The ACIT (Central)-1, Indore V. Shri Anoop Neema, INDORE

ITA 5/Ind/2020

• Counselvise Citation: [2022] 106 COUNSELVISE.COM (IT) 0462 (ITAT-INDORE)
• Duration Of Justice: 2 year(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-01-2022
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2017-2018
• Appeal Filed On: 05-01-2020
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Unexplained investment; Business income; Loose papers; Deemed to accrue or arise in india; Retrospective amendment
• Section: 69; 132; 69C; 40(b); 142(1); 143(1); 69B; 250; 201; 69A; 64; 48; 22

Judgement Text

अपील य अ धकरण, इ दौर यायपीठ, इ दौर IN THE INCOME TAX APPELLATE TRIBUNAL INDORE BENCH, INDORE BEFORE SHRI MANISH BORAD,ACCOUNTANT MEMBER AND MIS MADHUMITA ROY, JUDICIAL MEMBER Virtual Hearing ITA No.05/Ind/2020 Assessment Year:2017-18 ACIT- Central-1, Indore बनाम/ Vs. Shri Anoop Neema Indore (Appellant) (Respondent ) P.A. No.ADBPN0230H Appellant by Shri P.K. Mitra, CIT-DR Revenue by S/Shri Anil Kamal Garg & Arpit Gaur, ARs, Date of Hearing: 09.12.2021 Date of Pronouncement: 06.01.2022 आदेश / O R D E R PER MANISH BORAD, A.M: The above captioned appeal at the instance of Revenue is directed against the order of Commissioner of Income Tax (Appeals) (in short CIT(A)), Bhopal dated 23.10.2019 which is arising out of the order u/s 143(1) of the Income Tax Act 1961(In short the ‘Act’) dated 30.12.2018 framed by ACIT-(Central)-I, Indore. Shri Anoop Neema 2 The Revenue has raised following grounds of appeal: 1.On the facts and in the circumstances of the case, the Ld. CIT(A) erred in holding that the value of excess stock (Rs.1,41,75,568/-) declared by the assessee should not be treated as unexplained investment u/s 69 of the income Tax Act without appreciating that the said declared stock was not recorded in the books of account of the assessee and acquired out of unaccounted income. 2.On the facts and in the circumstances of the case, the ld. CIT(A) erred in not appreciating that the tangible excess stock found during the course of search has to be considered as unexplained investment u/s 69 of the Income Tax Act 1961 and not a normal business income. 3.On the facts and in the circumstances of the case, the ld. CIT(A) erred in holding that the amended provisions of section 115BBE are not applicable in the assessee’s case since the search was conducted on 15.12.2016 without appreciating that the provisions of section 115BBE are effective from 01.042017 i.e. for the entire A.Y.2017-18 and that the date of search has not relevance in deciding the applicability of the said section. 2. Brief fact of the case as culled out from the records are that the assessee is an individual. The only source of income of the assessee is from carrying out the business of manufacturing and trading of gold jewelleries under proprietorship concern named ‘M/s. A.P. Jewellers’. A Search action u/s. 132 of the Income-Tax Act, 1961 [in short, ‘the Act’] was conducted in the business as well as residential premises of the assessee, on 15-12-2016, at 6:00 A.M.. During the course of search physical stock of jewelleries weighing 6433.812 gms. valuing at Rs.1,41,75,568/- was found in excess and not recorded in the books. The assessee, in his statement recorded under s.132(4) during the course of search stated that the excess physical stock of Rs.1,41,75,568/- got accumulated out of regular unaccounted business income only. Post-Search, the assessee furnished his Return of Total Income, electronically, on Shri Anoop Neema 3 30-10-2017 declaring total income of Rs.3,34,05,000/-. The additional income on account of excess stock of Rs.1,41,75,568/- was credited by the assessee in his Capital Account but, inadvertently, remained to be shown in the Computation of Total Income. In pursuance of the return furnished, Notices under s. 143(2) & 142(1) were served to the assessee and he made compliance from time to time by making written submissions and producing necessary evidences books of account, bills, vouchers, bank statements and other necessary documents, before the learned AO, for his necessary verification. Assessment u/s.143(3) of the Act was completed assessing the Total Income at Rs.4,75,80,568/- as against the returned income of Rs.3,34,05,000/-. The sole addition of Rs.1,41,75,568/- was made on account of excess stock by holding the same as unexplained investment under s.69 r.w.s. 115BBE of the Act. The AO held that the assessee could not explain the sources of excess stock amounting to Rs. 1,41,75,568/- and thus, held such excess stock as his unexplained investment under s. 69 of the Act and taxed the same as per the amended provisions contained under section 115BBE of the Act, applicable w.e.f. 1-4-2017. 3. Aggrieved assessee preferred an appeal before the ld. CIT(A)-3, Bhopal. The addition so made by the AO was not agitated before the ld. CIT(A) and only the action of the AO in invoking the provisions of ss.69 r.w.s. 115BBE of the Act was challenged. During the course of the appellate proceedings, the assessee made a detailed written Shri Anoop Neema 4 submission which is placed at page no. 1 to 28 of the Paper Book. The ld. CIT(A) held that the assessee was not having any other source of income except manufacturing and trading of gold ornaments. The ld. CIT(A) further held that neither the search party nor the AO was able to bring to light other facts and evidence suggesting that the excess stock was not acquired through business activities carried out by the assessee. Accordingly, the ld. CIT(A) allowed the appeal of the assessee and directed the AO to treat the sum of Rs.1,41,75,568/- as normal business income of the assessee and apply normal tax rate. 4. Aggrieved Revenue is now in appeal before this Tribunal. 