2023 (7) TMI 1159 - AT - Income Tax

Determination of head of income - excess stock found during survey - Unexplained investment u/s 69B r.w.s 115BBE or business income - quantitative differences were found in the physical stock vis- -vis book stock - as per assessee surplus stock found at the time of survey is generated out of business income as brought into the books by way of credit to partners capital account - HELD THAT - From the fact it emerges that the only source of assessee s income is Business income arising out of sale of gold jewellery and silver articles. Differential was separately offered to tax in the return of income as Business Income . Naturally, the excess stock was acquired out of excess income regenerated from business activity only since the assessee do not have any other source of income since its inception. The entire stock was accumulated out of income from jewellery business. The undisclosed business income was ploughed back into business to acquire further stock. In such a case, the excess stock could be said to have arisen out of normal business activity only and therefore, the same would be assessable as business income only in terms of decision of Bajargan Traders 2017 (11) TMI 388 - RAJASTHAN HIGH COURT wherein held excess stock found during the survey, it could be said that the investment in procurement of such stock was clearly identifiable and related to regular business stock of the assessee. Therefore, the same should be considered as Business Income only. In the present case, the stock difference has arisen in the course of day-to-day business activity only and not otherwise. The entire stock was available as trading stock at the business premises and it was part and parcel of regular business stock. The decision of Hon ble Supreme court in the case of Lakshmichand Baijnath vs CIT ( 1958 (11) TMI 3 - SUPREME COURT also support the said conclusion as held when an amount is credited in the business books, it is not an unreasonable inference to draw that it is a receipt from business. Therefore, the impugned income, in our considered opinion, would be assessable as Business Income only. Decided in favour of assessee.

Summary

Issues:
The judgment involves the determination of the head of income under which the impugned additions would be assessable.

Summary:

Proceedings before lower authorities:
The assessee, a resident firm engaged in the sale of gold jewelry and silver articles, was subjected to a survey which revealed excess stock. The assessee treated the excess stock as 'Business Income' and offered it for taxation. The excess stock was included in the stock register and brought into the books of accounts by crediting the Partners' Capital Account. The assessee argued that the excess stock was acquired from business activity and should be assessed as 'business income'. However, the Assessing Officer (AO) considered it as unexplained investment taxable at higher rates under section 115BBE. The AO's decision was based on the decision of the Hon'ble High Court of Madras in a similar case.

Findings and Adjudication:
The Appellate Tribunal found that the excess stock was acquired from business activity and should be treated as 'business income'. The excess stock was part of the regular business stock and was accumulated from income generated from the jewelry business. The undisclosed income was reinvested in the business to acquire further stock. The Tribunal relied on the decision of the Hon'ble Rajasthan High Court and the Hon'ble Supreme Court to support its conclusion. It distinguished the case law relied upon by the lower authorities, emphasizing that in the present case, there was a corresponding credit to partners' capital account, unlike the case cited by the AO. Therefore, the Tribunal allowed the appeal in favor of the assessee.

Conclusion:
The Appellate Tribunal held that the excess stock found during the survey was part of the normal business activity and should be assessed as 'business income'. The decision was based on the source of income and the treatment of the excess stock in the books of accounts. The Tribunal distinguished the case law cited by the lower authorities and allowed the appeal.