M/S D P JEWELLERS,BALLIA V. ACIT, CENTRAL CIRCLE, VARANASI

ITA 101/VNS/2024

AI Insights

The case involves cross appeals by M/s D P Jewellers and the Income Tax Department concerning the assessment year 2018-19. The primary issue was the treatment of excess stock valued at Rs.5,72,39,510 found during a survey under section 133A of the Income Tax Act, 1961. The assessee declared this stock as business income, while the Assessing Officer treated it as unexplained investment under section 69, taxing it under section 115BBE. The Tribunal upheld the CIT(A)'s decision that the income should be assessed under the head 'Income from Business' and not as unexplained investment. Additionally, the Tribunal modified the CIT(A)'s decision regarding the disallowance of expenses, reducing it from 20% to 10%.

• Counselvise Citation: [2024] 140 COUNSELVISE.COM (IT) 471098 (ITAT-VARANASI)
• Duration Of Justice: 5 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-11-2024
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Next Hearing Date: 12-09-2024
• Assessment Year: 2018-2019
• Appeal Filed On: 19-06-2024
• Other Referred Cases: Parmod Singla v. ACIT, Veer Enterprises v. Deputy Commissioner of Income-tax, Montu Shallu Knitwears v. Deputy Commissioner of Income-tax, Pavan Kumar Agarwal v. Deputy Commissioner of Income-tax
• Laws Referred To: Income Tax Act
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: AMALENDU NATH MISHRA
• Assessee Lawyers: V. K. JINDAL; ASHISH JINDAL
• Keywords: Set aside; Business income; Revised return; Unexplained investment; Deemed to accrue or arise in india
• Section: 153; 22; 69; 69B; 69A; 133A; 139(5); 101

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL VARANASI BENCH “DB” VARANASI BEFORE SHRI BR BASKARAN (ACCOUNTANT MEMBER) & SHRI AMIT SHUKLA (JUDICIAL MEMBER) ITA No. 101/VNS/2024 Assessment Year: 2018-19 M/s D P Jewellers, Chowk Station, Road, Ballia, Ballia, Uttar Pradesh-277001. Vs. ACIT, Central Circle, Room No. 416, 3rd floor, Aayakar Bhavan, Maqbool Alam Road, Varanasi-221002. PAN NO. AAEFD 4059 J Appellant Respondent ITA No. 120/VNS/2024 Assessment Year: 2018-19 Dy. CIT, Central Circle, Room No. 419, 3rd floor, Aayakar Bhavan, M.A. Road, Varanasi-221002. Vs. M/s D P Jewellers, Chowk Station, Road, Ballia, Ballia, Uttar Pradesh-277001. PAN NO. AAEFD 4059 J Appellant Respondent Assessee by : Mr. V.K. Jindal, CA & Mr. Ashish Jindal, CA Revenue by : Mr. Amalendu Nath Mishra, CIT-DR Date of Hearing : 12/09/2024 Date of pronouncement : 21/11/2024 PER BR BASKARAN, AM These cross appeals are directed against the order dated 06 passed by Ld CIT(A), Lucknow 2. Though the revenue has raised many grounds, all of them are related to a single issue, viz., whether surrendered by the assessee shall form part of 3. In the appeal of the revenue, the adhoc disallowances made by the AO and confirmed by Ld CIT(A) are being assailed. 4. The facts relating to the case are stated in brief. The assessee is partnership firm and it is 133A of the Act was conducted in the During the course of survey operations, excess stock valued at Rs.5,72,39,510/- was found. The assessee surrendered the same head Income from Business declaring a total income of Rs.7.74 crores including the income surrendered by the assessee. The assessee later filed a revised return of income declaring a total income of Rs.6.91 crores. The AO took the view that the excess stock found during the course of survey operation is in the nature of unexplained investment falling within the ambit of sec.69 of the Act. Accordingly, the AO assessed the surrendered income of Rs.5.72 cror the Act and accordingly charged income tax 5. In addition to the above, the AO disallowed 20% amounting to Rs.1,98,484/ ITA Nos. 101 & 120/VNS/2024 ORDER PER BR BASKARAN, AM These cross appeals are directed against the order dated 06 Lucknow-3 and it relates to the assessment year 2018 2. Though the revenue has raised many grounds, all of them are related to a whether the additional income relating to excess stock surrendered by the assessee shall form part of its business income or not. 3. In the appeal of the revenue, the adhoc disallowances made by the AO and confirmed by Ld CIT(A) are being assailed. 4. The facts relating to the case are stated in brief. The assessee is partnership firm and it is running jewellery business. A survey operation u/s 133A of the Act was conducted in the hands of the assessee on 21 During the course of survey operations, excess stock valued at was found. The assessee surrendered the same head Income from Business and accordingly filed the return of income declaring a total income of Rs.7.74 crores including the income surrendered by the assessee. The assessee later filed a revised return of income declaring a 1 crores. The AO took the view that the excess stock found during the course of survey operation is in the nature of unexplained investment falling within the ambit of sec.69 of the Act. Accordingly, the AO assessed the surrendered income of Rs.5.72 crores, referred above, u/s 69 of the Act and accordingly charged income tax thereon u/s 115BBE of the Act. 5. In addition to the above, the AO disallowed 20% shop amounting to Rs.1,98,484/- and 20% of packing expenses amounting to M/s D P Jewellers 2 ITA Nos. 101 & 120/VNS/2024 These cross appeals are directed against the order dated 06-05-2024 3 and it relates to the assessment year 2018-19. 