5. Ld. DR vehemently argued supporting the order of Ld. AO initiated that the income of the assessee should be taxed as per the provisions of section 115BBE of the Act. 6. Per contra, Ld. counsel for the assessee vehemently argued referring to following written submissions and settled judicial precedence: DEPARTMENTAL GROUND NOs. 1 to 3 Your Honours, the subject issue of taxability of excess physical stock of Rs.1,41,75,568/-, found during the search, at the normal rate of tax instead of the special tax rate under s.115BBE, can be understood on three counts: i) Section 69 could not be invoked if 3 conditions not fulfilled cumulatively ii) The sources of the excess physical stock duly explained – does not fall within the ambit of unexplained investment u/s. 69 iii) The amended provisions of section 115BBE in respect of higher tax rate would not apply retrospectively Shri Anoop Neema 5 The aforesaid three issues are discussed as under: i) SECTION 69 COULD NOT BE INVOKED IF 3 CONDITIONS NOT FULFILLED 1.1 Section 69 can only be made applicable : (i) where in any financial year, the assessee is found to have made certain investments; (ii) such investments are not recorded in the books of account, if any, maintained by the assessee; (iii) the assessee offers no explanation about the nature and source of such investments; and finally, (iv) even if any explanation is offered by the assessee, such explanation in the opinion of the Assessing Officer is not satisfactory. 1.2 For invoking the provisions of s.69, condition nos. (i) & (ii) are mandatorily to be satisfied and out of the remaining two conditions viz. condition no. (iii) & (iv), any one of the conditions must get satisfied. In other words, three conditions are to be fulfilled cumulatively, either (i), (ii) & (iii) OR (i), (ii) & (iv). 1.3 The Hon’ble Jurisdictional ITAT, Indore Bench in the case of Mukesh Sangla HUF vs. DCIT (2016) 27 ITJ 172 (Trib.-Indore) has held that the provisions of s.69 are applicable only on cumulative satisfaction of the three conditions specified therein [kindly refer PB Page No. 82 to 115]. 2.0 In the instant case, the condition no. (i) & (ii) have got satisfied but, neither condition no. (iii) nor (iv) has got satisfied. In the instant case, during the course of the entire assessment proceedings, the assessee was never required to make his explanation on the nature and sources of such investment. 3.1 Undisputedly, the assessee, while recording his statement under s.132(4) before the search party, in reply to question no. 8 [kindly refer PB Page No. 31], suo mottu and in an unequivocal term, had explicitly explained the sources of the acquisition of the excess stock found in his business premises, situated at UG-1, 35/1, Bada Sarafa, Indore, during the course of the search. 3.2 It was stated that the excess stock so found in the business premises had got entirely accumulated out of the regular business income earned by him during the relevant previous year relevant to A.Y. 2017-18. 3.3 Such fact has also been duly acknowledged by the learned AO himself by way of reproducing the abstract of the statement of the assessee recorded under s.132(4) of the Act at para (6.1) on page no. 4 & 5 of the impugned Order. Shri Anoop Neema 6 3.4 Such explanation of the assessee, as made before the search party, remained unrebutted by the search party during the course of the post- search investigations and even by the AO during the course of the assessment proceedings. 4.0 Thus, s.69 could not have been invoked in the case of the assessee as the mandatory cumulative conditions for invoking such provisions had not got fulfilled. If s.69 itself cannot be invoked, the provisions of s.115BBE cannot be put into motion. ii) THE SOURCES OF THE EXCESS PHYSICAL STOCK DULY EXPLAINED – DOES NOT FALL WITHIN THE AMBIT OF UNEXPLAINED INVESTMENT U/S. 69 5.1 Undisputedly, an explanation was made by the assessee before the search party as regard to the nature and source of investment in excess physical stock. 5.2 The excess stock got generated to the assessee in the ordinary course of carrying out his business of manufacturing and trading of gold items and gold ornaments. 5.3 As regard to the modus operandi of the business resulting into such excess stock, it is submitted that while raising the sales invoice to any customer, the selling price of the gold ornaments depends upon the internationally prevailing price of the bullion on any particular date and as also, on the purity of the gold ornaments. More the purity of the gold, say of 22 carats or 23 carats, more would be the selling price and vice versa. However, during the course of business, many a times, either ignorantly or deliberately, gold ornaments containing lesser purity say of 16 or 18 carats, get sold at the rate applicable for purity of 22 or 23 carats. In such a situation, there might be the cases that actually, a lesser quantity of pure gold has got passed on to the customer on a sale but, bill for a higher quantity of pure gold has got generated and realized from the customer. In such circumstances, some extra gold, although shown in the books as sold, remains in the business premises of the assessee. In nutshell, physically, a lesser quantity of pure gold got transferred to the customers than that shown in the books of account thereby resulting into accumulation of unrecorded stock with the assessee. It is submitted that it was such stock only which was found in excess during the course of the search. 