M/s New Vishavkarma Agro Industries, Dibra V. ACIT/DCIT, CC, Patiala

ITA 215/CHANDI/2023

• Counselvise Citation: [2023] 101 COUNSELVISE.COM (IT) 9916 (ITAT-CHANDIGARH)
• Duration Of Justice: 7 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-11-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: Not Allotted
• Next Hearing Date: 03-09-2023
• Assessment Year: 2019-2020
• Appeal Filed On: 16-04-2023
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Unexplained cash credit; Unexplained investment; Unexplained expenditure; Business income; Revision of order; Depreciation; Income from undisclosed sources; Search and seizure; Deemed to accrue or arise in india; Set aside
• Section: 68; 69; 263; 69C; 139; 143(3); 142(1); 133A; 143(2); 69A; 64; 153

Judgement Text

आयकर अपीलȣय अͬधकरण,चÖडीगढ़ Ûयायपीठ “एस.एम.सी” , चÖडीगढ़ IN THE INCOME TAX APPELLATE TRIBUNAL, CHANDIGARH BENCHES, “SMC” CHANDIGARH (VIRTUAL COURT) Įी ͪवĐम ͧसंह यादव, लेखा सदèय BEFORE: SHRI. VIKRAM SINGH YADAV, AM आयकर अपील सं./ ITA No. 215/Chd/2023 Ǔनधा[रण वष[ / Assessment Year : 2019-20 M/s New Vishvakarma Agro Industries Sangrur Road,Dibra-148035, Punjab बनाम The Asst/Deputy CIT Central Circle, Patiala èथायी लेखा सं./PAN NO: AACFN4765F अपीलाथȸ/Appellant Ĥ×यथȸ/Respondent Ǔनधा[ǐरती कȧ ओर से/Assessee by : Shri Sudhir Sehgal, Advocate राजèव कȧ ओर से/ Revenue by : Shri Dharam Vir, JCIT, Sr. DR स ु नवाई कȧ तारȣख/Date of Hearing : 04/09/2023 उदघोषणा कȧ तारȣख/Date of Pronouncement : 22/11/2023 आदेश/Order PER VIKRAM SINGH YADAV, AM This is an appeal filed by the Assessee against the order of the Ld. CIT(A)-5, Ludhiana dt. 01/03/2023 pertaining to Assessment Year 2019-20. 2. In the present appeal, the Assessee has raised the following grounds of appeal: 1. That the Ld. CIT(A) has erred in treating the income surrendered during survey on account of excess stock & excess cash u/s 69 r.w. provisions of section 115BBE of the Income Tax Act, 1961. 2. That the Ld. CIT(A) has failed to appreciate the various binding judgments of Chandigarh and Amritsar Bench of the ITAT, wherein on similar facts and circumstances, the said income on account of 'excess stock' during survey have been taxed at the normal rate of taxes and which ought to have been followed by the Ld. CIT(A), being jurisdictional Bench of ITAT. 3. That the Ld. CIT(A) has also failed to appreciate that during the course of survey, the assessee was carrying on same business as was reflected in his regular books of accounts and no other activity of any other business had been noticed by the Department and, as such, invoking the provisions of Section 69 r.w.s. 115BBE is bad in law and against the principle laid down in the case of Arora Alloys of Chandigarh Bench of ITAT. 4. That the Ld. CIT(A) has failed to appreciate that the stock & cash as found during the course of survey was compared with the regular business of the assessee and, as such, the same cannot be treated income u/s 69. 5. That the various case laws as relied upon by the CIT(A) while confirming the addition are against the facts and circumstances of the case. 6. That the appellant craves leave to add or amend the grounds of appeal before the appeal is finally heard or disposed off.” 3. During the course of hearing, the Ld. AR submitted that during the financial year 2018-19 relevant to AY 2019-20, a survey action was carried at the business premises of the assessee on 16.04.2018. During the course of survey action, certain discrepancies were found which in aggregates amounts to Rs. 10,68,630/- for AY 2019-20. To cover up all such discrepancies, the assessee surrendered an amount of Rs. 10,68,630/-. Out of the said amount of Rs. 10,68,630/-, an amount of Rs. 4,42,410/- was surrendered on account of excess stock and Rs. 6,26,220/- was surrendered on account of excess cash found at the business premises of the assessee. It is pertinent to mention here that the assessee surrendered the said sum of Rs. 10,68,630/- as additional income. The copy of the surrender letter of the assessee is placed on record. 3.1 It was submitted that after such surrender, the assessee filed its return of income for AY 2019-20. In the said return of income, the assessee declared a total income of Rs. 30,09,870/-. It is hereby pertinent to mention here that on the said amount of total income, the assessee paid taxes at normal rate of tax. 3.2 It was submitted that thereafter, on the basis of said return of income filed by the assessee, the case of the assessee was selected for compulsory scrutiny and a notice u/s 143(2) of the Act was issued to the assessee on 23.09.2020. The copy of the said notice is placed on record. Thereafter, a notice u/s 142(1) of the Act dated 05.02.2021 along with detailed questionnaire was issued to the assessee. The copy of the said notice is also placed on record. In response to the said notice, the assessee filed a detailed response vide its letter dated 12.02.2021. 