2023 (5) TMI 356 - AT - Income Tax

Undisclosed investment v/s business income - addition u/s. 69 - provision of section 115BBE applicable - difference of stock in books and the physical stock found during the survey - HELD THAT - Assessee is in the business of manufacturing of sweets (Mithai) and the stock which was found was the raw material/ ingredients used for preparation of the sweets. In the course of survey the assessee in his statement on this issue merely stated that he will provide the reconciliation in some time about the discrepancy. Later on 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. If assessee is carrying on business and has some undisclosed stock then same is taxable as an undisclosed business income. It is cannot be held it is a case of undisclosed investment albeit it is 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 is some undisclosed investment representing in the form of undisclosed assets. It is a case of excess stock found during the carrying of the business and stock is generated out of business income and therefore the provision of section 69 on the facts of the case has no applicability. Assessee has rightly offered it has business income and consequently the provision of section 115BBE is not applicable - Assessee appeal allowed.

Summary

Issues involved:
The interpretation of sections 69 and 115BBE of the Income Tax Act, 1961 in relation to the treatment of excess stock found during a survey conducted at the business premises of the Assessee for the assessment year 2019-20.

Issue 1: Application of section 69 of the Act

The Assessee filed a return of income for A.Y. 2019-20, declaring income of Rs. 8,10,58,630/-. A survey under section 133A was conducted at the business premises, revealing a stock discrepancy of Rs. 22,38,769. The Assessee accepted this discrepancy and offered it for taxation as business income. The Assessing Officer treated the excess stock as undisclosed investment under section 69, resulting in higher tax levied under section 115BBE. The Assessee contended that the excess stock was part of the raw materials used in the business of manufacturing sweets, and therefore, not undisclosed investment but undeclared business income. The Tribunal agreed with the Assessee, holding that the provision of section 69 was not applicable in this case, as the excess stock was generated from business income and not undisclosed assets. Consequently, the Assessee's ground on this issue was allowed.

Issue 2: Invocation of section 115BBE

The Assessing Officer invoked section 115BBE on the disclosed stock, leading to a higher rate of tax. The Assessee argued that since the excess stock was properly accounted for as business income, the provision of section 115BBE should not apply. The Tribunal concurred with the Assessee's stance, emphasizing that as the excess stock was related to the business operations and not undisclosed investment, section 115BBE did not have relevance in this scenario. Therefore, the Assessee's contention on this issue was upheld.

Conclusion:
The Appellate Tribunal ITAT Mumbai, in the case concerning the treatment of excess stock discovered during a survey at the Assessee's business premises, ruled in favor of the Assessee. The Tribunal held that the excess stock, which was offered for taxation as business income, did not constitute undisclosed investment under section 69 or warrant the application of section 115BBE. The Tribunal's decision highlights the importance of distinguishing between undisclosed investment and undeclared business income in tax assessments, ensuring a fair and accurate determination of tax liabilities.