, made without coercion or pressure from the survey team, and accompanied by an undertaking to pay taxes at standard rates. The assessee cited various ITAT Chandigarh Bench rulings, such as DDK Spinning Mills, Montu Shallu Knitwears, and Jaswinder Singh, where surrendered stock had been treated as business income taxable at normal rates, not under section 69. It was highlighted that no 6 separate unaccounted business activity was discovered during the survey, and the Revenue authorities had themselves not disputed the nature of the business being carried on. By the assessee. Based on the foregoing, it was submitted that the invocation of section 69 and the application of section 115BBE were unjustified, and the surrendered amount of Rs.2,00,00,000/- ought to be taxed under the head \"Profits and Gains from Business or Profession”. The assessee has also filed the written submission on 09/08/2024 which are to the following effect: 7 8 9 10 11 11. The Tribunal has heard the rival contentions and perused thematerial available on record. It is not in dispute that the assessee was engaged in the business of manufacturing cattle feed, and that a sum of Rs. 2,00,00,000/- was surrendered during the course of survey on account of excess stock found. During the survey, though the Director of the assessee was examined, no specific question was posed regarding the source of investment for the purchase of such excess stock. The inventory of stock was prepared on 25.04.2018 and is referred to by the Ld. CIT(A) at pages 35 and 36 of the appellate order. 12. Upon perusal of the inventory, it is evident that the excess stock found was inseparable from the stock recorded in the regular books of account. In other words, the assessee was found to be manufacturing cattle feed under the brand name \"Goka\", and there was no identifiable difference between the excess stock found during survey and the stock as per the books. The nature of the business and the stock 12 found being identical, it is apparent that the stock pertained to the same business activity. 13. Furthermore, in the statement recorded during survey and in the surrender letter, the assessee had clearly stated that the surrendered amount of Rs. 2,00,00,000/- was over and above the regular business income, without any admission that the excess stock was unrelated to its business or that it had been procured from any undisclosed or non-business source. No material has been brought on record by the Assessing Officer to establish that the assessee had any independent or undisclosed source of income from which the excess stock could have been acquired. 14. The Ld. CIT(A) also recorded that no independent source of income was discovered during the survey. The assessee, having declared the surrendered amount as business income in its return and paid taxes thereon, is entitled to have the income assessed under the head Profits and Gains from Business or Profession. We may also rely upon the decision of the Coordinate Bench in the case of Smt. Renu Singla Vs. ACIT dt. 28/11/2024 and the other decisions referred by the Ld. AR in the written submission is reproduced above at page 12(supra). In the said decisions, the Coordinate Bench had held that in the absence of any evidence to suggest that the investment was made from any other source than the normal business then the surrender income is require to be considered as business income. 15. In view of the foregoing findings, the offer of the assessee as additional income is to be accepted as “Business Income” only. The corresponding grounds stands raised by Revenue stand dismissed. In view of the above the Ground No. 1 to 3 of the Revenue appeal are dismissed. Ground No. 4 & 5 of the Revenue appeal 16. In this regard the Ld. DR had drawn our attention to paragraph 5.4 to 5.4.4 of the CIT(A) order and submitted that the order passed by the Ld. CIT(A) was not in accordance with law and he relied upon the order passed by the Assessing Officer. 17. Per contra, the Ld. AR relied upon the order passed by the Ld. CIT(A). 13 18. We have heard the rival contention of the parties and perused the material available on the record. In the present case, the assessee has separately surrendered the discrepancy relating to excess stock, which has already been taxed. In such circumstances, the rejection of books of accounts and the consequential enhancement of gross profit by applying a rate of 16.50%, leading to an addition of Rs. 6,70,875/-, is not sustainable and stands deleted. 19. With respect to the alleged unaccounted sales and investment in capital, the assessee has submitted that these amounts have been telescoped into the surrendered stock. It is a settled principle that when unaccounted transactions are part of the same business and are duly surrendered, separate additions would amount to double taxation. 20. We find merit in the plea of telescoping. The unaccounted transactions were directly linked to the same business activity, and their surrender through disclosure of excess stock covers the entire alleged discrepancy. Therefore, the separate additions of Rs.4170592/- is rightly deleted by the Ld.CIT(A) and we concur the findings given by him. Accordingly Ground No. 4&5 of Revenue appeal are dismissed. Cross Objection No. 14/Chd/2024 and Ground No. 6 of the Revenue Appeal 21. In this regard, the Ld. DR had drawn our attention to paragraphs 5.5 to 5.5.3 of the order of the Ld. CIT(A), basesd on this it was submitted that the Ld. CIT(A) erred in restricting the disallowance to Rs.5,94,053/- and in deleting the balance amount of Rs.10,96,681/-. It was further contended that the deletion was not supported by adequate reasoning or evidence. 22. The Ld. AR, on the other hand, submitted that the Cross Objection (C.O.) filed by the assessee supports the action of the Ld. CIT(A). 23. We have heard the rival contentions and have perused the material available on record. It is observed that neither the Ld. AR nor the Ld. CIT(A) brought on record any cogent evidence to demonstrate the actual employment of capital in relation to the unaccounted sales. The findings recorded by the Assessing Officer in paragraph 8 of the assessment order remain uncontroverted. 14 24. In our considered opinion, the onus lies on the assessee to establish that the capital amounting to Rs.16,90,734/- was not required to generate the estimated turnover of Rs.2,27,86,173/-. However, the assessee failed to substantiate how such turnover could have been achieved without deploying the alleged capital. In the absence of such evidence, we find that the reasoning adopted by the Ld. CIT(A) in deleting the addition is not sustainable in law. 25. Accordingly, the findings of the Ld. CIT(A) are reversed, and the order of the Assessing Officer is restored. The addition of Rs.16,90,734/- is upheld. 26. Consequently, the Cross Objection filed by the assessee stands dismissed and Ground No. 6 of the Revenue’s appeal is allowed. 27. In the result, the Revenue appeal is partly allowed and the Cross Objection of the assessee is dismissed. Order pronounced in the open Court on 24/04/2025 Sd/- Sd/- मनोज क ुमार अŤवाल लिलत क ुमार (MANOJ KUMAR AGGARWAL) (LALIET KUMAR) लेखा सद˟/ ACCOUNTANT MEMBER Ɋाियक सद˟/JUDICIAL MEMBER AG आदेशकीŮितिलिपअŤेिषत/ Copy of the order forwarded to : 1. अपीलाथŎ/ The Appellant 2. ŮȑथŎ/ The Respondent 3. आयकरआयुƅ/ CIT 4. आयकरआयुƅ (अपील)/ The CIT(A) 5. िवभागीयŮितिनिध, आयकरअपीलीयआिधकरण, चǷीगढ़/ DR, ITAT, CHANDIGARH 6. गाडŊफाईल/ Guard File आदेशानुसार/ By order, सहायकपंजीकार/ Assistant Registrar "