3.3 It was submitted that thereafter, a show cause notice (‘SCN’) dated 22.09.2021 was issued to the assessee wherein, the assessee was show caused as to why the provisions of section 115BBE of the Act should not be applied in the case of the asseessee on the amount surrendered during the course of survey action. The copy of the SCN is placed on record. In response to the said SCN, the assessee filed a detailed reply as to non- applicability of provisions of section 115BBE of the Act. 3.4 Subsequently, the case of the assessee was concluded and an assessment order dated 25.09.2021 was passed u/s 143(3) of the Act. In the said assessment order, the Ld. AO made additions to the tune of Rs. 10,68,630/- on account of amount surrendered by the assessee during the course of survey action on account of cash and stock surrendered during the course of survey action. In addition to this, the AO applied the provisions of section 115BBE of the Act on said amount of 10,68,630/-surrendered during survey. 4. Against the order of the Ld. AO, the assessee filed an appeal before the ld CIT(A), and the filed its detailed submissions during the course of appellate proceedings. However, the ld CIT(A) without considering the detailed submissions filed by the assessee passed an order dated 01.03.2023 wherein, the appeal filed by the assessee was disposed off and the additions as made by the AO were upheld. 5. Against the order of the CIT(A), the assessee is in appeal before the Tribunal. 6. The Ld. AR submitted that during the course of survey action, statement of the partner of the assessee (Sh. Malkit Singh) was recorded. In the said statement, the assessee has duly submitted that the cash surrendered during the course of survey action was on account of the unaccounted income of the assessee firm and the excess stock is also the stock of the firm only. However, the assessee not being a legally sound person and not having sufficient knowledge of the Income Tax Act, 1961 inadvertently admitted that the firm will pay tax at the rate of 77.25%. Copy of the statement of the assessee is placed in the paper book at page no. 46-53 and the copy of the English translation of the statement of the assessee is placed in the paper book at page no. 54-60. In this regard, reliance is being placed on the judgment of Jaipur Bench of ITAT in the case of Rekha Shekhawat as reported in 218 DTR 161 Jaipur Trib. wherein, it has been held that merely because the assessee has taken a mistaken view of the correct legal position by wrongly showing such additional income under head “income from other sources” in her return, the same cannot be taken as an admission as there is no estoppel against statute. 6.1 Further, it was submitted that the case of the assessee was selected for scrutiny only on the issue of amount surrendered by the assessee during the course of survey action dated 16.04.2018. During the course of survey, the assessee has surrendered an amount of Rs. 1,89,15,630/- out of which an amount of Rs. 1,78,47,000/- pertain to AY 2018-19 and only Rs. 10,68,630/- pertain to AY 2019-20. Further, out of the amount of Rs. 10,68,630/-, an amount of Rs. 4,42,210/- was surrendered on account of excess stock and Rs. 6,26,220/- was surrendered on account of excess cash found during the course of survey. For the year under consideration, the assessee surrendered the said amount of Rs. 10,68,630/- vide surrender letter dated 17.04.2018. Thereafter, due to some inadvertent error, the said surrender amount was not credited in the profit and loss account prepared for the year ending 31.03.2019 and net profit for the relevant year was declared at Rs. 30,09,865/- and on the said profit, tax was paid at normal rate of tax. 6.2 It was submitted that during the course of survey action as well as during the course of assessment proceedings thereafter, the Ld. AO has not whispered about any other source of income of the assessee other than the business of manufacturing of agriculture implements. Hence, all the amount which have been surrendered by the assessee is only attributable to the business of the assessee and not to any other source of income and it is an established fact that there is no other source of income identified during the course of survey or during the course of assessment proceedings, any income arising to the assessee shall be treated to be out of the normal business of the assessee only and therefore, the surrender amount of Rs.10,68,630/- should be treated as the business income of the assessee. Reliance in this regard is placed on the judgment in the case of Daulatram Rawatmull vs. CIT [1967] 64 ITR 593, wherein Calcutta High Court held that “61. In the instant case the assessee is a firm formed for the purpose of carrying on business. There is nothing on record to show that the firm had any source of income other than business. Therefore, in our opinion, it is not unreasonable to hold that any amount representing secret income arose out of business of the firm.” 6.3 Reliance in this regard was placed on the judgment dated 18.02.2021 in the case of Shri Harish Sharma vs. The ITO in ITA No. 327/CHD/2020 wherein, it has been held that that Section 68 not applies when assessee explained nature & source of Income. Hence, when all the incomes earned by the assessee/ assets in the possession of the assessee are only from the business income of the assessee, there do not arise any question as to application of provisions of section 69A of the Act and hence taxing such income at special rate as per section 115BBE of the Act is invalid. In the case of the assessee also, there has been no other source of income identified, neither during the course of survey action nor during the assessment proceedings initiated later on. Hence, the income of the assessee is only on account of the business of the assessee carried on by the assessee since past many years and in these circumstances, the provisions of section 69A of the Act are not applicable. 