The ITAT held that the Revenue did not point out that the excess stock has any nexus with any other receipts other than the business being carried on by the assessee. There was thus a clear nexus of stock physically so found with the stock in which the assessee regularly dealt in and recorded in the books of account with the business of the assessee and the difference in value of the stock so found was clearly in the nature of business income. It was therefore held that the income so surrendered cannot be brought to tax under the deeming provisions of section 69B and the same had to be assessed to tax under the head “business income”. In absence of deeming provisions, the question of application of section 115BBE did not arise and normal tax rate would apply. The ITAT also held that there was no dispute that certain renovation and extension to the building was carried out by the assessee during the year, however, as far as the quantum of expenditure on renovation and extension was concerned, no material/documentation was found during the course of survey and the estimated amount of expenditure has been taken based on the statement of the assessee recorded at the time of survey. Even during the course of assessment proceedings, the AO further erred in not referring the matter to the valuation officer and in determining the amount of expenditure based on physical examination and applying specified rates. Therefore, the fact that the assessee had honoured the surrender so made in spite of the fact that there was no corroborative material against the assessee can’t be held against the assessee and more so, cannot form the basis for invocation of deeming provisions which was done in the present case as the conditions stated therein were not satisfied. Accordingly, the ITAT directed the AO to tax the surrendered income at normal rates as applicable to the business income. The ITAT further held that once the assessee had surrendered the amount on account of cost of extension, renovation and the same was brought in the books of account, the same formed part of block of the building and the assessee was eligible for claim of depreciation thereon. As regards cash expenditure  there was no finding that cash expenditure was found, which was not accounted for and therefore, it was not clear as to how the deeming provisions were invoked in this regard. Where the expenditure was held to be disallowable in terms of section 40A(3) which would mean that certain expenditure was incurred, accounted for in books of accounts and it was found to be incurred in cash in violation of section 40A(3), the question of unexplained expenditure or unaccounted expenditure did not arise for consideration. Hence, the action of the AO in invoking the deeming provisions in this regard were set aside. (AY.  2018-19)