2022 (10) TMI 716 - AT - Income Tax

Addition u/s 69 r.w.s 115BBE - difference as excess stock instead of short stock as noticed by the department - HELD THAT - As evident from the record that the excess stock found during the survey was nothing but the Business Stock carried on by assessee which was not declared in the books of accounts and since there is direct nexus of stock found during survey and business carried on by the assessee. Therefore, in our view, the excess stock is only to be treated as income under the head Business and not under deemed income - excess stock found during the survey was not separately and clearly identifiable but was part of mixed lots of stock found at the premises which included the declared stock and stock of sister concern also. In these circumstances, the provisions of section 69 cannot be invoked and it should be taxable as business income The applicability of provisions of section 115BBE are not relevant in the present case as no excess stock was found. Even otherwise the provisions of section 115BBE cannot be made applicable particularly where the assessee has made a statement that the excess stock was a result of suppression of profit in respect of sales made outside the books of accounts. Therefore, in the present case, investment in excess stock computed by the department is liable to be treated as business income and to be taxed under normal provisions and not under the chapter no XII. In the case of M/S BAJAJ SONS LTD. 2021 (5) TMI 956 - ITAT CHANDIGARH it has been held that provisions of section 115BBE are not applicable where Surrender is made to cover any discrepancy. The action of the lower authorities in invoking provisions of Section 115BBE on the surrender income is perverse to the facts on record and held to be bad in law. AO is directed to compute the said surrendered income under normal provisions as applicable to the business income of the assessee. Appeal filed by the assessee is allowed.

Issues Involved:
1. Validity of the order under section 250(6) of the Income Tax Act.
2. Application of section 69 and section 115BBE regarding excess stock.
3. Correctness of stock valuation and inclusion of sister concern's stock.
4. Evidentiary value of statements recorded under section 133A.
5. Applicability of section 115BBE on surrendered income.

Issue-wise Detailed Analysis:

1. Validity of the order under section 250(6) of the Income Tax Act:
The appellant challenged the order dated 03.06.2022 passed by the Ld. Commissioner of Income Tax (Appeals)-5, Ludhiana, contending that it was bad in law and against the facts of the case. The tribunal found that the order was based on the appellant's voluntary surrender of income, which was included in the Income Tax Return (ITR) and taxes were paid accordingly.

2. Application of section 69 and section 115BBE regarding excess stock:
The appellant argued that the provisions of section 69 and section 115BBE were wrongly invoked by the Assessing Officer (AO) since the department considered the difference as excess stock instead of short stock. The tribunal noted that the total stock inventoried by the department included stock from a sister concern, Prabhat Traders. Therefore, the actual stock related to the appellant was Rs. 41,07,259/-, resulting in a shortage of Rs. 7,61,200/-, not an excess.

3. Correctness of stock valuation and inclusion of sister concern's stock:
The appellant contended that the stock pertaining to Prabhat Traders was erroneously included in the appellant's stock, leading to an incorrect assessment of excess stock. The tribunal agreed that the physical stock found during the survey included the stock of Prabhat Traders, and thus, the correct stock of the appellant was Rs. 41,07,259/-, indicating a shortage rather than excess.

4. Evidentiary value of statements recorded under section 133A:
The appellant argued that the statement recorded under section 133A has no evidentiary value. The tribunal noted that the CIT(A) confirmed the AO's action based on the appellant's voluntary surrender of income. However, the tribunal emphasized that the statement made under section 133A should not be the sole basis for addition without corroborative evidence.

5. Applicability of section 115BBE on surrendered income:
The tribunal found that the excess stock was part of the business stock and not separately identifiable. Therefore, it should be treated as business income and not as deemed income under section 69. The tribunal cited several judgments, including 'Pullangode Rubber Produce Co. Vs. State of Kerala' and 'Kedar Nath Jute Manufacturing Co. Ltd. Vs. Commissioner of Income Tax,' to support the view that entries in the books of accounts cannot be the sole basis for invoking section 115BBE.

Conclusion:
The tribunal concluded that the provisions of section 115BBE were not applicable as no excess stock was actually found. The surrendered income should be treated as business income and taxed under normal provisions. The appeal filed by the assessee was allowed, and the AO was directed to compute the surrendered income under normal provisions applicable to business income. The order was pronounced on 10.10.2022.

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