6.4 Further, reliance was also placed on the following judgments:  Hon’ble Chandigarh (Jurisdictional) Bench of ITAT in the case of M/s. Sham Jewellers in ITA No. 375/CHD/2022, wherein, it has been held as under: “Ground Nos. 8 & 9 challenge the action of the lower authorities in applying the provisions of section 115BBE and thereby charging tax at the rate of 60%. The main thrust of the arguments of the Ld. AR has been that all the additions made or sustained relate only to the business income of the assessee and that nowhere in the assessment order has it been alleged that some other source of income had been detected which gave rise to additional income. It is seen that during the course of assessment proceedings, the various explanations submitted by the assessee have duly mentioned that the surrendered income was derived from 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 iota of evidence to demonstrate that the assessee had any other source of income except income from business and, therefore, it is our considered view that deeming such income under the provisions of sections 68 or 69 would not hold good. In our view, in such a situation, the AO could not have legally and validly resorted to taxing the income of the assessee at the rate of 60% in terms of provisions of section 115BBE of the Act.”  In addition to this, in the case of M/s. Sham Fashion Mall in ITA No. 315/CHD/2022,the Hon’ble Chandigarh Bench of ITAT has held as under: “12.0 In ITA No. 315/CHD/2022, in the case of Sham Fashion Mall, the only issue before us is the challenge to the provisions of section 115BBE by the AO and its sustenance by the Ld. CIT-(A). In this case the returned income has been accepted by the AO. We have also gone through the assessment order as well as the order of the Ld. CIT-(A) and it is seen that nowhere in the orders of both the lower authorities is there any fact brought on record or even a whisper of any allegation against the assessee that the assessee had any other source of income except income from business and income from other source. There is no iota of evidence to even suggest that the lower authorities had unearthed any other source of income of the assessee except under the heads of income declared by the assessee in the return of income. Therefore, in absence of any such evidence of any other undisclosed source of income of the assessee having been detected by the tax authorities, we are afraid that the invocation of provisions of section 115BBE will not hold good in the present case as well.The detailed reasons and observations in this regard have already been incorporated in Para 10.17 to 10.23 of this order in the case of M/s Sham Jewellers wherein also we have rejected the action of the Income Tax Authorities in applying the provisions of section 115BBE of the Act. Likewise, on identical facts and on identical reasoning and law, we allow the grounds of the assessee in the present appeal also and hold that the application of provisions of section 115BBE of the Act in the case of M/s Sham Fashion Mall was bad in law and the same cannot be sustained. 13.0 In the result, ITA No. 315/Chd/2022 also stands allowed.”  Hon’ble Chandigarh (Jurisdictional) Bench of ITAT in the case of Gaurish Steels Pvt. Ltd. as reported in 82 Taxmann.com 337, wherein, it has been held as under: “It has been held that income surrendered by the assessee during the survey on account of discrepancy in cost of construction of building, discrepancy in stock and discrepancy in advances and receivables would be considered as business income and not as deemed income under section 69.”  In the case of Bajaj Sons. Ltd., the Hon’ble Chandigarh Bench of ITAT, ITA No. 1127/CHD/2019, has stated as under: “The AO has not pointed out any unexplained credit in the books of account, any unexplained investment, any unexplained money, bullion or jewellery, any unexplained expenditure or any amount of loan repaid in the assessment order in this respect. Therefore, the provisions of Section 68, 69, 69A, 69B, 69C and 69D are not attracted on the surrendered amount of Rs. 15 lacs. The said amount of Rs. 15 lacs was offered in case any discrepancy is found in the books of account. However, in actual neither any unexplained investment nor any unexplained expenditure or otherwise any unexplained asset was found during the search action so far as the aforesaid surrender of Rs. 15 lacs was concerned. In these circumstances, the aforesaid surrender of Rs. 15 lacs can be said to have been offered to cover up the discrepancies in respect of likely disallowances of claims, if any, relating to its business income. 