2. Though the revenue has raised many grounds, all of them are related to a the additional income relating to excess stock its business income or not. 3. In the appeal of the revenue, the adhoc disallowances made by the AO and 4. The facts relating to the case are stated in brief. The assessee is a jewellery business. A survey operation u/s of the assessee on 21-02-2018. During the course of survey operations, excess stock valued at was found. The assessee surrendered the same under the and accordingly filed the return of income declaring a total income of Rs.7.74 crores including the income surrendered by the assessee. The assessee later filed a revised return of income declaring a 1 crores. The AO took the view that the excess stock found during the course of survey operation is in the nature of unexplained investment falling within the ambit of sec.69 of the Act. Accordingly, the AO es, referred above, u/s 69 of u/s 115BBE of the Act. shop & office expenses and 20% of packing expenses amounting to Rs.2,51,498/- observing that they are are not open for verification. 6. In the appellate proceedings, the Ld CIT(A) accepted the contentions of the assessee that the income surrendered by the assessee is assessable under head Income from Business only. However, the Ld CIT(A) confirmed the disallowance of part of shop expenses and packing expenses. Hence both the parties have filed the appeals on the points decided against each of them. 7. We heard the parties a assessee has placed reliance on a host of case laws in support of its contention that the income surrendered by it was generated from its business activities only and hence the same is assessable under the head In The Ld CIT(A) has also placed reliance on various case laws and accordingly rendered his decision in favour of the assessee on this issue. For the sake of convenience, we extract below the decision rendered by Ld CIT(A) on this issue:- “6.12 I have carefully examined the written submission of the appellant and relevant facts of the case. It is admitted fact that during the course of survey excess stock was found as under: S.No. Particular 1 Gold 2 Silver 3 Diamond 6.13 Thus, the value of the excess stock of gold and silver was at 19990.090gms and23693.800gms respectively. The appellant has calculated the value of excess stock of gold at Rs. 5,64,55,010/ and silver at Rs. 7,84,500/ gm for gold and Rs. 33.11 per gm for silver respectively. Therefore, the total value of excess stock has been calculated at Rs. 5,72,39,510/ ITA Nos. 101 & 120/VNS/2024 observing that they are supported by self made vouchers, which not open for verification. 6. In the appellate proceedings, the Ld CIT(A) accepted the contentions of the assessee that the income surrendered by the assessee is assessable under head Income from Business only. However, the Ld CIT(A) confirmed the disallowance of part of shop expenses and packing expenses. Hence both the parties have filed the appeals on the points decided against each of them. 7. We heard the parties and perused the record. We notice that the assessee has placed reliance on a host of case laws in support of its contention that the income surrendered by it was generated from its business activities only and hence the same is assessable under the head Income from Business. The Ld CIT(A) has also placed reliance on various case laws and accordingly rendered his decision in favour of the assessee on this issue. For the sake of convenience, we extract below the decision rendered by Ld CIT(A) on this “6.12 I have carefully examined the written submission of the appellant and relevant facts of the case. It is admitted fact that during the course of survey excess stock was found as under: Particular Stock found during survey (in gms) Stock as per Books(in gms) 26142.00 6165.910 115612.00 91918.200 Diamond 1042.003 1042.003 6.13 Thus, the value of the excess stock of gold and silver was at 19990.090gms and23693.800gms respectively. The appellant has calculated the value of excess stock of gold at Rs. 5,64,55,010/ and silver at Rs. 7,84,500/- by applying rate of Rs. 2824.15 p gm for gold and Rs. 33.11 per gm for silver respectively. Therefore, the total value of excess stock has been calculated at Rs. 5,72,39,510/- and the same was surrendered and has been M/s D P Jewellers 3 ITA Nos. 101 & 120/VNS/2024 supported by self made vouchers, which 6. In the appellate proceedings, the Ld CIT(A) accepted the contentions of the assessee that the income surrendered by the assessee is assessable under the head Income from Business only. However, the Ld CIT(A) confirmed the disallowance of part of shop expenses and packing expenses. Hence both the parties have filed the appeals on the points decided against each of them. nd perused the record. We notice that the assessee has placed reliance on a host of case laws in support of its contention that the income surrendered by it was generated from its business activities come from Business. The Ld CIT(A) has also placed reliance on various case laws and accordingly rendered his decision in favour of the assessee on this issue. For the sake of convenience, we extract below the decision rendered by Ld CIT(A) on this “6.12 I have carefully examined the written submission of the appellant and relevant facts of the case. It is admitted fact that during the course of survey excess stock was found as under: Excess Stock (in gms) 19990.090 23693.800 0 6.13 Thus, the value of the excess stock of gold and silver was at 19990.090gms and23693.800gms respectively. The appellant has calculated the value of excess stock of gold at Rs. 5,64,55,010/- by applying rate of Rs. 2824.15 per gm for gold and Rs. 33.11 per gm for silver respectively. Therefore, the total value of excess stock has been calculated at Rs. and the same was surrendered and has been shown as business income in the return of income. It is also admitted fact that the appellant has also made the necessary entries in the Books of Accounts in respect of the excess stock found during the survey amounting to Rs. 5,72,39,510/ recognized the income in relation to such entries in P & L Account in relevant financial year which has been disclosed in the return of income. However, the Assessing Officer has treated the excess stock as unexplained investment u/s 69 of the Act and taxed it in terms of provision of section 115BBE of the Act. 6.14 For the sake of c hereunder:- \"Unexplained investments. 