5.4 Undisputedly, the assessee was not having any other business other than that of the gold jewelleries. In such circumstances, the sources Shri Anoop Neema 7 of acquisition of excess physical stock ought to be out of the regular business only. 5.5 Once the sources of excess physical stock are accepted to be out of the regublar business income, the additional income of Rs.1,41,75,568/- has to be classified under the head of ‘Business Income’ only and accordingly, it was liable to be charged at the normal rates prescribed, by the relevant Finance Act, for any individual assessee, for the assessment year under consideration. iii) THE AMENDED PROVISIONS OF SECTION 115BBE IN RESPECT OF HIGHER TAX RATE WOULD NOT APPLY RETROSPECTIVELY 6.1 Search operations were carried out on 15-12-2016, in the early morning hours at 6:00 A.M. 6.2 Amendment under s.115BBE was brought in the statute, with retrospective effect from 1-4-2017, by the amendment inserted on 15-12- 2016 i.e. subsequent to the time of unearthing the excess stock in the premises of the assessee. 6.3 The Hon’ble High Court of Karnataka in the case of Netley vs. Assistant Commissioner of Agricultural Income-tax (2002) 257 ITR 0532 (Kar.) has held that an additional levy of tax cannot be imposed upon an assessee with the retrospective effect. 6.4 Your Honours, recently, the Hon’ble Jurisdictional ITAT Bench at Indore, in the case of DCIT, Central-2, Indore vs. M/s. Punjab Retail Pvt. Ltd. 2021 (11) TMI 405 (ITAT Indore), vide its Order dated 08-10-2021, has held that since the search in the case of the assessee was carried out before the amendment, the addition ought to have been made in terms of the prevailing provision and therefore, the addition made by the AO invoking the provisions of s.115BBE which came into force only on 01.04.2017, is not sustainable. Legal Authorities on which Assessee wish to rely S. No. Particulars of Case Citation Ruling 1 WHEN THE ASSESSEE EXPLAINED THE SOURCES, NO ADDITION CAN BE MADE U/s. 69, 69A, 69C ETC. i) Pipush Kumar O. Desai vs. CIT (2001) 247 ITR 568 (Guj.) Guj.HC ii) Daulatram Rawatmull vs. CIT (1967) 64 ITR 593(Cal.) Cal.HC iii) Annamalai Reddier vs. CIT (1964) 53 ITR 601 (Ker) Ker.HC iv) CIT vs Margret's Hope Tea Co. Ltd. (1993) 201 ITR 747 (Cal.) Cal.HC Shri Anoop Neema 8 v) Chandra Krishna vs. CIT (1980) 122 ITR 823 (All.) All.HC vi) Mukesh Sangla HUF vs. DCIT (2016) 27 ITJ 172 (Trib.-Indore) ITAT Indore 2 WHEN THE ASSESSEE HAS NOT CARRIED OUT ANY OTHER BUSINESS FOREIGN TO HIS MAIN BUSINESS, THE UNEXPLAINED STOCK OUGHT TO BE REGARDED AS REGULAR BUSINESS INCOME ONLY i) Pr. CIT Vs Bajargan Traders 2017 (11) TMI 388 (Raj.) Raj.HC ii) ACIT vs. M/s. A Star Exports and M/s. Asian Star Diamonds International Pvt. Ltd. 2016 (5) TMI 1312 (ITAT Mum.) ITAT Mum. iii) ACIT vs. Sanjay Bairathi Gems Ltd. (2017) 189 TTJ 487 (Jp) ITAT Jaipur iv) ITO v. Jamnadas Muljibhai (2006) 99 TTJ 197 ITAT Rajkot v) M/s Silver Palace vs. DCIT ITA No. 893/PUNE/2016 dt. 29.06.18 ITAT Pune vi) M/s Dev Raj Hi-Tech Machines vs. DCIT ITA no. 326 of 2014 dt. 07.10.15 (Amritsar) ITAT Amritsar vii) DCIT (Central), Ajmer vs. Ramnarayan Birla ITA No. 482/Jp/2015 dated 30.09.2016 ITAT Jaipur viii) Fashion World vs. ACIT (Circle)-12, Ahmedabad ITA No. 1634/Ahd/2016 dated 12.02.2010 ITAT Ahmedabad ix) Chokshi Hiralal Maganlal vs. DCIT, Ahmedabad ITA No. 3281/Ahd/2009 dated 05.08.2011 ITAT Ahd. x) M/s. Surekh Jewellers vs. DCIT ITA No. 18/PN/2016 dated 12.06.2016 ITAT Pune xi) M/s. Solanki Jewellers vs. DCIT ITA No. 858/PN/2016 dated 18.11.2016 ITAT Pune 3 ADDITIONAL LEVY OF TAX CANNOT BE APPLIED RETROSPECTIVELY i) CIT vs. Vatika Township Pvt. Ltd. (2014) 24 ITJ 532 (SC) SC ii) Lakhmichand Baijnath v. CIT [1959] 35 ITR 416 (SC) SC iii) Nalinikant Ambalal Mody v S.A.L. Narayan Row, CIT [1966] 61 ITR 428 (SC) SC iv) Karimtharuvi Tea Estate Ltd. Vs State of Kerala [1966] 60 ITR 262 (SC) SC v) D. Cawasji And Co. Mysore Vs The State of Mysore And Anr 1984 AIR 1780 SC vi) Netley vs. Assistant Commissioner of Agricultural Income-tax (2002) 257 ITR 0532 (Kar.) Kar.HC vii) CIT Vs S.A. Wahab [1990] 48 Taxman 362 (Ker.) Ker.HC viii) Avani Exports Vs CIT [2012] 23 taxmann.com 62 (Guj.) Guj.HC ix) Shew BhagwanGoenka Vs CTO 1973 32 STC 368 Cal.HC x) Priyadarshani Construction vs. ITO (2012) 19 ITJ 276 (Trib.- ITAT Indore Shri Anoop Neema 9 Indore) 4 AMENDED PROVISIONS OF S.115BBE CANNOT BE APPLIED RETROSPECTIVELY i) DCIT, Central-2, Indore vs. M/s. Punjab Retail Pvt. Ltd. 2021 (11) TMI 405 (ITAT Indore) ITAT Indore ii) Lovish Singhal & Ors. vs. ITO & Ors. (2018) 53 CCH 250 (JodhTrib.) Jodhpur ITAT 7. We have heard rival contentions and perused the records placed before us. Revenue’s sole grievance is that Ld. CIT(A) erred in not treating the income of Rs. 1,41,75,568/- declared during the course of search carried out on 15.12.2016 as unexplained investment u/s 69 r.w.r.t. 115BBE of the Act. We notice that during the course of search excess stock of gold weighing 6433.812 gms was found amounting to Rs.1,41,75,568/-. Mr. Anoop Neema in his statement recorded on oath on 16.12.2016 u/s 132(4) of the Act accepted the value of excess stock as additional business income for financial year 2016-17. So far as, admission of undisclosed income of Rs.1,41,75,569/- is concerned there is no dispute at the end of both the parties. The bone of contention is that whether the provision of section 115BBE of the Act are applicable on the surrendered income of Rs.1,41,75,568/- we find that Ld. CIT(A) on examination of the fact, settled judicial precedence, also Shri Anoop Neema 10 appreciating that the alleged income is business income earned by the assessee during the normal course of its business and was part of the total business stock available at the business premises and also observing that provisions of section 115BBE of the Act are applicable from 01.04.2017 and are thus not applicable on the case of