2023 (9) TMI 542 - AT - Income Tax

Additional income disclosed during the course of survey - To be taxed @ 60% u/s. 115BBE or not - in course of survey excess stock was found when compared to book stock - assessee has offered additional income towards excess stock found during the course of survey and also paid necessary taxes by offering income under the head income from business profession - AO assessed excess stock found during the course of survey u/s. 69B of the Act, as unexplained investment 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 the Rajasthan High Court in the case of CIT v. Bajargan Traders 2017 (11) TMI 388 - RAJASTHAN HIGH COURT Thus we are of the considered view that the 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 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. Additional income offered towards purported marriage expenses of the assessee s son - The assessee has explained source for marriage expenses and stated that such expenditure has been incurred out of business income earned for the impugned assessment year. AO never disputed the fact that the assessee does not have any other source of income except income from business profession. Once it is accepted the fact that the assessee does not have any other source of income, then obvious conclusion is that said expenditure is incurred out of business income of the assessee. Since, the assessee has already offered additional income of Rs. 25 lakhs towards marriage expenses under the head income from business profession , in our considered view, the AO ought not have assessed said income as unexplained investment u/s. 69B - CIT(A) without considering the relevant facts simply upheld the additions made by the AO and thus, we reversed the findings of the Ld.CIT(A) and direct the AO to assess income under the head income from business profession as declared by the assessee. Assessee appeal allowed.

Summary

Issues Involved:
1. Legality and fairness of the CIT(A)'s order.
2. Treatment of additional stock found during the survey.
3. Tax treatment of marriage expenses.

Summary:

1. Legality and Fairness of the CIT(A)'s Order:
The assessee contended that the order of the CIT(A) was bad in law and against the principles of natural justice, as it was passed without due consideration of facts and submissions. The CIT(A) failed to appreciate that the excess stock had already been offered to income, thus taxing the same sum twice, and overlooked relevant case laws favoring the assessee's claim.

2. Treatment of Additional Stock Found During the Survey:
During a survey conducted under Section 133A of the Income Tax Act, excess stock worth Rs. 49,20,771/- was found, and the assessee admitted additional income including Rs. 25 lakhs spent on his son's marriage. The CIT(A) upheld the assessment of this additional income under 'income from other sources' under Section 69B r.w.s. 115BBE, rejecting the assessee's claim that it should be treated as business income. The Tribunal, however, found that the excess stock was part of the regular business stock and thus should be assessed under 'income from business & profession', as supported by the decision in CIT v. Bajargan Traders and ITAT Chennai's decision in M/s.Overseas Leathers v. DCIT.

3. Tax Treatment of Marriage Expenses:
The assessee admitted Rs. 25 lakhs as additional income for unexplained marriage expenses, which the AO assessed under Section 115BBE. The Tribunal noted that unexplained expenditure should be assessed under Section 69C, not Section 69B, and since the assessee's only source of income was from business, the marriage expenses should be treated as business income. The Tribunal directed the AO to assess this income under 'income from business & profession'.

Conclusion:
The Tribunal allowed the appeal, directing the AO to assess both the excess stock and the marriage expenses under 'income from business & profession', reversing the CIT(A)'s order which had assessed these under 'income from other sources'. The decision emphasized the need for evidence and proper identification of the stock and expenditures in question.