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 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 deem income of the assessee of such financial year.\" 6.15 On perusal of section 69 of the Act, it is clear that section 69 is attracted where the assessee has made investments which are not recorded in the books of account, if any, maintained by hi 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. In the instant case the entries in respect of stock found during the course of survey amounting to Rs. 5,72,39,510/ amount of Rs. 5,72,39,510/ included in the computation of income and declared total income of 6,91,29,140 u/s. 139(5) of the Act. 6.16 In a case 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 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 book and source is not identifiable. Once such excess investment is ITA Nos. 101 & 120/VNS/2024 shown as business income in the return of income. It is also fact that the appellant has also made the necessary entries in the Books of Accounts in respect of the excess stock found during the survey amounting to Rs. 5,72,39,510/ recognized the income in relation to such entries in P & L Account financial year which has been disclosed in the return of income. However, the Assessing Officer has treated the excess stock as unexplained investment u/s 69 of the Act and taxed it in terms of provision of section 115BBE of the Act. 6.14 For the sake of clarity section 69 of the Act is reproduced \"Unexplained investments. 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 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 deem income of the assessee of such financial year.\" 6.15 On perusal of section 69 of the Act, it is clear that section 69 is attracted where the assessee has made investments which are not recorded in the books of account, if any, maintained by hi 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. In the instant case the entries in respect of stock found during the course of survey amounting to Rs. 5,72,39,510/- have been made in the Books of Accounts. The said amount of Rs. 5,72,39,510/- on account of excess stock was included in the computation of income and declared total income of ,91,29,140 u/s. 139(5) of the Act. 6.16 In a case 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 M/s D P Jewellers 4 ITA Nos. 101 & 120/VNS/2024 shown as business income in the return of income. It is also fact that the appellant has also made the necessary entries in the Books of Accounts in respect of the excess stock found during the survey amounting to Rs. 5,72,39,510/-fully recognized the income in relation to such entries in P & L Account financial year which has been disclosed in the return of income. However, the Assessing Officer has treated the excess stock as unexplained investment u/s 69 of the Act and taxed it in larity section 69 of the Act is reproduced 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 6.15 On perusal of section 69 of the Act, it is clear that section 69 is attracted where 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. In the instant case the entries in respect of excess stock found during the course of survey amounting to Rs. have been made in the Books of Accounts. The said on account of excess stock was included in the computation of income and declared total income of 6.16 In a case 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 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 s 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. 6.17 Reliance is placed in the case of ParmodS [2023] 154 taxmann.com 347 (Chandigarh Hon'ble ITAT CHANDIGARH BENCH 'A'vide order dated JULY 24, 2023 has held as under: \"Section 69, read with sections 69A, 115BBE, 133A and 28(i), of the Income-tax Act, 1961 of provision) - in business premises of assessee during which assessee surrendered certain amount towards unaccounted advances, stock and cash in hand rate of 30 per cent but Assessing Officer held that as per provisions of section 115BBE read with sections 69 and 69A, amount so surrendered was taxable of rate of 60 per cent Whether mere fact that survey/search proceedings ha initiated at business premises of assessee doesn't mandate Assessing officer to automatically invoke deeming provisions of sections 69 and 69A; before invoking deeming provisions, he has to call for explanation of assessee and only where explanatio offered is not found satisfactory, he can proceed and invoke deeming provisions confronted with not just discrepancy so found during course of survey but nature and source of income surrendered during cour of survey proceedings and it was clearly emerging that source of such income was from his business operations, income so surrendered could not be brought to tax under deeming provisions of sections 69 and 69A and same had been rightly offered to tax under head \"business income\" favour of assessee]\" 6.18 Reliance is placed in the case of Veer Enterprises v. Deputy Commissioner of Income (Chandigarh BENCH 'B'vide order dated JANUARY 23, 2024 has held as under:- \"Section 69A, read with sections 69B and 28(i), of the Income Act, 1961 - Unexplained money (Amount disclosed at survey) Assessment year 2019 133A, assessee surrendered excess stock, cash and receivables, stating that same was to be taxed as business income Officer, however, treated said surrendered amount as unexplained investment under sections 69A and 69B and charged same to tax as per provisions of section 115BBE ITA Nos. 101 & 120/VNS/2024 taxed as undeclared business receipt then taxing it further as deemed income under section 69 would not be necessary. 