2022 (9) TMI 1093 - AT - Income Tax

Taxability at the rate prescribed u/s 115BBE - unexplained investment - Return u/s.44AD declaring income @8% on sales - assessee is engaged in business of sale and purchase of jewellery and filed return declaring income under presumptive scheme at 8% of the gross revenue - HELD THAT - As seen that the assessee has been regularly engaged in the jewellery business. He has declared revenue of Rs.62.03 lakh for the year under consideration. It goes without saying that no business can be carried out without maintaining stock, more specifically if it is business of jewellery. Once the assessee has declared his income u/s.44AD and it is a no-account case, the AO cannot resort to the balance sheet filed by the assessee during the course of assessment proceedings to pick up the item of inventory of gold and make addition for the same. If that be the logic, then the AO will end up making addition for all the items of assets shown in the balance sheet, which is unfounded. We, therefore, order to delete the addition. Appeal is partly allowed.

Summary

Issues:
1. Addition of unexplained income deposited in bank accounts and its taxability under section 115BBE.
2. Addition of unexplained investment in gold jewellery.

Analysis:
1. The first issue pertains to the addition of Rs.96,61,500 deposited in two undisclosed bank accounts by the assessee engaged in the sale and purchase of jewellery. The Assessing Officer (AO) treated the entire deposits as unexplained income and taxed it under section 115BBE of the Income-tax Act, 1961. The assessee contended that the deposits were related to jewellery sales and purchases. The Tribunal observed that only the peak balance in the bank accounts should be added to the total income, subject to tax under section 115BBE. Additionally, profits from the sale of jewellery recorded in the bank accounts should be taxed at the normal rate of 8%, similar to the rate declared by the assessee on regular sales.

2. The second issue concerns the addition of Rs.22,84,500 as unexplained investment in gold jewellery based on the balance sheet submitted by the assessee during assessment. The Tribunal noted that the assessee, being in the jewellery business, must maintain stock. As the assessee had declared income under section 44AD and the case was a no-account case, the AO could not rely on the balance sheet to add the inventory value of gold jewellery. All assets in the balance sheet cannot be subject to addition. Consequently, the Tribunal ordered the deletion of this addition.

In conclusion, the Tribunal partly allowed the appeal, directing the addition of the peak balance in the undisclosed bank accounts for taxation under section 115BBE and rejecting the addition related to unexplained investment in gold jewellery.