9. In view of this, since the aforesaid surrender is not covered under the provisions of Section 68, 69, 69A, 69B, 69C and 69D, the provisions of Section 115BBE are not attracted in this case. 10. In view of the above, the action of the lower authorities in invoking provisions of Section 115BBE on the surrender income of Rs. 15 lacs is set aside and the AO is directed to compute the said surrendered income under normal provisions as applicable to the business income of the assessee. 11. In the result, appeal of the assessee stands allowed.”  The binding judgment of Hon’ble Chandigarh Bench in the case of The DCIT vs M/s Khurana Rolling Mills Pvt. Ltd. as reported in ITA No. 745/CHD/2016- “9. In the facts of the present case, it is not disputed that the surrender had been made on account of undisclosed debtors. Since the facts are identical to that in the case of Famina Knit Fabs (supra), and no distinguishing facts have been brought to our notice by the Ld. DR, the decision rendered in that case will also apply to the present case, following which we hold that the Ld. CIT(A) had rightly treated the surrendered income as in the nature of business income of the assessee and accordingly, allowed the benefit of set off of losses against the same. The order of the Ld.CIT(A) is accordingly, upheld. The ground raised by the Revenue is dismissed.”  In the case of Prashanti Surya Contruction Co. Pvt. Ltd. in ITA No. 315/CHD/2014, the Hon’ble Chandigarh (jurisdictional) ITAT Bench has held as under: “Since the facts of the present case are identical to that in Gaurish Steels Pvt. Ltd. (supra), the surrender having been made by the assessee on account of investment made in the BOT project which was the business of the assessee, the decision rendered by the I.T.A.T. in the said case will squarely apply in the present case, following which we hold that the income surrendered by the assessee of Rs. 1.75 crores is assessable under the head 'income from business and profession”.  In the case of M/s. Arora Alloys vs. DCIT in ITA No. 1481/CHD/2017 the Hon’ble Chandigarh (jurisdictional) ITAT Bench has held as under: “In the light of the above, let us examine the facts of the present case. The stand of the assessee is that expenditure incurred for construction of building was from the routine business, and such addition of Rs.32 lakhs ought to be treated as business income. We find force in this contention of the ld. Counsel for the assessee, because the expenditure incurred for creating a business asset and it must have been generated through the business carried out by the assessee. It is pertinent to bear in mind that expenditure laid out for the purpose of business is to be allowed deduction either as expenditure or to be capitalized on which depreciation will be allowed. The assessee might have earned income from the business which has not been accounted and used for constructing the business asset, though specific details have not been discussed either in the impugned order about the nature of evidence found during the course of survey. We also need not to ponder on this aspect because the assessee has admitted this unexplained expenditure on construction of building. This admission has to be accepted as given by the assessee, wherein it was alleged that it is for the purpose of the business. Therefore, to the extent the expenditure incurred for construction of the building, out of unexplained source is concerned, it is to be construed as earned from the business and it will take character of the business income. Once this income is to be assessed under the “business income”, then all incidental benefits for set off from brought forward loss or any other expenditure is to be given to the assessee.” 6.5 Further, it was submitted that section 115BBE of the Act does not state the head of income in which the income of the assessee stands taxable, hence, in such circumstances, the Ld. AO has to look into surrounding circumstances to determine under which the income of the assessee should stand taxable and in this regard, it was submitted that as the assessee has been filing its return of income since past many years and the facts and circumstances of the case of the assessee hereby represent that the assessee has been showing his income under the head income from business and not under any other source of income. In addition to this, the cheques for payment of tax on surrender income at normal rate of tax were handed over to the department during the course of survey and the same were duly accepted by the AO. 6.6 It was further submitted that the assessee in the surrender letter has surrender the amount of Rs. 10,68,630/- as additional business income of the assessee and the assessee does not have any other source of income from where, it can earn income. Hence, additional income should be treated as business income of the assessee and the provisions of section 115BBE should not be made applicable on the case of the assesse. Reliance in this regard is placed on the judgment of the