6.17 Reliance is placed in the case of ParmodSinglav. ACIT, in [2023] 154 taxmann.com 347 (Chandigarh - Trib.)wherein the Hon'ble ITAT CHANDIGARH BENCH 'A'vide order dated JULY 24, 2023 has held as under:- \"Section 69, read with sections 69A, 115BBE, 133A and 28(i), of tax Act, 1961 - Unexplained investments (Applicability Assessment year 2017-18 - A survey was conducted in business premises of assessee during which assessee surrendered certain amount towards unaccounted advances, stock and cash in hand - Said amount was offered in return of income at rate of 30 per cent but Assessing Officer held that as per provisions of section 115BBE read with sections 69 and 69A, amount so surrendered was taxable of rate of 60 per cent Whether mere fact that survey/search proceedings ha initiated at business premises of assessee doesn't mandate Assessing officer to automatically invoke deeming provisions of sections 69 and 69A; before invoking deeming provisions, he has to call for explanation of assessee and only where explanatio offered is not found satisfactory, he can proceed and invoke deeming provisions - Held, yes - Whether since assessee had been confronted with not just discrepancy so found during course of survey but nature and source of income surrendered during cour of survey proceedings and it was clearly emerging that source of such income was from his business operations, income so surrendered could not be brought to tax under deeming provisions of sections 69 and 69A and same had been rightly offered to tax er head \"business income\" - Held, yes [Paras 32 and 33] [In favour of assessee]\" 6.18 Reliance is placed in the case of Veer Enterprises v. Deputy Commissioner of Income-tax, [2024] 158 taxmann.com 655 (Chandigarh - Trib.)wherein the Hon'ble ITAT CHANDIGAR BENCH 'B'vide order dated JANUARY 23, 2024 has held as \"Section 69A, read with sections 69B and 28(i), of the Income Unexplained money (Amount disclosed at survey) Assessment year 2019-20 – During course of survey under section 133A, assessee surrendered excess stock, cash and receivables, stating that same was to be taxed as business income Officer, however, treated said surrendered amount as unexplained investment under sections 69A and 69B and charged same to tax s per provisions of section 115BBE - Whether since during survey M/s D P Jewellers 5 ITA Nos. 101 & 120/VNS/2024 taxed as undeclared business receipt then taxing it further as deemed income under section 69 would not be necessary. inglav. ACIT, in Trib.)wherein the Hon'ble ITAT CHANDIGARH BENCH 'A'vide order dated JULY 24, \"Section 69, read with sections 69A, 115BBE, 133A and 28(i), of lained investments (Applicability A survey was conducted in business premises of assessee during which assessee surrendered certain amount towards unaccounted advances, stock red in return of income at rate of 30 per cent but Assessing Officer held that as per provisions of section 115BBE read with sections 69 and 69A, amount so surrendered was taxable of rate of 60 per cent - Whether mere fact that survey/search proceedings have been initiated at business premises of assessee doesn't mandate Assessing officer to automatically invoke deeming provisions of sections 69 and 69A; before invoking deeming provisions, he has to call for explanation of assessee and only where explanation so offered is not found satisfactory, he can proceed and invoke Whether since assessee had been confronted with not just discrepancy so found during course of survey but nature and source of income surrendered during course of survey proceedings and it was clearly emerging that source of such income was from his business operations, income so surrendered could not be brought to tax under deeming provisions of sections 69 and 69A and same had been rightly offered to tax Held, yes [Paras 32 and 33] [In 6.18 Reliance is placed in the case of Veer Enterprises v. Deputy tax, [2024] 158 taxmann.com 655 Trib.)wherein the Hon'ble ITAT CHANDIGARH BENCH 'B'vide order dated JANUARY 23, 2024 has held as \"Section 69A, read with sections 69B and 28(i), of the Income-tax Unexplained money (Amount disclosed at survey) - During course of survey under section 133A, assessee surrendered excess stock, cash and receivables, stating that same was to be taxed as business income - Assessing Officer, however, treated said surrendered amount as unexplained investment under sections 69A and 69B and charged same to tax Whether since during survey proceedings, assesse was confronted not only with discrepancies found but also with nature and source thereof and it had emerged that source of income of assessee was from its business operations, income surrendered by assessee during survey could not be brought to tax under deeming provisions of section 69A and 69B and same had been rightly offered to tax by assessee under head of business income of assessee]\" 6.19 Reliance is placed in the case of MontuShalluKnitwearsv. Deputy Commissioner of Income (Chandigarh BENCH 'B'vide order dated DECEMBER 1, 2023 has held as under:- \"Section 28(i) read with sections 69B and 115BBE, of the Income tax Act, 1961 Assessment year 2019 business of manufacturing of wearing apparels survey, assessee had surrendered certain amount to cover up discrepancies Assessing Officer treated surrendered amount as excess stock under section 69B read with provisions of section 115BBE - It was found that stock physically found had been valued and then, comp books of account and difference in value of stock so found belonging to firm had been offered to tax pointed out that excess stock had any nexus with any other receipts other than business being car Further, in surrender letter, the assessee