Unless, discrepancy is found in physical quantities, assessee agreeing to increase stock value does not amount to undisclosed stock u/s 69B taxable u/s 115BBE
In a recent judgment, ITAT Chennai has held that unless discrepancy is found in physical quantities, of stock, assessee merely agreeing to increase stock value does not amount to undisclosed stock u/s 69B taxable u/s 115BBE
ABCAUS Case Law Citation:
ABCAUS 4015 (2024) (05) ITAT
Important Case Laws relied upon:
M/s Mookambika Impex vs. DCIT
M/s SVS Oil Mills vs. ACIT
CIT vs Bajargan Trader
M/s Santhilal Jain Vijay Kumar vs. ITO
In the instant case, the assessee had challenged the order passed by the CIT(A) National Faceless Appeal Centre (NFAC) confirming the addition made u/s 69B in the order passed by the Assessing Officer (AO) u/s 143(3) of the Act. The sole issue was the determination of the head of income under which the impugned additions would be assessable.
The assessee was a firm engaged as a rice mill. The assessee was subjected to survey u/s 133A wherein based on certain impounded material, the valuation of closing stock as on close of the year was disturbed. As per the computation made by the Authorities, physical stock was valued at nearly at double the amount as per books. The difference was offered to tax by the assessee in statement recorded during survey.
Honoring the admission, the assessee added this excess stock to its book-stock and filed the return of income and paid due taxes. However, the AO was of the opinion that excess stock was in the nature of unexplained investment u/s 69B which would be subjected to higher rate of tax as per Sec.115BBE.
The assessee stated that the said income was out of business income only and therefore, the same was assessable as business income. The assessee bolstered the same by submitting that the firm had carried out this business for past 20 years and there was no scope for any income to be derived from any other source. The excess stock was only an accumulation over the past several years.
The AO considering the deposition made by the assessee held that the assessee did not bring out any material to show that source of excess stock was from business. The excess sock was an investment which was not fully explained. Therefore, the aforesaid income was to be assessed u/s 69B which would be subjected to special higher rate of tax u/s 115BBE.
Before the CIT(A), the assessee placed reliance on various decisions of Tribunal wherein it was held there that unexplained investment was nothing but stock-in-trade which was not separate and unidentifiable from regular stock-in-trade and therefore, the income arising out of such unexplained investment would be nothing but business income of the assessee and not ‘income from other source’.
The CIT(A) held that unless survey was conducted, such undisclosed stock would not have been disclosed by the assessee. Further, there was no proof that stocks were purchased out of their business income only and there was no scope of presumption or relevance since Sec. 69B talks about source of income for investment / acquisition of article and the onus was on the assessee to explain it to the satisfaction of AO. The addition u/s 69B is deemed income and surrender of same would not give any immunity to the assessee from penal provisions of Section 69B and Section 115BBE.
The Tribunal observed that as per computation made by the Assessing Officer, he had disturbed the closing stock of earlier year or opening stock of this year by adopting Gross Profit of 7% on sales. The computation of differential in stock is based on mathematical formula only. However, no discrepancy in the physical stock vis-à-vis book quantities has been noted by AO. The assessee has merely accepted the computations made by Ld. AO and voluntarily agreed to increase the closing stock of earlier years by way of credit to Profit & Loss Account. All the sales and purchase, as per admission, have taken place through bank transfers only.
The Tribunal opined that unless, discrepancy is pointed out in the physical quantities, no case of unexplained investment, could be made out against the assessee. Further, it was undisputed fact that the assessee was assessed to tax for past several years and its only source of income was ‘Business income’ only. In such a case, whatever discrepancies were noted, the same would be part and parcel of business operations and could be considered to be Business income only and not from any other sources.
The Tribunal further opined that it could very well be said that entire stock was accumulated out of income from business and the undisclosed business income, if any, was ploughed back into business to acquire further stock. In such a case, the excess stock could be said to have arisen out of normal business activity only and therefore, the same would be assessable as ‘business income’ only in terms of decision of Co-ordinate Bench of Tribunal which also considered the decisions of various High Courts.
The Tribunal held that the impugned additions have to be assessed as ‘Business Income only’. The provisions of Sec.69B r.w.s. 115BBE would have no application. The AO was directed to recompute the tax payable by the assessee.
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