Excess stock of gold found during survey cannot be isolated with regular stock in trade – ITAT

Excess stock of gold found during survey cannot be isolated with regular stock in trade to be treated unexplained investment and taxed u/s 69B – ITAT

ABCAUS Case Law Citation:
ABCAUS 3798 (2023) (09) ITAT

Important Case Laws relied upon by parties:
M/s. SVS Oil Mills vs ACIT [2019] 418 ITR 0442
CIT vs Bajargan Traders
M/s. Mookambika Impex vs DCIT

In the instant case, the assessee had challenged the order passed by the CIT(A) in confirming the order of assessment by assessing the business income offered by the appellant as unexplained investment under section 69B r.w. section 115BBE of the Income Tax Act, 1961 (the Act).

The appellant was a proprietorship Jeweller engaged in the business of trading in gold jewellery and silver articles.

A survey u/s. 133A of the Act was initiated at the business premises of the assessee. During the course of survey proceedings, inventory of physical stock of gold and silver was taken, which resulted in detection of excess physical stock of gold.

The assessee admitted the excess stock and has also agreed to offer the same for taxation. During the course of assessment proceedings, the Assessing Officer noticed from the perusal of the profit and loss account that the assessee had offered excess stock found during the course of survey under the head business income.

The assessee, was show caused as to why the same should not be assessed u/s 69B of the Act. In response, the assessee submitted that excess stock found during the course of survey is on account of numerous items of physical stock present, which cannot be immediately reconciled to books of accounts and further, said excess stock has been acquired out of business income earned for the impugned assessment year, which has been plugged back into business in the form of stock in trade. Since, the excess stock was mixed with business stock of the assessee, which has not been identified separately, the same should be considered as stock in trade of the assessee and income if any arising out of such excess stock should be assessed under the head income from business only.

The Assessing Officer, however was not satisfied with the explanation furnished by the assessee and according to the Assessing Officer, once excess stock is found which is not recorded in the books of accounts of the assessee, needs to be assessed as unexplained investment u/s. 69B of the Act.

The CIT(A) held that when conflicting decisions of two High Courts are there on same issue, then the decision of Jurisdictional High Court needs to be followed and thus, he deleted additions made by the Assessing Officer.

The Tribunal observed that in order to invoke provisions of section 69B of the Act, twin conditions must be satisfied i.e., (i) there must be unexplained investment (ii) the assessee’s explanation is not satisfactory in the opinion of the Assessing Officer.

The Tribunal observed that in the present case, the excess stock found during the course of survey is mixed with regular stock in trade of the assessee and further the assessee has offered explanation for source for excess stock and claimed that the same has been acquired out of business income of the assessee. Once, the excess stock found during the course of survey is explained out of business income of the assessee, then same cannot be considered as unexplained investment, which is taxable u/s. 69B of the Act.

The Tribunal further observed that it is a common practice in trade that income generated from business is plugged back into the business in the form of stock in trade or spent for other purpose like acquisition of asset etc. However, during the course of survey, except excess stock in trade, no other investment in any kind of asset was found by the Department.

The ttt opined that therefore, from the above fact, it is very clear that income earned from the business has been kept in the form of stock in trade. Therefore, the explanation of the assessee that excess stock found during the course of survey is acquired out of business income generated for the impugned assessment year is reasonable and acceptable.

The Tribunal following the decision of Co-ordinate Bench opined that the additional income offered towards excess stock found during the course of survey is assessable under the head income from business as claimed by the assessee, but not income assessable u/s. 69B of the Act, as assessed by the Assessing Officer. Accordingly, the Tribunal set aside the order of the CIT(A) and directed the Assessing Officer to assess income towards excess stock under the head income from business as declared by the assessee.

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