had stated that during course of survey operations, certain discrepancy out of excess stock of Rs. 50 lakhs had been found and to avoid litigation, he had offered additional business income o excess stock found out of their normal business income over and above normal business income explanation about nature and source of such unrecorded transactions and necessary nexus with assessee's bus There was no physical distinction between accounted stock and unaccounted stock assessee during survey was from business operations and, thus, should be treated as business income therefore, said income could not be brought to tax under deeming provisions of section 69B read with section 115BBE and normal tax rate should be applied favour of assesseel\" 6.20 The reliance is placed in the case of Pa Deputy Commissioner of Income ITA Nos. 101 & 120/VNS/2024 proceedings, assesse was confronted not only with discrepancies found but also with nature and source thereof and it had emerged that source of income of assessee was from its business ions, income surrendered by assessee during survey could not be brought to tax under deeming provisions of section 69A and 69B and same had been rightly offered to tax by assessee under head of business income - Held, yes [Paras 29 and 30] [In favour 6.19 Reliance is placed in the case of MontuShalluKnitwearsv. Deputy Commissioner of Income-tax, [[2024] 159 taxmann.com 677 (Chandigarh - Trib.) wherein the Hon'ble ITAT CHANDIGARH BENCH 'B'vide order dated DECEMBER 1, 2023 has held as ection 28(i) read with sections 69B and 115BBE, of the Income tax Act, 1961 - Business income - Chargeable as (Excess stock) Assessment year 2019-20 - Assessee-firm was engaged in business of manufacturing of wearing apparels - During course of ssessee had surrendered certain amount to cover up discrepancies Assessing Officer treated surrendered amount as excess stock under section 69B read with provisions of section It was found that stock physically found had been valued and then, compared with value of stock so recorded in books of account and difference in value of stock so found belonging to firm had been offered to tax - Revenue had not pointed out that excess stock had any nexus with any other receipts other than business being carried on by assessee Further, in surrender letter, the assessee had stated that during course of survey operations, certain discrepancy out of excess stock of Rs. 50 lakhs had been found and to avoid litigation, he had offered additional business income of Rs. 50 lakhs out of excess stock found out of their normal business income over and above normal business income - Assessee had provided necessary explanation about nature and source of such unrecorded transactions and necessary nexus with assessee's bus There was no physical distinction between accounted stock and unaccounted stock - Whether, on facts, income surrendered by assessee during survey was from business operations and, thus, should be treated as business income - Held, yes erefore, said income could not be brought to tax under deeming provisions of section 69B read with section 115BBE and normal tax rate should be applied - Held, yes [Paras 20, 22 and 23] [In favour of assesseel\" 6.20 The reliance is placed in the case of Pavan Kumar Agarwal v. Deputy Commissioner of Income-tax, in [2023] 153 taxmann.com M/s D P Jewellers 6 ITA Nos. 101 & 120/VNS/2024 proceedings, assesse was confronted not only with discrepancies found but also with nature and source thereof and it had emerged that source of income of assessee was from its business ions, income surrendered by assessee during survey could not be brought to tax under deeming provisions of section 69A and 69B and same had been rightly offered to tax by assessee under Held, yes [Paras 29 and 30] [In favour 6.19 Reliance is placed in the case of MontuShalluKnitwearsv. tax, [[2024] 159 taxmann.com 677 Trib.) wherein the Hon'ble ITAT CHANDIGARH BENCH 'B'vide order dated DECEMBER 1, 2023 has held as ection 28(i) read with sections 69B and 115BBE, of the Income- Chargeable as (Excess stock) - firm was engaged in During course of ssessee had surrendered certain amount to cover up discrepancies Assessing Officer treated surrendered amount as excess stock under section 69B read with provisions of section It was found that stock physically found had been ared with value of stock so recorded in books of account and difference in value of stock so found Revenue had not pointed out that excess stock had any nexus with any other ried on by assessee - Further, in surrender letter, the assessee had stated that during course of survey operations, certain discrepancy out of excess stock of Rs. 50 lakhs had been found and to avoid litigation, he f Rs. 50 lakhs out of excess stock found out of their normal business income over and Assessee had provided necessary explanation about nature and source of such unrecorded transactions and necessary nexus with assessee's business - There was no physical distinction between accounted stock and Whether, on facts, income surrendered by assessee during survey was from business operations and, thus, Held, yes - Whether, erefore, said income could not be brought to tax under deeming provisions of section 69B read with section 115BBE and normal Held, yes [Paras 20, 22 and 23] [In van Kumar Agarwal v. tax, in [2023] 153 taxmann.com 531 (Telangana) wherein the Hon'ble HIGH COURT OF TELANGANA vide order dated FEBRUARY 22, 2023 has held as under:- \"I. Section 69 of the Income investments (Closing stock) course of assessment proceedings, Assessing Officer noticed that as per statement filed by assessee along with return of income, closing stock was higher than amount worked out by Assessing Officer - Assessing Officer noticing that assessee had admitted