2023 (7) TMI 733 - AT - Income Tax

Addition u/s 69B - higher rate of tax u/s 115BBE - excess stock surrendered during the course of survey - assessee has declared the income as business income in the return income which was treated by the AO as deemed income u/s 69B - AO has applied the provision of section 69B of the Act for want of any supporting evidence regarding source of excess stock and nature of income which was not found recorded in the books of account at the time of survey - HELD THAT - CIT(A) find that the alleged excess stock was not kept separately at any other place and was part of the total business stock found at the assessee s business premises are sufficient enough to indicate that the alleged investment in excess stock is part of the business income we also find that alleged excess stock was duly accepted by assessee as part of unaccounted business and source thereof stated during the course of search itself and no other incriminating material was found during search proceedings and therefore is not an undisclosed income as held by the AO. We, therefore, find no infirmity in the finding of Ld. CIT(A) rightly holding that the provision of section 115BBE are not applicable on the surrendered income on account of excess stock valuing found during the course of search. Thus, grounds no. 1 to 3 raised by the revenue are dismissed. Whether the excess stock found during the search which is not separate from the entire lot of stock of the assessee can be treated as other valuable articles though certainly not in the nature of bullion and jewellery ? - The Hon ble Apex Court in M/s D.N. Singh 2023 (5) TMI 746 - SUPREME COURT has analyzed the provision of section 69, 69A 69B and particularly the term other valuable articles as employed in the provision of section 69B - In the light of the Doctrine of ejusdem generis noscitur a sociis it is held that other valuable articles as provided in section 69A 69B of the Act must be read ejusdem generis and statutory interpretation would be that a generic word receives a limited interpretation by reason of its context and take its meaning from the specific term used in the provision. Therefore, the term other valuable articles would draw the meaning from the specific terms used in the provision of section 69B which is bullion and jewellery. Hence the other valuable articles shall be in the nature of the valuable article like bullion and jewellery and therefore, it must be a substitute of money like bullion and jewellery which has the liquidity and negotiability like money/currency. Therefore the excess stock found during the course of search which is not separable from the whole lot of stock of the assessee generated as a result of business activity of the assessee company and the same cannot be brought into mischief of provision of section 69B of the Act - Appeal of assessee is allowed.

Summary

Issues Involved:
1. Applicability of Section 69B for taxing excess stock.
2. Applicability of Section 115BBE for higher tax rate on surrendered income.
3. Classification of excess stock as business income or unexplained investment.

Summary:

Issue 1: Applicability of Section 69B for taxing excess stock
The primary issue was whether the excess stock found during the survey should be taxed under Section 69B of the Income Tax Act. The Tribunal noted that the excess stock was part of the regular stock used in the business of manufacturing and trading plastic water tanks and other plastic products. It was not separable or identifiable as a distinct asset from the declared stock. The Tribunal cited several judgments, including *Pr. CIT vs. Bajargan Traders* and *ACIT vs. Shri Anoop Neema*, which held that for Section 69B to apply, the asset must be separately identifiable with an independent physical existence. Since the excess stock was integrated with the regular business stock, it could not be treated as an unexplained investment under Section 69B.

Issue 2: Applicability of Section 115BBE for higher tax rate on surrendered income
The Tribunal examined whether the higher tax rate under Section 115BBE should apply to the excess stock. The assessee argued that the excess stock was declared as business income, not as income from undisclosed sources. The Tribunal referred to the statement of the Director recorded during the survey, which explained that the excess stock was generated from normal business activities. The Tribunal found that the conditions for invoking Section 69B were not satisfied, as the excess stock was not a separate asset but part of the regular business stock. Consequently, the higher tax rate under Section 115BBE was not applicable.

Issue 3: Classification of excess stock as business income or unexplained investment
The assessee contended that the excess stock should be classified as business income since it was part of the regular stock used in the business. The Tribunal agreed, stating that the excess stock found during the survey was not separable from the total stock and was generated from the business activity. The Tribunal cited multiple judgments, including *DCIT vs. M/s. Punjab Retail Pvt. Ltd.* and *Gandhi Ram vs. Pr. CIT*, which supported the view that excess stock integrated with regular business stock should be treated as business income.

Conclusion:
The Tribunal concluded that the excess stock found during the survey could not be taxed under Section 69B as it was not a separately identifiable asset. Consequently, the higher tax rate under Section 115BBE was also not applicable. The excess stock was classified as business income, and the appeal of the assessee was allowed.