2023 (8) TMI 143 - AT - Income Tax

Addition u/s 69 - income surrendered during the course of survey - Tax on surrendered income disclosed by the assessee towards business stock applying provisions of Section 115BBE @ 60% - HELD THAT - In the instant case, we find that through various questions raised during the course of survey, the partner of the assessee firm has been asked about the nature and source of partnership s income and various discrepancies so found during the course of survey. The stock physically found was valued and then, compared with stock as recorded in the books of accounts, thus, there was clear nexus of stock with the assessee s business. There is no finding that the difference in stock so found out by the authorities has any independent identity and the same was thus part and parcel of entire stock, therefore, it cannot be said that there is an undisclosed asset which existed independently and thus, what is not declared to the department is receipt from business and not any investment as it cannot be co-related with any specific asset and the difference should therefore be treated as undeclared business income rather than deemed income. What is equally relevant is that though the excess stock has been found and valued but whether the investment in the excess stock has happened during the year or the same has been carried over from the earlier years is not emerging from the findings of the AO which is also a prerequisite condition before invoking the deeming provisions of section 69 of the Act. Thus the income surrendered during the course of survey cannot be brought to tax under the deeming provisions of section 69 and the same has been rightly offered to tax under the head business income . In absence of deeming provisions, the question of application of section 115BBE doesn t arise for consideration. Decided in favour of assessee.

Issues Involved:
1. Charging of tax at 60% on surrendered income under Section 115BBE.
2. Nature and source of excess stock found during the survey.
3. Applicability of the judgment in Kim Pharma Private Limited and other cases.
4. Consideration of detailed submissions and case law by the CIT(A).
5. Overall tenability of the CIT(A)'s order.

Summary:

Issue 1: Charging of Tax at 60% on Surrendered Income under Section 115BBE
The assessee argued that the Ld. CIT(A) erred in upholding the charging of tax at 60% on the surrendered income of Rs. 5,47,515/- towards business stock under Section 115BBE of the Income Tax Act. The assessee contended that the income should be taxed as business income at normal rates since the excess stock was part of the business inventory and not an unexplained investment.

Issue 2: Nature and Source of Excess Stock Found During the Survey
The assessee, engaged in trading plywood and hardware, argued that the excess stock found during the survey was of the same nature as the regular business stock. The AO, however, treated the excess stock as unexplained investment under Section 69, subjecting it to tax under Section 115BBE. The assessee maintained that the stock was provisionally evaluated during the survey and later offered for taxation as business income.

Issue 3: Applicability of the Judgment in Kim Pharma Private Limited and Other Cases
The assessee contended that the CIT(A) wrongly applied the judgment of Kim Pharma Private Limited and other cases, which were not applicable to the facts of the instant case. The assessee cited various decisions from Co-ordinate Benches and High Courts, arguing that the excess stock should be treated as business income and not deemed income under Section 69.

Issue 4: Consideration of Detailed Submissions and Case Law by the CIT(A)
The assessee argued that the CIT(A) failed to consider detailed submissions and case law references, rendering the order arbitrary and unjustified. The assessee cited multiple cases where similar issues were decided in favor of treating excess stock as business income.

Issue 5: Overall Tenability of the CIT(A)'s Order
The Tribunal examined whether the excess stock should be treated as business income or deemed income under Section 69. It was noted that the excess stock was part of the business operations, and the source of investment was explained as business income. The Tribunal concluded that the income could not be brought to tax under the deeming provisions of Section 69 and should be taxed as business income.

Conclusion:
The Tribunal allowed the appeals, holding that the surrendered income during the survey could not be taxed under Section 69 and 115BBE but should be treated as business income. The CIT(A)'s order was set aside, and necessary relief was provided to the assessee.

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