excess stock, presumed that assessee had invested income from undisclosed sources, and accordingly, added difference in value of stock to income of assessee under section 69 that by admitting closing stock more than stock found at time of inventory, assessee had disclosed more income and as such, no further addition could be made for excess stock assessee had himself reflected quantum of closing stock in its books of account, closing stock shown by assessee could not be said to be unexplained investment of assessee and no addition could be sustained in this regard assessee] II. Section 69 of the Income investments (Construction of house property) 1996-97 - During a survey under section 133A conducted at premises of assessee, Assessing Officer found a number of vouchers and bills amounting to Rs. 6.50 lakhs relating to construction of h as unexplained investment investment, it was submitted by assessee that a sum of Rs. 3.5 lakhs was borrowed from bank, amount of Rs. 3 lakhs was declared under VDIS and was offered as income for year under consideration assessee was able to explain source of investment in house property which was much higher than alleged unexplained investment in house property of Rs. 6.50 la observed that Assessing Officer could very well had obtained a report from departmental valuation cell to arrive at correct figure of investment in house property addition under section 69 made to income of a of unexplained investment in house property was to be set aside Held, yes [Para 20] [In favour of assessee]\" 6.21 The Assessing Officer has nowhere in the assessment order been able to bring on record the fact that the income surrender during the course of survey was not out of the business of the assessee. Further, even the survey team has not found any source ITA Nos. 101 & 120/VNS/2024 531 (Telangana) wherein the Hon'ble HIGH COURT OF TELANGANA vide order dated FEBRUARY 22, 2023 has held as \"I. Section 69 of the Income-tax Act, 1961 - vestments (Closing stock) - Assessment year 1996 course of assessment proceedings, Assessing Officer noticed that as per statement filed by assessee along with return of income, closing stock was higher than amount worked out by Assessing Assessing Officer noticing that assessee had admitted excess stock, presumed that assessee had invested income from undisclosed sources, and accordingly, added difference in value of stock to income of assessee under section 69 - Assessee submitted at by admitting closing stock more than stock found at time of inventory, assessee had disclosed more income and as such, no further addition could be made for excess stock - Whether since assessee had himself reflected quantum of closing stock in its s of account, closing stock shown by assessee could not be said to be unexplained investment of assessee and no addition could be sustained in this regard - Held yes [Para 16] [In favour of II. Section 69 of the Income-tax Act, 1961 - investments (Construction of house property) - Assessment year During a survey under section 133A conducted at premises of assessee, Assessing Officer found a number of vouchers and bills amounting to Rs. 6.50 lakhs relating to construction of house property by assessee and same was treated as unexplained investment - It was noted that to explain source of investment, it was submitted by assessee that a sum of Rs. 3.5 lakhs was borrowed from bank, amount of Rs. 3 lakhs was declared under VDIS and an additional amount of Rs. 1.5 lakhs was offered as income for year under consideration assessee was able to explain source of investment in house property which was much higher than alleged unexplained investment in house property of Rs. 6.50 lakhs - observed that Assessing Officer could very well had obtained a report from departmental valuation cell to arrive at correct figure of investment in house property - Whether, on facts, impugned addition under section 69 made to income of assessee on account of unexplained investment in house property was to be set aside Held, yes [Para 20] [In favour of assessee]\" 6.21 The Assessing Officer has nowhere in the assessment order been able to bring on record the fact that the income surrender during the course of survey was not out of the business of the assessee. Further, even the survey team has not found any source M/s D P Jewellers 7 ITA Nos. 101 & 120/VNS/2024 531 (Telangana) wherein the Hon'ble HIGH COURT OF TELANGANA vide order dated FEBRUARY 22, 2023 has held as Unexplained Assessment year 1996-97 - During course of assessment proceedings, Assessing Officer noticed that as per statement filed by assessee along with return of income, closing stock was higher than amount worked out by Assessing Assessing Officer noticing that assessee had admitted excess stock, presumed that assessee had invested income from undisclosed sources, and accordingly, added difference in value of Assessee submitted at by admitting closing stock more than stock found at time of inventory, assessee had disclosed more income and as such, no Whether since assessee had himself reflected quantum of closing stock in its s of account, closing stock shown by assessee could not be said to be unexplained investment of assessee and no addition Held yes [Para 16] [In favour of Unexplained Assessment year During a survey under section 133A conducted at premises of assessee, Assessing Officer found a number of vouchers and bills amounting to Rs. 6.50 lakhs relating to ouse property by assessee and same was treated It was noted that to explain source of investment, it was submitted by assessee that a sum of Rs. 3.5 lakhs was borrowed from bank, amount of Rs. 3 lakhs was an additional amount of Rs. 1.5 lakhs was offered as income for year under consideration - Thus, assessee was able to explain source of investment