Jurisdictional Bench of ITAT Chandigarh in the case of Shri Gurdeep Singh Ubhi, in ITA No. 551/CHD/2022 wherein, it was held as under: “6. Considering the overall facts and circumstances of the case, I am of the view that the aforesaid additional income surrendered by the assessee was not from any other unexplained source and same was out of business proceeds of the assessee. Therefore, I do not find justification on the part of the lower authorities in applying the provisions of Section 115BBE of the Act to the surrendered business income of the assessee. Accordingly, the AO is directed to tax the assessee on the surrendered income at normal rates as applicable to the business income. It is made clear that my above findings are given in view of the peculiar facts of this case and the same will not hold any binding precedent. 7. In the result, the appeal of the assessee is allowed.” 6.7 In addition to this, reliance was also being placed on the judgment of Hon’ble Chandigarh Tribunal in the case of Sh. Parmod Singla in ITA No. 516/CHD/2022 wherein, it has been held as under: “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 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” 6.8 Further, reliance was also placed on the judgment of the Hon’ble Chandigarh Bench of ITAT in the case of Jasjot Singh Garcha vs. PCIT in ITA No. 378/CHD/2022and on the case of Durga Dass Surender Kumar and Othrs. in ITA No. 397/CHD/2022. It was submitted that although the said appeals were filed against the revisionary order passed by the PCIT u/s 263 of the Act, but while deciding the said matter, the Hon’ble Bench has also discussed the appeal on the merits also and it was found that there is a difference in terms of undisclosed income and unexplained income and deeming provisions of the Act are applicable only on unexplained income of the assessee i.e. the income for which the assessee has not provided sufficient and adequate explanations. In addition to this, it was also found that mere the fact that a survey has been conducted at the business premises of the assessee does not by default mandate the AO or for that matter, the Ld. PCIT to invoke the deeming provisions. Hence, when in the case of the assessee, the assessee has filed its detailed and sufficient explanations w.r.t. the income surrendered by the assessee during the survey action, then the said surrender should be treated as business income of the assessee particularly when the assessee does not have any other source of income. 6.9 Without prejudice to the above, it was submitted that during the course of survey action at the business premises of the assessee on 16.04.2018 as well as during the course of assessment proceedings, the Ld. AO has not passed any adverse opinion with respect to any other source of income of the assessee, neither the AO has brought on record any adverse material on record. Hence, the business income is the only source of income of the assessee and moreover, in the case of assessee excess stock has been found during the course of survey which have been compared with the stock as per the books of account of the assessee, hence, in the first instance, the department itself has accepted that the said stock is the business stock of the assessee and such excess stock is not earned in a single day, hence, it means that the investment in excess stock is only from the business income of the assessee. And, therefore, all the income earned by the assessee is only on account of such business of assessee and therefore, needs to be taxed as business income only. And, the case of the assessee is squarely covered by the judgment in the case of M/s. Arora Alloys vs. DCIT in ITA No. 1481/CHD/2017 the Hon’ble Chandigarh (jurisdictional) ITAT Bench has held as under: “the assessee, wherein it was alleged that it is for the purpose of the business. Therefore, to the extent the expenditure incurred for construction of the building, out of unexplained source is concerned, it is to be construed as earned from the business and it will take character of the business income. Once this income is to be assessed under the “business income”, then all incidental benefits for set off from brought forward loss or any other expenditure is to be given to the assessee.” 6.10 It was further submitted that the ld CIT(A) has placed reliance on the judgments in the cases of Fakir Mohamad Haji Hasan v CIT 247 IT 290 (Guj), Kim Pharma Pvt. Ltd. v CIT 216 Taxman 153 (P&H), Famina Knit Fab v ACIT 176 ITD 246 (Chandigarh Trib.), Pr. CIT v. Khushi Ram & Sons Foods (P) Ltd. In this regard, it was submitted that the said judgments are duly discussed in the judgment of the Hon’ble Chandigarh Bench of ITAT in the case of M/s Khurana Rolling Mills Pvt. Ltd. as reported in ITA No. 745/CHD/2016 as well as in the case of judgment of the Hon’ble Chandigarh Bench of ITAT in the case of M/s. Bindas Foods Pvt. Ltd. in ITA No. 409/CHD/2021. 