2023 (7) TMI 1086 - AT - Income Tax

Excess stock found during the survey proceedings as unexplained investment u/s 69 r.w.s.115BBE - applicability of the provision of section 69/69A/69B and consequential higher rate of tax u/s 115BBE in respect of the income surrendered and offered to tax by the assessee on account of excess stock and excess cash found during survey - HELD THAT - Excess stock - Once the facts emerging from record shows that the excess stock found during survey was a part of entire lot of stock of assessee, part of which is recorded in books of account and part of the same was not found recorded and therefore, treated as excess stock at the time of survey and consequently surrendered by the assessee and also offered to tax in the return of income then the excess stock cannot be treated as deemed income u/s 69 or 69B of the act. Accordingly, this issue is decided in favour of the assessee. Excess-Cash - Neither before lower-authorities nor before us, the assessee has not shown anything to demonstrate that the said reply was not correct. Therefore, there could hardly be any dispute that the excess-cash represented assessee s income from unexplainable source attracting the provisions of section 69A. AR, in his submission, has referred to a part of the reply and not taken into account this part of assessee s reply. Being so, we are inclined not to accept Ld. AR s submission that the excess cash could be treated as business income. We uphold the action of lower-authorities in holding excess cash as deemed income u/s 69A attracting higher rate of tax u/s 115BBE. The assessee fails to this extent. Appeal of assessee is partly allowed.

Issues Involved:
1. Treatment of excess stock as unexplained investment under Section 69 read with Section 115BBE of the Income Tax Act.
2. Treatment of excess cash as unexplained money under Section 69A read with Section 115BBE of the Income Tax Act.
3. Taxation of surrendered income from business activities under Section 115BBE.
4. Basis of taxing surrendered income on presumption, suspicion, conjectures, and surmises.
5. Consideration of submissions and case laws relied upon by the appellant.

Summary:

1. Treatment of Excess Stock as Unexplained Investment:
The Tribunal agreed with the assessee that the survey officer did not ask for the source of excess stock in Q.No. 6 and 7 of the statement. The assessee's partner admitted the excess stock as "additional undeclared income" without specifying it as income from undisclosed sources. The Tribunal noted that the excess stock found during the survey was part of the overall stock and not separately identifiable. Citing various judicial precedents, including the Hon'ble Rajasthan High Court in Pr. CIT vs. Bajarang Traders and ITAT Indore in ACIT vs. Anoop Neema, the Tribunal held that the excess stock should be treated as business income and not as deemed income under Section 69/69B. Consequently, the Tribunal set aside the orders of the lower authorities on this issue, ruling in favor of the assessee.

2. Treatment of Excess Cash as Unexplained Money:
The Tribunal found that the assessee's partner admitted his inability to explain the excess cash of Rs. 5,82,644/- during the survey. The Tribunal upheld the lower authorities' decision to treat the excess cash as deemed income under Section 69A, attracting a higher rate of tax under Section 115BBE, as the explanation provided by the assessee was not satisfactory. The Tribunal did not accept the assessee's argument that the excess cash should be treated as business income.

3. Taxation of Surrendered Income from Business Activities:
The Tribunal noted that the assessee had declared the surrendered income as business income in the return of income. However, the lower authorities treated it as deemed income under Section 69/69A/69B. The Tribunal, considering the nature of the excess stock and the judicial precedents, held that the excess stock should be treated as business income, while the excess cash should be treated as deemed income under Section 69A.

4. Basis of Taxing Surrendered Income:
The Tribunal observed that the lower authorities had relied on presumption and the absence of evidence to treat the surrendered income as deemed income. The Tribunal emphasized the importance of identifying the source of income and the nature of the assets involved. It concluded that the excess stock, being part of the overall stock, should be treated as business income, whereas the excess cash, without satisfactory explanation, should be treated as deemed income under Section 69A.

5. Consideration of Submissions and Case Laws:
The Tribunal considered the submissions and case laws relied upon by the assessee, including decisions from various judicial authorities. It found that the lower authorities had not adequately considered the assessee's arguments and the relevant judicial precedents. The Tribunal ruled in favor of the assessee regarding the excess stock but upheld the lower authorities' decision on the excess cash.

Conclusion:
The appeal was partly allowed, with the Tribunal ruling in favor of the assessee on the issue of excess stock and against the assessee on the issue of excess cash. The Tribunal set aside the orders of the lower authorities regarding the excess stock and upheld the treatment of excess cash as deemed income under Section 69A, attracting a higher rate of tax under Section 115BBE.

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