assessee as the search was carried out on 15.12.2016 observing as follows: Ground No 1 to 5:- Through these grounds of appeal, the appellant has challenged the treating of Rs. 1,41,75,568/- declared during search as unexplained investment u/s 69 r.w.s 115BBE of the Act and not as a business income. During the course of search, valuation of stock was taken by registered valuer and net weight of gold was found at 25,857.490 gms valued at Rs. 5,67,73,734/-, however, the value of gold as per books of accounts of the assessee was at 19,423.678 gms valued at Rs. 4,25,98,165/-. Therefore, a difference in stock of 6433.812 gms was found amounting to Rs. 1,41,75,569/-. Statement of Shri Anoop Nema was recorded on oath on 16.12.2016, wherein, he has accepted value of excess stock of gold as additional income for FY 2016-17 (AY 2017-18). The relevant extract of statement is also scanned on page no 4 & 5 in the body of assessment order. The AO during the course of assessment proceedings observed that the assessee has declared excess stock as undisclosed income in return of income for AY 2017-18. However, the AO required the assessee to separately credit the excess stock of Rs. 1,41,75,568/- in P/L account but the same was not done by him. The AO therefore, considering the excess stock as unexplained investment made addition of Rs. 1,41,75,568/- to the income of the appellant u/s 69 r.w.s 115BBE of the Act. 4.1.1 The appellant during the course of appellate proceedings has stated that an excess stock of gold was found during the course of search and the same was also not recorded in regular books of accounts, thereby the AO has invoked provisions of section 69, however, no enquiry was made by the AO regarding the source of acquisition of excess stock, therefore, the disallowance made by the AO u/s 69 r.w.s 115BBE is unlawful. Further, the amended provisions of section 115BBE are applicable from 01.04.2017 and not from the date of search. Shri Anoop Neema 11 4.1.2 I have considered the entire matrix of the case, various case law cited by the appellant and also perused assessment order. It is undisputed fact that during the course of search excess stock of gold worth Rs. 1,41,75,568/- was found in possession of appellant. Therefore, appellant during search made disclosure of 1,41,75,568/- on account of undisclosed income, however, the appellant while filing return of income has directly credited the same in his capital account and without showing the same as additional income. Therefore, the additional income offered was not shown in profit and loss account. Thus, the AO was justified in making addition on account of undisclosed income declared in statement recorded on oath u/s 132(4) during search. Also, the appellant has accepted the addition made by the AO amounting to Rs. 1,41,75,568/- vide written submissions dated 26.07.2019. However, the appellant has objected to the findings of the AO on treating the additional income offered (or say business income) by the appellant as unexplained investment u/s 69 r.w.s 115BBE of the Act. After considering the plea of appellant interalia facts of the case it can be easily said that the instant case revolves around applicability of two different sections i.e. section 69A and section 115BBE of the IT Act. (a) Applicability of provisions of section 69A (unexplained investment) of the Act:- The AO found appellant of guilty of invoking provisions of section 69 of the Act and has re-classified the income of the appellant u/s 69A of the Act. before moving ahead, I find it important to quote relevant provision section 69 of the Income Tax Act which is as under:- “69. 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 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.”[emphasis supplied] Any assessee can be held guilty of invoking provisions of section 69 of the Income Tax Act if, (i) where in any financial year, the assessee is found to have made certain investments; (ii) such investments are not recorded in the books of account, if any, maintained by the assessee; (iii) the assessee offers no explanation about the nature and source of such investments; and finally, (iv) even if any explanation is offered by the assessee, such explanation in the opinion of the Assessing Officer is not satisfactory. Conditions (i) and (ii) are mandatory in nature and out of condition (iii) and (iv) only one or both as the case may be fulfilled. In the instant case condition no (i) and (ii) has been fulfilled by the appellant, however, on perusal of copy of assessment order it has been observed that neither the search party nor the AO has ever enquired about source of acquisition of Shri Anoop Neema 12 excess stock. During the course of search statement of appellant was also recorded on oath u/s 132(4) of the Act wherein in reply to Q.No 8 the appellant has specifically and clearly admitted that the undisclosed income has been earned out of business income in the relevant pervious year. Thus, condition (iii) or (iv) has not been invoked by the appellant, therefore, addition u/s 69 alone of this fact is untenable as held by Hon’ble Jurisdictional ITAT, Indore Bench in the case of Mukesh Sangla HUF vs. DCIT (2016) 27 ITJ 172 (Trib.