2023 (11) TMI 1099 - AT - Income Tax

Treatment to income surrendered during survey on account of excess stock - business income or unexplained stock u/s 69B r.w.s.115BBE - AR argued that during scrutiny assessment proceedings, the AO has accepted the business income declared by the appellant in return of income on account of excess stock during survey proceedings but tax the same u/s 69B - HELD THAT - Since, the excess stock found during the survey primarily pertains to the business carried out by the assessee, and secondly surrendered as business income during survey as accepted by the AO and hence, the excess stock would only be treated as income under the head business income and not as deemed income. In our view, the ld. CIT(A) was wrong in confirming the action of the AO regarding the applicability of the provisions of section 115BBE in case of the excess stock which was not separate or part of another lot of stock. Accordingly, the value of article/stock of the impugned investment was being fully disclosed in the books of account, being regularized by way of surrender of business income as accepted by the AO, would certainly not fall in the mischief of section 69B. Respectfully following judgment in the case of M/s. D. N. Singh v. CIT, Central 2023 (5) TMI 746 - SUPREME COURT we hold that in the given facts of the present case, the excess stock would not fall in the mischief of section 69B - Decided in favour of assessee.

Summary

Issues involved:
The judgment deals with the treatment of income amounting to Rs. 18,85,319 out of a total surrendered income of Rs. 40 lacs on account of excess stock as unexplained stock under section 69B and the invocation of section 115BBE of the Income Tax Act, 1961 for Assessment Year: 2018-2019.

Details of the judgment:

1. Challenge against confirmation of treatment of income:
The appellant challenged the confirmation of the treatment of income derived from excess stock as unexplained stock under section 69B and taxed at a higher rate under section 115BBE. The appellant argued that the excess stock was earned from regular business activities and should be treated as business income. The AO accepted the business income declared by the appellant but taxed it under section 69B and section 115BBE.

2. Appeal before CIT(A):
The CIT(A) restricted the addition made on account of excess stock to Rs. 18,85,319 out of the total surrendered amount of Rs. 40 lacs. However, the CIT(A) upheld the taxation under section 69B read with section 115BBE.

3. Argument of the appellant:
The appellant contended that the excess stock found during the survey was part of the business income not declared in the books of account. The excess stock, being surrendered during the survey, should be treated as business income and not deemed income. The appellant cited a Supreme Court judgment to support this argument.

4. Precedent and legal interpretation:
The appellant relied on a judgment by the Hon'ble ITAT Indore Bench, which analyzed the provisions of section 69, 69A, and 69B. The judgment emphasized that the term "other valuable articles" in section 69B should be interpreted in conjunction with bullion and jewellery. Therefore, excess stock generated from business activities should not fall under section 69B.

5. Tribunal decision:
After considering the arguments and case laws, the Tribunal held that the excess stock in question did not fall within the purview of section 69B. The Tribunal referred to the Supreme Court judgment cited by the appellant and concluded that the excess stock should be treated as business income and not deemed income. Consequently, the addition made by the CIT(A) was deleted.

6. Conclusion:
The Tribunal allowed the appeal filed by the assessee, holding that the excess stock did not fall under section 69B of the Income Tax Act. The impugned order of the CIT(A) was deemed infirm and the addition was deleted.

This judgment highlights the importance of distinguishing between business income and deemed income, especially in cases involving excess stock and taxation under section 69B and section 115BBE of the Income Tax Act, 1961.