6.11 It was further submitted that during the course of assessment proceedings as well as during the course of survey action, the Ld. AO has not brought on record any adverse material to justify that the assessee has been earning income other than the business income earned by him and has income from unexplained sources. Moreover, it is evident from the record that the excess stock found during the survey was nothing but the Stock of business carried on by assessee which was not declared in the books of accounts as on the date of survey action and since there is direct nexus of stock found during survey and business carried on by the assessee. Therefore, the excess stock should be treated as income under the head Business and not under deemed income and reliance in this regard is placed on the judgment of Hon’ble Amritsar Bench of ITAT in the case of Smt. Nandini Sharma in ITA No. 148/ASR/2022, wherein, it was held as under: “16. It is evident from the record that the excess stock found during the survey was nothing but the Business Stock carried business carried on by the assessee. Therefore, in our view, the excess stock is only to be treated as income under the head Business and not under deemed income. We further observe that the excess stock found during the survey was not separately and clearly identifiable but was part of mixed lots of stock found at the premises which included the declared stock and stock of sister concern also. In these circumstances, the provisions of section 69 cannot be invoked and it should be taxable as business income. 19. Under the facts and circumstances of the case, the applicability of provisions of section 115BBE are not relevant in the present case as no excess stock was found. Even otherwise the provisions of section 115BBE cannot be made applicable particularly where the assessee has made a statement that the excess stock was a result of suppression of profit in respect of sales made outside the books of accounts. Therefore, in the present case, investment in excess stock computed by the department is liable to be treated as business income and to be taxed under normal provisions and not under the chapter no XII. 21. Considering the factual matrix and judicial precedent cited, the action of the lower authorities in invoking provisions of Section 115BBE on the surrender income is perverse to the facts on record and held to be bad in law. Therefore, the AO is directed to compute the said surrendered income under normal provisions as applicable to the business income of the assessee. 22. In the result, the appeal filed by the assessee is allowed.” 6.12 It was submitted that the surrender amount is only on account of business income of the assessee. The said fact has been accepted by the Department during the survey proceedings as well as during the assessment proceedings wherein, no adverse remark has been passed by the Ld. AO neither with respect to the business of the assessee nor any other source of income other than the business of the assessee. Therefore, when the amount surrender pertains only with the business of the assessee then, application of provisions of section 115BBE of the Act is invalid and uncalled for. 7. Per contra the Ld. DR has relied on the findings of the AO as well as of the Ld. CIT(A). During the course of hearing our reference was drawn to the findings of the AO which are contained at para 2 & 3 of the assessment order and the contents thereof read as under: “02. During the course of survey proceedings conducted at the assessee's business premises on 16.04.2018, a total stock-in-trade of Rs 2,60,49,710/- was found. However, as on the date of survey the stock shown in the books was found to be Rs 2,56,07,300/-. In the statement of the assessee recorded on oath at the time of the survey, the assessee was asked to explain source of this excess stock amounting to Rs. 4,42,410/- found during the survey operation. However, the assessee failed to explain the source of such excess stock found amounting to Rs. 17,07,029/-. The same issue was raised vide this office show cause notice dated 22.09.2021. Assessee vide its reply dated 22.09.2021, has stated that: "It is submitted that survey w/s 133A of the Income Tax Act, 1961 had been carried out at the business premises of the assessee firm on 17/04/2018 in which during F/Y 2018-19 relevant to A/Y 2019-20 amount of Rs.10,68,630/- was surrendered which includes excess stock of Rs.442410/- and excess cash at Rs.626220/-. Photocopy of the surrender letter is enclosed in which assessee firm surrendered the amount on the tax rate of 30.90% and the same was accepted by the survey party. Therefore the question of levy of tax u/s 115BBE does not survive .............. .......It is stated that as per provisions of section 115BBE is leviable only if any income referred to in Section 68,69, 69A etc. is reflected in the return of income furnished u/s 139 or determined by the Assessing officer n above mentioned sections. The provisions of section 115BBE thus provides that when income of the assessee includes any income referred to in section 69, the income tax payable shall be at the rate of 60% on income so referred in section 69 and on the remaining income, the amount of income-tax with which the assessee would have been chargeable had his total income been reduced by the amount of income