-Indore). Nonetheless, neither the search party during course of search nor the AO during assessment proceeding found that appellant has been doing business other than manufacturing and trading of gold ornaments or has any other undisclosed source of income. Further the excess stock found in possession of the appellant was not kept separately and was not easily identifiable. The excess stock was part of the mixed lots of stock found at the premises of the appellant which included declared stock as per books of account and also the excess stock as found during the search. Since the excess stock in possession was not clearly identifiable or was not kept at a secret place, therefore, it can be safely held that the same could have been earned/accumulated over the time. However, this presumption of accumulating over a period of time is ruled out with simple stroke of statement of appellant wherein he has admitted that the same has been earned in FY 2016-17(AY 2017-18). Further, the appellant does not have any income other than manufacturing and trading of gold ornaments, therefore, the excess stock found during search was earned out of business income by the appellant. Hon’ble Ahmadabad ITAT in the case of Chokshi Hiralal Maganlal vs DCIT, (ITA No 3281/Ahd/2009 dated 05.08.2011) has held that “the provisions of section 69A/69B of the IT Act can only be applied the case where the asset is separately applicable and separately identifiable and it should have independent physical existence of its own. Since the excess stock is a result of suppression of profit from business over the years and has not been kept identifiable separately but is the part of overall physical stock found, the investment in the excess stock has to be treated as business income. Similar, view has been taken by Hon’ble jurisdictional Indore tribunal in the case of M/s Shahnai Shriram Market vs ITO 1(1), Ujjain (ITA No 658/Ind/2014 dated 15.05.2015. (a)(i) It is a settled law that additional income declared on account of excess stock is business income of the assessee. This proposition finds support from the following case laws:- (a) Bajrang Traders Vs. ACIT (Circle)-2, Alwar (ITA No. 137/Jp/17 dated 17.03.2017). In this case, it is held as under:- 2.11 Having said that, the next issue that arises for consideration is whether the amount surrendered by way of investment in the unrecorded stock of rice has to be brought to tax under the head “business income” or Shri Anoop Neema 13 “income from other sources”. In the present case, the assessee is dealing in sale of food grains, rice and oil seeds, and the excess stock which has been found during the course of survey is stock of rice. Therefore, the investment in procurement of such stock of rice is clearly identifiable and related to the regular business stock of the assessee. The decision of the Co-ordinate Bench in case of Shri Ramnarayan Birla (supra) supports the case of the assessee in this 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 from other sources”. In the result, ground No.1 of the assessee is allowed. (b) DCIT (Central), Ajmer Vs. Ramnarayan Birla (ITA No. 482/Jp/2015 dated 30.09.2016) In this case, it is held as under:- 4.3. We have heard rival contentions and perused the material available on record. Undisputed facts emerged from the record that at the time of survey excess stock was found. It is also not disputed that the assessee is engaged in the business of jewellery. During the course of survey excess stock valuing Rs. 77,66,887/- was found in respect of gold and silver jewellery. 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 clearly identifiable and alleged undisclosed asset has no independent existence of its own or there is no separate physical identity of such investment/expenditure then first what is to be taxed is the undisclosed business receipt invested in unidentifiable 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 identifiable. Once such excess investment is taxed as undeclared business receipt then taxing it further as deemed income under section 69 would not be necessary. Therefore, the first attempt of the assessing authority should be to find out link of undeclared investment/expenditure with the known head, give opportunity to the assessee to establish nexus and if it is satisfactorily established then first such investment should be considered as undeclared receipt under that particular head. It is observed that there is no conflict with the decision of Hon’ble Gujarat High Court in the case of Fakir Mohd. HajiHasan (supra) where investment in an asset or expenditure is not identifiable and no nexus was established then with any head of income and thus was not available for set off against any loss under any other head. Therefore, the Hon’ble Coordinate Bench held that where asset in which undeclared investment is sought to be taxed is not clearly identifiable or does not have independent identity but is integral and inseparable (mixed) part of declared asset, falling under a particular head, then the difference should be treated as undeclared business income explaining the investment. In the present case the excess stock Shri Anoop Neema 14 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 find any fault with the decision of the ld. CIT (A) directing the AO to treat the surrendered amount as excess stock qua the excess stock found. (c) Fashion World Vs. ACIT (Cirecle)-12, Ahemdabad (ITA No. 1634/Ahd/2016 dated 12.02.2010) In this case, it is held as under:- 12. Thus the important aspect that emerges from the entire discussion is that for invoking deeming provisions under sections 69, 69A, 69B & 69C there should be clearly identifiable asset or expenditure. In the present case we find that entire physical 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 physical distinction between the accounted stock or unaccounted stock. No such physical distinction was found by the Revenue either. The assessee has repeatedly claimed that unaccounted business income is invested in stock and there is no amount separately taxable under section 69. The department has ignored this claim of the assessee and sought to tax the difference between book-stock and physical-stock as unaccounted investment under section 69 without considering the claim of the assessee that first the business receipt has to be considered and then investment should be treated as coming out of such unaccounted income. The difference in stock so worked out by the authorities below had no independent identity of its own and it is part and parcel of entire lot of stock. The difference between declared stock in the books and what is physically found would only be a mathematical expression in terms of value and not a separate independent identifiable asset. Therefore, it cannot be said that there is an undisclosed asset existed independently. Once this is so then 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. 