in house property which was much higher than alleged unexplained It was also observed that Assessing Officer could very well had obtained a report from departmental valuation cell to arrive at correct figure of Whether, on facts, impugned ssessee on account of unexplained investment in house property was to be set aside - 6.21 The Assessing Officer has nowhere in the assessment order been able to bring on record the fact that the income surrendered during the course of survey was not out of the business of the assessee. Further, even the survey team has not found any source of income except business income. Therefore, the amount surrendered under unrecorded stock has to be brought to tax under the head \"business income\" as the excess stock which has been found during the course of survey is the investment in procurement of such stock. Such stock is clearly identifiable and related to the regular business stock of the assessee. The undisclosed inves carrying on business and the same is generated out of business income, no provisions of section 69 of the Act would attract. The excess stock found during the course of survey is taxable under the head busines Act is attracted. In the present case as discussed above without any dispute the assessee offered additional income as excess stock and same was entered in the books of account and offered to tax under the busin 6.22 In view of aforementioned discussion and the case laws relied upon, I am of the considered opinion that the Assessing Officer is not justified in excluding the alleged additional income offered during the course of survey and attracting th u/s. 69 of the Act, consequently, the charging u/s. 115BBE of the Act. In the instant case the Assessing Officer is not justified in treating the excess stock amounting to Rs. 5,72,39,510/ unexplained investment u/s 69 of the Act and tax i provision of section 115BBE of the Act. Thus, these grounds of appeal are allowed.” 8. The assessee herein is a Partnership Firm. There is no dispute with regard to the fact that the assessee does not have any other income other than business income. Hence the assessee could have accumulated th its business income only, upon by Ld CIT(A), the co Courts have held that the discrepancy in the stock found during the course of search/survey operations should be assessed as business income only. Since the Ld CIT(A) has rendered his decision on the basis of various case laws and since the revenue did not contradict them, we CIT(A) on this issue. 9. The appeal filed by the assessee relates to the adhoc disallowance of expenses incurred shop expenses, office expenses and packing expenses made ITA Nos. 101 & 120/VNS/2024 of income except business income. Therefore, the amount surrendered under unrecorded stock has to be brought to tax head \"business income\" as the excess stock which has been found during the course of survey is the investment in procurement of such stock. Such stock is clearly identifiable and related to the regular business stock of the assessee. The undisclosed investment in the case of excess stock found during carrying on business and the same is generated out of business income, no provisions of section 69 of the Act would attract. The excess stock found during the course of survey is taxable under the head business income and no provision u/s. 115BBE of the Act is attracted. In the present case as discussed above without any dispute the assessee offered additional income as excess stock and same was entered in the books of account and offered to tax under the business income. 6.22 In view of aforementioned discussion and the case laws relied upon, I am of the considered opinion that the Assessing Officer is not justified in excluding the alleged additional income offered during the course of survey and attracting th u/s. 69 of the Act, consequently, the charging u/s. 115BBE of the Act. In the instant case the Assessing Officer is not justified in treating the excess stock amounting to Rs. 5,72,39,510/ unexplained investment u/s 69 of the Act and tax it in terms of provision of section 115BBE of the Act. Thus, these grounds of appeal are allowed.” 8. The assessee herein is a Partnership Firm. There is no dispute with regard to the fact that the assessee does not have any other income other than Hence the assessee could have accumulated th its business income only, which was not disclosed earlier. upon by Ld CIT(A), the co-ordinate benches of Tribunal and the Hon’ble High the discrepancy in the stock found during the course of search/survey operations should be assessed as business income only. Since the Ld CIT(A) has rendered his decision on the basis of various case laws and since the revenue did not contradict them, we affirm the order passed by Ld 9. The appeal filed by the assessee relates to the adhoc disallowance of expenses incurred shop expenses, office expenses and packing expenses made M/s D P Jewellers 8 ITA Nos. 101 & 120/VNS/2024 of income except business income. Therefore, the amount surrendered under unrecorded stock has to be brought to tax head \"business income\" as the excess stock which has been found during the course of survey is the investment in procurement of such stock. Such stock is clearly identifiable and related to the regular business stock of the assessee. The tment in the case of excess stock found during carrying on business and the same is generated out of business income, no provisions of section 69 of the Act would attract. The excess stock found during the course of survey is taxable under s income and no provision u/s. 115BBE of the Act is attracted. In the present case as discussed above without any dispute the assessee offered additional income as excess stock and same was entered in the books of account and offered 