Section 69 & 115BBE not applicable on excess stock generated out of business income

Section 69 & 115BBE not applicable on excess stock generated out of business income

ABCAUS Case Law Citation:
ABCAUS 3704 (2023) (04) ITAT

In the instant case, the assessee had challenged the order passed by the CIT(A) in confirming the action of Assessing Officer (AO) by considering the disclosure of stock in survey within the meaning of section 69 of the Income Tax Act, 1961 (the Act) as  unexplained investments.

The Assessee was in the business of manufacturing of sweets (Mithai). The assessee had filed the return of income u/s 139(1).  A survey action 133A of the Act was carried out on the business premises of the Assessee. Based on the survey finding, the case was selected for scrutiny under “compulsory scrutiny selection”. 

The AO noted that, during the course of survey proceedings, inventory of stock was prepared and as on the date of survey, in books of account was much less than the stock as per physical inventory arrived at. 

This discrepancy was accepted by the assessee and offered for taxation as business income in the return of income.

However, the AO held hat access stock found was undisclosed investment within the meaning of section 69, and therefore taxes have to be levied at higher rate under the provision of section 115BBE of the Act.

In the first appeal, the CIT (A) confirm the action of the AO on the ground that assessee had failed to explain the source of investment in undisclosed stock, and therefore same has been rightly tax u/s 69 and consequently, provision of section 115BBE were applicable.

The ITAT observed that the assessee at the time of the survey, in his statement stated that he will provide the reconciliation about the discrepancy. However, later on, the assessee offered the difference for taxation as business income, because the excess stock was said to be purely purchase of material for making sweets during the course of the business.

The Tribunal opined that if the assessee was carrying on business and had some undisclosed stock then same is taxable as an undisclosed business income.

The ITAT stated that the case in hand was not of undisclosed investment, albeit it was a case of undeclared business income. Neither during the course of survey nor in the statement it was found nor has assessee ever stated that there was some undisclosed investment representing in the form of undisclosed assets.

The Tribunal opined that the instant case was of excess stock found during the carrying of the business and stock was generated out of business income and therefore, the provision of section 69 on the facts of the case had no applicability.

Accordingly, the appeal was allowed holding that the assessee had rightly offered it as business income and  consequently, the provision of section 115BBE was not applicable.

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