2011 (3) TMI 1782 - AT - Income Tax

Summary

Issues Involved:
1. Whether the excess stock should be treated as income from business or as deemed income u/s 69B.
2. Whether the income disclosed at the time of survey can be set off against business loss.

Summary:

Issue 1: Treatment of Excess Stock
The Revenue appealed against the CIT(A)'s decision to treat the undisclosed income of Rs. 42,87,228/- as income from profits and gains of business. The survey u/s 133A revealed excess stock of tobacco valued at Rs. 42.87 lacs, which was surrendered by the assessee. The AO treated this amount as deemed income u/s 69B, resulting in a business loss of Rs. 6,87,734/- to be carried forward. The CIT(A) considered the excess stock as unaccounted stock from the firm, thus treating it as business income.

The Tribunal referred to the case of M/s Fashion World vs. ACIT, where it was held that if excess stock does not have a separate physical identity but is a mixed lot of declared and undeclared stock, it should be treated as business income. The Tribunal emphasized that for invoking provisions of sections 69, 69A, 69B, and 69C, the investment/expenditure must not be recorded in the books and the nature and source must not be satisfactorily explained. In this case, the excess stock was part of the same business and had no independent identity, thus it should be taxed as business income.

Issue 2: Set Off Against Business Loss
The Tribunal noted that sections 72 to 79 of Chapter VI do not provide for setting off business loss against deemed income u/s 69, 69A, 69B, and 69C. However, if the source of acquisition of the asset or expenditure is identifiable, the undisclosed business receipt invested in the unidentifiable unaccounted asset should first be taxed as business income. Only if no nexus is established with any head, it should be considered as deemed income u/s 69.

Conclusion:
The Tribunal concluded that the sum of Rs. 8,10,011/- representing the difference in stock should be treated as undeclared business income, as it does not have a separate physical identity. Other assets with separate physical identity should be considered u/s 69. The AO was directed to consider the sum as undisclosed business income and to calculate the income accordingly. The appeal by the Revenue was dismissed, confirming the CIT(A)'s order.

Result:
The appeal filed by the Revenue is dismissed. The order was pronounced in open Court on 25/3/11.