referred in section 69. In other words, it provides for a special rate of taxation at the rate of 60% as against the normal rate of taxation which may be applicable to the assessee. In the case of the assessee, both the clauses (a)&(b) of section 115BBE does not applicable as both the stock and cash found excess at the time of survey and surrendered relates to the business of the assessee firm and it is pertinent to mention here that the assessee firm does not have any other source of income except the business carried on by it and excess stock and cash found at the time of survey relates to the business income of the assessee.." The contention raised by the assessee is perused, and found not tenable. The assessee has stated that the income surrendered amounting to Rs. 4,42,410/- has been credited in profit & loss account. It is pertinent to mention here that the heads of surrender of additional income amounting to Rs. 4,42,410/- on account of unexplained excess stock found during the survey relate to the unexplained investment within the meaning of section 69 of the act for which the provisions of section 115BBE of the Income tax Act are applicable. Further, the assessee himself agreed to the amounts of surrender vide voluntary letter of surrender reproduced below: The Additional Commissioner of Income tax. Range -Sangrur Sub: - Additional Income declared during survey U/s 133A of the ol the Income fax Act, Sir, A survey U/s 133 A of Income Tax Act. 1951 has been conducted on our business premise on 16 April. 2018. During the course of survey, some discrepancies were brought to our notice by the Survey Team. After consideration these discrepancies, we all partners of M/s New Vishavkarma Agro Industries discussed among ourselves and made offer/surrender of additional income as per details given below: Head on account of which Surrender made Amount Tax to be Paid FY. to which surrender relates Unexplained investment made by partners in construction of two Kothis at Sanjsrur Road, Dirba which was completed upto 31 03.2018, out of unaccounted business of the this firm. Rs.l.6O.67.000/- Rs.1.24,11.757/- (77 25% of Rs. 16067000/) 2017-18 Excess Stock found during survey RS-4,42,410/- Rs.1,36,705/- (30.9%Of R5 442410/-) 2018-19 Excess Cash found during survey Rs.6.26.220/- Rs. 1,93,507/-(30.9% of Rs.626220/-) 2011-19 Additional Business Income Rs. 17,80.000/- Rs. 5,50.020/- (30.9% of Rs.1780000) 2017-18 Total Rs.1,89.15.630/- Rs 1,32,91,989/- Consultation with respect to additional income surrender, with partners of the firms was made telephonically who are outstation at the time of survey It Is further submitted that this additional surrendered income is to buy peace of mind and subject to no penal/prosecution action under any provision of the Income Tax Act. We assure that all tax due on additional surrendered income which pertain to f.Y 2017-18 will be paid before 30.09.2018 i.e. the last date of filling of return of income for A.Y. 2018-19. This offer of additional income is made voluntarily and without any pressure, coercion. That the above surrender includes any discrepancy found at the time of survey or at the time of assessment On the perusal of aforementioned surrender letter, it is observed that assessee was not able to furnish any satisfactory explanation regarding the source of excess stock found, which was noticed during survey and accordingly an additional income of Rs. 4,42,410/- was disclosed by the assessee. Such unrecorded and unexplained excess stock is an unexplained investment and hence deemed income within the meaning of section 69 of the act. However, while filing the Income tax return for the relevant period at a much later date, the assessee has disclosed such income as normal business income. However, the contention of assessee is not backed by any documentary evidence. Hence, the contention of the assessee is not tenable and is accordingly rejected. The additional income of Rs. 4,42,410/- is added to income u/s 69 for the relevant period. Penalty proceedings u/s 271AAC of the Income Tax Act, 1961 are being initiated separately. 03. Further, during the course of survey proceedings conducted at the assessee's business premises on 16.04.2018, a total cash of Rs 19,57,400/- was found. However, as on the date of survey the cash in hand shown in the books was found to be Rs 13,31,188/-. In the statement of partner of the assessee firm, recorded on oath at the time of the survey, the assessee was asked to explain source of this excess cash amounting to Rs. 6,26,220/- found during the survey operation. However, the assessee failed to explain the source of such excess cash amounting to Rs. 6,26,220/-. Accordingly, the assessee was issued a show cause to explain the difference in the cash found and cash as per the books. Assessee's reply to the show cause notice has already been reproduced above, wherein the assessee has agreed to the surrendered income but has not shown the income in its return of income. On the perusal of the assesse's surrender letter dated 17.04.2018, it is observed that assessee was not able to furnish any satisfactory explanation regarding the excess cash found during survey and accordingly an additional income of Rs. 6,26,220/- was disclosed by the assessee. Such unrecorded and unexplained excess cash is unexplained money and hence deemed income within the meaning of section 69A of the act. However, while filing the Income tax return for the relevant period at a much later date, the assessee has disclosed such income as normal business income. However, the contention of assessee is not backed by any documentary evidence. Hence, the contention of the assessee is not tenable and is accordingly rejected. The additional income of Rs. 6,26,220/- is added to income u/s 69A for the relevant period.” 