2023 (10) TMI 256 - AT - Income Tax

Excess stock found during the course of survey - income from business profession OR unexplained investment - AO excessed stock valued u/s. 69B and computed tax u/s. 115BBE on the ground that the assessee could not explain source for excess stock found during the course of survey - HELD THAT - We find that the excess stock found during the course of survey was mixed with regular stock in trade employed by the assessee in his business. The stock was not separately identified so as to assess it under the head unexplained investment . The assessee is having only one source of income i.e. income from trading in gold jewellery and silver articles. The entire stock found during the course of survey was available for trade at the business premise of the assessee and it was part and parcel of the regular business stock. Once, it is considered as regular business stock, then, obviously the source for acquisition of said stock is out of business income earned for the relevant assessment year, because, it is a general practice in business that whatever excess income earned is kept in the form of stock and debtors. Since the excess stock found during the course of survey was not separately identified and was mixed with regular business income, the assessee has rightly offered additional income declared during the course of survey under the head income from business profession , and this position is supported by the decision of Bajargan Traders 2017 (11) TMI 388 - RAJASTHAN HIGH COURT AO and the Ld. CIT(A) are erred in assessing additional income declared towards excess stock found during the course of survey u/s. 69B of the Act r.w.s. 115BBE of the Act, and thus, we direct the AO to assess the income under the head income from business profession as declared by the assessee. Decided in favour of assessee.

Summary

Issues Involved:
1. Legality of the CIT(A)'s order.
2. Consideration of facts and submissions.
3. Explanation of additional stock.
4. Justification of additional jewellery ownership.
5. Addition under Section 69B of the Income Tax Act.
6. Voluntary income offer for peace with the department.
7. Overlooking of case laws by CIT(A).
8. Arbitrary nature of the CIT(A)'s order.

Summary:

1. Legality of the CIT(A)'s Order:
The assessee contended that the order of the Commissioner of Income Tax (Appeals) ("CIT(A)") is bad in law and against the principles of natural justice. The Tribunal found that the CIT(A) had considered the relevant submissions and judicial precedents before making a decision.

2. Consideration of Facts and Submissions:
The assessee argued that the CIT(A) erred by not duly considering the facts and submissions. The Tribunal noted that the CIT(A) had evaluated the evidence presented, including the stock inventory taken during the survey, and found the assessee's claims unsubstantiated.

3. Explanation of Additional Stock:
The assessee claimed that the additional stock found during the survey was explained as jewellery received from customers for repairs. However, the Assessing Officer (AO) issued notices under Section 133(6) of the Act to verify this claim, which returned unserved or with insufficient details. The Tribunal upheld the AO's findings that the assessee could not substantiate the source of the excess stock.

4. Justification of Additional Jewellery Ownership:
The assessee argued that the additional jewellery did not belong to them but to customers. The Tribunal found that the assessee failed to provide documentary evidence to support this claim, leading to the rejection of this ground.

5. Addition under Section 69B of the Income Tax Act:
The CIT(A) sustained the AO's addition of Rs. 1,39,27,171 under Section 69B of the Act as unexplained investment. The Tribunal noted that the excess stock was not separately identified and was mixed with regular business stock. Therefore, it should be treated as business income, not as unexplained investment.

6. Voluntary Income Offer for Peace with the Department:
The assessee claimed that the additional income was offered to buy peace with the department. The Tribunal did not find this argument persuasive, as the assessee could not provide evidence to substantiate the source of the excess stock.

7. Overlooking of Case Laws by CIT(A):
The assessee argued that the CIT(A) overlooked relevant case laws. The Tribunal acknowledged the CIT(A)'s reliance on the jurisdictional High Court decision in M/s. SVS Oil Mills v. ACIT, which supported the assessment of excess stock as unexplained investment.

8. Arbitrary Nature of the CIT(A)'s Order:
The assessee claimed that the CIT(A)'s order was arbitrary. The Tribunal found that the CIT(A) had provided detailed reasons for their decision, supported by evidence and judicial precedents.

Decision:
The Tribunal concluded that the AO and the CIT(A) erred in assessing the additional income declared towards excess stock under Section 69B of the Act. The Tribunal directed the AO to assess the income under the head "income from business & profession" as declared by the assessee. The appeal filed by the assessee was allowed.