14. To conclude sum of Rs.8,10,011/- being difference 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 ‘business’. Other assets have separate physical identity being furniture and fixtures, air conditioners etc. They cannot have a direct nexus with business and therefore investment therein has to be considered under section 69 only. 15. In view of the above, AO is directed to consider the sum of Rs.8,10,011/- as undisclosed business income assessable under the head ‘business’ and other two sums under section 69. The business income including application of section 40(b) has to be considered accordingly. For calculation of income in view of our above observations, we restore the matter to the file of AO. Shri Anoop Neema 15 (d) Chokshi Hiralal Maganlal Vs. DCIT, Ahemadabad (ITA No. 3281/Ahd/2009 dated 05.08.2011) In this case, it is held as under:- 9. Since in the present case excess stock found during the survey is not separately and clearly identifiable but is part of mixed lots of stock found at the premises which included declared stock as per books and also the excess stock as computed by the survey officers, the provisions of section 69B cannot be made applicable as primary condition for invoking the provisions of section 69A, 69B is that the asset should be separately identifiable and it should have independent physical existence of its own.Since excess stock is a result of suppression of profit from business other the years and has not been kept identifiable separately but i.e. the part of overall physical stock found, the investment in the excess stock 'has to be treated as business income as per detailed reasons given in the case of Fashion World (supra). Once excess stock is treated as business income then assessee is entitled for higher remuneration to the partners as per section 40(b). As a result, this ground -of assessee is allowed. (e) Shri Lovish Singhal Vs. ITO, Ward-2, Sriganganagar (ITA No. 143/Jodh/2018 dated 25.05.2018) In this case, it is held as under:- I have heard the rival contentions and record perused. I have also carefully gone through the orders of the authorities below. I have also deliberated on the judicial pronouncements referred by the lower authorities in their respective orders as well as cited by the ld AR during the course of hearing before the ITAT in the context of factual matrix of the case. From 18 ITA 142 to 146/Jodh/2018 Vasu Singhal Vs ITO with 4 Ors. cases the record, I find that during the course of survey, income was surrendred by the assessee on account of stock, excess cash found out of sale of stock and also in respect of incriminating documents. As per judicial pronouncements cited by the ld. AR and also the decision of Hon’ble Rajasthan high court in the case of Bajrang Traders in Income Tax Appeal No. 258/2017 dated 12/09/2017 I observe that the Hon'ble High Court in respect of excess stock found during the course of survey and surrender made thereof was found to be taxable under the head ‘business and profession’. Similarly in respect of excess cash found out of sale of goods in which the assessee was dealing was also found to be taxable as business income. Applying the proposition of law laid down in the judicial pronouncements as discussed above, I hold that the lower authorities were not justified in taxing the surrender made on account of excess stock and excess cash found U/s 69 of the Act. Thus, there is no justification for taxing such income U/s 115BBE of the Act. (f) ACIT Vs. Sanjay Bairathi Gems Ltd – 189 TTJ 487/492 (Jp). In this case, it is held as under:- Shri Anoop Neema 16 From the above, it is seen that the excess stock found during the search operation is not separately and clearly identifiable but is part of mixed lots of stock found at the premises which included declared stock as per books and also the excess stock as computed by the authorized officers during the search operation at the premise. Since excess stock is a result of suppression of profit from business over the years and has not been kept identifiable separately but is the part of overall physical stock found, the investment in the excess stock has to be treated as business income. Further, the excess stock so found is part of the regular business, therefore, following decision of Hon'ble Tribunal Bench Jaipur in case of Ramnarayan Birla (cited supra), the same has to be taxed under the business income. Otherwise even if the same is taxed under s. 115BBE of the Act, the provisions of not allowing the set off has come into effect from 1st April, 2017 (g) ACIT vs M/s A Star Exports and M/s Asian Star Diamonds International Pvt Ltd (2015) 5 TMI 1312 (ITAT Mumbai) wherein it has been held as under:- “8. We have considered rival contentions, carefully gone through the orders of the authorities below and also deliberated on the judicial pronouncements referred by lower authorities in their respective orders as well as cited by ld. DR and AR during the course of hearing before us. From