8. We have heard the rival contentions and purused the material available on record. The AO has invoked the deeming provisions of section 69 and 69A and brought to tax excess stock and excess cash found during the course of survey which is under challenge before us. It is a settled legal proposition 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 explain the nature and source of such income or the AO doesn’t get satisfied with the explanation so offered by him. 9. In particular, for the deeming provisions of section 69 to be attracted in the instant case, there has to be a finding that the assessee has made investments in the financial year in the stock and 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 has been found to be owner of cash so found at the time of 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 investments or the explanation so offered is not found satisfactory in the opinion of the AO. Therefore, the explanation so offered by the assessee explaining the nature and source of such undisclosed income and the reasonability of the explanation so offered by the assessee needs to be analysed and examined to draw necessary conclusions in this regard. 10. For the purposes, we refer to the statement so recorded of the Partner of the assessee firm during the course of survey. In Question No. 8 raised by the survey team, he was asked about the difference in cash so found and recorded in the books of accounts of the assessee firm and in Question no. 9, he was asked about the difference in stock found and recorded in the books of accounts of the assessee firm. We therefore 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 what is clearly emerging is that the source of such income is from its business operations. Regarding excess cash so found, there is a clear statement of the partner of the assessee firm that the same is the unaccounted income of assessee firm which has not been shown in the ledger books. The source of such excess cash has thus been explained in terms of unaccounted business income and the assessee has agreed to pay tax on such income. Further, regarding excess stock, we find that the stock physically found has been valued and then, compared with the value of stock so recorded in the books of accounts and the difference in the value of the stock so found belonging to the firm has been offered to tax. There is thus commonality in the stock so found and as recorded in the books and in absence of which, the comparison would not have been possible. There is thus a clear nexus of stock with the assessee’s business and the difference in value of the stock so found is clearly in nature of business income. The statement of the partner of the assessee firm 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. In our view, the nature and source of such unaccounted cash and stock is nothing but arising out of assessee’s business. No doubt, these transactions were not recorded at the time of survey thus qualify as unrecorded transactions satisfying one of the essential conditions, at the same time, the assessee has provided the necessary explanation about the nature and source of such unrecorded transactions and the necessary nexus with assessee’s business has been established, thus, it cannot be said that these are unexplained transactions thus, doesn’t satisfy the second condition for invoking the deeming provisions of section 69 and 69A of the Act. 11. In light of aforesaid discussion and in the entirety of facts and circumstances of the case, the income of Rs 10,68,630/- surrendered during the course of survey cannot be brought to tax under the deeming provisions of section 69 and 69A of the Act and the same has to be assessed to tax under the head “business income”. In absence of deeming provisions, the question of application of section 115BBE doesn’t arise and normal tax rate shall apply. The AO is thus directed to assess the income of Rs 10,68,630/- under the head “Income from Business/profession” apply the normal rate of tax. In the result, the appeal of the assessee is allowed. (Order pronounced in the open Court on 22/11/2023 ) Sd/- ͪवĐम ͧसंह यादव (VIKRAM SINGH YADAV) लेखा सदèय / ACCOUNTANT MEMBER AG Date: 22.11.2023 आदेश कȧ ĤǓतͧलͪप अĒेͪषत/ Copy of the order forwarded to : 1. अपीलाथȸ/ The Appellant 2. Ĥ×यथȸ/ The Respondent 3. आयकर आय ु Èत/ CIT 4. आयकर आय ु Èत (अपील)/ The CIT(A) 5. ͪवभागीय ĤǓतǓनͬध, आयकर अपीलȣय आͬधकरण, चÖडीगढ़/ DR, ITAT, CHANDIGARH 6. गाडŊ फाईल/ Guard File