2023 (4) TMI 1207 - AT - Income Tax

Unexplained investment u/s. 69B - income towards difference in stock - excess stock found during the course of survey - AO levied tax u/s. 115BBE - HELD THAT - We are of the considered view that when the assessee has explained source for excess stock found during the course of survey, is out of income generated from current year business and explanation offered by the assessee is plausible explanation, then income offered towards excess stock cannot be treated as unexplained investment u/s. 69B of the Act, and also provisions of section 115BBE. AO and the Ld. CIT(A) without appreciating relevant facts assessed additional income offered towards excess stock as unexplained investment u/s. 69B of the Act and levied tax u/s.115BBE - We set aside the order passed by the CIT(A) and direct the AO to assess additional income offered towards excess stock found during the course of survey under the head profits and gains of business and profession as considered by the assessee. Appeal filed by the assessee is allowed.

Issues Involved:
1. Legality of the CIT(A)'s order.
2. Applicability of Section 115BBE of the Income Tax Act.
3. Classification of excess stock as business income or unexplained investment under Section 69B.
4. Burden of proof regarding the source of excess stock.
5. Relevance of the jurisdictional High Court decision in SVS Oil Mills.

Summary:

Issue 1: Legality of the CIT(A)'s Order
The assessee contended that the order of the learned Commissioner of Income Tax (Appeals)-18, Chennai, was "wrong, illegal and is opposed to law." The Tribunal reviewed the CIT(A)'s decision which upheld the Assessing Officer's (AO) classification of excess stock as unexplained investment under Section 69B of the Income Tax Act, 1961.

Issue 2: Applicability of Section 115BBE
The CIT(A) confirmed the AO's action of changing the head of income from business to other sources by invoking Section 115BBE, which the assessee argued was incorrect. The Tribunal examined whether the excess stock found during the survey should be taxed under Section 115BBE.

Issue 3: Classification of Excess Stock
The Tribunal analyzed whether the excess stock discovered during the survey should be classified as business income or unexplained investment under Section 69B. The assessee argued that the excess stock was part of the regular business stock and should be taxed as business income. The AO and CIT(A) treated it as unexplained investment, citing the assessee's failure to provide documentary evidence for the source of the excess stock.

Issue 4: Burden of Proof
The AO noted that the assessee did not furnish any documentary evidence to substantiate the claim that the excess stock was generated from regular business activity. The Tribunal reviewed whether the explanations provided by the assessee were satisfactory and whether the burden of proof was met.

Issue 5: Relevance of Jurisdictional High Court Decision
The CIT(A) relied on the decision of the jurisdictional High Court in the case of SVS Oil Mills vs. ACIT, which supported treating excess stock as unexplained investment. The Tribunal considered whether this precedent was applicable to the present case, given the specific circumstances and facts.

Tribunal's Findings:

Legality of the CIT(A)'s Order
The Tribunal found that the CIT(A) had erred in confirming the AO's classification of excess stock as unexplained investment. The Tribunal noted that the excess stock was mixed with regular business stock and the assessee had declared it as business income.

Applicability of Section 115BBE
The Tribunal concluded that Section 115BBE was not applicable as the excess stock was part of the business income. The Tribunal directed the AO to assess the additional income under the head "profits and gains of business or profession."

Classification of Excess Stock
The Tribunal held that the excess stock found during the survey should be treated as business income. The Tribunal emphasized that the stock was part of the regular business inventory and the assessee had provided a plausible explanation that it was generated from current year business income.

Burden of Proof
The Tribunal found that the assessee had satisfactorily explained the source of the excess stock as business income. The Tribunal noted that the AO did not provide evidence to disprove the assessee's explanation.

Relevance of Jurisdictional High Court Decision
The Tribunal distinguished the present case from the SVS Oil Mills case, noting that the facts were different. The Tribunal found that the excess stock in the present case was part of the regular business inventory and should be treated as business income.

Conclusion:
The Tribunal allowed the appeal filed by the assessee, setting aside the order of the CIT(A) and directing the AO to assess the additional income under the head "profits and gains of business or profession." The Tribunal emphasized that the excess stock found during the survey was part of the regular business inventory and should not be treated as unexplained investment under Section 69B.

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