the record we found that the assessee a partnership firm is in the business of trading, import, export, manufacturing, wholesale and retail dealing in diamonds, gems and jewellery The main object of the assessee firm is to carrying out the business of import, export, manufacturing, wholesale and retail dealing in diamonds, gems and jewellery. The partnership business was of importers, exporters, manufacturers, processors, investors, wholesalers, distributors, retailers, dealers and indenting agent of diamonds, synthetic stones, gems and jewellery, precious and semi precious metals and miners and ornaments and article made thereof including jewellery, decorative and precious objects of arts and crafts and to cut, design polish rough diamond, gems and precious stones and that of investment and lending and to do any other business as may be mutually agreed upon by the partners. In the return of income filed for the year under consideration, the assessee has shown income under the head profit and gains of business and profession and other sources. In the search action, three loose papers were found and seized as part of Annx - 5 of the panchnama prepared on 29.10.2011 at the office premises of 114/116, Mittal Court, C-Wing, 11th floor, Nariman Point, Mumbai - 400021. These documents mention the carat value, rate per carat and total value of diamonds. In the course of search proceedings Shri Vipul Shah confirmed that these loose papers were containing stock details of M/s A'Star Exports, M/s. Asian Star Diamond International P. Ltd. and M/s. Rahil Agencies. The stock mentioned in the above referred seized papers was stated as placed in one safe located at the office premises. Shri Anoop Neema 17 The stock of diamonds found from the safe was valued by the Govt. Approved valuer appointed by the Income Tax Department at the time of prohibitory order execution and was valued as follows: The statement of Shri Vipul Shah was again recorded on 27/12/2010, wherein he admitted the unaccounted stock of 34,50,00,516/- including unaccounted stock of 13,47,63,640/- pertain to the assessee. The computation of the total income of the assessee had declared undisclosed income of 13,47,63,640/- in the form of stock of polished diamonds under the head "profit and gains of the business and profession". In the course of assessment the assessee submitted .its explanation on why the undisclosed stock should be treated as a business income. In this connection it was stated that at the time of search, the investigating officers found unaccounted stock in the business premise of the assessee at 114/116, Mittal Court, 'C' Wing, 11th Floor, Nariman Point, Mumbai - 400021. This stock was valued at 13,47,63,640/- by the income tax valuer. Consequently the assessee declared this amount as stock in trade and this contention of the assessee was accepted by the Investigating officer. Who has released the stock after valuation and not impounded/seized. The statement of Shri Vipul P. Shah Partner of the firm was again recorded on 20.11.2012 wherein in reply to the question no. 22 he has stated that this undisclosed income is generated through unrecorded trading of diamonds. Q.22 Please explain as to how this undisclosed income is generated? Ans: it is through unrecorded trading of diamonds. " It is clear from the above facts that the declaration was related to business stock in trade hence it is evident that the declaration amount is required to be assessed under the head' Income from Business or profession. Thus, the undisclosed income of 13,47,63,640/- declared voluntarily by the assessee for A.Y. 2011-12, is undisclosed stock held under the customary trading of the business and hence should be treated as the business income of the assessee firm and not as undisclosed investment as held by the AO. If all the three conditions of Section 69 exist together, the unrecorded investment or value of assets can be deemed to be assessee's income of the relevant financial year. In the present case all three conditions as required under section 69 are not fulfilled because the appellant has offered explanation and nature of source of acquisition as undisclosed stock received from the unaccounted trading of diamond as source of income. The partner of the firm has time and again stated in his statement that diamond found in the premises during the search is out of unrecorded trading of diamonds hence the third part of section 69 is not satisfied hence the said stock is not taxable under section 69 of the Act.” (h) M/s Surekh Jewellers vs DCIT ITA No 18/PN/2016 dated 12.06.2016. Shri Anoop Neema 18 (i) M/s Silver Palace vs DCIT ITA No 893/PUNE/2016 dated 29.06.2018 (ITAT Pune) (j) M/s Solanki Jewellers vs DCIT ITA No 858/PN/2016 dated 18.11.2016. (k) ITO vs Jmandas Muljibahai (2006) 99 TTJ 197 (ITAT Rajkot). (l) M/s Dev Raj Hi Tech Machines vs DCIT ITA No 326 of 2014 dated 07.10.2015 (ITAT Amritsar) (a)(ii) From the above discussion and in view of the plethora of judgments on this settled issue, I am of the considered view that section 69 was clearly not applicable in the case of appellant and the suppressed income found by way of excess stock was business income of the appellant and cannot be treated as unexplained investment u/s 69A of the IT Act. (b) Applicability of amended provisions of section 115BBE of the Act:- During the course of search excess stock of gold was found amounting to Rs. 1,41,75,568/-. The appellant made voluntary declaration of additional income and the same has been taken into consideration in regular return of income. Till this point there is not dispute. The issue creating dispute is that the additional income disclosed by appellant (during search) has been