6.22 In view of aforementioned discussion and the case laws relied upon, I am of the considered opinion that the Assessing Officer is not justified in excluding the alleged additional income offered during the course of survey and attracting the provisions u/s. 69 of the Act, consequently, the charging u/s. 115BBE of the Act. In the instant case the Assessing Officer is not justified in treating the excess stock amounting to Rs. 5,72,39,510/- as t in terms of provision of section 115BBE of the Act. Thus, these grounds of 8. The assessee herein is a Partnership Firm. There is no dispute with regard to the fact that the assessee does not have any other income other than the Hence the assessee could have accumulated the stock out In the cases relied ordinate benches of Tribunal and the Hon’ble High the discrepancy in the stock found during the course of search/survey operations should be assessed as business income only. Since the Ld CIT(A) has rendered his decision on the basis of various case laws and affirm the order passed by Ld 9. The appeal filed by the assessee relates to the adhoc disallowance of expenses incurred shop expenses, office expenses and packing expenses made by the AO and confirmed by Ld CIT(A). We notice tha expenses on test check basis and noticed that they are supported by self made vouchers. Accordingly, the AO disallowed 20% of the expenses on adhoc basis with the observation that they are not susceptible for verification. The Ld CIT(A) has also confirmed the same. 10. We notice that the AO has not given any basis for making disallowance @ 20%. Before Ld CIT(A), the assessee contended that making of adhoc disallowance is bad in law. However, the assessee did not disprove the observations of the AO that many expenses are supported by self made vouchers. However, we notice that the AO has examined the expenses on test check basis only and accordingly concluded that all the expenses are supported by self made vouchers only. The AO is debatable one. Under these set of facts, disallowance of part of expenditure so claimed is required in order to take care of leakage of revenue, if any, in making the claim. However, for the reasons discussed earli of the view that the disallowance made @ 20% is on the higher side. Accordingly, we modify the order passed by Ld CIT(A) on this issue and direct the AO to restrict the disallowance to 10% of shop, office and packing expenses. 11. In the result, the appeal filed by the assessee is partly allowed and the appeal of the revenue is dismissed. Order pronounced in the open Court on Sd/- (AMIT SHUKLA) JUDICIAL MEMBER Mumbai; Dated: 21/11/2024 Rahul Sharma, Sr. P.S. ITA Nos. 101 & 120/VNS/2024 by the AO and confirmed by Ld CIT(A). We notice that the AO has verified expenses on test check basis and noticed that they are supported by self made vouchers. Accordingly, the AO disallowed 20% of the expenses on adhoc basis with the observation that they are not susceptible for verification. The Ld T(A) has also confirmed the same. 10. We notice that the AO has not given any basis for making disallowance @ 20%. Before Ld CIT(A), the assessee contended that making of adhoc disallowance is bad in law. However, the assessee did not disprove the observations of the AO that many expenses are supported by self made vouchers. However, we notice that the AO has examined the expenses on test check basis only and accordingly concluded that all the expenses are supported by self made vouchers only. The presumption so arrived at by the AO is debatable one. Under these set of facts, disallowance of part of expenditure so claimed is required in order to take care of leakage of revenue, if any, in making the claim. However, for the reasons discussed earli of the view that the disallowance made @ 20% is on the higher side. Accordingly, we modify the order passed by Ld CIT(A) on this issue and direct the AO to restrict the disallowance to 10% of shop, office and packing sult, the appeal filed by the assessee is partly allowed and the appeal of the revenue is dismissed. nounced in the open Court on 21/11/2024. Sd/- (AMIT SHUKLA) (BR BASKARAN JUDICIAL MEMBER ACCOUNTANT MEMBER M/s D P Jewellers 9 ITA Nos. 101 & 120/VNS/2024 t the AO has verified expenses on test check basis and noticed that they are supported by self made vouchers. Accordingly, the AO disallowed 20% of the expenses on adhoc basis with the observation that they are not susceptible for verification. The Ld 10. We notice that the AO has not given any basis for making disallowance @ 20%. Before Ld CIT(A), the assessee contended that making of adhoc disallowance is bad in law. However, the assessee did not disprove the observations of the AO that many expenses are supported by self made vouchers. However, we notice that the AO has examined the expenses on test check basis only and accordingly concluded that all the expenses are presumption so arrived at by the AO is debatable one. Under these set of facts, disallowance of part of expenditure so claimed is required in order to take care of leakage of revenue, if any, in making the claim. However, for the reasons discussed earlier, we are of the view that the disallowance made @ 20% is on the higher side. Accordingly, we modify the order passed by Ld CIT(A) on this issue and direct the AO to restrict the disallowance to 10% of shop, office and packing sult, the appeal filed by the assessee is partly allowed and the /2024. BR BASKARAN) ACCOUNTANT MEMBER Copy of the Order forwarded to 1. The Appellant 2. The Respondent. 3. CIT 4. DR, ITAT, Varanasi 5. Guard file. //True Copy// ITA Nos. 101 & 120/VNS/2024 Copy of the Order forwarded to : BY ORDER, (Assistant Registrar) ITAT, Allahabad M/s D P Jewellers 10 ITA Nos. 101 & 120/VNS/2024 BY ORDER, (Assistant Registrar) ITAT, Allahabad "