2022 (5) TMI 214 - AT - Income Tax

Excess stock found during survey - search conducted u/s 133A - HELD THAT - Department has found physical stock as on 07.02.2009 more than the stock declared in the books of accounts. Further, we observed that the excess stock found during survey consists of Paper and Board, the same items in which assessee also makes trading business. It clearly shows that the excess stock found is nothing but business stock. We noticed that the AO treated the above excess stock as additional income chargeable to tax under the head income from other sources. In our considered view, the excess stock found during search is nothing but business stock carried on by assessee which is not declared in the books. Since there is a direct nexus with the type of stock found during survey and the business carried on by the assessee, these excess stock in only be treated as chargeable to tax under the head income from business not under the head income from other sources. Accordingly, ground no. 4 raised by assessee is allowed. Excess stock found during survey as part of business stock and accordingly re-computed and claimed the remuneration to partners as per the Section 40(b) - Since, we already adjudicated ground no. 4 in favour of the assessee that the excess stock found during survey is chargeable to tax under the head business income, therefore, the profit determined by the assessee under the head business income is proper and it is fact on record that the assessee is eligible to claim remuneration to the partners as per provisions of section 40(b) of the Act, therefore, the AO cannot deny the benefit available to the assessee as per Section 40(b) of the Act, therefore, we are inclined to allow the ground no. 5 raised by assessee.

Issues:
1. Violation of principles of natural justice
2. Addition under section 69
3. Taxation of disclosure of stock under section 69
4. Remuneration payable to partners

Issue 1 - Violation of principles of natural justice:
The assessee contended that the CIT(A) erred by not providing a reasonable opportunity to be heard before passing the order. The grounds raised included the dispute over the figure of unaccounted stock and the lack of consideration of details submitted during assessment proceedings. However, during the argument, these issues were not pressed by the assessee, leading to a decision in favor of the revenue.

Issue 2 - Addition under section 69:
The CIT(A) upheld the AO's addition of Rs. 25,95,321 as unexplained investment under section 69. The tribunal observed that the appellant had filed all relevant details with the AO, which were not considered. The excess stock found during the survey was deemed business stock, directly linked to the business carried out by the assessee. Consequently, the excess stock was treated as chargeable to tax under the head of income from business, not income from other sources. Ground 4 raised by the assessee was allowed.

Issue 3 - Taxation of disclosure of stock under section 69:
The assessee treated the excess stock found during the survey as part of business stock and claimed remuneration to partners under Section 40(b) of the Act. The tribunal found that since the excess stock was chargeable to tax under the head of business income, the profit determined by the assessee under this head was appropriate. The AO was unable to deny the benefit available to the assessee under Section 40(b) of the Act. Therefore, ground 5 raised by the assessee was allowed.

In conclusion, the tribunal allowed the appeal filed by the assessee, pronouncing the order in open court on 04/04/2022.

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