incorporated in books of accounts as business income, however, the AO has treated the same as unexplained investment u/s 69 of the Act and made subsequent addition in the income of appellant by applying tax rate as per amended provisions of section 115BBE of the Act. First of all let me discuss whether the provisions of section 115BBE are applicable to this case or not. Therefore the relevant extract of pre- amended and post amended provisions of section 115BBE is reproduced for the sake of clarity:- Pre amended provisiosn of section 115BBE of the Act:- “115BBE(1). Where the total income of an assessee includes any income referred to in section 68, section 69, section 69A, section 69B, section 69C or section 69D, the income-tax payable shall be the aggregate of— (a) the amount of income-tax calculated on income referred to in section 68, section 69, section 69A, section 69B, section 69C or section 69D, at the rate of thirty per cent; and (b) 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 to in clause (a).” Post amended provisions of section 115BBE of the Act:- “115BBE(1). Where the total income of an assessee,— Shri Anoop Neema 19 (a) includes any income referred to in section 68, section 69, section 69A, section 69B, section 69C or section 69D and reflected in the return of income furnished under section 139; or (b) determined by the Assessing Officer includes any income referred to in section 68, section 69, section 69A, section 69B, section 69C or section 69D, if such income is not covered under clause (a), the income-tax payable shall be the aggregate of— (i) the amount of income-tax calculated on the income referred to in clause (a) and clause (b), at the rate of sixty per cent.; and (ii) 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 to in clause (i). The provisions of section 115BBE of the Income Tax Act are applicable where addition is made under section 68, 69, 69A, 69B, 69C and 69D i.e. from residuary category w.e.f 01.04.2017. Hon’ble Supreme court in the case of CIT vs Vatika Township Pvt Ltd (2014) 24 ITJ 532 (SC): (2014) 271 CTR 1: (2014) 227 Taxmann 121 has held that “An amendment made to the taxing statute can be said to be intended to remove ‘hardships’ only of the assessee, not of the department-on the contrary, imposing a retrospective levy on the assessee would have caused undue hardship. Hon’ble ITAT Indore in the case of Priyadharshani Construction vs ITO (2012) 19 ITJ 276 (Trib-Indore) has held that “Substantive law shall be understood to be applicable prospectively unless made specifically retrospective. Similar view was taken in following judgments by various courts and tribunals:- • Hon’ble Rajasthan High Court in the case of CIT vs Bajargan Traders [Appeal No 258/ 2017 dt 12-09-2017]; • Hon’ble Ahmedabad bench of ITAT in the case of Chokshi Hiralal Maganlal vs DCIT as reported in 141 TTJ 001; • Hon’ble Jodhpur bench of ITAT in the case of Lovish Singhal & Others vs ITO [Appeal No 143/ Jodh/ 2018]; • Hon’ble Jaipur bench of ITAT in the case of DCIT vs Ramnarayan Borla [Appeal No 482/ JP/ 2015 dt 30-09-2016]; • Hon’ble Supreme Court in the case of Lakhmichand Baijnath Vs CIT as reported in 35 ITR 416; • Hon’ble Apex Court in the case of Nalini Kant Ambalal Mody vs SAL Narayan Row as reported in 61 ITR 428. In the instant case search u/s 132 of the Act took place on 15.12.2016. Since, the search in the case of appellant was carried out on 15.12.2016 and additions were made consequential to search, therefore, the assessing officer was not justified in stating that provisions u/s 115BBE were Shri Anoop Neema 20 invoked by the appellant which infact was applicable from 01.04.2017 and not from 15.12.2016 (date of search). 4.1.3 In view of the above discussion, it is evident that the appellant does not have any other source of income except manufacturing and trading of gold ornaments. Also, neither the search party nor the AO was able to bring to light other facts or evidence suggesting that the excess stock was not acquired through business activities carried out by the appellant. Therefore, the AO is directed to treat the sum of Rs. 1,41,75,568/-, which was voluntarily disclosed as additional income, as business income of the appellant by applying normal tax rate while giving effect of this order. Therefore, appeal on these grounds is Allowed. 8. We on perusal of the above finding and the various judgments and decisions referred hereinabove by Ld. CIT(A) find that the alleged excess stock was not kept separately at any other place and was part of the total business tock found at the assessee’s business premises are sufficient enough to indicate that the alleged investment in excess stock is part of the business income we also find that alleged excess stock was duly accepted by assessee as part of unaccounted business and source thereof stated during the course of search itself and no other incriminating material was found during search proceedings and therefore is not an undisclosed income as held by the ld. AO. We, therefore, find no infirmity in the finding of Ld. CIT(A) rightly holding that Shri Anoop Neema 21 the provision of section 115BBE of the Act are not applicable on the surrendered income on account of excess stock valuing at Rs. 1,41,75,568/-found during the course of search. Thus, grounds no. 1 to 3 raised by the revenue are dismissed. 9. In the result, appeal of the Revenue in ITANo.05/Ind/2020 is dismissed. Order was pronounced as per Rule 34 of I.T.A.T. Rules 1963 on 06.01.2022. Sd/- (MADHUMITA ROY) Sd/- (MANISH BORAD) JUDICIAL MEMBER ACCOUNTANT MEMBER Indore; दनांक Dated : 06/01/2022 Patel/PS Copy to: Assessee/AO/Pr. CIT/ CIT (A)/ITAT (DR)/Guard file. By order Assistant Registrar, Indore